tag:blogger.com,1999:blog-19301032359346411802024-03-27T23:53:22.128+00:00FREEKY BUSINESSby Professor Freek VermeulenUnknownnoreply@blogger.comBlogger180125tag:blogger.com,1999:blog-1930103235934641180.post-40556590037492765382014-01-23T10:09:00.003+00:002014-01-23T10:10:46.520+00:00Don't get emotional about strategy<div class="MsoNormal">
Some time
ago, a London friend of mine in was diagnosed with a severe medical condition,
which required urgent yet complex surgery. The condition is rare but,
fortunately, there appeared to be several specialists both in Germany and France
who had each treated hundreds of cases during their careers. When it comes to
specialist operations, experience is key, so he was going to visit each of them
and then make a decision.</div>
<div class="MsoNormal">
<span lang="EN-US">However, when
I spoke to him again, he had just decided where he was going to have the
operation: in the hospital in his hometown in Spain. I was surprised; there was
no specialist in that hospital. But he explained to me that he had flown to his
home country for another opinion and that the local surgeon had made a good
impression and was very pleasant. Moreover – he added – after the surgery, he
would have to stay in the hospital for two weeks and it would be nice to do
that near his family.</span><br />
<br />
I was
stunned. My friend is a rational guy, in charge of a large company. I have no doubt that, if he had been making
this decision for me, he would have immediately recommended me to go to one of
the real specialists, wherever they were in the world. He would have told me
that where I would spend the two weeks in a hospital bed and whether the
surgeon was a good conversationalist are quite immaterial. But, when making
this important decision for himself, emotional considerations took over. And
unfortunately, the initial operation was not successful, and my friend ended up
having to travel abroad to see one of the specialists anyway.<br />
<br />
And many of
us would make the same irrational decision, with the same troubling
consequences. Whether it’s a personal choice or a strategic business decision,
emotions often crowd out objectivity. Precisely because they are such important
choices, loaded with anxiety and uncertainty, when faced with a major decision
people start to “follow their heart”, “rely on intuition” and “gut feeling”, overestimate
their chances of success, and let their commitment escalate.<br />
<br />
Good leaders
don’t let their emotional bonds cloud
their judgment. Sound leadership requires objectivity. What can executives do
to remain objective, when it comes to strategic choices: what businesses to
enter, what to focus on and invest in, when to pull the plug and abandon a previous
course of action?<br />
<b><span lang="EN-US"><br /></span></b>
<b><span lang="EN-US">Make decision rules beforehand. </span></b><span lang="EN-US">One way is to develop and set a
clear decision rule beforehand, when there is nothing concrete to decide upon
yet. When Intel was still a company focused on producing memory chips, Stanford
professor Robert Burgelman </span><a href="http://www.jstor.org/discover/10.2307/2393493?uid=3738736&uid=2&uid=4&sid=21103331830513"><span lang="EN-US">documented</span></a><span lang="EN-US"> that CEO Gordon Moore had emotional
trouble abandoning this product, which was losing them money, because it “had
made the company” (famously declaring “but, that would be like Ford getting out
of cars!?”), in favor of the much more profitable microprocessors. Yet, the
change happened, because they relied on their so-called “production capacity
allocation rule”.</span><br />
<br />
Gordon
Moore and Andy Grove, well before this actual dilemma became relevant, had put
together a formula – the production capacity allocation rule – to decide what
products would receive priority in their manufacturing plant. When top
management had emotional difficulty deciding to abandon memory chips,
microprocessors were automatically receiving more production capacity anyway,
because middle managers sturdily followed the rule that they had been given
before. Because top management had made the decision what sort of product
should receive production priority well before it became a concrete issue, the strategic
choice became detached from their emotion of the moment.<br />
<b><span lang="EN-US"><br /></span></b>
<b><span lang="EN-US">Tap into the wisdom of your crowd. </span></b><span lang="EN-US">A second method to depersonalize difficult
decisions is to not leave pivotal choices in the hands of one or just a few individuals
– usually top managers – but, instead, to tap into the wisdom of the company’s
internal crowd. When I asked Tony Cohen – the previous CEO of television
producer Fremantle Media, of programs such as the X-factor, American Idol,
Family Feud, and The Price is Right – how he decided what new programs to
invest in he replied “I don’t make that decision”. He resisted making such
crucial investment decisions himself; instead he designed an internal system
that identified the most promising ideas, by tapping into the collective
opinion of his television executives across the world.</span><br />
<br />
For
example, every year, he organized the “Fremantle Market”; an internal meeting in
London where Fremantle executives from all over the world presented their new
ideas (usually in the form of a trail episode). Subsequently, an internal
licensing system made sure that prototype programs that many of them liked
automatically got funded. A particular idea that hardly any of them believed in
would not receive any investment – even if Tony Cohen happened to like the idea
himself. This way, the decision did not rest in the hands of any individual; no
matter how senior.<br />
<b><span lang="EN-US"><br /></span></b>
<b><span lang="EN-US">The revolving door approach. </span></b><span lang="EN-US">Finally, a valuable technique is to explicitly
adopt an outside perspective. Andy Grove, regarding his debates with Gordon
Moore whether to abandon DRAMs, said “I
recall going to see Gordon and asking him what a new management would do if we
were replaced. The answer was clear: Get out of DRAMs. So I suggested to Gordon
that we go through the revolving door, come back in, and just do it ourselves.”
Taking the perspective of an outsider –
a new CEO, private equity firm, or turnaround manager – can help see things
more clearly. </span><a href="http://www.sciencedirect.com/science/article/pii/S0749597811001191"><span lang="EN-US">Research</span></a><span lang="EN-US"> shows, for example, that people are very bad
at estimating the time it will take for them to complete a project (e.g., write
an assignment; refurbish a house) but they are good at estimating it for
someone else. Asking them to take a third-person perspective has been shown to
help objectivize a process, making someone’s judgment more accurate and
realistic.</span><br />
<br />
When making
important strategic decisions, which are going to decide our faiths and those
of our organizations, it is important to not let emotions and personal
preferences cloud our judgment. Emotional commitment can be good, but not if it
gets in the way of sound decision-making. Depersonalizing decisionmaking can
sound cold or aloof, but it’s the best way to ensure a better outcome, for
ourselves and our companies. </div>
Unknownnoreply@blogger.com110tag:blogger.com,1999:blog-1930103235934641180.post-32211785995349287832014-01-08T20:54:00.002+00:002014-01-08T20:55:10.022+00:00No need for differentiation<div class="MsoNormal">
For decades, strategy gurus have been telling firms to
differentiate. From Michael Porter to Costas Markides and through the Blue
Oceans of Kim and Mauborgne, strategy scholars have been urging executives to distinguish
their firm’s offerings and carve out a unique market position. Because if you
just do the same thing as your competitors, they claim, there will be nothing
left for you than to engage in fierce price competition, which brings
everyone’s margins to zero – if not below.<br />
<br />
Yet, at the same time, we see many industries in which firms
do more or less the same thing. And among those firms offering more or less the
same thing, we often see very different levels of success and profitability. How
come? What explains the apparent discrepancy?<br />
<br />
To understand this, you have to realise that the field of
Strategy arose from Economics. The strategy thinkers who first entered the
scene in the 1980s and 90s based their recommendations on economic theory,
which would indeed suggest that, as a competitor, you have to somehow be
different to make money. Over the last decade or two, however, we have been
seeing more and more research in Strategy that builds on insights from Sociology,
which complements the earlier economics-based theories, yet may be better equipped
to understand this particular issue.<br />
<br />
Consider, for example, the case of McKinsey. Clearly, McKinsey
is a highly successful professional services firm, making rather healthy
margins. But is their offering really so different from others, like BCG, or
Bain? They all offer more or less the same thing: a bunch of clever, reasonably
well-trained analytical people wearing pin-striped suits and using a
problem-solving approach to make recommendations about general management
problems. McKinsey’s competitive advantage apparently does not come from how it
differentiates its offering.<br />
<br />
The trick is that when there is uncertainty about the
quality of a product or service, firms do not have to rely on differentiation
in order to obtain a competitive advantage. Whether you’re a law firm or a
hairdresser, people will find it difficult – at least beforehand – to assess how
good you really are. But customers, nonetheless, have to pick one. McKinsey, of course, offers the most uncertain
product of all: Strategy advice. When you hire them – or any other consulting
firm – you cannot foretell the quality of what they are going to do and
deliver. In fact, even when you have the advice in your hands (in the form of a
report or, more likely, a powerpoint “deck”), you can still not quite assess
its quality. Worse, even years after you might have implemented it, you cannot
really say if it was any good, because lots of factors influence firm
performance, and whether the advice helped or hampered will forever remain opaque.<br />
<br />
Research in Organizational Sociology shows that when there
is such uncertainty, buyers rely on other signals to decide whether to
purchase, such as the seller’s status, its social network ties, and prior
relationships. And that is what McKinsey does so well. They carefully foster
their status by claiming to always hire the brightest people and work for the
best companies. They also actively nurture their immense network by making sure
former employees become “alumni” who then not infrequently end up hiring
McKinsey. And they make sure to carefully manage their existing client
relationships, so that no less than 85 percent of their business now comes from
existing customers.<br />
<br />
Status, social networks, and prior relationships are the
forgotten drivers of firm performance. Underestimate them at your peril. How
you manage them should be as much part of your strategizing as analyses of
differentiation, value propositions, and customer segments. </div>
<div class="MsoNormal">
<o:p></o:p></div>
Unknownnoreply@blogger.com827tag:blogger.com,1999:blog-1930103235934641180.post-5619890652528128052013-09-05T13:26:00.001+01:002013-09-05T13:29:53.626+01:00How Would You Define "A Great Company"?<div class="MsoNormal">
<span style="font-family: inherit;"><span style="line-height: 115%;">Last week I was interviewed by a journalist from Korea’s
<a href="http://en.wikipedia.org/wiki/Maeil_Business_Newspaper" target="_blank">Maeil Business</a> Newspaper (the local equivalent of the Financial Times). After
quite a lengthy interview, he ended with the question “</span><span style="line-height: 115%;">How would you define a ‘great
company’?”</span></span><br />
<span style="font-family: inherit;"><br />
At the time
I thought it was a bit of a lame question, but that my answer to him was at
least as lame: I babbled something that I would 1) judge a company by its
performance – a long-term record of above-average profits – and 2) that
employees should really be enjoying being part of that organisation.</span></div>
<div class="MsoNormal">
<span style="font-family: inherit; line-height: 115%;">As said, at the time I thought it wasn’t my sharpest
answer of the day, but when I thought about it for a while, afterwards, I
started to really like the question; and even appreciate my answer to it! This
might be my memory playing dirty tricks on me – in a feeble attempt to protect
my self-image – but, admittedly, if asked today, I would likely give more or
less the same answer to that superb question.</span><br />
<span style="font-family: inherit;"><span style="line-height: 115%;"><br /></span>
<span style="font-family: inherit;"><span style="line-height: 115%;">I think most would agree that you cannot say some
firm is a great company when it is habitually underperforming but, to me, great
financial performance is not enough. At the end of the day, </span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Malgun Gothic";">an organisation is nothing else than a
collection of individuals working (more or less) together. If the people who
constitute the organisation do not enjoy being part of it, I have a hard time
seeing it as a great company.</span></span></span><br />
<span style="font-family: inherit;"><br />
<span style="font-family: inherit;">I realise
some of you might prefer to bring customer satisfaction into the mix, if not
other stakeholders. Yet, to me, employee satisfaction is the pivotal point of
departure. The legendary founder of Southwest Airlines – <a href="http://www.youtube.com/watch?v=oxTFA1kh1m8" target="_blank">Herb Kelleher</a> – used
to proclaim that employees (“not customers or shareholders”) were most dear to
him. That’s because he figured, if you have happy employees, they will make
your customers happy. And happy customers will come back, which will eventually
make your shareholders happy too (and, not coincidentally, Southwest had a
generous profit-sharing scheme, basically turning employees into shareholders).
