Management – Page 28 – artdiamondblog.com

Uncommon Common Sense: Bossidy Execution Book

Source of book image: http://a1055.g.akamai.net/f/1055/1401/5h/images.barnesandnoble.com/images/8280000/8285699.jpg

Bossidy and Charan’s book is not exactly a page-turner of unexpected insights, but the authors say some things that need saying.
Business gurus often forget that success depends on more than vision and inspiration. It depends on courage (to face brutal facts, and to fire the lazy or incompetent), and it requires persistent attention to enough of the details to know what needs to be done, and to know who is doing it.
Much of their practical advice is way easier said than done, but maybe it’s still worth saying.
It occurred to me while reading this book, that I sometimes write and speak as though innovation and economic growth are inevitable with the right institutions. But that is not so.
Even under the best institutions, progress still requires entrepreneurs and managers who work very hard, demonstrate courage, and who care about getting the job done.

Reference to book:
Bossidy, Larry, Ram Charan, and Charles Burck. Execution: The Discipline of Getting Things Done. New York: Crown Business, 2002.

Creative Sparks Arise from Opportunistic Innovation

Source of book image:
http://ecx.images-amazon.com/images/I/51vovIVI5sL.jpg

(p. D16) One of the insights of “Strategic Intuition” is that business makes progress by following the opportunistic innovation model, while governments and international-aid agencies aim repetitively at rigid social goals. Such rigidity happens partly for a reason that Mr. Duggan is too polite to mention — bureaucrats, by nature, rarely give off a creative spark. Mr. Duggan prefers to emphasize a structural cause: The public demands solutions to problems of great social importance; thus bureaucrats get stuck with fixed objectives. Yet Mr. Duggan also shows that social progress often happens by emulating the opportunism of business. Among the most powerful of his examples is Muhammad Yunus’s invention of microcredit.
. . .
If there are still businessmen who feel compelled to follow a fixed-goal plan — missing out on the profits of opportunistic flexibility — then at least there is the free market to punish them. Market feedback is surely one big reason that we have so many innovative entrepreneurs. Where the old approach does most of the damage is in social policy, where the feedback is either fuzzy (as in domestic policy) or absent (foreign aid). Social policy could use a lot fewer commencement speakers and a lot more creative sparkers.

For the full review, see:
WILLIAM EASTERLY. “BOOKSHELF; Surprised by Opportunity.” The Wall Street Journal (Weds., November 14, 2007): D16.
(Note: ellipsis added.)

The reference to the Stratetic Intuition book is:
Duggan, William. Strategic Intuition: The Creative Spark in Human Achievement. New York: Columbia University Press, 2007.

Persistence and Efficiency Matter More than Teamwork and Enthusiasm, for CEO Success

Source of image: online version of the WSJ article quoted and cited below.

(p. B3) What are the traits that chief executives of successful companies share? A new study suggests that hard-nosed personal virtues such as persistence and efficiency count for more than “softer” strengths like teamwork or flexibility.

The findings are sure to intensify debate about how much toughness is appropriate in a CEO. Some famously hard-charging bosses of big companies have retired or been shunted aside in recent years. Successors at companies such as General Electric Co., International Business Machines Corp. and Hewlett-Packard Co. are seen as quieter, less strident team-builders.

But the new study, by three University of Chicago business-school professors, draws on detailed personal assessments of 313 CEO candidates to present a starker view of good leadership’s ingredients. Of these candidates, 225 were hired. Their subsequent performance fuels most of the study’s conclusions.

“We found that ‘hard’ skills, which are all about getting things done, were paramount,” says lead author Steven Kaplan, a professor of finance and entrepreneurship. “Soft skills centering on teamwork weren’t as pivotal. That was a bit of a surprise to us.”

Prof. Kaplan and colleagues Mark Klebanov and Morten Sorensen didn’t size up the CEOs themselves. Instead, they tapped into a consultant’s database long coveted by academic researchers. It contains assessments of individuals’ strengths and weaknesses compiled by ghSmart Inc. The Chicago management-assessment company evaluates CEO candidates on behalf of corporate clients.

For the full story, see:

GEORGE ANDERS. “THEORY & PRACTICE; Tough CEOs Often Most Successful, A Study Finds.” The Wall Street Journal (Mon., November 19, 2007): B3.

Included with the WSJ article was an interesting summary table:

LEADING PROFILE

Here are five CEO traits that correlate most closely with business success at buyout companies — and five that score lowest, according to University of Chicago researchers.

