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GlobalThe free business magazine featuring articles from the world's most prestigious business schools.
Also including articles from:OXFORD, COLUMBIA & HARVARD
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The free business magazine featuring
articles from the world's most
prestigious business schools.
Quarterly: March, June, September,
December.
All articles are authorized reproductions
Global
December 2014h t t p : / /www. G l o b a l B u s M a g . c o m /i n f o @ g l o b a l b u s m a g . c o mPapegaaistraat 76,9000 GentBelgium
INSIDE this issueWant to Create the Next Great Software Product? Don’t Try to Innovate 5
5 ways to make strategic partnerships successful. 7
Seven questions to make sure your company is built around customers 10
Negotiating Deals From a Position of Powerlessness 14
Four ways companies can encourage innovation 17
Showroom Showdown 20
Ken Shotts: Better Decisions Spring From Competition and Balance in
Organizations 23
Take a Look at Yourself in the Leadership Mirror 27
Want to Create the Next Great Software Product? Don’t Try to Innovate.
Ben Galbraith, vice president of global products for Walmart, is surprised at how many people still believe that the best way to come up with new software is to “get a bunch of nerds and put them in a room until they produce a product.” In reality, he said at the recent BizTech@Wharton conference, successful software development requires active involvement by business leaders.
Galbraith, whose previous positions include director of developer relations at Palm and director of developer tools at Mozilla, held up the example of Mike Markkula, Apple’s first backer and its second CEO. “Because Mike understood the technology-development process, he was able to provide the leadership Apple needed to figure out how to be successful. He’s the one who really set the tone for how to develop great technology products and bring them to market,” said Galbraith.
One valuable piece of guidance that leaders can provide is to steer developers away from trying for “moon shots” — creating software unlike any seen before — which Galbraith said may not be the best business path. While he noted that striving for pure innovation is “great … when you have billions of dollars in cash that you can throw at it,” the results are unpredictable and can
take years. This is untenable for a company that needs to bring a product to market and deliver some kind of return, he added.
Amazing Innovations That Aren’t Quite So Amazing
What is the alternative? Incrementalism. Galbraith noted that some of the most standout products in recent memory were, in fact, only slight modifications of other, less successful products. The iPod, for example was not the first MP3 player on the market — and in fact had many competitors. But, he said, it “wound up dominating the market completely.” Google Maps came out at a time when MapQuest had already become a household name, yet within a few months it had unseated MapQuest in the marketplace. Today, Google Maps is responsible for 70% of location-based queries, he noted. The workplace online chat program Slack, Galbraith added, emerged out of nowhere about eight months ago to displace reigning programs like Campfire and HipChat. “Anyone know what [Slack’s] valuation is?” he asked the audience. “A billion-dollar valuation in about eight months. The other companies are not even close.
“These successful products really didn’t do anything novel.”“What’s fascinating to me … is that these successful products really didn’t do anything novel,” Galbraith continued. “I don’t think I could point to a single feature in any of [them] that was really compelling relative to their competition.” He commented that even the iPhone — which many people think of as an amazing innovation — has an interface that looks a lot like the failed Palm Treo, discontinued about five years ago.
Nailing the Details
According to Galbraith, what actually sets these products apart is attention to detail. Part of that is
interaction design, or usability. Galbraith quoted Jakob Nielsen, a renowned web usability consultant, as saying that it takes only a tenth of a second for people to notice delays in reactions from a software product. “And after a second, you start to lose your focus because you have to wait, and after 10 seconds, you’re pissed,” said Galbraith. “When you realize that, you start to realize how high the bar is to create software experiences that people really love.”
Good design also means providing an appealing visual experience, he noted. Referring to the MapQuest vs. Google Maps example, Galbraith said that MapQuest’s maps were “actually pretty ugly. There’s a ton of detail going on, not a lot of great contrast; it’s just really busy … not a pleasant experience.” But Google Maps, he said, enhanced the visual appearance with better user typography, the skillful use of contrast and simplified map elements, which “made it so you actually enjoyed consuming that content relative to its competition.”
Galbraith quoted Jakob Nielsen, a renowned web usability consultant, as saying that it takes only a tenth of a second for people to notice delays in reactions from a software product.
Galbraith said that according to another usability guru, Don Norman, people feel better when interfacing with attractive things, which lowers our stress and enables us to ignore minor obstacles that might impede accomplishing a task.
When you get these two elements of design (interaction design and visual design) right, said Galbraith, “the passion you elicit from users is almost unbelievable.” He quoted a recent Twitter stream from Slack users, who, completely unsolicited, expressed their ardent love for the product. Their comments were unprompted by marketing efforts, Galbraith noted, since to his knowledge Slack does little or no marketing. He noted that one tweet read: “Slack is just straight up life-changing.” Said Galbraith, “Nailing the details produces a sense of joy in people and a
sense of loyalty that just can’t be bought.”
