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Archives For August 2012

Why Entrepreneurs Should be Rebels

David Burkus —  August 17, 2012

One of the course courses I teach each semester is Entrepreneurship, so I am always looking at books on starting new ventures or helping them grow. Furthermore, as you likely know I have a penchant all things contradictory. So naturally a book like The Rebel Entrepreneur is going to peak my interest. In it, Jonathan Moules has an interesting but over-used premise: entrepreneurship isn’t business as usual. This is idea has gotten a good bit of coverage, but I appreciate Moules approach a bit more.

Rather than writing as a solo entrepreneur and saying “I didn’t take funding, so you don’t have to either,” Moules takes the approach of a journalist. Rather than writing one person’s opinion, what I call a “sample size of one,” Moules spent six years interviewing a large sample of entrepreneurs and collecting case studies of companies like Twitter, Netscape and Gilt Groupe. He then offers the collected wisdom of those who have gone before and offers conclusions like:

  • Cutting costs can kill your business
  • If things get tough, raise your prices
  • You don’t need to stick to your original business plan

Moules writing style is the real refreshing element of the book. Even the above examples can be found elsewhere by “bigger” names in the entrepreneurial thought world. However, Moules tells the stories behind the counter-intuitive ideas better and backs them up with solid examples. For that reason, The Rebel Entrepreneur is a solid read that’s entertaining and enlightening.

David Burkus is the editor of LDRLB. He writes, speaks, and serves on the faculty of management at Oral Roberts University’s College of Business.
In Innovation , ,
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When to Build, Borrow or Buy: Why CEOs should Watch Their Portfolio of Growth Modes

Guest —  August 15, 2012

This is a guest post from Laurence Capron. Laurence is the Paul Desmarais Chaired Professor of Partnerships and Active Ownership at INSEAD and Director of INSEAD Executive Education Program on “M&As and Corporate Strategy.” She is the  coauthor (with Will Mitchell) of the new book Build, Borrow or Buy: Solving the Growth Dilemma. 

Firms that over-rely on a single growth mode suffer. The reliance on a single growth mode is misplaced. In the research I did with Professor Will Mitchell (Duke & Toronto University) on 150 telecom firms, I find that  firms prepared to grow in diverse ways outperform the ones that narrowly focus on one single mode. Specifically,  firms using multiple modes to obtain new resources and skills were 46 percent more likely to survive over a five-year period than those using only alliances, 26 percent more likely than those using only M&A, and 12 percent more likely than those using only internal development.

Overreliance on acquisitions drains key resources, demotivates and burns out internal teams, and fragments the organization. Firms risk corporate bloat if they undertake multiple acquisitions too rapidly, so pacing an acquisition program is crucial for active acquirers. Too much emphasis on organic growth can make your organization so cohesive that it becomes too inert. The US leading pharmacy chain, Walgreens, for instance, became the largest self-service retailer in the country through the green-field development of new stores and distribution centers. Yet, when faced with new challenges (generic drugs, rise of internet and mail order channels, competition from Target and Wal-Mart) in the 1990s, it responded by trying to find internal solutions and ran out of steam –Walgreens has in the past few years made alliances and acquisitions to access new resources and markets.

How can a company discover it is time to start doing thing differently?

It is time to start for a company doing thing differently when firms fall into what we call the “implementation trap” —in which a company works doggedly to perfect the wrong course of action. They invest substantially in learning to manage a specific mode of growth—and then continue refining toward what they deem are best practices attained through experience with that mode.

Ideally, firms should start to experiment with new modes of growth before old habits start hurting the company’s performance. Of course, old habits die slowly. Firms have to overcome resistance of entrenched groups and leaders. Powerful M&A teams are often reluctant to turn a prospective acquisition deal into an alliance. Company licensing team might not be able to see the value of a full acquisition. Internal staff may have a hard time accepting the distinctive quality of third-party resources. The assorted biases of the CEO and other members of the top management team further complicate historical preferences and can also strongly influence the paths that the company selects. Some leaders are compulsive shoppers and use their deal-making savvy to expand their companies; others have the souls of inventors and engineers, leading them to prefer internal development and the integrity of organic growth.

To succeed, therefore, CEOs  have to learn to right way to grow their company – and also learn when and how to abandon the strategies they have grown up with.

In Leadership , , ,
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A Creative Way to “Fix” Incentives?

David Burkus —  August 13, 2012

Incentives have been with us for a long time. As a tool drive performance, there is nearly 100 years of solid argument for their use in organizations. More recently, however, their use has been called into question. As industrial age work transitioned to knowledge work, many began to question whether or not incentives would stay effective. Peter Drucker argued that knowledge workers would be less interested in money and more interested in doing great work. Teresa Amabile summarized decades of research findings on incentives and creativity when she stated that extrinsic motivators like incentives could actually have detrimental effects on tasks requiring creativity, an argument later popularized by best-selling business author Daniel Pink. Despite this evidence, most companies aren’t looking to abandon their incentive programs – but maybe they could find a way to tweak them to work better.