Traits that matter…

• Persistence
• Attention to detail
• Efficiency
• Analytical skills
• Setting high standards

…and not so much

• Strong oral communication
• Teamwork
• Flexibility/adaptability
• Enthusiasm
• Listening skills

Alaska Air Used Skunk Works to Develop Check-In Innovation

Source of graphic: online version of the WSJ article cited below.

The innovation described in the article excerpted below is credited as arising from a ‘skunk works’ project. There’s a neat book called Skunk Works that describes how Lockheed set up an autonomous unit to develop the first stealth air force technology. (Their plant was in a smelly part of town, so it was dubbed the ‘Skunk Works.’)

Clayton Christensen has recommended that established incumbent companies set up skunk works operations in order to develop disruptive technologies that would not survive if they were developed within the main corporate culture and infrastructure.

(In the article excerpted below, it is puzzling to read that Alaska Air went to the trouble to take out a patent, even though they apparently have no intention of enforcing it.)

(p. B1) ANCHORAGE, Alaska — When the Ted Stevens Anchorage International Airport was planning a new concourse, prime tenant Alaska Airlines insisted on a counterintuitive design: "The one thing we don’t want is a ticket counter," said Ed White, the airline’s vice president of corporate real estate.

So the 447,000-square-foot Concourse C, which opened in 2004, has only one small, traditional ticket counter, even though the carrier’s 1.2 million Anchorage passengers checked in through that area last year. This unconventional approach — which uses self-service check-in machines and manned "bag drop" stations in a spacious hall that looks nothing like a typical airport — has doubled Alaska’s capacity here, halved its staffing needs and cut costs, while speeding travelers through the building in far less time.

. . .

(p. B4) Alaska’s design in Anchorage has turned heads in the industry, and in 2006 the airline was awarded a U.S. patent for the check-in process, something it calls the two-step flow-through. Mr. White says his company isn’t trying to keep competitors from going down the same path, but pursued the patent more to reward the many employees who helped to bring the idea to fruition.

Other airlines quickly sent scouts up to Anchorage to check out the new concourse, including a team from Delta Air Lines Inc., Mr. White says. A few months ago, Delta completed a $26 million renovation of its check-in hall at Hartsfield-Jackson Atlanta International Airport, and the finished product looks remarkably similar to that of Alaska Airlines. Greg Kennedy, Delta’s vice president for customer service there, says the new layout has enabled the airline to process passengers checking in during the peak spring break travel period in 20 to 30 minutes at most, compared with two or three hours three years ago — and all in the same amount of square footage but 50% more usable space. Mr. Kennedy says he isn’t aware of a visit to Anchorage but doesn’t dispute it.

. . .

Alaska, the nation’s ninth-largest carrier by traffic, started a "skunk works" lab a decade ago to figure out how to use technology to make air travel less of a hassle for passengers. Out of that effort came the airline’s ground-breaking ability to sell tickets on the Internet and allow fliers to check in online, developments other carriers quickly followed.

For the full story, see:

SUSAN CAREY. "Case of the Vanishing Airport Lines; Alaska Air Speeds Up Flow Of Passengers by Jettisoning Traditional Ticket Counters." The Wall Street Journal (Thurs., August 9, 2007): B1 & B4.

Source of graphic: online version of the WSJ article cited above.

“We’re Not Looking to Achieve Incremental Advances”

Genentech CEO Dr. Arthur D. Levinson. Source of image: online version of the WSJ article cited below.

(p. B1) WSJ: You have multiple blockbuster biotech drugs on the market and more on the way. In such an uncertain business, how do you manage scientists to achieve that kind of success?

Dr. Levinson: We are first and foremost committed to doing great science. If a drug can’t be the first in class or the best in class, we’re just not interested. We’re not looking to achieve incremental advances or extend patents or do X, Y, Z unless it is going to really matter for patients. That allows us to bring in phenomenal scientists and encourage them to do the basic and translational research.

We decided 15 years ago that we would be committing (p. B2) to oncology, which at the time for us was new. We are now the leading producer of anticancer drugs in the United States. We took a lot of risks. In many cases, those risks paid off. We are now also in immunology. Again, the role of management here is to set the broad direction and then hire absolutely the best scientists and bring them in and say, ‘Do your stuff.’

For the full interview, see:

MARILYN CHASE. The Wall Street Journal "How Genentech Wins At Blockbuster Drugs CEO to Critics of Prices: ‘Give Me a Break’." The Wall Street Journal (Tues., June 5, 2007): B1 & B2.

Source of graph: online version of the WSJ article cited above.