Getting Serious About Software
Galbraith talked about his experience guiding software development at Walmart, one of the world’s biggest companies, but not a company for which software design and consumer usability has been a focus. He was asked what the biggest challenge was for Walmart in the area of e-commerce. “Getting out of our own way,” he replied. Twitter
“Nailing the details produces a sense of joy in people and a sense of loyalty that just can’t be bought.”He explained that scaling product-development efforts is extremely difficult in the company’s large, complex environment. The problem is not a shortage of ideas, he added: “Often people will come to us with an [e-commerce] idea and [say], ‘Here’s the idea, thank you very much, I’ll come by to pick up my royalty check; I have just changed your business.’” But the real rub is execution: juggling multiple stakeholders and product lines. “We do half a trillion dollars a year … some lines of business tend to be bigger than the entire industry segment they compete in,” Galbraith pointed out. “The challenge is organizing ourselves in a way so that we can be fast and effective.”
Galbraith noted that it was only four or five years ago that Walmart decided to take e-commerce seriously. “We weren’t doing so well,” said Galbraith of some of the initial efforts. He described a “mediocre mobile website that forced you to go to the desktop website to buy things.” The app took about a full minute to launch. But Galbraith said that applying some of the interaction design and visual design concepts he spoke of brought about six global products that led to revenue increasing by 450%. “We went from some of the worst products to four-star reviews.”
"Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania."
http://knowledge.wharton.upenn.edu/article/creating-great-software-is-about-taking-blockbusters-a-step-further/
5 ways to make strategic partnerships successful.Strategic partnerships fail more than half the time.
How can your business get them right?
By IMD Professors Charles Dhanaraj and James
Henderson - October 2014
In recent years the growth of business partnerships has accelerated, driven by the benefits of risk sharing, resource pooling and technology. According to a 2014 PwC survey, more than 80% of CEOs in the United States are currently looking for strategic partnerships or intend to do so in the near future. Nevertheless, in the last three years, only 65% of those seeking new strategic alliances have been successful in forming one.
Most often, strategic partnerships are established when companies need to acquire new capabilities within their existing business. They inevitably involve challenges that have to be resolved efficiently to ensure the longevity and success of the alliance. If these challenges are not tackled, the partnership will more than likely fail, which, as the empirical research shows, happens in more than half of all cases (Dyer, Kale and Singh, 2001).
In order to avoid failure and effectively build joint capabilities, strategic partnerships should be based on trust and follow five simple steps.
Step 1: Strategize
Companies that decide to pursue strategic partnerships should introduce changes at the strategy level. This includes organizational structure, processes, and most importantly commitment at all levels. A company should clearly define the areas in which partnerships should be built based on its general strategy as well as its objectives.
The most important group to involve on the operational level from both companies is middle management since their objectives are often conflicting. Creating mutually accepted metrics to measure success is also important.
Step 2: Search, screen and select
One of the most common mistakes businesses make when looking for possible partners is to consider only a few options instead of looking at the whole ecosystem of strategic partnerships. In general, companies should use a variety of mechanisms in their search for partners. In the screening phase, companies should look for strategic partnerships that will give them new capabilities within their existing business, and be aware of consumer insights. The selection process should take into consideration a good match in terms of capabilities, competences and culture as well as readiness to invest "in kind."
NetApp, an American computer storage and data management company, applied a well-structured systemic approach when searching for possible strategic partners in order to successfully compete with big "one-stop shop" companies like IBM and Dell. Its first step was to map the competitive landscape across all areas of cloud infrastructure. Eventually, it formed a non-equity partnership with Cisco, called Flexpod, which engages virtual teams of the best professionals from each company and forms multiple small
partnerships in various locations around the world.
Step 3: Choose the structure
There are multiple structures of strategic partnerships — from non-equity alliances (such as joint research and development, long-term sourcing, shared distribution/services etc.) to equity-based partnerships in the form of minority equity investments and joint ventures. Non-equity strategic partnerships are often preferred due to high uncertainty in the market, the existence of several possible partners, the risk of damaging existing partnerships, and good organizational fit.
Joint ventures are the least popular; they are the most difficult to manage and have an average life span of around seven years. In order for a joint venture to succeed, it should recruit independent people to make a fresh start rather than engaging current employees who might prioritize their companies' interests.
Whatever the type of partnership, the master agreement should be signed at CEO level and should explicitly address shared responsibilities, intellectual property as well as conflict resolution and exit terms. Companies should also avoid money investments by investing in equipment, technology, people, and buildings. As soon as money is involved everything becomes a transaction rather than a long-term joint endeavor.
Step 4: Start and stabilize
Developing a supportive culture within the company is vital to ensuring that a strategic partnership is efficient and productive. This means recognizing partnerships as a corporate priority and having support from senior leadership, partnership leaders and teams. Nevertheless, conflict is inevitable and interest-based problem solving is the best way of tackling it. This requires separating people from the positions, emotional from rational issues, and
focusing on mutual interests and clarifying the commitment of both parties. The most important step is agreeing on the issues to be resolved. The contract should identify a dispute resolution process.