Southwest has been outperforming its peers for decades.</span></span><br />
<span style="font-family: inherit;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Malgun Gothic";"><br /></span>
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Malgun Gothic";">Yet, most of
us – including the stock market – still underestimate the power of employee
satisfaction. Professor <a href="http://www.london.edu/facultyandresearch/faculty/search.do?uid=aedmans" target="_blank">Alex Edmans</a> – my new colleague at the London Business
School – recently published a study that examined the effect on future stock
returns of a company making it onto Fortune’s list of “<a href="http://www.greatplacetowork.com/best-companies/100-best-companies-to-work-for" target="_blank">100 Best Companies ToWork For</a> in America”.* He found that such a company subsequently </span><span style="line-height: 115%;">generated
3.5 percent higher stock returns per year than their peers. This finding
suggests two things: 1) this employee satisfaction thing really works; having happy
employees eventually culminates into hard stock returns, but also 2) that the
stock market still undervalues its importance. The stock market habitually does
not anticipate these extra earnings, owing to employee satisfaction (even though
the list of 100 Best Companies To Work For is public knowledge). </span></span><br />
<span style="font-family: inherit;"><span style="line-height: 115%;"><br /></span>
<span style="line-height: 115%;">To conclude: there is money to be made from employee
satisfaction. Let’s all get rich and happy – be it not necessarily in that
order.</span></span></div>
<div class="MsoNormal">
<strong><span style="font-family: inherit; font-size: 12.0pt; font-weight: normal; line-height: 115%; mso-bidi-font-weight: bold;"><br /></span></strong></div>
<div class="MsoNormal">
<strong><span style="font-family: inherit; font-size: 12.0pt; font-weight: normal; line-height: 115%; mso-bidi-font-weight: bold;"><br /></span></strong></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: 12.0pt; font-weight: normal; line-height: 115%; mso-bidi-font-weight: bold;"><i>* Does the Stock Market Fully
Value Intangibles? Employee Satisfaction and Equity Prices. Edmans, Alex. Journal of Financial Economics
101(3), 621-640, September 2011<o:p></o:p></i></span></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><i><span style="font-family: inherit;"><span style="font-size: 12.0pt; font-weight: normal; line-height: 115%; mso-bidi-font-weight: bold;">* The Link Between Job
Satisfaction and Firm Value, With Implications for Corporate Social
Responsibility. Edmans, Alex. </span><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-weight: bold;">Academy of Management Perspectives
26(4), 1-19, November 2012</span></span></i><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%; mso-fareast-font-family: "Malgun Gothic";"><o:p></o:p></span></span></div>
<span style="font-family: inherit;"><br /></span>
<br />
<div class="MsoNormal">
<br /></div>
Unknownnoreply@blogger.com60tag:blogger.com,1999:blog-1930103235934641180.post-38524058066960497702013-07-05T15:00:00.000+01:002013-07-05T15:00:00.511+01:00Why Would an Employer Give an Employee an Informal Loan? Commitment
<span style="font-family: Calibri;"><a href="http://leeds.colorado.edu/student/hunt" target="_blank" title="Richard"><span style="font-family: Times New Roman;">Richard Hunt </span></a><span style="font-family: Times New Roman;">and </span><a href="http://leeds-faculty.colorado.edu/haywardm/" target="_blank" title="Mat"><span style="font-family: Times New Roman;">Mat Hayward </span></a><span style="font-family: Times New Roman;">fom the University of Colorado </span>were interested in employees who asked
their employer for a loan, because they had no money but, for instance, had to
buy a car, pay for their daughter’s wedding, medical bills, buy food and
utilities, or faced home eviction. Therefore, they undertook to survey and
interview small and medium-sized building contractors in Colorado. <span style="mso-spacerun: yes;"> </span>No fewer than 67 percent of companies lent at
least one of their employees money, with an average of about $1,100. Hunt and
Hayward looked at 83 of them in more depth. <o:p></o:p></span><br />
<span style="font-family: Calibri;"></span><br />
<span style="font-family: Calibri;">The first thing they found out was that, of the 459 loans
that these 83 companies in combination handed out to one of their employees, no
fewer than 57 percent were completely informal; meaning without any contract or
any other formal enforcement mechanism. Why would firms do this? Even if they
wanted to lend them money, why not give them a contract for the loan? This was
puzzling because making it an informal, instead of formal loan with a contract,
left the employer vulnerable to cheating by the employee. Because the employee
simply could not pay back, or eventually even somehow inform the tax authorities
(since informal loans are illegal). Why would employers voluntarily take that
risk?<o:p></o:p></span><br />
<br />
<span style="font-family: Calibri;">Hunt and Hayward theorised that employers granting the loan
sometimes deliberately make themselves vulnerable towards the employee - by
choosing an informal arrangement rather than a contract – to solicit trust and
commitment from the employee. Granting a loan to a valuable employee in his
time of need <i style="mso-bidi-font-style: normal;">and</i> do that in a way
which explicitly makes the employer itself vulnerable could create substantial
commitment and reciprocity from the employee, grateful for the loan and
honoured by the trust placed upon him. <o:p></o:p></span><br />
<br />
<span style="font-family: Calibri;">In conformity with this theoretical perspective, Hunt and
Hayward found that informal loans were indeed more often extended when the
employee needed the money for something personal and emotional, such as a
wedding, a graduation, or to pay medical bills. When the loan concerned buying
stuff (e.g. a car), paying off a credit card debt or rent, employers more often
resorted to a formal contractual loan. <o:p></o:p></span><br />
<br />
<span style="font-family: Calibri;">Moreover, Hunt and Hayward conjectured that employers would
be more likely to make such an informal loan (rather than a formal,
contract-based one) to employees who they were more eager to keep. And indeed
they found that the informal loans were more often extended to better
performing employees; those that were neither very young nor old (but just the
right age to be both experienced and still have many productive years ahead of
them), and at a time when the firm was most dependent on them, because it was
still relatively new and small, and did not yet have a big backlog in terms of
outstanding work assignments. <o:p></o:p></span><br />
<br />
<span style="font-family: Calibri;">The question is: Did it work? Does extending an informal
loan – at thus putting yourself at risk of being cheated on – result in
improved (financial) performance? Hunt and Hayward showed that the answer is a
resounding yes: their findings indicated that employers were better able to
retain employees to whom they had extended such a loan. Furthermore, their
calculations showed that it resulted in enhanced employer profit. Hence, making
yourself vulnerable (by not asking for a formal contract) eventually paid off
in financial terms.<o:p></o:p></span><br />
<span style="font-family: "Calibri","sans-serif"; font-size: 11pt; line-height: 115%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><br clear="all" style="mso-special-character: line-break; page-break-before: always;" />
</span>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<o:p><span style="font-family: Calibri;"> </span></o:p></div>
<br />
Paper presented at the “<a href="http://blog.faculty.london.edu/strategyandentrepreneurship/2013/06/17/how-to-raise-your-employees-commitment-grant-them-an-informal-loan/www.theghoshalconference.com" target="_blank" title="Ghoshal">Sumantra Ghoshal Conference </a>for Managerially Relevant Research” at the London Business School<br />
Our vulnerability is my gain: Linking exchange parties’ vulnerability to informal transactions and firm performance. <i>Richard Hunt & Mathew Hayward (</i>University of Colorado at Boulder)<i></i><br />
Paper summary published with permission from the authors.Unknownnoreply@blogger.com944tag:blogger.com,1999:blog-1930103235934641180.post-12892878157357941732013-06-26T14:58:00.000+01:002013-06-26T14:58:00.065+01:00Why Firms Hire Their Employees' Friends
<span style="font-family: Calibri;">It is well-documented in the literature on labour markets
that personal connections, friendships, and other types of networks matter a
lot for finding a job. For example, applicants with friends in the recruiting organisation
are more likely to get a job offer. <o:p></o:p></span><br />
<span style="font-family: Calibri;"></span><br />
<span style="font-family: Calibri;">This may be perfectly rational for the recruiting firm; the
friends of the candidate in the organization can be a great source of
information about the applicant. As a result, the firm can be more assured of
the job qualities of the person. Put differently, the candidate will pose less
of a risk – in terms of potentially turning out to be a hiring mistake – if he
or she has friends in the firm who have provided inside information. Therefore,
employers may be more eager to hire new people who already have friends in the
firm. <o:p></o:p></span><br />
<span style="font-family: Calibri;"><span style="font-family: Times New Roman;"></span></span><br />
<span style="font-family: Calibri;"><span style="font-family: Times New Roman;">But professor </span><a href="http://www.olin.wustl.edu/facultyandresearch/Faculty/Pages/FacultyDetail.aspx?username=sterling" target="_blank" title="Adina"><span style="font-family: Times New Roman;">Adina Sterling </span></a><span style="font-family: Times New Roman;">from Washington University </span>suspected there might be another reason why
job applicants with friends in the firm might be more attractive to an employer
than those without. For quite a few jobs – especially if it concerns newly
recruited MBA students – applicants will simultaneously apply for multiple jobs
and then pick the most attractive offer they receive. And this can be very
costly for a firm: the recruitment procedure can be very expensive, with
multiple rounds of interviews and tests, but the time the candidate “sits on an
offer” before eventually rejecting it may also precisely be the time that the
numbers 2 and 3 on the list also secure and accept offers elsewhere. Therefore,
understandably, firms are eager to limit the number of rejections they receive
from candidates to whom they offered the job, and if they get rejected they
want it to happen asap. </span><br />
<span style="font-family: Calibri;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Calibri;">And Adina, who did a lot of interviews among employers,
theorized that prospective employers would figure that candidates who already
have friends in the firm might be more likely to accept an offer or, if they do
reject it, do so soon. That is because the internal friendships might make them
more attractive as an employee but also because the candidate has a reputation
to protect with his or her friends, and feel an obligation towards them and the
firm. </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Calibri;">But that’s a nice theory and thought, but how on earth can
you examine that? Because how could you statistically separate the two effects
of 1) employers gain information about a candidate from his or her friends, and
2) the friends might make the candidate more likely to accept an offer?</span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Calibri;">To solve this problem, Adina chose a clever research
setting. She looked at a 158 MBA and law students who had just completed an
internship with a company, and then examined whether having friends in that
company made them more likely to receive an offer from that firm. This was a
clever setting because reason number 1 (gaining information about the candidate
through his friends) no longer plays a role here; the employer already knows
the candidate very well due to his recently completed internship! Hence,
whatever effect is left could be attributed to reason number 2.</span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Calibri;">Adina indeed found that having friends in the company made
it more likely that the applicant received an offer. Overall, her findings indicate
that reason number 2 (friends make it more likely that the candidate will
accept) is also an important consideration for prospective employers. </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Calibri;"></span> </div>
<span style="font-family: Calibri;"><em>Paper to be presented at the “<a href="http://blog.faculty.london.edu/strategyandentrepreneurship/2013/05/31/why-firms-hire-their-employees-friends/www.theghoshalconference.com" target="_blank" title="Ghoshal">Sumantra Ghoshal Conference</a> for Managerially Relevant Research” at the London Business School</em><br />
Friendships and Strategic Behavior in Labor Markets, <i>Adina Sterling </i>(Washington University)<i></i><br />
Paper summary published with the author’s permission.<br />
<o:p></o:p></span>
Unknownnoreply@blogger.com10tag:blogger.com,1999:blog-1930103235934641180.post-59639836886533100702013-06-18T14:54:00.005+01:002013-06-18T14:56:19.094+01:00Caste and Ethnicity still matter for Business in India<span style="font-family: Calibri;">Ample research has shown that informal connections between
people have a substantial influence on economic life, in terms who deals with
whom and how well they perform. We call this “social embeddedness”, meaning
that we are all embedded to different degrees in various networks of people,
which influences our behaviour and success. One dimension which in a business
context has received a lot of research is whether people have a joint
educational background, particularly whether they are alumni from the same
academic institution. </span><br />
<br />
<span style="font-family: Calibri;"><a href="http://www.insead.edu/facultyresearch/faculty/profiles/gchen/" target="_blank" title="Chen"><span style="font-family: Times New Roman;">Guoli Chen</span></a><span style="font-family: Times New Roman;">, </span><a href="http://www.isb.edu/ctlc/about/people/faculty/professor-raveendra-chittoor" target="_blank" title="Chittoor"><span style="font-family: Times New Roman;">Ravee Chittoor </span></a><span style="font-family: Times New Roman;">and </span><a href="http://www.insead.edu/facultyresearch/faculty/profiles/bvissa/" target="_blank" title="Bala"><span style="font-family: Times New Roman;">Bala Vissa </span></a>thought that this
embeddedness research that is focused on educational background could perhaps
be especially valid in a Western context (where most of the research has taken
place) but that in a different context, such as India, different types of
affiliations might also play an important role. Specifically, they wanted to
focus on the role of caste (i.e. people being of the same or different castes)
and language (in terms of people sharing the same regional dialect). <o:p></o:p></span><br />
<i style="mso-bidi-font-style: normal;"><span style="font-family: Calibri;"></span></i><br />
<i style="mso-bidi-font-style: normal;"><span style="font-family: Calibri;">Research setting:
Equity analysts in India</span></i><br />
<span style="font-family: Calibri;">To examine these different dimensions of inter-personal
networks, they focused on a particular set of people and relationships, namely
equity analysts. Firms listed on the stock exchange will often be followed and
evaluated by analysts, as employed by banks, who make buy and sell
recommendations to the public regarding the company’s stock. </span><br />
<br />
<span style="font-family: Calibri;">Perhaps the most important task of such an equity analyst is
to forecast – as accurately as possible – the future earnings of the firm.