A Competent, Caring, Ultimate Authority Needed for Open Source to Work: Linux and Wikipedia

The excerpt below is from a WSJ summary of an article from the Summer issue of the journal Strategy + Business.

Linux’s success isn’t as egalitarian as it seems, says Mr. Carr. In 1997, Mr. Raymond praised Linux’s founder, Linus Torvalds, for realizing that "given enough eyeballs, all [software] bugs are shallow." However, Linux has always had a central authority — originally, Mr. Torvalds himself; later, a small group of engineers — that synthesized the work of the volunteers.

Similarly, the expansiveness of Wikipedia’s entries lies in its contributors’ wide range of interests. However, the encyclopedia is slowly putting together a management team to identify and improve poorly written articles and correct imbalances like the one where the "Flintstones" entry is twice as long as the one on "Homer."

For the full summary, see:

"Informed Reader; TECHNOLOGY; Small Teams Advance Open-Source Effort." The Wall Street Journal (Weds., June 6, 2007): B5.

With Right Incentives, Workers Make Better Tech Purchases Than Managers

(p. A7) Corporate technology managers usually pick laptops, software and other technology for employees. Now some tech managers are finding workers can do a better job when they choose and buy the equipment themselves.

At KLM Royal Dutch Airlines, a unit of Air France-KLM SA, employees had expressed frustration at the company’s policy of providing and supporting only one type of laptop, the Lenovo A30 (formerly IBM), and one smartphone, the Nokia 6021. Last November, Martien van Deth, a senior technology officer in the Amsterdam office, tried a new system: He gave 50 information-technology staffers an allowance of $203, covering two years, to buy cellphones for corporate use. Those who picked more expensive phones paid the extra. Those who chose cheaper phones kept the change. As long as the phone ran Microsoft Corp.’s Windows Mobile version 5 or 6 operating system, KLM guaranteed access to corporate email. The catch: Users had to deal with technical problems themselves and replace phones that broke.

Not only did the program cost less than the $231 the company paid (p. A9) for phones and support over the same period, it was a hit with employees — some of whom bought phones with fancy ringtones and video players. Now "no one can complain that their corporate phone doesn’t have a camera," says Mr. van Deth, who plans to offer a tech allowance to KLM’s entire 1,000-person IT department later this summer, and wants to take the program companywide. He’s also about to start a tech-allowance program for laptops.

For the full story, see:

BEN WORTHEN. "Office Tech’s Next Step: Do It Yourself." The Wall Street Journal (Tues., July 3, 2007): A7 & A9.

When You Need to Know the Difference Between Glacier Creek and Big Thompson River

Is it Glacier Creek, or Big Thompson River? Source of photo: me.

On May 17, 2007, in Estes Park, Colorado, I was the co-leader of a "two hour" hike with 15 Montessori middle-schoolers from Omaha, Nebraska. At some point what we were seeing didn’t seem to correspond with what our roughly drawn YMCA map told us we should be seeing–we worried that we had taken a wrong turn and were lost.

II we were on course, then the water beside us should be Glacier Creek. If we were lost, then it was probably Big Thompson River. (It’s appearance didn’t help–it looked a bit larger than a creek, but a lot smaller than a ‘big river.’)

The first person I found to ask was a tourist who admitted upfront that she was extremely uncertain about where we were. She pulled out a modest map, and pointed to where she thought we might be, which was along the Big Thompson River.

Seeking confirmation, I apologetically interrupted a fellow teaching his girl-friend how to fly fish. This fellow was dressed as an outdoors-man, and exuded confidence. He talked about hiking on a glacier the day before. He helpfully strode back to his SUV with me and pulled a detailed, authoritative-looking map. With no doubt, he pointed on the map to where we were, on Glacier Creek, as I had hoped. As we walked back to where he had been fishing, he pointed in the direction that we had been hiking, and said that without question, we should continue to hike in that direction.

The scenery was fantastic, but Cindy began to worry whether we were going in the right direction, pointing out that there didn’t seem to be any opening in the mountains in the direction in which we were supposing the YMCA camp should be. I agreed with her observation, but said that there must be some non-obvious route, because the fellow who pointed us in this direction had exuded credibility.

We finally got to a small museum. There, an old park service employee asked where we were from. When I said "Omaha" he jokingly asked if knew his old friend Warren Buffet? He told us that he had lived in this area all his life, and that we were definitely walking along Big Thompson River. Then he tried to draw a map to show us how to get back. He scratched his head, discarded his first attempt, and started trying again. Then he asked us (again) where we were from? At this point, I was really worried.

But his second attempt at a map was a good one–it got us back to the YMCA camp.