In 2007 Starbucks tried to enter the Indian market through a joint venture with Future Holdings but failed. In 2010 it tried again to break into India by partnering with Tata through a non-binding memorandum of understanding which didn't resolve issues related to equity stake, branding and pricing. After intense negotiations, with each party compromising on its original positions to create a sustainable growth strategy, a 50/50 partnership was concluded. Starbucks was launched in Mumbai in 2013 and continues to branch out to other cities.
Step 5: Study and steer
A portfolio approach, wherein companies form a special unit that is responsible for enabling and supporting partnerships or projects, increases the effectiveness of strategic partnership since the broader its scope, the more successful it is. A special unit ensures institutional memory and the transfer of best practices across its portfolio.
In 2007 Nestlé created a special unit that was responsible for all strategic partnerships. By 2009 it had developed a well-established practice for strategic partnerships and a broad scope of alliances across businesses, universities, start-ups and venture capitalists.
Key takeaways
With the significant increase in strategic partnerships, companies should bear in mind that success depends heavily on adopting a proper strategy, alignment and integration into the organization's processes and operation.
Open communication lays the foundation for successful strategic partnerships, ensuring trust and clarity of objectives. When structuring the
partnership, equity serves as a substitute for trust. If trust is weak, the partners tend to feel "it pays to cooperate," whereas strong trust stimulates partnerships to the level of personal relationships, reflecting solidarity and similar cultural values.
Follow the five steps above, and your business will be on its way to creating successful strategic partnerships.
Charles Dhanaraj joined IMD in 2014 as Professor of Strategy and Global Leadership. He will be leading a stream at OWP Singapore on how CEOs and senior executives can react to slower growth in emerging markets.
James Henderson is Professor of Strategic Management at IMD.
The article above is republished courtesy of http://www.imd.org/research/challenges/
Seven questions to make sure your company is built around customers
Is your company doing everything it possibly can to be useful and compelling to customers? Nayeem Syed provides seven essential questions to make sure customers come first.
1. Why - precisely - should anyone give us their money?
This is a simple but incredibly powerful question which can be used in the product development, marketing and sales function of any organisation that needs to persuade buyers to select it from a range of alternative sellers. It can be used to great effect when teams brainstorm together to consider what they are offering from the perspective of their target buyers, and work out if what they are offering and how, is best addressing a big enough specific consumer problem that will lead to a sufficient number of satisfied purchasers.
Thinking from the customer’s perspective is what great organisations do. The trouble is that organisations routinely produce incredibly
innovative things that don’t sell, set prices seeking only a modest profit but which customers consider still too high or devise marketing strategies that fail to excite the market.
Focusing on what will actually encourage customers to willingly part with their cash will clear the fog and help you make the right choices. If leaders help their organisations fully internalise this fundamental question and use it as a formal tool, they will shape the internal culture at the operating system level, and help align all their employees around a grounded consumer marketing mindset: we want you to choose us and keep choosing us.
2. Are we offering the very best in our chosen segment?
Companies spend a great deal of time thinking about what they offer for sale; either the same or new things, to either the same or new customers. However, companies would do better to consider why customers should buy and keep buying from them?
The best defence is a good offence. You may currently be a large organisation, or even the biggest company currently in your space, but new technologies and more open platforms mean much lower barriers to entry. These developments necessarily mean shrinking economic moats and a decreasing ability to rely on traditional incumbent status and price stickiness.
Consider Apple which has repeatedly entered entirely new industries, spent heavily and built its way into a leading position. In turn, it too has faced the issue of powerful players piling in and producing de facto facsimiles according to its carefully crafted template. Google is also a highly successful disruptor of industries, developing incredible alternatives to high margin profitable business tools, operating systems and devices often seeking small if any direct profit,
seemingly viewing these initiatives as indirectly growing the use of search in which it leads the world. Equally, a small of team of talented technologists with a genius idea can rapidly disrupt even seemingly unassailable product superiority or customer loyalty.
Only a commitment to providing customers with the most compelling service will provide a sustainable defence to disruptive changes and aggressive market entrants.
Ask yourself: are you considered competent or one of the best in your industry? Is your product providing customers with the most useful features? Are you helping them gain the competitive advantage they need to succeed in their own downstream markets?
Even a low cost strategy must still offer compelling value for the price charged. Low cost short haul airlines seemed (to varying degrees) to revel in ignoring traditional industry customer service staples – arguing they had focused on the right lever – price – and not extras or passengers at the margin. However, is this sustainable indefinitely? As they sought to compete outside their traditional tier-two routes, and found they perhaps overreached in the manufacturing of hidden extras, they have tempered their drive to strip back every possible expectation in the travelling experience and have now sought a more business friendly image. Growth expectations will continue to put pressure on them and external forces can, and usually will, erode their competitive advantages.