However, to make an accurate forecast, an analyst often has to at least partly
rely on information received directly from the company; not seldom in the form
of personal conversations with the Chief Executive. And Guoli, Ravee and Bala
suspected that when the analyst happened to share the same background with the
company’s CEO it would be much easier for him or her to get access to the CEO
and his company information; making his earnings forecasts more accurate. <o:p></o:p></span><br />
<i style="mso-bidi-font-style: normal;"><span style="font-family: Calibri;"></span></i><br />
<i style="mso-bidi-font-style: normal;"><span style="font-family: Calibri;">Findings<o:p></o:p></span></i><br />
<span style="font-family: Calibri;">They tested this suspicion on a sample of 141 Indian firms,
followed by a total of 296 equity analysts, between 2001-2010. First of all,
they found clear evidence that equity analysts that are alumni of the same
academic institution as the company’s CEO were indeed able to make much more
accurate forecasts. But, in addition, the same was true for analysts who shared
the same background in terms of caste, and in terms of regional language.<span style="mso-spacerun: yes;"> </span>In fact, the effects were roughly the same
size, meaning that these old historical patterns (around caste and language)
were just as important in India as the more contemporary ones (i.e. university
affiliation). </span><br />
<span style="font-family: Calibri;"><o:p></o:p></span><br />
<span style="font-family: Calibri;">They then examined the conditions under which these
different types of informal ties mattered more or less or whether such ties
were indeed always beneficial. They found that older CEOs – who could be
expected to be influenced more heavily by traditional patterns – were more
susceptible to issues of caste and language than younger CEOs. They were less
influenced by joint academic affiliation. Hence, although these old historical
patterns matter a lot in India; they matter less for younger people, who are relatively
more susceptible to joint academic affiliation.<o:p></o:p></span><br />
<span style="font-family: Calibri;"></span><br />
<span style="font-family: Calibri;">In addition, they found evidence that these informal
relationships were particularly beneficial if it concerned a truly Indian firm
(part of a traditional business group). In contrast, such informal ties hurted
more than they helped, when the firm in question was an Indian subsidiary of a
Western multinational corporation. </span><br />
<br />
<span style="font-family: Calibri;">Overall, what Guoli, Ravee and Bala’s research shows is
that, in a country like India, old historical social structures still matter a
lot in the world of business, especially when it concerns firms that are part
of a traditional business group. The effect of language (which is analogous to
ethnicity) was particularly potent. These effects may begin to matter a bit
less for younger people (i.e. since they were especially strong for older CEOs)
but they still wield considerable influence on economic life.<o:p></o:p></span><br />
<br />
<em></em><br />
<em>Paper presented at the “<a href="http://blog.faculty.london.edu/strategyandentrepreneurship/2013/05/21/historical-social-structures-around-caste-and-language-still-matter-for-business-in-india/www.theghoshalconference.com" target="_blank" title="Ghoshal">Sumantra Ghoshal Conference </a>for Managerially Relevant Research” at the London Business School.</em><br />
Which old boy network matters? Basis of social affiliation and the accuracy of equity analysts’ earnings forecast of Indian firms.<strong> </strong><i>Guoli Chen</i> (INSEAD), <i>Ravee Chittoor</i> (Indian School of Business), <i>Bala Vissa</i> (INSEAD)<br />
This paper summary is published with permission from the authors.<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<o:p><span style="font-family: Calibri;"> </span></o:p></div>
Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-19104380247342385832013-06-01T14:51:00.000+01:002013-06-01T14:51:00.517+01:00Antiquated & to be Annihilated? Is an On-line Revolution Brewing in Business Education? We hear more and more talk about how the traditional model of business schools <a href="http://www.universityworldnews.com/article.php?story=20130316093956321" target="_blank">will be annihilated</a> by the disruptive innovation of on-line education, so-called <a href="http://www.ft.com/intl/cms/s/2/84f6cd3e-8a50-11e2-bf79-00144feabdc0.html" target="_blank">MOOC</a>s (massive open on-line courses). An increasing number of voices can be heard to proclaim that business schools with their lectures and study groups are doomed, antiquated, overpriced, and that people who doubt that are just in denial and one day will wake up finding themselves obsolete and plain wrong. <br />
<br />
And, arguably, case studies on the effects of disruptive innovation conducted in industries ranging from airlines and newspapers to photography and steel mills, have shown that often the established players in the market are initially in denial, slow to react, suffering from hubris and, eventually, face crisis and extinction. <br />
<br />
Yet, when it comes to on-line education, and its potentially disruptive influence on higher education, including business schools, I doubt that on-line education will replace face-to-face lectures and study groups. <br />
<br />
The arguments that people use to proclaim that traditional business schools will be replaced by on-line education include the notions that it is much cheaper, can be more easily accessed by a much wider audience, and customers (students) can access the materials wherever and whenever they want. <br />
<br />
And this just reminds me of the printing press.<br />
<br />
Oral lectures have been around since the times of Socrates and Plato. I am sure when the printing press was invented and became more widespread and accessible, an increasing number of voices could be heard to proclaim that such lectures and schools were going to be replaced by books. That is because books are much cheaper, can be more easily accessed by a much wider audience, and students can access them wherever and whenever they want. But they did not replace face-to-face lectures and study groups. <br />
<br />
And that is because books and on-line educational resources offer something very different than the traditional lectures and school community. They are complements rather than substitutes. Of course the arrival of the printing press quite substantially changed schools and education; business schools without books would be very different than they are today. Hence, it would be naïve to think that on-line resources are not going to alter traditional business school education; they will and they should. Business schools better think hard how they are going to integrate on-line education into their courses and curricula. <br />
<br />
But this means that it offers opportunities rather than a threat. And research on the effects of disruptive innovation – for example in newspapers – has also shown that established players who treat the arrival of a new technology as an opportunity, rather than as direct substitute, are the ones that are most likely to survive and prosper. <br />
<br />
<em>Freek Vermeulen is an Associate Professor of Strategy and Entrepreneurship at the London Business School. In 2012, BestOnlineUniversities elected him number 1 in their global list of “<a href="http://bestonlineuniversities.com/web-savvy-professors/" target="_blank">top 100 web-savvy professors</a>”. You can find him on-line at <a href="http://www.freekvermeulen.com/">www.freekvermeulen.com</a> and at <a href="https://twitter.com/Freek_Vermeulen" target="_blank">@Freek_Vermeulen</a>. He regularly blogs for Forbes, the Harvard Business Review and <a href="http://www.theghoshalblog.com/" target="_blank">The Ghoshal Blog</a>.</em><br />
<br />
Unknownnoreply@blogger.com6tag:blogger.com,1999:blog-1930103235934641180.post-7364723562495963382013-05-17T09:45:00.000+01:002013-05-17T09:47:19.082+01:00The Structure of Competition: How Hidden Patterns Drive Firm BehaviourIn our behaviour and beliefs, we are influenced by various hidden structures and characteristics of the people surrounding us. Over the past decades, for example, hundreds of studies on social networks and "small worlds" have shown that with whom you have had prior relationships, and how these people relate to each other, influences the information we receive, how much personal power we have, how likely we are to find a job, get promoted, how creative and innovatie we are, and so forth. <br />
<br />
This research on social networks basically draws lines between you and the people you know, and lines between those people you know who also know each other; lines between them and other people you don't know at all, etcetera, to reveal very different structures. We call these structures networks with or without "structural holes", with more or less "indirect ties", "network closure", and so on. <br />
<br />
Ample research has also revealed that, just like individuals, the same type of structures influence firms in their behaviour and performance. In this case, the lines between different firms - referred to as "social ties" - can be determined by prior alliances between these companies, or shared members of their boards of directors (so-called board interlocks), or some other cooperative tie. Firms may not always realise it, but their strategic choices and success can be heavily infuenced by these social networks. <br />
<br />
What a former PhD student of mine - <a href="http://www.google.nl/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&ved=0CCsQFjAA&url=http%3A%2F%2Fbschool.nus.edu%2Fstaff_profile%2Fcv.asp%3FID%3D2329&ei=8e2VUdK0LOXI0AXVm4CYBg&usg=AFQjCNEFsEPlPeKYZnYgsQ1-5intaOnTNg&sig2=OPIaIbila34iNuQcyanwQQ&bvm=bv.46471029,d.d2k" target="_blank">Kai-Yu Hsieh</a> (now an assistant professor at the National University of Singapore) - and I did is similar but also very different from this social network research. We started to draw lines between the different firms in an industry, not based on "social ties" but based on who competes with whom. Some firms in an industry namely compete directly with each other where others don't. For example, in the pharmaceutical industry, a firm making anti-epileptic drugs and cardiovascular drugs would be competing with another firm that makes cardivascular drugs but not with a firm that makes antibiotics medicine. The firm's competitors, however, could also be competing with each other, for instance if both also happened to make cancer drugs. The point is that, drawing lines between the different firms in various industries also revealed remarkably different structures - just like social networks do. And we wanted to find out if organizations, in their behaviour, are also influenced by such competitive structures; which we labeled "the structure of competition". <br />
<br />
And the answer is "oh yes". <br />
<br />
We deliberately selected two very different industries for which to compute these competitive structures. We analysed whom competes with whom among computer hardware manufacturers in Taiwan. And we computed the exact same structures for pharmaceutical firms in China. The type of strategic behaviour that we chose to analyse through these competitive structures was imitative market entry: how inclined would these firms be, dependent on their structure of competition, to follow each other into new markets? Or might certain type of structures induce them not to imitate each other at all, and in fact stay out of certain markets altogether? <br />
<br />
Remarkably, in these very different industries the exact same types of competitive structures led to the exact same types of strategic behaviour. And the influence of the structure of competition was substantial: firms could display completely opposite behaviour when facing different structures (flipping from a strong inclination to imitate to an inclination to do the opposite of others). <br />
<br />
We interviewed people in these industries to find out why these structures were influencing their behaviour so heavily. The first thing we found out was that, in spite of their strong influence, managers were not aware of the different type of structures. But they were aware of their influence. Our interviews suggested that operating within a particular structure seemed to leave a particular "imprinting effect" on a firm, making it more or less aggressive in its market behaviour and towards its competitors. <br />
<br />
In this study, we analyzed the strong influence of these hidden structures of competition on firm's imitative market entry behaviour, but it seems likely that - just as in the case of social networks - they might heavily influence a whole range of other strategic variables and behaviours. Hence, we see our research - due to appear in the academic journal Organization Science - as just a first step to uncovering the hidden influence of the structure of competition on economic life. Unknownnoreply@blogger.com47tag:blogger.com,1999:blog-1930103235934641180.post-84451070981576360852013-04-19T15:10:00.000+01:002013-04-19T15:10:00.631+01:00Corporate Strategy? You Shouldn’t Even Try<br />
Most corporations consist of multiple divisions. These divisions, which set their own strategy (what we generally refer to as “business strategy”), more often than not have very little to do with one another. Take <a href="http://www.philips.co.uk/" target="_blank">Philips Electronics</a> with its lighting, medical equipment, and consumer electronics; <a href="http://www.thyssenkrupp.com/" target="_blank">ThyssenKrupp</a> with steel, elevators, and engineering services; or smaller companies such as <a href="http://www.trinitymirror.com/" target="_blank">Trinity Mirror</a> with newspapers, printing, and digital services. They may not be like the conglomerates of the 1960s – you can see how their portfolio of somewhat related business came about – but, in reality, the various divisions and business units do operate completely independently from one another. <br />
<br />
Yet, corporate top management invariably tries hard to formulate an overarching strategy. It endeavors to stimulate cooperation across divisions (by repeatedly shouting really loudly that this should happen), sets up corporate shared services (which invariably are seen as a mere cost and nuisance by its divisional heads), and have some abstract talk about creating “cross-divisional synergies”. <br />
<br />
And I say, don’t even go there; don’t even try. <br />
<br />
It’s not worth it; it’s artificial; it won’t work (because it never does); and, most of all, there’s just no need for it. Just forget about it.<br />
<br />
“But, what then could possibly be the rationale and justification for these various business to be together in one corporation?!” I hear a cacophony of voices – of analysts, investors, board members, and business school professors – shout. “There must be something; otherwise the corporation should be broken up, because shareholders can do the diversification themselves”. It is firmly rooted in our minds that there must be some sort of a rationale for why these various businesses are grouped together into one firm. <br />
<br />
And that’s right; there is a rationale. But seeing it requires a significant change of mindset of what a corporation is and does, and should do. <br />
<br />
Once companies grow they often start moving into adjacent business areas. For example, a company may have moved from steel into engineering products because they require steel, then moved into engineering services, and became big in elevators causing them to set up a separate division for that too. These four divisions set their own strategy – e.g. the business strategy for engineering services, the strategy for elevators, etcetera – and have their own management teams and P&L. <br />
<br />
Any corporate finance course will then tell you – probably on day one – that somehow these four divisions must create extra value by being grouped together; otherwise they should be split up into four separate companies, because you then save the costs of an expensive corporate head office, and investors themselves can easily do the diversification across different businesses – including these four – better, cheaper, and more customized to their own needs. <br />
<br />
And therefore corporate top management teams come up with some contrived idea of a joint strategy to suggest synergies and justify their own existence. <br />
<br />
But what the real value of a corporate top management is – or can be – is very different from all these things, but it requires these people to see their task and themselves in a different light: corporations are not there to set strategy, but they simply exist as investment vehicles, with the senior executives as its managers. Overall, I see three related roles for them:<br />
<br />
1) First, corporate C-suite executives are portfolio managers. But they differ from fund managers and alike in a significant way; they actually know the business. Fund managers, equity analysts, hedge fund managers, and so on can analyze the numbers perfectly well and listen to the powerpoint presentation of the CEO on its roadshow. But corporate executives, who may have grown up in the business, work on it every day, and have an authoritative relationship with their divisional managers are better able to really grasp the in-depth and tacit aspects of the business’ strategy and competitive advantage. This makes them better portfolio managers, in the sense that they see things that external investors miss. Analysts are easily fooled by nice numbers and charismatic CEOs; the Goldman Sachs analysts who wrote “Enron is still the best of the best. We recently spoke with most of top management; our confidence level is high” a mere six weeks before it filed for bankruptcy still come to mind. <br />
<br />
2) From this also follows their second role: they can play the role of a board of directors – but then better informed. In reality, boards are severely limited in terms of their knowledge of the corporation they are governing – not the least because external directors are of course no more than a collection of part-timers and amateurs. It is nearly impossible to really grasp the inner workings of a multinational, diversified corporation for an outsider who spends a couple of days per year on it. The top management of the corporation can really conduct this task; hence, they are probably the company’s real governance mechanism, assuring that shareholders’ money is spent wisely, strategies are genuinely set, and the numbers justified. Moreover, unlike boards, they can staff the divisional management teams with people they actually know and select. <br />
<br />
3) Finally, a corporation’s head office can provide funds, much like an in-house bank. This might sound trivial, because lots of parties can provide money, but the advantage is again the superior insider knowledge and accompanying speed of operation. For example, where it is well-known that the majority of public acquisitions destroy value, <a href="http://www.insead.edu/facultyresearch/research/details_articles.cfm?id=16727" target="_blank">research</a> by professor <a href="http://www.insead.edu/facultyresearch/faculty/profiles/lcapron/" target="_blank">Laurence Capron</a> from INSEAD shows that private deals, on average, do create value. Most companies in the world are private but, unlike public firms, there is not a lot of information about them available. Therefore, it requires someone knowledgeable of the business to identify attractive targets, and be able to make the funds swiftly available. The top management of corporations can provide such insight, funds, and speed of allocation. Which gives a business that is part of larger, well-endowed corporation a potential advantage. Hence, a corporation’s top management team is a way to internalize portfolio management, governance, and resource allocation. <br />
<br />