 

A recent economic paper might have found such as way. A team of economic researchers led by Harvard University’s Roland Fryer (and including Steven Levitt of Freakonomics fame) recently flipped the incentive model on its head and tested on one of the most incentive-resistant professions in America: schoolteachers. Even with large pushes from lawmakers for pay-for-performance in schools, the use of incentives on teachers has yet to be proven effective. Typically these programs work by promising bonuses to teachers based on students’ performance on standardized tests. Fryer and company tweaked their program to do the opposite. Instead of promising to give bonuses on the back end, they wanted to test the effect of giving bonuses up front and then requiring they money back if performance wasn’t met.

 

A total of 150 teachers were randomized into several groups, including a control group, a traditional pay-for-performance group, and another group given a $4,000 bonus up front and told it would be reduced in relation to their students’ performance. The results were as impressive as they were surprising. On average, the students taught by the upfront bonus group outperformed students with similar backgrounds by up to 10 percentage points.

 

One possible explanation for this effect is “loss aversion.” Simply put, we’re more motivated to protect assets that we already have than to attempt to gain more assets. Once we are given an object or sum of money, we begin to build psychological connections to it, picturing the ways we’ll enjoy owning it or remembering fondly the ways we’ve used it. Perhaps what was missing from the incentives equation was the subtle push provided by the thought of loss.

 

These findings have some interesting implications for managing performance. Perhaps we should hand out bonuses in the beginning of the quarter. Or maybe we could keep a running tally of money lost during a bonus period instead of listing what individuals are “on plan” for. Perhaps these findings have a larger question for the use of incentives, questions in the same vein as Drucker and Amabile: If it takes the threat of losing money to make an incentive work, is it even worth having an incentive program?

David Burkus is the editor of LDRLB. He writes, speaks, and serves on the faculty of management at Oral Roberts University’s College of Business.
In Leadership , , , ,
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Save The Company By Killing It

David Burkus —  August 10, 2012

We trust innovation to bring our organization’s success; but can we trust ourselves to innovate. In many companies, we preach a great sermon about the need to “think outside the box” and “embrace change.” Despite this great preaching, few efforts actually manage to convert the organization into an innovative success. Despite our best intentions, most innovation efforts fall flat simply because the organization itself was designed to prevent it. While we encourage creativity, we exist inside a system built to discourage it. This is the paradox Lisa Bodell confronts in Kill The Company: End the Status Quo, Start an Innovation Revolution.

Kill The Company is named after one of the many tools Bodell uses to help organizations step outside themselves and be truly free enough to think creatively about what their needs are. The exercise, like many in her book, is designed to get participants to think of their company different. Instead of asking, “how can we beat the competition?” she argues for asking, “how can the competition beat us? How can we kill the company?” I like this approach, and there’s actually some solid research behind the idea of enhancing creativity by reframing questions to think from a different perspective. My second favorite take away from Bodell is the “Kill a Stupid Rule” exercise – where the policies that hinder performance are put on trial and executed.

Kill The Company reads like a call to arms – meaning it is long on inspirational case studies sprinkled with a few decent exercises to get creativity flowing. There isn’t too much discussion on the evidence for why Bodell’s exercises might work – though there is such evidence for many of them. If you’re looking for an empirical book on innovation, this is not it. If you’re looking for a call to arms to inspire yourself or your company toward innovation, Kill The Company just might be the rallying cry you need.

In Innovation , ,
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Is the Flattened Firm Falling Flat?

David Burkus —  August 8, 2012

For the past few decades, the business press and management consultants have pushed for large organizations to flatten their structure. Recent research, however, may be taking some of the wind out of their sails. Flattening usually refers taking two actions to change organizational structure – removing layers of middle management while widening the span of control for the managers that are left. Proponents for flattening have pointed not just to the reduced costs from removing these layers; many also cite the benefits of pushing decisions downward and allowing for a quicker responsiveness and greater morale.

Julie Wolf, a professor of strategy at Harvard Business School, has recently finished an extensive study that argues that many companies that flatten their hierarchies aren’t collecting the promised benefits. In some cases, flattening is having the opposite effect. Wolf collected a data set from 300 large U.S. firms that spanned roughly 15 years. She examined job descriptions, reporting relationships, and compensation systems and then conducted exploratory interviews with senior level executives. She found that when most firms flatten their hierarchies, decision-making power moves upward instead of downward, away from the front-line employees who interact with customers. In addition, rather than decentralizing the structure of the organization, flattening usually results in a drastic centralization.

 

Wolf’s research implies that flattening alone is an insufficient strategy for reducing costs or decentralizing decision making. As friend and fellow business blogger Michael Roberto puts it, “Simply moving boxes and arrows on the organizational chart often does not lead to higher performance.” In addition to a change in organizational design, a change in organizational culture is necessary. Senior leadership needs to demonstrate its commitment to reduce the emphasis on hierarchical status and increase the emphasis on shared decision-making. Unless the culture is one that values and trusts its front-line employees, flattening the firm will simply result in power hoarding – pushing decision-making power upward, inward, and away from those with a specific knowledge about customers, markets and the like. Perhaps this is why the flattened firms the business press champion are also the ones that were flat from the beginning. Without a flat culture, a flattened firm will simply fall flat.

David Burkus is the editor of LDRLB. He writes, speaks, and serves on the faculty of management at Oral Roberts University’s College of Business.
In Strategy , ,
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