3. Are we making buying from us as easy as possible?
Amazon secured its “1-Click” patent to free users from not only manually inputting billing and shipping information, but even the need to go through the shopping basket process. The latter arguably saved the user only a few extra clicks but clearly was appreciated by users as evidenced by the amazing resulting spike in registrations
for this faster way of buying and industry validation when it licensed it to Apple for the iTunes Store and iPhoto.
When Amazon developed its mobile e-reader device, it led with the slogan which further demonstrates its grasp of this question: Think of book. Start reading it in 60 seconds. The way it then devised the search, ordering and wireless delivery of content furthered the so-called long tail effect, enabling its entire digital book catalogue of content to be accessed even more easily than its desktop e-reader service.
The process through which Amazon found a way to succeed in simplifying online ordering and digital delivery can be applied to any product or service by just collectively exhausting the possible ways to answer this question.
The question has broader application: we should continuously aim to make all parts of the customer purchasing journey easier, finding appropriate ways to enable clients to discover and try out new products and remove obstacles or red tape to spending more with us. We must create frictionless commerce in a broader sense.
What is the average length of time to get a client on board – to complete a tendering process, negotiate and conclude contracts, complete acceptance testing and migrate away from third parties? Each of these steps has scope for reduction and offers an opportunity for each internal group to find structural ways to do this. And, the motivation is simply this: to avoid losing business and to accelerate the initial billing date.
4. Are they telling all their friends great things about us?
Doing a good job may keep clients but doing a great job will exponentially magnify any marketing effort. The halo affect that some organisations enjoy is intentionally earned and not accidental. These companies consciously
want to be loved by their customers. This is a helpful, healthy and vital form of corporate neediness. To achieve this, leaders focus their employees on striving to be as helpful as possible in their particular function to further their organisation’s overall delivery of great value for money. This goodwill also empowers companies to be bold when innovating in new areas and less fearful when mistakes invariably happen.
The US retailer Nordstorm is often held up as an example of exemplary customer service. Its president joked that his company focuses on this because "customers will buy more when they're happy with you”. The challenge he says is that "what has made them happy has changed". Indeed, the shift from fixed stores to e-commerce has presented challenges to Nordstrom’s coveted competitive advantage: its experienced and highly committed in-store sales staff. The challenge Nordstorm Direct, its online store, faced was transferring that powerful human engagement to the online experience. The company seemed to succeed by approaching the task applying its traditional great-customer-service-leads-to-sales ethos to the new platform and new customers segments.
5. Are some within our organisation pushing customers away?
Selling is time consuming and certainly not formulaic. And it’s not solely the responsibility of those whose compensation is directly related to how many units are sold. Each and every interaction that each and every one of your colleagues has with customers is a marketing opportunity. Failure to fully appreciate this can inadvertently lead to broken relationships and worse, the opposite of customers singing your praises.
Often those only sporadically involved in the seller’s tendering process can and do send conflicting messages as to how much the customer is valued. This conflicting message may leave the customer wondering what the firm
will be like to deal with once the ink has dried on the sales order.
Just as receptionists and call centre staff are hired and trained to fully appreciate their role as the “initial face” and “ongoing voice” of their organisation, all employees no matter how far removed from constant or regular direct customer interaction must be helped to ensure a healthy respect for their role in “representing well” the company to customers and to actively contribute to their front-line colleagues efforts to support the customer’s needs.
The aim should be a comprehensive alignment toward a single collective mindset: an appreciation of the clear self interest in empathising with the challenges, concerns and needs of customers and an acceptance of each individual’s responsibility in contributing toward the customer experience. Every one must think more and care sincerely about customers.
6. Are we asking them what else we could do for them?
You should be constantly and actively thinking about your best customers – those customers who already spend a lot with you and those with the potential to spend even more.
Sales teams will think a lot about whether they can we sell more of the same to customers. However, you should also ask if there are things which customers are buying from others, or entirely new things they need that you could usefully offer to sell them. If you have the relationship and a track record of credibly offering customers one solution, you are well positioned to offer a solution to their other requirements, to the extent you usefully and profitably can.
To do this, you need to deeply understand their business structures and spending behaviours in order to anticipate threats to current revenue streams and identify new opportunities.
Research teams will seek out market intelligence but all staff should be comprehensively trained to understand what you sell, why it is useful and how it compares with the alternatives. Further, you should encourage - and expect - staff to learn about their industry and to develop their client and market knowledge through a structured plan agreed with line managers. It is otherwise difficult to expect them to innovate, drive change and ultimately fulfill their potential in providing added value.
Perhaps this is easier in start-ups where many employees literally grow up along with the company but even large sprawling conglomerates can at least offer employees opportunities and incentives to engage. Addressing this may be even more vital in larger, older organisations.