I often attend yearly conferences of corporations in which they bring together their top 50 or 100 executives to discuss the corporation’s strategy (which invariably is a mixture of amorphous capability statements and financial goals, i.e. <a href="http://bsr.london.edu/lbs-article/629/index.html" target="_blank">not really a strategy</a>), proclaim once more the need for cross-divisional synergies and cooperation, and listen to some keynote speaker (such as yours truly) in an attempt to provoke ideas on how to achieve this. Stop doing this I’d say (including the keynote speaker). There is no need for an overarching corporate strategy. It is invariably contrived, never creates any real value, and is simply not necessary. <br />
<br />
Corporations comprising different businesses in separate divisions can exist for good reason. Creating corporate strategy is not needed for such corporations to rightfully exist. It does require a fundamental rethink of what your corporation is for, and what you – as corporate manager – are for. Understanding the real advantage of corporations is paramount to making them work. It usually means getting out of the way of divisional strategy, rather than trying to set it. <br />
Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-1930103235934641180.post-64678368948501117672013-04-12T20:04:00.000+01:002013-04-12T20:04:44.540+01:00Strategy is Necessary but not SufficientFor those of you out there who like to gleefully smirk about “strategy”; let me explain it immediately here at the start (and hopefully once and for all): Strategy is a necessary condition for success. But it is not a sufficient condition – we (strategy professors) are not that stupid. <br />
<br />
I’ll explain in a sec exactly what we mean by that – a necessary but not sufficient condition – but let me first explain the gleeful smirk.<br />
<br />
I again saw it last November, when the <a href="http://www.forbes.com/sites/stevedenning/2012/11/20/what-killed-michael-porters-monitor-group-the-one-force-that-really-matters/" target="_blank">Monitor Group went bankrupt</a>. The <a href="http://en.wikipedia.org/wiki/Monitor_Deloitte" target="_blank">Monitor Group</a> was a strategy consulting firm founded by Harvard Business School’s Michael Porter; seen by many as the founding father of the field of business strategy. <br />
<br />
When it went bankrupt I was gleefully approached by various people in various corridors making gleeful remarks that this strategy consultant’s strategy could not even save itself, and the famous strategy guru <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6532" target="_blank">Michael Porter</a> couldn’t even put together a company that made enough money to pay the rent. With the underlying ergo: see, this strategy stuff does not really work. <br />
<br />
Let me now move on to the necessary but not sufficient condition thing: When a company has a good strategy – even a great strategy – it can still fail. Yes, fail. It can still fail because to be a success in business you need lots of other things besides a good strategy: you still need to be able to get the technology you envisioned, to motivate your people, forge and nurture customer relations, get the right financing, and so on and so on. There are lots of other things you need to be good at, in addition to strategy, before your company will become a success. You can have an excellent strategy in mind but if you mess up in these other areas you will go down nonetheless. <br />
<br />
Hence, having a good strategy is not sufficient to becoming a success.<br />
<br />
But it is a necessary condition. What we mean by that is that even if you’re good at absolutely everything – developing technology, motivate your people, forge and nurture customer relations, and get the right financing – but your strategy sucks, in terms of what you are actually trying to accomplish in the market place, you will be (to use a good English expression) flogging a dead horse. <br />
<br />
You can flog all you want, but without the right strategy it is all wasted energy and other resources; it ain’t going to work. The beast isn’t going to jump up and run.<br />
<br />
I have seen various CEOs who were really great business leaders, in the sense that they were charismatic, structured, genuine people-managers, politically astute, and so on, but who were trying to build a company on what was basically a flawed idea: a strategy that was never going to work. They were still great CEOs – nobody can be good at everything – but without a great strategy no CEO can build a great company. In which case you’re better off outsourcing your strategy development to someone else; even if that someone else is the Monitor Group or Michael Porter.<br />
<br />
I like strategy, and I think it is really important. But I am not daft enough to think that all you need is a good strategy and all will be well. But at least your horse will be running.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-1930103235934641180.post-68152482438955228892013-02-27T21:45:00.001+00:002013-02-27T21:45:31.761+00:00Fraud or apathy: What is academia’s biggest threat?<a href="http://www.nytimes.com/2011/11/03/health/research/noted-dutch-psychologist-stapel-accused-of-research-fraud.html?_r=3&" target="_blank">Diederik Stapel</a> committed a truly massive fraud. And he wasn’t even very good at it. As we know now, he completely made up the data of many – and probably most – of his (very prominent) academic publications. <br />
<br />
I have written about him <a href="http://www.forbes.com/fdc/welcome_mjx.shtml" target="_blank">before</a>, because obviously he forms both a fascinating and worrying case. It is worrying not because it makes me suspect there are probably more of such massive fraud cases that currently remain undetected – his fraud was so huge that I have trouble imagining – perhaps naively – that it is not unique. However, I have much less trouble imagining that for every case like Stapel’s, there are probably many more of much smaller fraud, which could easily add up to something even bigger.<br />
<br />
Stapel made up all his data regarding pretty much all his publications – and got away with it for a long time. How many people might there be out there who make up only parts of their data for some of their publications…? <br />
<br />
It is like cases of insider trading, or rogue investment bank traders; the cases that come out in the open are often colossal cases of fraud (although there is a bit of attention bias), involving billions of pounds, not seldom committed in a rather <a href="http://oilprice.com/Latest-Energy-News/World-News/Broker-Sent-Oil-Prices-to-Eight-Month-High-in-a-Drunken-Stupor.html" target="_blank">clumsy</a> way. For every immense, clumsy case of insider trading, how many smaller, more sophisticated villains might there be…?<br />
<br />
But there is another reaction to the Stapel fraud that makes me worried. Newspapers that reported on and described his fraud often gave examples of his experiments. For example, he would predict and “find” that people exposed to the world “capitalism” in an experiment would be less inclined to share their M&Ms with others and, instead, selfishly stuff them into their own drooling mouths. <br />
<br />
On newspaper websites, people would comment on these articles, and their reactions were remarkably consistent; they never said “tsss, he committed fraud with something as important like that…” (a reaction I imagine they would have had had it concerned a clinical trial of a new cancer drug); invariably, their reaction would be “that’s what these scientists spend our tax money on?! silly things like that!?” and “that’s the kind of stuff that makes someone a famous professor?!”<br />
<br />
People seem to not care at all that he made up his data because, to them, it concerned stuff they find completely trivial, irrelevant and infantile. They are not outraged by his fraud; they couldn’t care less.<br />
<br />
Now, I am not saying I completely agree with them (I would find it interesting – and potentially even important – if putting people in a capitalist frame of mind would automatically make them act more selfishly) but I am wondering whether apathy and an active disinterest might not be even more threatening to the long-term prospects of social psychology as a field than fraud. To the general audience, their research appears trivial and unimportant.<br />
<br />
Stapel has now written a book – I guess largely because he simply needs the money, now that his career prospects in academia have been truncated – detailing his descent into fraud. Perhaps in his next book he can tell us – and the world at large – why his experiments would have been important and worth doing (for real). And hence why people should be outraged by his fraud, because currently, they’re not. <br />
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-1930103235934641180.post-26522553405530904712013-01-11T12:02:00.002+00:002013-01-11T12:02:14.922+00:00Do Firms Trust Universities?Earlier this week, I attended a seminar at the London Business School by <a href="http://michaelbikard.com/" target="_blank">Michaël Bikard</a> – a PhD candidate at MIT – who presented his research on technological inventions. Such inventions are, of course, often patented. Examining these patents allowed Michaël to determine on which technological breakthrough discoveries these inventions were based. Hence, these inventions are basically commercial applications of the more fundamental discoveries.<br />
<br />
Fairly regularly, a university or a firm builds on and commercializes its own discoveries but, quite often, such an organisation may also be building on the discoveries of others. That is possible because such fundamental discoveries will often be published, in academic journals such as Nature or Science, and hence are accessible to everyone. And that’s when it gets interesting; because on whose discoveries are firms more likely to build when working on applied inventions: on the discoveries of universities or of other companies?<br />
<br />
<strong>It matters <em>where</em> a discovery was made</strong><br />
<br />
Past research on the topic has basically been comparing apples and oranges, because the discoveries coming out of universities are often fundamentally different from the breakthroughs achieved in firms. Michaël, however, wanted to know whether it mattered to companies where the breakthrough had taken place – regardless of the actual content of the breakthrough. Therefore, he analysed a unique yet fascinating set of technological discoveries, namely the instances where the exact same breakthrough happened at the exact same time in a university and in a firm. <br />
<br />
This happens surprisingly often. For example, in the winter of 1999, two teams of scientists simultaneously discovered VR1 (vanilloid receptor1), the receptor for the pain caused by excessive heat. The first team of scientists – who published the finding in Science in May 2000 – was from the University of California in San Francisco. The second team, however, worked at SmithKline Beecham. Hence, the same idea originated simultaneously in a university and in a firm. In total, there were 39 of such simultaneous discoveries in firms and universities between 1970 and 2009.<br />
<br />
Then, through patent analysis, Michaël tracked all commercial inventions that built on one of the 39 fundamental discoveries, such as VR1. And he found out that the patenting companies much more often had picked up on the discovery from the publication by the firms. Now, note that these companies could have picked up on the exact same idea from the publication by the universities, but they didn’t – apparently companies scanning for fundamental knowledge pay more attention to the discoveries of other firms. In comparison, they don’t bother with stuff coming out of universities. And that begs the question: why?<br />
<br />
<strong>Firms do not monitor universities</strong><br />
<br />
Why do firms not pay attention to the discoveries by universities? It’s not about the content of the discovery; that, in this case, is the exact same thing. To find out, Michaël started interviewing people; the R&D folk that had worked on the commercial inventions. <br />
<br />
And they confirmed that they basically did not bother much looking at the stuff coming out of universities. The first reason is because that is simply what companies are used to doing: indeed, most firms I know obsessively monitor their competitors, so if such a competitor comes up with a new discovery, they will notice. They don’t habitually look at universities. Therefore, they miss stuff. And that’s their loss.<br />
<br />
The second reason is more worrying (at least, to me, as an academic): The interviewees proclaimed that they don’t pay much attention to the publications about fundamental discoveries by universities because they don’t trust them. Some feel that academics are too heavily incentivised and put under pressure to publish stuff; i.e. the infamous “publish or perish” culture. This, in their view, increases the chance that the publications are dubious, flawed, or outright fraudulent. And they’re not taking any chances with them.<br />
<br />
One inventor proclaimed: “It’s a much higher bar [for industry], higher standards, because every error, or every piece of fraud along the way, the end game is going to fail. … Therefore, I have more faith in what industry puts out there as a publication”. Firms don’t pay attention to published discoveries by universities because they think chances are that it is bogus. <br />
<br />
I remember that the company MORI used to run surveys on “who do you trust?” – and they probably still do – dividing, among others, the results by profession. Ten years ago, priests and professors used to come out on top; businessmen and politicians near the bottom. I don’t know exactly what people nowadays think of the trustworthiness of businessmen and politicians, but I have a fair idea what happened to the faith in priests and professors. <br />
<br />
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-1930103235934641180.post-85323580406434134092012-12-13T10:43:00.001+00:002012-12-13T10:46:43.586+00:00Which Best Practice Is Ruining Your Business?<span lang="EN-US" style="font-family: inherit; mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">For many decades,
newspapers were big; printed on the so-called broadsheet format. However, it
was not cheaper to print on such large sheets of paper<span style="mso-spacerun: yes;"> </span>– that was not the reason for their
exorbitant size – in fact, it was more expensive, in comparison to the
so-called tabloid size. So why did newspaper companies insist on printing the
news on such impractical, large sheets of paper? Why not print it on smaller
paper? Newspaper companies, en masse, assumed that “customers would not want it”;
“quality newspapers are broadsheet”.</span><br />
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;"></span></span><br />
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">When finally, in 2004,
the United Kingdom’s Independent switched to the denounced tabloid size, it saw
its circulation surge. Other newspapers in the UK and other countries followed
suit, boosting their circulation too. Customers did want it; the newspaper
companies had been wrong in their assumptions. <o:p></o:p></span></span><br />
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;"></span></span><br />
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">When I looked into
where the practice had come from – to print newspapers on impractically large
sheets of paper – it appeared its roots lay in England. In 1712, the English
government started taxing newspapers based on the number of pages that they
printed. In response, companies made their newspapers big, so that they could
print them on fewer pages. Although this tax was abolished in 1855, companies
everywhere continued to print on the impractical large sheets of paper. They
had grown so accustomed to the size of their product that they thought it could
not be done any other way. But they were wrong. In fact, the practice had been
holding their business back for many years.<o:p></o:p></span></span><br />
<span style="font-family: inherit;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">Everybody does it<o:p></o:p></span></span></i></b></div>
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">Most companies follow
“best practices”. Often, these are practices that most firms in their line of
business have been following for many years, leading people in the industry to
assume that it is simply the best way of doing things. Or, as one senior
executive declared to me when I queried one of his company’s practices:
“everybody in our business does it this way, and everybody has always been
doing it this way. If it wasn’t the best way of doing things, I am sure it
would have disappeared by now”. </span></span><br />
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">But, no matter how
intuitively appealing this may sound, the assumption is wrong. Of course,
well-intended managers think they are implementing best practices but, in fact,
unknowingly, sometimes the practice does more harm than good.<o:p></o:p></span></span></div>
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">One reason why a
practice’s inefficiency may be difficult to spot is because when it came into
existence, it was beneficial – like broadsheet newspapers once made sense. But when
circumstances have changed and it has become inefficient, nobody remembers, and
because everybody is now doing it, it is difficult to spot that doing it
differently would in fact be better. <o:p></o:p></span></span><br />
<span style="font-family: inherit;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">The short term trap<o:p></o:p></span></span></i></b></div>
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">Some bad practices may
also come into existence being bad, but the harmful effects only materialize
years after their implementation. And firms implement them because its
short-term consequences are quite positive. <o:p></o:p></span></span><br />
<span style="font-family: inherit;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">For example, in </span><a href="http://orgsci.journal.informs.org/content/early/2012/07/17/orsc.1120.0763.abstract" target="_blank"><span style="font-family: inherit;">a project</span></a><span style="font-family: inherit;"> with Mihaela Stan from University College London, we examined the
success rate of fertility clinics in the UK. A number of years ago, various
clinics began to test, select, and only admit patients for their IVF treatment who
were “easy cases”; young patients with a relatively uncomplicated medical
background. Indeed, treating only easy patients boosted the clinics’ success
rates – in terms of the number of pregnancies resulting from treatment – which
is why more and more firms started doing it. However, our research on the
long-term consequences of this practice clearly showed that selecting only easy
patients made them all but unable to learn and improve their treatment and
success rate further. Clinics that did do a fair proportion of difficult cases
learnt so much from them that after a number of years their success rates
became much higher – in spite of treating a lot of difficult patients – than
the clinics following the selection practice. Unknown to the clinics’
management, the seemingly clever practice put them on the back foot in the long
run.<o:p></o:p></span></span></div>
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">What this example
shows is that the long-term negative consequences of a seemingly “best practice”
can sometimes greatly outweigh its short-term benefits. But the problem is
that, where managers can see the beneficial short-term effects, they often are
unable to understand, when after a number of years their competitive position
starts plummeting, that this is due to this “best practice” they implemented
years ago. Therefore, the practice persists, and may even spread further to
other organizations in the same line of business. <o:p></o:p></span></span><br />
<span style="font-family: inherit;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="font-family: inherit; mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Self-perpetuating myths</span></i></b><i style="mso-bidi-font-style: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><o:p></o:p></span></i></div>
<span lang="EN-US" style="line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><span style="font-family: inherit;">What makes some seemingly best practices even more difficult to uncover
as harmful is that they can become self-perpetuating. Take the film industry.