Maybe we should look for advice from those who are self-critical, as the old man was, rather than from those who exude undoubting self-confidence, as the fly fisherman did? (Or maybe the key was local credentials?)

Maybe, I made a mistake that Christensen and Raynor warn against in their The Innovator’s Solution: looking at charisma and confidence as signs of who to follow. (In fairness to myself, at the time, I didn’t have much else to go on.)

Firms Install Internal Betting Markets for Better Forecasting

Charles Plott, of Cal Tech, co-authored a nifty study several years ago in which he installed a betting market inside of Hewlett Packard to do internal forecasting. The nifty part was that the forecasts produced by the betting market were generally more accurate than the official forecasts that HP’s official forecasters were producing.

The likely reason is not that the official forecasters were stupid or incompetent, but that they were under considerable pressure by corporate higher-ups to spin the forecasts in a favorable way. In contrast, the participants in the internal betting market remained anonymous, and received higher payoffs, the more accurate their forecasts turned out to have been.

The result was not surprising, once you think it through. But what I did find surprising was that HP didn’t keep the betting market going, after the Plott study was finished. (From a long-run perspective, top management should benefit more from accurate forecasts, than from consistently optimistic forecasts.)

In any case, the excerpt from the commentary below indicates that some other companies have gotten the point:

(p. C1) Over the last few years, Intrade — with headquarters in Dublin, where the gambling laws are loose — has become the biggest success story among a new crop of prediction markets. The world’s largest steel maker, Arcelor Mittal, now runs an internal market allowing its executives to predict the price of steel. Best Buy (p. C6) has started a market for employees to guess which DVDs and video game consoles, among other products, will be popular. Google and Eli Lilly have similar markets. The idea is to let a company’s decision-makers benefit from the collective, if often hidden, knowledge of their employees.

But there’s a broader point here, too. For a couple of centuries now, long before Intrade or even the Internet existed, financial markets have been making it easier to bet on what the future will bring.

In the mid-1800s, contracts tied to the future price of wheat, pigs and other commodities began to change hands. In 1972, the Chicago Mercantile Exchange introduced futures for foreign exchange rates. Treasury bonds tied to the future rate of inflation came along in the 1990s, and last year, the Merc began selling contracts based on the direction of house prices in 10 big metropolitan areas.

In every case, the market price reflects the sum of the traders’ knowledge — about the extent of the housing bubble in Los Angeles, for instance, or the likely size of next year’s wheat crop. . . .

N. Gregory Mankiw, a former adviser to President Bush, who has written about Intrade on his blog, explains it this way: ”Everybody has information from their own little corner of the universe, and they’d like to know the information from every other corner of the universe. What these markets do is provide a vehicle that reflects all that information.”

For the full commentary, see:

DAVID LEONHARDT. "ECONOMIX; Odds Are, They’ll Know ’08 Winner." The New York Times (Weds., February 14, 2007): C1 & C8.

(Note: ellipsis added.)

Why CEOs Are Paid So Much More than Other Near-Top Execs

Source of graph: online version of the NYT article quoted and cited below.

(p. A1) Like most companies, Office Depot has long made sure that its chief executive was the highest-paid employee. Ten years ago, the $2.2 million pay package of its chief was more than double that of his No. 2. The fifth-ranked executive received less than one-third.

But the incentive for reaching the very top of the company is now far greater. Steve Odland, who runs Office Depot today, made almost $12 million last year, more than four times the compensation of the second-highest-paid executive and over six times that of the fifth-ranking executive in the current hierarchy.

As executive pay has surged in most American companies, attention has focused on the growing gap between the earnings of top executives and the average wage of workers in cubicles or on the shop floor. Little noticed, though, is how much the gap has also widened between the summit and the next few echelons down.

. . .

The pay of chief executives, analysts say, is being driven by superstar dynamics similar to those that determine the inordinate rewards for pop stars and athletes — a phenomenon first explained by Sherwin Rosen of the University of Chicago in (p. C7) 1981 and underlined more than a decade ago by the economists Robert H. Frank and Philip J. Cook in their book “The Winner-Take-All Society” (Free Press, 1995).

As American companies, American hedge funds — and even American lawsuits — have grown in size, it has become ever more valuable to get the “best” chief executive or fund manager or litigator. This has fueled a fierce competition for talent at the top, which has pushed economic rewards farther up the ladder of success, concentrating the richest pay levels even more.

“There is an interaction between technology and scale which is true in all these businesses,” said Steven N. Kaplan, a finance professor at the Graduate School of Business of the University of Chicago. “One person can oversee more assets, and this translates into more money.”

. . .