7. Are we asking customers to help us innovate?
It would be an ideal situation if your customers would tell you- clearly and in an unvarnished way - exactly what they liked about your product, what they would change, what other features they would appreciate and how much more they would be prepared to pay for them and what they thought of your direct competitors on these counts.
You may not be able to ask too much directly and equally and customers may not be prepared to answer you directly. However, there are few better ways to find out which would be useful activities to pursue and what refinements would provide value likely to be appreciated by customers. Therefore, you want to create a trusting relationship that will allow you to work discreetly, but openly, with customers so that you can directly gain actionable insights. They could for example be invited to sessions in your R&D labs and encouraged to step outside of their traditional roles and play with the test use cases and discuss their reactions.
In this context, your best customers are not
necessarily the biggest potential spenders. So, initially, you should look to engage with those customers you have strongest relationships with and appear more open to collaboration to lead you to greater mutually beneficial learning.
However, you shouldn’t give up on clients who initially are not enthusiastic to the potential of joint innovation. But, you can keep working on them, sharing details of your plans, some of the results so that they may see the benefits of joining with you.
A business has two goals. First, to generate higher earnings in order to be able do to useful things. Second, to create value for customers that they will pay a premium for. (Hopefully, they will then go on to do useful things too.)
The only sustainable pathway to the first is through achieving the second. Success there will, on average, be in proportion to the entire organisation’s commitment to selling more by delivering that perceived customer value.
What that looks like in each case can be worked out by answering these questions with humility and a determination to demonstrate to customers they should select you and your company over the alternatives.
The article above is republished courtesy of London Business School http://bsr.london.edu/lbs-article/847/index.html
Negotiating Deals From a Position of Powerlessness
Michael Schaerer, Doctoral Candidate in Organisational Behaviour and Roderick Swaab, Assistant Professor in Organisational Behaviour | December 16, 2014
When you are negotiating a deal it pays to have viable alternatives to fall back on – or at least that’s what most people think. New research suggests that being powerless can be liberating and help you achieve better deals.
Negotiators are strongly advised to identify viable alternatives that they can fall back on during a negotiation. After all, alternatives give negotiators the power to extract more concessions from their opponent. The better your BATNA (Best Alternative To a Negotiated Agreement) the less dependent you are on the other negotiator for finalising a deal. In fact, past research has shown that negotiators with better alternatives generally end up with superior
outcomes because alternatives offer the luxury to walk away from the bargaining table.
But having a fallback option is not always beneficial. In fact, when the alternative option is weak, it can actually be detrimental for negotiating outcomes – even more so than having no alternative at all.
Why powerlessness can be liberating
Take Leigh Steinberg, for example, who is one of the most prolific and successful sports agents in the world and the real-life inspiration for the title character in the movie Jerry Maguire. In his new book “The Agent” Steinberg tells the story of how he signed his very first football client in 1975, quarterback Steve Bartkowski. However, negotiating a rookie contract for Bartkowski seemed like a tremendous challenge because he had virtually no offers. Despite their powerlessness, Steinberg made the bold move when he offered Bartkowski’s services to the Atlanta Falcons for an unheard of amount of US$750,000 for a four-year contract—more than any football player had ever been paid. Although the Atlanta Falcons were outraged, they eventually agreed to sign Bartkowski for US$600,000 over four years, the most lucrative rookie contract in NFL history at the time.
Steinberg’s negotiation with the Atlanta Falcons illustrates that having no alternatives and being completely powerless can allow negotiators to reach more profitable agreements than having any alternative.
To explain why this is the case, we relied on the anchoring effect. Anchoring is a widespread cognitive bias and refers to the human tendency to rely too heavily on one piece of information (often a numeric value) when making judgments or decisions. And because negotiators anchor on the value of their alternatives when making their first offer, those with weak alternatives are likely to be more constrained and make lower first offers than those with no alternative at all. This
has important consequences for the negotiation outcome because negotiators who make higher first offers generally end up with better deals than those who make lower first offers, especially so in competitive negotiations involving a single issue.
So, if Steinberg had managed to secure a weak alternative offer for Bartkowski, say US$150,000, he would have relied heavily on this anchor and may have made a more modest first offer than the US$750,000 he originally asked for.
Alternatives not only make you powerful but also weigh down your first offer
We tested this idea in our article, Anchors Weigh More than Power: Why Absolute Powerlessness Liberates Negotiators to Achieve Better Outcomes, co-authored with Adam Galinsky, Professor of Business at Columbia Business School.
First, we wanted to see whether negotiators would follow the recommendation to always negotiate with an alternative – irrespective of how unattractive that alternative is. We asked a hundred people whether they would prefer to negotiate a job offer with a weak alternative or without any alternative. Strikingly, more than 90 percent indicated that they would prefer to enter the negotiation with an unattractive alternative offer. This confirmed our suspicion that people assume that having any alternative is better than no alternative.