Film distributors have preconceived ideas about which films will be successful.
For example, it is generally expected that films with a larger number of stars
in them, actors with ample prior successes, and an experienced production team
will do better at the box office. <o:p></o:p></span></span><br />
<span style="font-family: inherit;"></span><br />
<div style="line-height: 115%;">
<span lang="EN-US" style="line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><span style="font-family: inherit;">Sure enough, usually those films have higher attendance numbers.
However, professors Olav Sorenson from Yale and David Waguespack from the
University of Maryland discovered that, because of their beliefs, film
distributors assign a much bigger proportion of their marketing budget and
other resources to those films. Once they acknowledged this factor in their
</span><a href="http://asq.sagepub.com/content/51/4/560.short" target="_blank"><span style="font-family: inherit;">statistical models</span></a><span style="font-family: inherit;">, it became evident that those films, by themselves, did not
do any better at all. The distributors' beliefs were a complete myth, which
they subsequently made come true through their own actions. However, the film
distributors would have been better off had they assigned their scarce
resources differently. <o:p></o:p></span></span></div>
<span style="font-family: inherit;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">Most experienced
executives have strong beliefs about what works and not, and logically they
assign more resources and put more effort into the things they are confident
about, eager not to waste it on activities with less of a chance of success. As
a result, they make their own beliefs come true. The good box office results of
the films distributors expected to do well reaffirmed their prior – yet
erroneous – beliefs.<span style="mso-spacerun: yes;"> </span>This reinforced the
myth of the best practice, and stimulated it to spread and persist.<o:p></o:p></span></span></div>
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">Hence, with all the
best intentions, executives often implement what is considered a “best
practice” in their industry. What they do not know, is that some of these
practices are bad habits, masquerading as efficiency boosters, because their
real consequences lay hidden. Yet, questioning and uncovering such practices may
significantly boost a firm’s competitive advantage, to the benefit of the firm
and, eventually, us all.<o:p></o:p></span></span><br />
<span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><o:p></o:p></span><br />Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-59450816742825387752012-10-15T13:22:00.001+01:002012-10-15T13:27:47.183+01:00Should Business Schools Be Braver?About a year ago, a journalist asked me: “The current crisis; you could see it as the failure of corporate governance in general, and boards of directors in specific. What radical new ideas do we see coming out of business schools in terms of how we could organise governance and boards better?”<br />
<br />
I answered him what I thought was the truth: “Ehm…. not much really”. <br />
<br />
Last week, I was in Prague, for the Annual Meeting of the <a href="http://prague.strategicmanagement.net/" target="_blank">Strategic Management Society</a>; a bunch of business school professors talking about their research. I attended a session which featured a panel of five senior professors who specialise in governance and boards. I couldn’t resist asking them the same question as the journalist had posed to me: “What radical new ideas do you have in terms of how we could perhaps organise governance and boards better?”<br />
<br />
Their answer was basically the same as mine, with equal levels of eloquence: “Ehm… not much really”.<br />
<br />
In fact, after a slightly stunned silence, one professor replied to me: “What do <em>you</em> think?” (the reply every professor gives to a student when s/he does not have an answer available), where the second one answered “boards is not really where the action is”. And that was that. <br />
<br />
Somehow, I have to admit, I did not expect a real answer – just as I did not have one. And that is because business school professors seldom have an opinion. We are all trained – in our research, through rigorous PhD programmes and years of socialization – to not make assertions but to only make claims that are thoroughly proven, by solid empirics and rigorous theory. And I applaud and adhere to that; I like evidence. However, at some point, you need to take that evidence and develop an opinion. And that’s where it usually stalls, in business schools. <br />
<br />
Because people are not used to say anything without evidence, they end up saying nothing at all. That’s because when it comes to questions such as “how could we organise this better?” the evidence is always going to be imperfect. <br />
<br />
It reminded me of what a paediatric neurologist once told me: “What I do is part art; part science. I know all the scientific evidence and treatments and medication, but at the end of the day, every child and case is unique, and you have to make a choice and an develop an opinion”. <br />
<br />
In business schools, we’re more likely to let the child die. Since we have no perfect evidence on what the exact treatment should be, we end up doing nothing. <br />
<br />
Hence, that the five professors did not express an opinion did not really surprise me. But what I later realised, and what did surprise me – although I blame myself for my naivety – is that not only are you not expected to have an opinion; you’re not even supposed to <em>want</em> to have one. <br />
<br />
Even raising the question and asking for an opinion is considered suspect, illegitimate and un-academic. As business school academics, we describe and seek to understand reality, but are not supposed to want to alter and improve it. Which is a shame, because sometimes I feel the world of business – and the world in general – could do with a bit of improvement. <br />
<br />
<em>“I know what I want, I have a goal, an opinion. If God lets me live, I shall not remain insignificant, I shall work in the world and for mankind! And now I know that first and foremost I shall require courage and cheerfulness!”</em> Anne Frank, April 11, 1944<br />
<br />Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-1930103235934641180.post-66759472650932425322012-10-05T09:26:00.000+01:002012-10-05T09:26:24.551+01:00Steve Jobs – Perhaps Apple Could Have Done Without Him“<a href="http://freekvermeulen.blogspot.nl/2011/10/steve-jobs-man-was-fallible.html" target="_blank">Steve Jobs – the man was fallible</a>” is what I wrote in October 2011. I guess it seems pretty innocent now – although there may some remnants of people who still feel offended by it – but, believe it or not, one year ago it actually triggered <a href="http://freekvermeulen.blogspot.nl/2011/10/steve-jobs-deification-serves-very.html" target="_blank">a small barrage of hate mail</a>. <br />
<br />
Since then, I have read or heard others describe him as a terrorist, <a href="http://www.theatlantic.com/business/archive/2011/11/be-a-jerk-the-worst-business-lesson-from-the-steve-jobs-biography/249136/" target="_blank">an asshole</a>, and <a href="http://interloping.com/2011/11/30/michael-jordan-steve-jobs-and-other-socially-beneficial-psychopaths/" target="_blank">a psychopath</a> (which, given that many US presidents <a href="http://www.futurity.org/top-stories/do-presidents-need-psychopathic-boldness/" target="_blank">have been shown</a> to have had psychopathic tendencies may not even be unlikely). Hey, all I said was that he was “fallible”!<br />
<br />
But all these people, in the wake of calling him a terrorist, an asshole, or a psychopath, without exception, also described him as a genius. And a person who built the greatest company on earth, changing all of our daily lives in the process. <br />
<br />
But, in fact, I am not so sure of that either…<br />
<br />
I don’t mean this as some lame attempt at a final insult – suggesting that he wasn’t even responsible for building this great company – but as a genuine question: Would Apple have been equally great today if it hadn’t been for Steve Jobs? And, honestly, I think that is not impossible. And that is because I am a Tolstoy fan.<br />
<br />
Tolstoy, in War and Peace, using Napoleon as an example, had a very clear opinion of leadership. A leader <em>“is just a banner, they hold aloft in the wind”. “Napoleon thinks he commands a 100,000 men, but in reality, he follows them”</em>. Tolstoy thought that what drove the French into Russia was not the act of a single man – Napoleon – but the result of much greater, collective human forces. Those forces needed a spearhead, and that became Napoleon. But if it hadn’t been him, someone else would have emerged to follow those forces as their leader. Because “The course of earthly happenings … depends on the combined volition of all who participate in those events, and … the influence of a Napoleon on the course of those events is purely superficial and imaginary”.<br />
<br />
Would Apple have become great without Steve Jobs, or would someone else have surfaced to spearhead and personify the combined volition of the people working in that area in that company at that point time? I think the answer might be yes. <br />
<br />
But who knows? And I know I will never know. But I also know that pretty much every person who reads this piece thinks he or she knows that the answer is “no”. “No, Apple would never have been this great without Steve Jobs”. And nothing will ever change that. Because what Steve Jobs has going on Napoleon, is that he is dead. Or better, that he died before Apple’s demise. Napoleon lived to see his armies defeated by the Russians, and by the forces commanded by the Duke of Wellington at Waterloo. People started to realize he wasn’t such a superhuman genius as they once thought he was. <br />
<br />
When Apple’s performance will start to plunge (and I mean “when” and not “if”) the Great Man Steve will not be there to blame. <br />
<br />
And of course Apple will, one day, start to underperform. One day, it will be outcompeted by its rivals, and even lose their shareholders’ money in the process (if alone for the simple reason that if it continues its current growth rate for another decade it will be more valuable than the rest of planet Earth combined, eyeing up dominance of the solar system next). It will fall. But then people will simply say that it wouldn’t have happened had Steve Jobs still been around. Because he’s their banner; their banner they hold aloft in the wind. Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-14856956686145296952012-08-28T20:01:00.000+01:002012-08-29T15:23:21.934+01:00What’s an Academic Fraud?I recently discovered I am an academic fraud. Now, I am sure there must be people out there whose immediate response is “of course you are”, “knew it” or “I am not surprised”, but I was.<br />
<br />
Admittedly, what amounts to fraud when publishing as an academic isn’t always entirely clear to me – which, to some, is enough to be suspect (if not guilty-till-proven-innocent) already. I do get the extremes; I’m not that daft: If one writes up a truly new academic study giving the full account of the research underlying it, it ain’t fraud. If you make up the data – emulating the now infamous <a href="http://freekvermeulen.blogspot.nl/2011/12/lying-dutchman-fraud-in-ivory-tower.html" target="_blank">Diederik Stapel</a> – it is. But sometimes in between, I am not always sure… Let me give you a few potential examples.<br />
<br />
• Last month, at the Editorial Board Meeting of the <a href="http://journals.aomonline.org/amj/" target="_blank">Academy of Management Journal</a>, the editor reported that the journal would now start screening every submitted article for plagiarism. The software turns up whether parts of the text have been copied from earlier publications, including articles by the same author (in a case of self-plagiarism). After this, a fellow board member asked “can we access the same software to pre-screen our own articles before submitting them?” There wasn’t a murmur or hint of discontent in the room following this question, but I found it strange and uneasy. If you copy a piece of text, then pre-screen it and the software tells you you would be found out, you rewrite it a bit plugging in a few synonyms here and there and then it is ok and no longer considered fraud and plagiarism?!<br />
<br />
• <a href="http://en.wikipedia.org/wiki/Geert_Hofstede" target="_blank">Geert Hofstede</a>, one of the most highly cited social scientists ever (citations are considered a signal of “impact” in our academic world, and I seem to remember him once telling me that he had more citations than Karl Marx…), became famous for developing dimensions of national cultural differences. He published these dimensions left-right-and-centre – in academic journals, magazines and books – which greatly contributed to their and his exposure. He nowadays would be covered in tar and feathers and chased out of the ivory tower for self-plagiarism?<br />
<br />
• Situation A: PhD student A copies a paragraph leading up to one of his hypotheses from a working paper by someone else he found on the web, without citation. Situation B: PhD student B copies a summary of a previously published academic article from a third, published paper who summarised the same article. Situation C: likewise, but with a citation to that third article, but no quotation marks. Situation D: likewise, but with citation and quotation marks. Who should get kicked out of the programme? At <a href="http://www.london.edu/" target="_blank">London Business School</a> we have already dealt with situations A and B (the students were chased out), and D of course, but I am left wondering what we’d do in situation C.<br />
<br />
• An academic – and an obvious fan of the <a href="http://en.wikipedia.org/wiki/Matthew_effect_(sociology)" target="_blank">Matthew Effect</a> – buys 20,000 followers on Twitter. Yes, if you didn’t know, buying (fake) twitter followers is possible and easy. In fact, yesterday, I learned it is as cheap as chips. Yesterday, the Sunday Times covered the tale of an aspiring English celebrity who bought about 20,000 followers on Twitter to boost her profile. It just cost her a few hundred pounds/dollars. And, in fact, it sort of worked; she did raise her profile. But when she was found out – which isn’t actually that easy – she was ridiculed and quickly chased back to the dubious and crowded ranks of the British B-celebrities. But what would we do? How would we react to an academic buying 20,000 “followers”? Tar and feathers or applause for bringing the Matthew Effect to practice?<br />