As companies grow and expand globally, the value of the top executive can grow exponentially. In a study last year, two economists, Xavier Gabaix of the Massachusetts Institute of Technology and Augustin Landier of New York University, argued that the fast rise in pay of corporate C.E.O.’s mostly reflected the growing size of American corporations.

Processing reams of data, the economists estimated that hiring the most effective chief executive in the country would, statistically, increase the stock value of a company by only 0.016 percent, compared with hiring the 250th chief executive. But at a company like General Electric, which is worth about $380 billion, that tiny difference would amount to $60 million.

This, the economists argued, helps explain why that top chief executive earned five times as much as the 250th. “Substantial firm size leads to the economics of superstars, translating small differences in ability to very large deviations in pay,” the economists wrote.

For the full story, see:

EDUARDO PORTER. "More Than Ever, It Pays to Be the Top Executive." The New York Times (Fri., May 25, 2007): A1 & C7.

(Note: ellipses added.)

“I Fly with Leslie”

A poster that is displayed in some Wall Street Journal offices in solidarity with a Bancroft family member who has openly expressed doubts about Rupert Murdoch’s proposed purchase of the Journal. Source of the image: online version of the NYT article cited below.

A lot of the news media imitate each other in viewpoint and content. The Wall Street Journal is fresh and innovative, and frequently gives us important news that is new.

And there have been times throughout recent decades when the editorial page of the Journal was one of the few voices for truth, justice and freedom. It would be a great loss for that voice to be silenced.

On the other hand, I have noted in an earlier entry, that the business side of the Journal is in need of improvement.

I do not know if in the end, the Murdoch bid is the best chance for the long-run survival of what is good about the Journal. But I do wish the Journal, and the Journal‘s journalists, well.

(p. C1) On May 14, more than 100 reporters, editors and executives clustered in The Wall Street Journal’s main newsroom to mark the retirement of Peter R. Kann, the longtime leader of their corporate parent, Dow Jones & Company.

Mr. Kann, in rolled-up shirtsleeves, was typically self-effacing about his own contributions to the company. But the celebration of the past was muted by worry about The Journal’s future. A few weeks earlier, Rupert Murdoch’s News Corporation had offered $5 billion to buy Dow Jones. The Bancroft family, owners of a controlling stake in the company, rebuffed the offer at first, but there were signs that some of them were wavering.

Mr. Kann, who had been advising the family against selling, expressed hope that Mr. Murdoch would not prevail, using an image of The Journal as a citadel trying to repel an invasion by tabloid barbarians.

“The drawbridge is up,” Mr. Kann told the group. “So far, so good.”

For employees at Dow Jones, the 11 weeks since they learned of the Murdoch offer have been a wrenching time, raising the prospect of fundamental changes at an organization that had already had its fill of big changes in the last couple of years — with Mr. Kann being replaced by Richard F. Zannino as chief executive, with Marcus W. Brauchli taking over from Paul E. Steiger as top editor; and with a shift of its mission, by adding a Saturday paper and more lifestyle articles to appeal to new advertisers, and investing heavily in its digital properties.

. . .

(p. C12) The anti-Murdoch forces enjoyed one of their brief lifts on June 29 when The Journal reported that Leslie Hill, a Bancroft family member, had grave reservations about selling to Mr. Murdoch. Someone enlarged The Journal’s dot drawing of Ms. Hill, a retired airline pilot, adding the words “I Fly with Leslie” above her face. Copies of the makeshift poster appeared in Journal offices around the country.

. . .

As the chances of an alternative have appeared to wane, more reporters and editors have polished their résumés and approached rival publications about jobs. Some have even talked of starting their own business news Web site.

Many voiced disappointment in the Bancrofts, the family that has owned the company for more than a century and taken great pride in it, for not playing a leading role in running it for more than 70 years.

“We understand that for the Bancrofts this is a choice between getting much richer, and holding onto something because they believe in it,” a reporter said. “What they may not realize is that many of us in the newsroom have made the same choice. There are a lot of people here who could be traders or lawyers, people with M.B.A.’s, who could be making a lot more money. To us, this is not an abstract choice.”

For the full story, see:

RICHARD PÉREZ-PEÑA. "At The Gates; Murdoch’s Arrival Worries Journal Employees." The New York Times (Thurs., July 19, 2007): C1 & C12.

Rupert Murdoch. Note that the image is a tribute, or humorous small jab at, the hallmark image style of the Wall Street Journal, in which photographs are re-done by artists into an example of something like pointillism. (True also of the poster image above.) Source of the image: online version of the NYT article cited above.