Next, we wanted to examine whether negotiators with a weak or with no alternative would make higher first bids. We recruited a group of participants and told them to imagine that they were selling a secondhand CD by The Rolling Stones. We then randomly assigned them to three groups and gave each group different information about their alternatives. The first group was told that they had no alternative offers. Thus, if the
negotiation failed they would end up with no money. The second group was told that another buyer had offered just US$2 for the CD. And the third group was told that another buyer had offered US$8. In other words, some negotiators had no alternative, some had a weak alternative, and some had a strong alternative. We then asked all participants to make a first offer and to indicate how powerful they felt.
Not surprisingly, negotiators with the strong alternative felt the most powerful, followed by those with the weak alternative, and those with no alternative felt the least powerful. Despite feeling more powerful, however, those with a weak alternative made lower first offers than those without an alternative. Those with strong alternatives always did the best. This study shows the ironic influence of negotiation alternatives: although alternatives may make negotiators feel powerful, they can also constrain negotiators and reduce the value of their initial bid. In other words, having no alternative can be psychologically liberating and allow negotiators to make more aggressive first offers.
Powerlessness can help negotiators seal the deal
We then took our research one step further to see whether negotiators without alternatives would not only make higher first offers but also achieve better agreements than those with unattractive alternatives. In the next experiment, participants were put in pairs and took the role of a buyer and a seller. The seller had a Starbucks mug to sell and would meet face-to-face with the potential buyer. Before the meeting, however, the seller got a phone call from another buyer (for which we used a laboratory confederate). In half the cases, the caller informed the seller that he was not interested in buying the mug. In the other half other cases, the caller made a low-ball offer to the seller. After the phone call, the seller went into another room and negotiated face-to-face with the buyer.
The results again backed up our predictions. Sellers without an alternative offer felt less powerful, but made higher first offers and negotiated a considerably higher sales price for the mug than sellers with a weak alternative.
If your alternative is weak, focus on your target price
Unfortunately, negotiators often end up with unattractive offers and cannot always improve their bargaining position before entering a negotiation. Thus, we wanted to see whether there is a way to reduce the negative impact of weak alternatives. Because negotiators tend to rely on and anchor too heavily on their alternatives, we instructed half of the negotiators to think about and focus on their alternative and the other half to think about and focus on their target price (i.e. the ideal price at which they could sell). As expected, negotiators with unattractive alternatives only negotiated worse deals than those without alternatives when they focused on their alternative. However, when negotiators focused on their target price instead, there was no longer a difference in their performance.
Thus, negotiators who are unable to obtain strong alternatives should be wary of low anchors. In contrast, negotiators without any alternative may not have to worry about their powerlessness and instead should spend their resources on making the right first offer.
Michael Schaerer (@michaelschaerer) is a Doctoral Candidate in Organisational Behaviour at INSEAD
Roderick Swaab is an Assistant Professor in Organisational Behaviour at INSEAD
Follow INSEAD Knowledge on Twitter and Facebook
Read more at http://knowledge.insead.edu/organisational-behaviour/negotiating-deals-from-a-position-of-powerlessness-3745#f95ve1qJ1T3GAjfR.99
The article above is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu
Four ways companies can encourage innovation
Five years ago, an Executive MBA alumnus who had taken a course with Michael Gibbs, clinical professor of economics and faculty director of the Executive MBA Program at Chicago Booth, stopped by to visit—and mentioned in passing that the firm where he worked had been tracking the progression of thousands of new ideas. “You have a database of new ideas and what happened to them? Can I get access for research?” Gibbs recalls asking.
Companies usually loathe revealing what makes them successful, lest competitors profit from the information. But what the alumnus described struck Gibbs as an unusually good store of data he could use to analyze creativity in the workplace. Academics interested in the subject rarely get an opportunity to measure what works, or doesn’t, outside of a laboratory or controlled situation. Furthermore, he soon learned that the company had even more data: it had recently run an experiment to see if incentives could encourage more and better ideas.
The firm agreed to share its data, on the condition that the company’s name and other identifying details be kept secret. (Gibbs and his coresearchers—Susanne Neckermann of Erasmus University Rotterdam in the Netherlands and Christoph Siemroth of the University of Mannheim in Germany—can only say that it’s a publicly-traded IT-services firm that employs more than 70,000 people and does business-process outsourcing.)
And after analyzing the progression of 5,000 ideas, the researchers identified a few operational decisions that collectively paid off more than tenfold. Their findings, especially when coupled
with those of their colleagues in academia and industry, contain four approaches companies can use to spur innovation.
#1 Use an idea portal
The IT firm Gibbs studied had in place an “idea portal,” an intranet-based tool that helps track ideas from seed to implementation. As a portal is usually accessible to most employees, it makes ideas and their origins transparent.
At the company, employees formed small groups to come up with and submit new product ideas as well as operational suggestions ranging from how to better communicate with client teams to how to make work patterns more efficient within specific departments.