<br />
I am – apparently – a shameless self-plagiarising fraud because I sometimes get approached by business magazines who say “we read your blog post X and would like to republish it in our magazine”. And if they’re half decent (even by business magazine standards), I tend to say “yes”… In fact, I sometimes make the suggestion myself; when some magazine asks me “would you like to write an article on X for our wonderful magazine?” I usually say “no (way), but chapter X from my book would suit you well. Feel free to republish that”. Some acknowledge it was previously published; some don’t. <br />
<br />
And, frankly, I don’t really care, and I will probably do it again. If it is my work, my copy-right, the magazine is fully aware of it, and it doesn’t harm the reader (they will know if they’ve seen it before, and otherwise they probably didn’t, or they might suffer from an enviable dose of business magazine amnesia), I won’t fear or dodge the tar and feathers. In fact, who knows, you may have read this very same post before!Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-35431460810827576092012-07-17T10:00:00.001+01:002012-07-18T11:15:17.899+01:00The Reality of Strategy: The Case of London Business SchoolWhen <a href="http://en.wikipedia.org/wiki/Laura_Tyson" target="_blank">Laura d’Andrea Tyson</a> was the Dean of London Business School – some years ago – she put together a committee to examine and reformulate the School’s strategy. Several professors sat on that committee. When I once asked her, having a drink at her home, why none of them were Strategy professors, she looked at me for about 5 seconds baffled. Eventually, she stammered, “yes, perhaps we could consider that in the future….”. <br />
<br />
It was clear to me, from her stunned silence (and she wasn’t easily lost for words), that she had never even considered the thought before. <br />
<br />
I, in contrast, thought it wasn’t such an alien idea; putting some strategy professors on the School’s strategy-making committee. We had – and still have – people in our Strategy department (e.g. <a href="http://www.london.edu/facultyandresearch/faculty/search.do?uid=cmarkides" target="_blank">Costas Markides</a>, <a href="http://en.wikipedia.org/wiki/Sumantra_Ghoshal" target="_blank">Sumantra Ghoshal</a>) who not only had dozens of top academic publications behind their names but who also had an eager ear amongst strategy practitioners, through their Harvard Business Review publications and hundreds of thousands of business books sold (not to mention their fairly astronomical consulting fees).<br />
<br />
Today, our current Dean – <a href="http://en.wikipedia.org/wiki/Andrew_Likierman" target="_blank">Sir Andrew Likierman</a> – is working with a group of people on a huge strategic growth decision for the School, namely the acquisition of a <a href="http://www.oldmarylebonetownhall.com/" target="_blank">nearby building</a> from the local government that would increase our capacity overnight with about 70 percent. Once more, strategy professors have no closer role in the process than others; their voice is as lost in the quackmire as anyone else’s.<br />
<br />
If Sir Andrew had been an executive MBA student in my elective (“Strategies for Growth”) writing an essay about the situation, I would ask him for a justification of the need for growth given the characteristics of the market; I’d ask him about the various options for growth (geographic expansion, e.g. a campus abroad; related diversification, e.g. on-line space, etc.), and how an analysis of the organisation’s resources and capabilities is linked to these various options, and so on. But a systematic analysis based on what we teach in our own classrooms and publish in our books and journals has, it seems, not even be considered. <br />
<br />
And I genuinely wonder why that is? Because it is not only strategy professors and it is not only deans. Whenever the topic of the School’s brand name comes up, no-one seems inclined to pay more attention to our Marketing professors (<a href="http://faculty.london.edu/nkumar/" target="_blank">some of whom</a> are true heavyweights in the field branding) than to the layman’s remarks of Economics or Strategy folk. When the School’s culture and values are being assessed, Organizational Behaviour professors are conspicuously absent from the organising committee (ironically it was run by a Marketing guy); likewise for Economics and OB professors when we are discussing incentives and remuneration. So why is that?<br />
<br />
Is it that deep down we don’t actually believe what we teach? Or is it that we just don’t believe what any of our colleagues in other departments teach…? And that it could be somehow relevant to practice – including our own? Why do we charge companies and students small – and not so small – fortunes to take our guidance on how to make strategy, brands, and remuneration systems only to see that when our own organisation is dealing with them it all goes out the door? <br />
<br />
I guess I simply don’t understand the psychology behind this. Wait… perhaps I should go ask my Organizational Behaviour professors down the corridor!<br />
<br />
**********************<br />
<br />
ADDENDUM<br />
<br />
Since writing the piece above – perhaps not surprisingly; although it took me a bit by surprise (I didn’t think anyone actually read that stuff) – Sir Andrew contacted me. One could say that he took the oral exam following his essay on the School’s growth plans and passed it (with a distinction!)<br />
<br />
In all seriousness, in hindsight, I think I was unfair to him – perhaps even presumptuous. I wrote “a systematic analysis based on what we teach in our own classrooms and publish in our books and journals has, it seems, not even be considered” and, now, I think I should not have written this. That I haven’t been involved in the process much and therefore have not seen the analysis of course does not mean it was never conducted. And it is a bit unfair, from the sidelines, to throw in a comment like that when someone has put in so much careful work. I apologise!<br />
<br />
In fact, although Sir Andrew never lost his British cool, charme and good sense of humour, I realise it must actually have been “ever so slightly annoying” for him to read that comment, especially from a colleague, and he doesn’t deserve that. So: regarding the specifics of this example: forget it! ban it from your minds, memory, bookmarks and favourites (how would this Vermeulen guy know?! he wasn’t even there!)!<br />
<br />
That you should pay more attention to Marketing professors when considering your school’s brandname, more attention to your OB professors when considering your incentive systems and values, more attention to Finance professors when managing your endownment and, God forbid, sometimes even to some strategy professors when considering your school’s strategy, I feel, does stand – so don’t throw out the baby with the bathwater just yet. But, yes, do get rid of that stinky bathwater.Unknownnoreply@blogger.com7tag:blogger.com,1999:blog-1930103235934641180.post-16536045610630307052012-07-09T15:12:00.004+01:002012-07-09T15:21:14.593+01:00Strategy is a StoryStevie Spring, who recently stepped down after a successful stint as CEO of <a href="http://www.futureplc.com/" target="_blank">Future plc</a>, the specialty magazine publisher, once told me, “I am not really the company’s CEO; what I really am is its Chief Story Teller.”<br />
<br />
What she meant is that she believed that telling a story was her most important task as a CEO. Actually, she insisted, her job was to tell the same story over and over again. And when she said ‘a story’, she meant that her job was to tell her representation of the company’s strategy: the direction she wanted to take the business and how that was going to make it prosper and survive. She felt that a good CEO should tell that kind of story repeatedly, to all employees, shareholders, fund managers and analysts. For, indeed, a good strategy does tell a story.<br />
<br />
All successful CEOs whom I have seen were great storytellers. Not necessarily because of their oratorical skills, but because the characteristics of the strategy they had put together lent themselves to being told like a story — and a good one too! The most important thing for a CEO to do is to provide a coherent, compelling strategic direction for the company, one that is understood by everyone who has to contribute to its achievement. For that, a story must be told. <br />
<br />
When I say this, I am not implying that CEOs need to engage in fiction, nor do they need to be overly dramatic. In my view, a good business strategy story has three characteristics.<br />
<br />
<strong>First, the story must provide clear choices</strong>. <br />
Stevie Spring’s choices were as clear as her forthright language: “We provide specialty magazines, for young males, in British.” Hence, it was clear what was out; there were to be no magazines on, say, ‘music’ (that is too broad), no magazines in German (although that could be a perfectly profitable business for someone else) and no magazines on pottery or vegetable gardens (unless that has recently seen a surge in popularity among young males in the UK without my knowing it). A good strategy story has to contain such a set of genuine choices.<br />
<br />
Moreover, it has to be clear how the choices made by the company’s leaders hang together. For example, Frank Martin, who as a CEO orchestrated the revival of the British model-train maker, <a href="http://www.hornby.com/" target="_blank">Hornby</a>, by turning it from a toy company into a hobby company, put his strategy story in just 15 words. “We make perfect scale models for adult collectors, which appeal to some sense of nostalgia.” He decided to focus on making perfect scale models because that is what collectors look for. Moreover, people would usually specifically collect the Hornby brand because it reminded them of their childhood, and with it a nostalgic, foregone era. Frank Martin’s choices were not just a bunch of disconnected strategic decisions; they hung together, and, combined, made for a logical story.<br />
<br />
<strong>Second, the story must tie to the company’s resources</strong>. <br />
Importantly, the set of choices has to be clearly linked to the company’s unique resources, those that can give them a competitive advantage in an attractive segment of the market. Although Hornby had been hovering on the brink of bankruptcy for a decade, it still had some valuable resources. First of all, it possessed a valuable brand that was very well-known and appreciated by people who had owned a Hornby train as children.<br />
<br />
Additionally, the company had a great design capability in its hometown of Margate. However, these resources weren’t worth much when competing with the cheaper Chinese toy makers. The children who wanted a toy train for their birthday didn’t know (and could care less) about the Hornby brand. The precision modelling skills of the engineers in Margate weren’t of much value in the toy segment, where things mostly had to be robust and durable. However, these two resources — an iconic brand and a design capability — were of considerable value when making ‘perfect scale models for adult collectors’. It was a perfect match of existing resources to strategy.<br />
<br />
I observed a similar thing at the <a href="http://www.sadlerswells.com/" target="_blank">Sadler’s Wells</a> theatre. Ten years ago, before the current CEO Alistair Spalding took over, the theatre put on all sorts of grand shows in various performing arts. Yet, the company was in dire straits, losing money evening-on-evening and by the bucket. Then, Spalding took over and highlighted his leadership with a clear story. He started telling everyone that the theatre was destined ‘to be the centre of innovation in dance’.<br />
<br />
He did this because the company was blessed with two valuable resources: (1) an historic reputation for dance (although it had diversified outside dance in the preceding years) and (2) a theatre once designed specifically with dance in mind. Spalding understood that, with these unique resources, he needed to focus the theatre on dance again. Beyond that, he made it the spider in the web, a place where various innovative people and dance forms came together to create new art, a place where stars were formed.<br />
<br />
<strong>Third, the story must explain a competitive advantage</strong>.<br />
The story must not only provide choices that are linked to resources, it must also explain how these choices and resources are going to give the company a competitive advantage in an attractive market, one that others can’t easily emulate. For example, Hornby’s resources enabled it to make perfect scale models for adult collectors better than anyone else, but those adult collectors also happened to form a very affluent and growing segment, one in which margins were much better than in the super-competitive toy market. It isn’t much good to have a competitive advantage in a dying market; you want to be able to do something better than anyone else in a market that will make you grow and prosper.<br />
<br />
Thus, it has to be clear from your strategy story why the market is attractive and how the resources are going to enable you to capture the value in that market better than anyone else. The story of the CEO of <a href="http://www.fremantlemedia.com/home.aspx" target="_blank">Fremantle Media</a>, Tony Cohen, for example, was that his company was going to make television productions that were replicable in other countries, with spillovers into other media. Because of their worldwide presence, Fremantle Media were better than their national competitors at rolling out productions such as the X-factor, Pop Idols, game shows and sitcoms. While their local competitors could also develop attractive and innovative shows, Fremantle’s multinational’s presence enabled it to reap more value from them. Therefore, that’s what they focused upon: shows that they could replicate across the globe. It was their competitive advantage, and they built their story around it.<br />
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<br />
Of course, a good story alone is not enough. A leader still needs good products, people, marketing, finance and so on. But, without a good story, a leader will find it impossible to combine people and resources into a forceful strategic thrust. A good story is a necessary — although, alone, not sufficient — condition for success.<br />
<br />