“Many companies struggle to generate an overall culture of innovation. They have an R&D group and hope that this will lead to new products,” Gibbs says. But an idea portal can encourage all employees to share new ideas, he says, and showing those ideas to other employees can stimulate thinking, help create friendly competition, and encourage better ideas.
Larger companies can have a particularly hard time inspiring employees to generate and pitch new ideas. Positions may be narrowly defined, job descriptions may not formally include “developing new ideas,” and employees may not want the hassle of doing extra work.
But many employees “have useful knowledge about customers, and may have ideas about ways to improve processes, customer service, or product design,” the researchers write. Those employees need a chance to see their ideas put into practice.
In the past few years, several companies have implemented programs to prevent potentially valuable ideas from getting lost. Consulting giant Accenture, headquartered in Dublin, launched an idea-proposal competition for staff, with cash rewards. At Mumbai-based Tata Consultancy
Services, employees use IdeaMax, billed as a social innovation platform, to encourage ideas from its consultants. Chemical giant BASF’s “We Create Chemistry Portal” allows employees and clients to share ideas. Other companies have experimented with innovation consultancies by crowdsourcing new ideas.
To get the most from portals, one innovation expert suggests narrowing the scope of submittable ideas. For example, companies including Citibank and Coca-Cola are guiding employees to come up with answers for specific areas of the company where ideas are most crucial, says Scott Anthony, managing partner at Innosight, an innovation consulting firm, and the Singapore-based author of The First Mile: A Launch Manual for Getting Great Ideas into the Market.
“The way to be smart about these crowdsourcing efforts is to constrain the quest, so that employees and customers are trying to solve a very specific problem,” says Anthony.
Gibbs agrees that a firm-wide innovation system can require some guidance from executives. Companies “need to train employees in idea-creation methods, and encourage them to focus on areas where they are most likely to make useful suggestions,” he says. In the IT firm he studied, employees were encouraged to develop ideas related to their roles.
#2 Reward good ideas
Many business schools and leadership programs teach executives to believe that creativity is a personality trait that can’t be swayed by old-fashioned rewards. According to this mindset, incentives could actually undermine employee creativity.
Gibbs disagrees, saying that creativity is similar to behaviors such as leadership or management skills. “While most psychologists and sociologists would argue that innovative behavior tends to be different, and creativity tends to be
undermined by rewards, we found it was just the opposite,” he says.
The firm he studied had run a well-developed, yearlong experiment to test whether incentives could spur innovation. It had offered incentives to 5,400 employees, and when the company or one of its clients implemented an idea that had been developed through the idea portal, management awarded praise and points to the responsible employees. The points could be traded for prizes such as smartphones and gift certificates.
Meanwhile, the company had also created a control group of 6,000 employees operating without incentives. And this allowed the researchers to see that rewards had a clear impact: workers across all departments responded to the company-organized experiment, and they generated better ideas as rewards increased.
The rewards, the researchers found, inspired more lower-level employees to use the portal. And they increased the quality of ideas. “Our findings suggest a trade-off between quality and quantity in idea-creation,” the researchers write. This is important, Gibbs stresses, as rewards can motivate employees to focus on quality, generating fewer but better ideas.
Even after the experiment ended, employees who had received awards kept contributing good ideas. Gibbs speculates that generating good ideas became habit, or a part of the corporate culture.
When Gibbs, Neckermann, and Siemroth calculated the return on investment for the experiment, they found that rewarding the best ideas cost the company $14,250 over the year. Meanwhile, it stands to earn an estimated $1.4 million–$8.3 million in annual net profits, on average, as the company believes a few of the ideas have potential to generate huge returns. One in particular could improve revenue by an
estimated $22 million per year.
The researchers also tested the claim that rewards displace intrinsic motivation, comparing what happened when they offered rewards to previously-identified “creative” employees to what happened when they offered them to other employees. The rewards, they found, did not reduce innovation among the employees who had previously suggested quality ideas.
Despite the clear impact of incentives, Gibbs advises that companies exercise caution when doling out rewards. “If you set these [incentives] up in the wrong way, employees will do the wrong thing,” says Gibbs.
#3 Court longtime employees
The IT firm’s idea portal attracted a range of workers, including young and inexperienced employees low in the company hierarchy. Gibbs says that’s a good development, as newer workers can have perspectives and ideas that could otherwise be overlooked.
That said, the data reinforced the value of experience. The researchers used the data to identify the employees who were more likely to submit better ideas, and analyzed how that likelihood related to tenure, age, salary, and position.
Employees who had been with the company the longest submitted the best ideas. Younger employees presented slightly more ideas, but those tended to be of lower quality.
When it came to the most viable ideas, tenure—not age—mattered most. Some people may find doing the same work on a day-to-day basis boring, but it also gives them a deeper understanding of the client’s goals, products, and methods. “Innovation arises in part from experience in the same company with the same clients,” Gibbs says.