My message for leaders: if you get your story right, it can be a very powerful management tool indeed. It works to convince analysts, shareholders and the public that where you are taking the company is worth everyone’s time, energy and investment. <br />
<br />
Perhaps even more importantly, it can provide inspiration to the people who will have to work with and implement the strategy. If employees understand the logic behind a company’s strategic choices and see how it might give the company a sustainable advantage over its competitors, they will soon believe in it. They will soon embrace it. And they will soon execute it. Collective belief is a strong precursor of success. Thus, a good story can spur a company forward and eventually make the story come true.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaHWEZkiZeC5tgWCbi96_ALJUdApnKKVeJBR3ZTzivEF8UfZnXYRwAnpROWW8VKs3ts74JnnapNgLcinl-6lgQf8GXb71nX7ggD82GtpdHvmMTCPSPLyg26xSibS6XOA5n0cja11X9TGg/s1600/storytelling.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" sca="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaHWEZkiZeC5tgWCbi96_ALJUdApnKKVeJBR3ZTzivEF8UfZnXYRwAnpROWW8VKs3ts74JnnapNgLcinl-6lgQf8GXb71nX7ggD82GtpdHvmMTCPSPLyg26xSibS6XOA5n0cja11X9TGg/s1600/storytelling.jpg" /></a></div>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-35429228592035611662012-06-12T10:49:00.002+01:002012-06-12T10:51:08.810+01:00The Translation FallacyIf you have ever been unlucky enough to attend a large gathering of strategy academics – as I have, many times – it may have struck you that at some point during such a feast (euphemistically called “conference”), the subject matter would turn to talks of “relevance”. It is likely that the speakers were a variety of senior and grey – in multiple ways – interchanged with aspiring Young Turks. A peculiar meeting of minds, where the feeling might have dawned on you that the senior professors were displaying a growing fear of bowing out of the profession (or life in general) without ever having had any impact on the world they spent a lifetime studying, while the young assistant professors showed an endearing naivety believing they were not going to grow up like their academic parents. <br />
<br />
And the conclusion of this uncomfortable alliance – under the glazing eyes of some mid-career, associate professors, who could no longer and not yet care about relevance – will likely have been that “we need to be better at translating our research for managers”; that is, if we’d just write up our research findings in more accessible language, without elaborating on the research methodology and theoretical terminology, managers would immediately spot the relevance in our research and eagerly suck up its wisdom. <br />
<br />
And I think that’s bollocks. <br />
<br />
I don’t think it is bollocks that we – academics – should try to write something that practicing managers are eager to read and learn about; I think it is bollocks that all it needs is a bit of translation in layman’s terms and the job is done. <br />
<br />
Don’t kid yourself – I am inclined to say – it ain’t that easy. In fact, I think there are three reasons why I never see such a translation exercise work.<br />
<br />
<em>1. Ignorance</em><br />
<br />
I believe it is an underestimation of the intricacies of the underlying structure of a good managerial article, and the subtleties of how to convincingly write for practicing managers. If you’re an academic, you might remember that in your first year as a PhD student you had the feeling it wasn’t too difficult to write an academic article such as the ones you had been reading for your first course, only to figure out, after a year or two of training, that you had been a bit naïve: you had been (blissfully) unaware of the subtleties of writing for an academic journal; how to structure the arguments; which prior studies to cite and where; which terminology to use and what to avoid; and so on. Well, good managerial articles are no different; if you haven’t developed the skill yet to write one, you likely don’t quite realise what it takes. <br />
<br />
<em>2. False assumptions</em><br />
<br />
It also seems that academics, wanting to write their first managerial piece, immediately assume they have to be explicitly prescriptive, and tell managers what to do. And the draft article – invariably based on “the five lessons coming out of my research” – would indeed be fiercely normative. Yet, those messages often seem impractically precise and not simple enough (“take up a central position in a network with structural holes”) or too simple to have any real use (“choose the right location”). You need to capture a busy executive’s attention and interest, giving them the feeling that they have gained a new insight into their own world by reading your work. If that is prescriptive: fine. But often precise advice is precisely wrong.<br />
<br />
<em>3. Lack of content</em><br />
<br />
And, of course, more often than not, there is not much worth translating… Because people have been doing their research with solely an academic audience in mind – and the desire to also tell the real world about it only came later – it has produced no insight relevant for practice. I believe that publishing your research in a good academic journal is a necessary condition for it to be relevant; crappy research – no matter how intriguing its conclusions – can never be considered useful. But rigour alone, unfortunately, is not a sufficient condition for it to be relevant and important in terms of its implications for the world of business. <br />
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<img border="0" fba="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmqj0_y8xFnhUx3Z9tZIZX03TpIX0wYhuDgR6Jcscih1xUEcqeOL3rK5l6YDdZQJI5aZs8lCqd2RaPDyE4UrF_cQgWXdjS1C2K_R0xgpx9fUVTOMVcukNSzLd_PnEiGit2HyDcvLRqyMo/s1600/rosetta.jpg" /></div>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-38027910497409970012012-06-04T13:33:00.000+01:002012-06-04T13:34:12.584+01:00“Can’t Believe It" 2My earlier post – “<a href="http://freekvermeulen.blogspot.nl/2012/05/cant-believe-it-we-deny-research.html" target="_blank">can’t believe it</a>” – triggered some bipolar comments (and further denials); also to what extent this behaviour can be observed among academics studying strategy. And, regarding the latter, I think: yes.<br />
The denial of research findings obviously relates to confirmation bias (although it is not the same thing). Confirmation bias is a tricky thing: we – largely without realising it – are much more prone to notice things that confirm our prior beliefs. Things that go counter to them often escape our attention. <br />
<br />
Things get particularly nasty – I agree – when we do notice the facts that defy our beliefs but we still don’t like them. Even if they are generated by solid research, we’d still like to find a reason to deny them, and therefore see people start to question the research itself vehemently (if not aggressively and emotionally). <br />
<br />
It becomes yet more worrying to me – on a personal level – if even academic researchers themselves display such tendencies – and they do. What do you think a researcher in corporate social responsibility will be most critical of: a study showing it increases firm performance, or a study showing that it does not? Whose methodology do you think a researcher on gender biases will be more inclined to challenge: a research project showing no pay differences or a study showing that women are underpaid relative to men? <br />
<br />
It’s only human and – slightly unfortunately – researchers are also human. And researchers are also reviewers and gate-keepers of the papers of other academics that are submitted for possible publication in academic journals. They bring their biases with them when determining what gets published and what doesn’t. <br />
<br />
And there is some <a href="http://marcorlitzky.webs.com/Papers/Orlitzky2011beq_preprint.pdf" target="_blank">evidence</a> of that: studies showing weak relationships between social performance and financial performance are less likely to make it into a management journal as compared to a finance journal (where more researchers are inclined to believe that social performance is not what a firm should care about), and perhaps vice versa. <br />
<br />
No research is perfect, but the bar is often much higher for research generating uncomfortable findings. I have little doubt that reviewers and readers are much more forgiving when it comes to the methods of research that generates nicely belief-confirming results. Results we don’t like are much less likely to find their way into an academic journal. Which means that, in the end, research may end up being biased and misleading.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-1930103235934641180.post-89682988923422085312012-05-24T15:00:00.000+01:002012-05-24T15:00:16.472+01:00“Can’t Believe It” (we deny research findings that defy our beliefs)<span style="color: black; font-family: "Arial","sans-serif";">So,
I have been running a little experiment on twitter. Oh well, it doesn’t really
deserve the term “experiment” – at least in an academic vocabulary – because
there certainly are no treatment effects or control groups. It does deserve the
term “little” though, because there are only four observations.<o:p></o:p></span><br />
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif";">My
experiment was to post a few recent findings from academic research that some
might find mildly controversial or – as it turns out – offending. These four
hair raising findings were 1) selling junk food in schools does not lead to
increased obesity, 2) family-friendly workplace practices do not improve firm
performance (although they do not decrease them either), 3) girls take longer
to heal from concussions, 4) firms headed up by CEOs with broader faces show
higher profitability. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif";">Only
mildly controversial I’d say, and only to some. I was just curious to see what
reactions it would trigger. Because I have noticed in the past that people seem
inclined to dismiss academic evidence if they don’t like the results. If the results
are in line with their own beliefs and preconceptions, its methods and validity
are much less likely to be called stupid. </span><span style="color: black; font-family: "Arial","sans-serif";"><o:p> </o:p></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<i style="mso-bidi-font-style: normal;"><span style="color: black; font-family: "Arial","sans-serif";">Selling junk food in
schools does not lead to increased obesity</span></i><span style="color: black; font-family: "Arial","sans-serif";"> is the finding of a very <a href="http://soe.sagepub.com/content/85/1/23.short" target="_blank">careful study</a> by
professors Jennifer Van Hook and Claire Altman. It provides strong evidence
that selling junk food in schools does not lead to more fat kids. One can then
speculate why this is – and their explanation that children’s food patterns and
dietary preferences get established well before adolescence may be a plausible
one – but you can’t deny their facts. Yet, it did lead to “clever” reactions
such as “</span><span style="font-family: "Arial","sans-serif";">says more about
academic research than junk food, I fear...<span style="color: black;">”, by
people who clearly hadn’t actually read the study. <o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<i style="mso-bidi-font-style: normal;"><span style="color: black; font-family: "Arial","sans-serif";">Family-friendly workplace
practices do not improve firm performance</span></i><span style="color: black; font-family: "Arial","sans-serif";"> is another finding that is not welcomed by
all. This large and <a href="http://onlinelibrary.wiley.com/doi/10.1002/smj.879/full" target="_blank">competent study</a>, by professors Nick Bloom, Toby Kretschmer
and John van Reenen, was actually <a href="http://www.huffingtonpost.com/cali-williams-yost/worklifes-missing-ingredi_b_995854.html" target="_blank">read by some</a>, be it clearly without a proper
understanding of its methodology (which, indeed, it being an academic paper, is
hard to fully appreciate without proper research methodology training). It led
to reactions that the study was “in fact, wrong”, made “no sense”, or even that
it really showed the opposite; these silly professors just didn’t realise it. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<i style="mso-bidi-font-style: normal;"><span style="color: black; font-family: "Arial","sans-serif";">Girls take longer to heal
from concussions</span></i><span style="color: black; font-family: "Arial","sans-serif";"> is the <a href="http://pss.sagepub.com/content/22/12/1478.short" target="_blank">empirical fact</a> established by </span><span lang="EN" style="font-family: "Arial","sans-serif"; mso-ansi-language: EN;">Professor Tracey
Covassin and colleagues.</span><span style="color: black; font-family: "Arial","sans-serif";">. Of course there is no denying that girls and boys are
physiologically different (one cursory look at my sister in the bathtub already
taught me that at an early age), but the aforementioned finding still led to swift
denials such as “speculation”! <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif";">That
<i style="mso-bidi-font-style: normal;">firms headed up by CEOs with broader
faces achieve higher profitability</i> – a careful (and, in my view, quite intriguing)
<a href="http://pss.sagepub.com/content/22/12/1478.short" target="_blank">empirical find</a> by my colleague Margaret Ormiston and colleagues – triggered
reactions such as “s</span><span style="font-family: "Arial","sans-serif";">ometimes
a study tells you more about the interests of the researcher, than about the
object of the study” and <span style="color: black;">“total nonsense”.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif";">So
I have to conclude from my little (academically invalid) mini-experiment that
some people are inclined to dismiss results from research if they do not like
them – and even without reading the research or without the skills to properly
understand it. In contrast, other, nicer findings that I had posted in the
past, which people did want to believe, never led to outcries of bad
methodology and mentally retarded academics and, in fact, were often eagerly
retweeted. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif";">We
all look for confirmation of our pre-existing beliefs and don’t like it much if
these comfortable convictions are challenged. I have little doubt that this also
heavily influences the type of research that companies conduct, condone, publish
and pay attention to. Even if the findings are nicer than we preconceived (e.g.
the availability of junk food does not make kids consume more of it), we prefer
to stick to our old beliefs. And I guess that’s simply human; people’s convictions
don’t change easily. <o:p></o:p></span></div>Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-1930103235934641180.post-119322718253523132012-05-10T17:51:00.003+01:002012-05-10T17:51:42.732+01:00Let’s face it: in most industries, firms pretty much do the same thing<br />
In the field of strategy, we always make a big thing out of differentiation: we tell firms that they have to do something different in the market place, and offer customers a unique value proposition. Ideas around product differentiation, value innovation, and whole Blue Oceans are devoted to it. But we also can’t deny that in many industries – if not most industries – firms more or less do the same thing. <br />
<br />
Whether you take supermarkets, investment banks, airlines, or auditors, what you get as a customer is highly similar across firms. <br />
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1. <em>Ability to execute:</em> What may be the case, is that despite doing pretty much the same thing, following the same strategy, there can be substantial differences between the firms in terms of their profitability. The reason can lie in execution: some firms have obtained capabilities that enable them to implement and hence profit from the strategy better than others. For example, Sainsbury’s supermarkets really aren’t all that different from Tesco’s, offering the same products at pretty much the same price in pretty much the same shape and fashion in highly identical shops with similarly tempting routes and a till at the end. But for many years, Tesco had a superior ability to organise the logistics and processes behind their supermarkets, raking up substantially higher profits in the process. <br />
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2. <em>Shake-out:</em> As a consequence of such capability differences – although it can be a surprisingly slow process – due to their homogeneous goods, we may see firms start to compete on price, margins decline to zero, and the least efficient firms are pushed out of the market. And one can hear a sigh of relief amongst economists: “our theory works” (not that we particularly care about the world of practice, let alone be inclined to adapt our theory to it, but it is more comforting this way). <br />
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3. <em>A surprisingly common anomaly?</em> But it also can’t be denied that there are industries in which firms offer pretty much the same thing, have highly similar capabilities, are not any different in their execution, and still maintain ridiculously high margins for a sustained period of time. And why is that? For example, as a customer, when you hire one of the Big Four accounting firms (PwC, Ernst & Young, KPMG, Deloitte), you really get the same stuff. They are organised pretty much the same way, they have the same type of people and cultures, and have highly similar processes in place. Yet, they also (still) make buckets of money, repeatedly turning and churning their partners into millionaires. <br />
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“But such markets shouldn’t exist!” we might cry out in despair. But they do. Even the Big Four themselves will admit – be it only in covert private conversations carefully shielding their mouths with their hands – that they are really not that different. And quite a few industries are like that. Is it a conspiracy, illegal collusion, or a business X file? <br />
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None of the above I am sure, or perhaps a bit of all of them… For one, industry norms seem to play a big role in much of it: unwritten (sometimes even unconscious), collective moral codes, sometimes even crossing the globe, in terms of how to behave and what to do when you want to be in this profession. Which includes the minimum price to charge for a surprisingly undifferentiated service. <br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-1930103235934641180.post-64281977604524949732012-04-02T18:01:00.001+01:002012-04-02T18:04:08.698+01:00A good fight clears the mind: On the value of staging a debateI always enjoy witnessing a good debate. And I mean the type of debate where one person is given a thesis to defend, while the other person speaks in favour of the anti-thesis. Sometimes – when smart people really get into it – seeing two debaters line up the arguments and create the strongest possible defence can really clarify the pros and cons in my mind and hence make me understand the issue better.<br /><br />For example – be it one in a written format – recently my good friend and colleague at the London Business School, Costas Markides, was asked by Business Week to <a href="http://www.businessweek.com/debateroom/archives/2012/02/employee_happiness_matters_more_than_you_think.html">debate the thesis </a>that “happy workers will produce more and do their jobs better”. Harvard’s Teresa Amabile and Steven Kramer had the (relatively easy) task of defending the “pro”. I say relatively easy, because the thesis seems intuitively appealing, it is what we’d all like to believe, and they have actually done ample research on the topic.<br /><br />My poor London Business School colleague was given the hapless task to defend the “con”: “no, happy workers don’t do any better”. Hapless indeed.<br /><br />In fact, in spite of receiving some hate mail in the process, I think he did a rather good job. I am giving him the assessment “good” because indeed he made me think. He argues that having happy, smiley employees all abound might not necessarily be a good sign, because it might be a signal that something is wrong in your organisation, and you’re perhaps not making the tough but necessary choices.<br /><br />As said, it made me think, and that can’t be bad. Might we not be dealing with a <a href="http://freekvermeulen.blogspot.com/2008/10/reverse-causality-sorry-but-lifes-not.html">reversal of cause and effect</a> here? Meaning: well-managed companies will get happy employees, but that does not mean that choosing to make your employees happy as a goal in and of itself will get you a better organisation? At least, it is worth thinking about.<br /><br />In spite that perhaps to you it might seem a natural thing to have in an academic institution – a good debate – it is actually not easy to organise one in business academia. Most people are simply reluctant to do it – as I found out organising our yearly <a href="http://www.london.edu/facultyandresearch/subjectareas/strategyandentrepreneurship/overview.html">Ghoshal Conference </a>at the London Business School – and perhaps they are right, because even fewer people are any good at it.<br /><br />I guess that is because, to a professor, it feels unnatural to adopt and defend just one side of the coin, because we are trained to be nuanced about stuff and examine and see all sides of the argument. It is also true that (the more naïve part of) the audience will start to associate you with that side of the argument, “as if you really meant it”. Many of the comments Costas received from the public were of that nature, i.e. “he is that moronic guy who thinks you should make your employees unhappy”. Which of course is not what he meant at all. Nor was it the purpose of the debate.<br /><br />Yet, I also think it is difficult to find people willing to debate a business issue because academics are simply afraid to have an opinion. We are not only trained to examine and see all sides of an argument, we are also trained to not believe in something – let alone argue in favour of it – until there is research that produced supportive evidence for it. In fact, if in an academic article you would ever suggest the existence of a certain relationship without presenting evidence, you’d be in for a good bellowing and a firm rejection letter. And perhaps rightly so, because providing evidence and thus real understanding is what research is about.<br /><br />But, at some point, you also have to take a stand. As a paediatric neurologist once told me, “what I do is part art, part science”. What he meant is that he knew all the research on all medications and treatments, but at the end of the day every patient is unique and he would have to make a judgement call on what exact treatment to prescribe. And doing that requires an opinion.<br /><br />You don’t hear much opinion coming from the ivory tower in business academia. Which means that the average business school professor does not receive much hate mail. It also means he doesn’t have much of an audience outside of the ivory tower.Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-1930103235934641180.post-15933995233005850232012-03-19T09:52:00.001+00:002012-03-19T09:54:02.437+00:00Research by Mucking AboutI am a long standing fan of the <a href="http://improbable.com/ig/">Ig Nobel </a>awards. The Ig Nobel awards are an initiative by the magazine Air (Annals of Improbable Research) and are handed out on a yearly basis – often by real Nobel Prize winners – to people whose research “makes people laugh and then think” (although its motto used to be to “honor people whose achievements cannot or should not be reproduced" – but I guess the organisers had to first experience the “then think” bit themselves).<br /><br />With a few exceptions they are handed out for real research, done by academics, and published in scientific journals. Here are some of my old time favourites:<br />• BIOLOGY 2002, Bubier, Pexton, Bowers, and Deeming.“Courtship behaviour of ostriches towards humans under farming conditions in Britain” British Poultry Science 39(4)<br />• INTERDISCIPLINARY RESEARCH 2002. Karl Kruszelnicki (University of Sydney). “for performing a comprehensive survey of human belly button lint – who gets it, when, what color, and how much”<br />• MATHEMATICS 2002. Sreekumar and Nirmalan (Kerala Agricultural University). “Estimation of the total surface area in Indian Elephants” Veterinary Research Communications 14(1)<br />• TECHNOLOGY 2001, Jointly to Keogh (Hawthorn), for patenting the wheel (in 2001), and the Australian Patent Office for granting him the patent.<br />• PEACE 2000, the British Royal Navy, for ordering its sailors to stop using live cannon shells, and to instead just shout “Bang!”<br />• LITERATURE 1998, Dr. Mara Sidoli (Washington) for the report “farting as a defence against unspeakable dread”. Journal of analytical psychology 41(2)<br /><br />To the best of my knowledge, there is (only) one individual who has not only won an Ig Nobel Award, but also a Nobel Prize. That person is Andre Geim. Geim – who is now at the University of Manchester – for long held the habit of dedicating a fairly substantial proportion of his time to just mucking about in his lab, trying to do “cool stuff”. In one of such sessions, together with his doctoral student Konstantin Novoselov, he used a piece of ordinary sticky tape (which allegedly they found in a bin) to peel off a very thin layer of graphite, taken from a pencil. They managed to make the layer of carbon one atom thick, inventing the material “graphene”.<br /><br />In another session, together with Michael Berry from the University of Bristol, he experimented with the force of magnetism. Using a magnetized metal slab and a coil of wire in which a current is flowing as an electromagnet, they tried to make a magnetic force that exactly balanced gravity, to try and make various objects “float”. Eventually, they settled on a frog – which, like humans, mostly consists of water – and indeed managed to make it levitate.<br /><br />The one project got Geim the Ig Nobel; the other one got him the Nobel Prize.<br /><br />“Mucking about” was the foundation of these achievements. The vast majority of these experiments doesn’t go anywhere; some of them lead to an Ig Nobel and makes people laugh; others result in a Nobel Prize. Many of man’s great discoveries – in technology, medicine or art – have been achieved by mucking about. And many great companies were founded by mucking about, in a garage (Apple), a dorm room (Facebook), or a kitchen and a room above a bar (Xerox).<br /><br />Unfortunately, in strategy research we don’t muck about much. In fact, people are actively discouraged from doing so. During pretty much any doctoral consortium, junior faculty meeting, or annual faculty review, a young academic in the field of Strategic Management is told – with ample insistence – to focus, figure out in what subfield he or she wants to be known, “who the five people are that are going to read your paper” (heard this one in a doctoral consortium myself), and “who your letter writers are going to be for tenure” (heard this one in countless meetings). The field of Strategy – or any other field within a business school for that matter – has no time and tolerance for mucking about. Disdain and a weary shaking of the head are the fates of those who try, and step off the proven path in an attempt to do something original with uncertain outcome: “he is never going to make tenure, that’s for sure”.<br /><br />And perhaps that is also why we don’t have any Nobel Prizes.Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-1930103235934641180.post-2596042633599981802012-02-22T00:26:00.004+00:002012-02-22T00:31:41.120+00:00“The Best Degree for Start-up Success”“So you want to start a company. You've finished your undergraduate degree and you're peering into the haze of your future. Would it be better to continue on to an MBA or do an advanced degree in a nerdy pursuit like engineering or mathematics? Sure, tech skills are hugely in demand and there are a few high-profile nerd success stories, but how often do pencil-necked geeks really succeed in business? Aren't polished, suited and suave MBA-types more common at the top? Not according to a recent white paper from Identified, tellingly entitled "Revenge of the Nerds."<br /><br />Interested? Yes, it does sound intriguing, doesn’t it? It is the start of <a href="http://www.inc.com/jessica-stillman/nerds-beat-suits-in-the-world-of-entrepreneurship.html">an article</a>, written by a journalist, based on <a href="http://www.inc.com/jessica-stillman/nerds-beat-suits-in-the-world-of-entrepreneurship.html">a report </a>by a company called “Identified”. In the report, you can find that “Identified is the largest database of professional information on Facebook. Our database includes over 50 million Facebook users and over 1.2 billion data points on professionals’ work history, education and demographic data”.<br /><br />In the report, based on the analysis of data obtained from Facebook, under the header “the best degree for start-up success”, Identified presents some “definitive conclusions” about “whether an MBA is worth the investment and if it really gets you to the top of the corporate food chain”. Let me no longer hold you in suspense (although I think by now you do see this one coming from a mile or two, like a Harry and Sally romance), the definitive conclusion is: “that if you want to build a company, an advanced degree in a subject like engineering beats an MBA any day”.<br /><br />So I have read the report…<br /><br />[insert deep sigh]<br /><br />and – how shall I put it – I have a few doubts… ( = polite English euphemism)<br /><br />Although Identified has “assembled a world class team of 15 engineers and data scientists to analyse this vast database and identify interesting trends, patterns and correlations” I am not entirely sure that they are not jumping to a few unwarranted conclusions. ( = polite English euphemism)<br /><br />So, when they dig up from Facebook all the profiles of anyone listed as “CEO” or “founder”, they find that about ¾ are engineers and a mere ¼ are MBAs. (Actually, they don’t even find that, but let me not get distracted here). I have no quibbles with that; I am sure they do find what they find; after all, they do have “a world class team of 15 engineers and data scientists”, and a fact is a fact. What I have more quibbles with is how you get from that to the conclusion that if you want to build a company, an advanced degree in a subject like engineering beats an MBA any day.<br /><br />Perhaps it may seem obvious and a legitimate conclusion to you: more CEOs have an engineering degree than an MBA, so surely getting an engineering degree is more likely to enable you to become a CEO? But, no, that is where it goes wrong; you cannot draw this conclusion from those data. Perhaps “a world class team of 15 engineers and data scientists [able] to analyse this vast database and identify interesting trends, patterns and correlations” are superbly able at digging up the data for you but, apparently, they are less skilled in drawing justifiable conclusions. (I am tempted to suggest that, for this, they would have been better off hiring an MBA, but will fiercely resist that temptation!)<br /><br />The problem is, what we call, “unobserved heterogeneity”, coupled with some “<a href="http://blogs.hbr.org/vermeulen/2009/03/beware-the-danger-of-selection.html">selection bias</a>”, finished with some “bollocks” (one of which is not a generally accepted statistical term) – and in this case there is lots of it. For example – to start with a simple one – perhaps there are simply a lot more engineers trying to start a company than MBAs. If there are 20 engineers trying to start a company and 9 of them succeed, while there are 5 MBAs trying it and 3 of them succeed, can you really conclude that an engineering degree is better for start-up success than an MBA?<br /><br />But, you may object, why would there be more engineers who are trying to start a business? Alright then, since you insist, suppose out of the 10 engineers 9 succeed and out of the 10 MBAs only 3 do, but the 9 head $100,000 businesses and the three $100 million ones? Still so sure that an engineering degree is more useful to “get you to the top of the corporate food chain”? What about if the MBA companies have all been in existence for 15 years while all the engineering start-ups never make it past year 2?<br /><br />And these are of course only very crude examples. There are likely more subtle processes going on as well. For instance, the same type of qualities that might make someone choose to do an engineering degree could prompt him or her to start a company, however, this same person might have been better off (in terms of being able to make the start-up a success) if s/he had done an MBA. And if you buy none of the above (because you are an engineer or about to be engaged to one) what about the following: people who chose to do an engineering degree are inherently smarter and more able people than MBAs, hence they start more and more successful companies. However, that still leaves wide open the possibility that such a very smart and able person would have been even more successful had s/he chosen to do an MBA before venturing.<br /><br />I could go on for a while (and frankly I will) but I realise that none of my aforementioned scenarios will be the right one, yet the point is that there might very well be a bit going on of several of them. You cannot compare the ventures started by engineers with the ventures headed by MBAs, you can’t compare the two sets of people, you can’t conclude that engineers are more successful founding companies, and you certainly cannot conclude that getting an engineering degree makes you more likely to succeed in starting a business. So, what can you conclude from the finding that more CEOs/founders have a degree in engineering than an MBA? Well… precisely that; that more CEOs/founders have a degree in engineering than an MBA. And, I am sorry, not much else.<br /><br />Real research (into such complex questions such as “what degree is most likely to lead to start-up success?) is more complex. And so will likely have to be the answer. For some type of businesses an MBA might be better, and for others an engineering degree. And some type of people might be more helped with an MBA, where other types are better off with an engineering degree. There is nothing wrong with deriving some interesting statistics from a database, but you have to be modest and honest about the conclusions you can link to them. It may sound more interesting if you claim that you find a definitive conclusion about what degree leads to start-up success – and it certainly will be more eagerly <a href="http://www.usnews.com/news/blogs/stem-education/2012/02/15/more-engineers-starting-businesses?s_cid=rss:stem-education:more-engineers-starting-businesses">repeated</a> by <a href="http://www.businessinsider.com/if-you-want-to-start-a-company-get-an-engineering-degree-2012-1">journalist</a> and in subsequent tweets (as happened in this case) – but I am afraid that does not make it so.Unknownnoreply@blogger.com16