Rank also matters: more senior, higher-paid
employees submitted ideas of slightly better quality than workers paid less.
#4 Embrace analytics
It takes a long-term commitment to build a successful idea pipeline. To make the time and effort worthwhile, companies need to show employees that each idea has the potential to improve the company, says Gibbs.
For large companies such as Toyota, based in Japan’s Aichi Prefecture and with more than 330,000 employees worldwide, simply acknowledging and sorting ideas is a huge endeavor, says John R. Birge, Jerry W. and Carol Lee Levin Professor of Operations Management at Chicago Booth, who consults for the automotive industry and has studied Toyota. Big companies “have to show that they are taking every suggestion seriously, because that’s how they encourage people to keep making those suggestions,” says Birge.
It’s also crucial to “define a ready path to execution” for employees, says Innosight’s Anthony. Most employees will only continue sharing ideas if they see their top suggestions seriously considered. If companies don’t have the resources to act on at least some of the proposed innovations, the idea pipelines can dry up.
Gibbs recommends using data and analytics, and thinking like a personnel economist. As companies have been using big data and analytics in many other aspects of business, he says, it’s nice to see companies start to use analytics to also help manage and motivate employees more effectively. In this example, the idea portal allowed the IT firm to track, quantify, and analyze employee innovation.
Data and analytics also makes it possible for companies to test and refine policies before implementing them company-wide, just as the IT-services company did. Based on the researchers’
findings, the IT firm is now implementing a permanent reward structure. It offers cash payouts that are automatically added to an employee’s paycheck for all implemented ideas. “All companies say they want to reward innovation, but [they] really need to do it,” Gibbs says.
Work cited
Michael Gibbs, Susanne Neckermann, and Christoph Siemroth, “A Field Experiment in Motivating Employee Ideas,” Initiative on Global Markets working paper, April 2014.
http://www.chicagobooth.edu/capideas/magazine/fall-2014/four-ways-companies-can-encourage-innovation
The article above is republished courtesy of www.ChicagoBooth.edu/capideas.
Showroom Showdown
By Jonathan Riggs Published Nov 04, 2014
Tuck professor Santiago Gallino describes how customers are changing retail to suit their needs. In 2010, Andy Dunn, CEO and co-founder of the online men’s clothing company Bonobos, spoke passionately about “The End of Apparel as We Know It.” Describing how naysayers had told him in 2007 that his dream of building a clothing brand over the Internet was impossible, he offered up the subsequent success of Bonobos as a testimonial to how a new era of retail was supplanting the old. “This has been known by basic e-commerce retailers, but it’s just being discovered by people who actually want to build a brand,” Dunn said. “You don’t need a store to do it. We’ve sold 100,000 units of menswear in the last three years without a single store.” So why, two years later, did Bonobos open six brick-and-mortar stores to supplement its still-successful web presence? In their new working paper, “Inventory Showrooms and Customer Migration in Omni-channel Retail: The Effect of Product Information,” Tuck assistant professor of business administration Santiago Gallino and his co-authors David Bell and Antonio Moreno offer an answer. Businesses today, they say, have the greatest chance of success when they maximize both online and offline channels, regardless of whether the business already exists as a brick-and-mortar retailer or as an online entity. Their
key finding is that customers self-select based on personal shopping preferences and the type of product they’re looking for. Those with a stronger urge to physically sample a product will often go to a store, while those who are comfortable with e-commerce might just shop online. Retailers will do better when they appeal to both types of customers, even if it seems counter to their original business plan. As an example, the authors describe the success of online eyewear purveyor Warby Parker. At first, it gave customers two choices: purchase their glasses directly from the website, or participate in a home try-on program in which they received five sample frames in the mail. After testing the samples, customers could then complete their purchase online. But when the company opened physical showrooms where customers could try on glasses before purchasing them online, the home try-on program saw bigger sales and fewer returns. Gallino explain this with the “picky customer” theory: people who would normally request multiple home try-ons “are self-selecting into the channel [in this case, the showroom] in which they are better served,” he says. Framing the retail business as a battle between online and offline is outdated, the authors assert. Instead, they argue businesses should offer both options and let customers choose what works best for them, being mindful that preferences can change. For example, a die-hard online shopper might make an exception to buy fancy clothing in person, while someone who loves to browse in stores may shop online more frequently once she has children. Few companies are exempt from customer migration and its consequences. In the paper, the authors mention Amazon.com as an interesting example. Arguably the ultimate example of a successful online-only entity, most of the products Amazon sells can be found in the physical stores of other companies. And yet Amazon made headlines in October when it announced plans to open its first brick-and-mortar site in New York City. While this might look like a step back, it’s actually a giant step forward, Gallino says, predicting that
showrooming will be the future of retail. “With so many different ways to offer information about and fulfillment of your product,” he explains, “the challenge for retailers nowadays and going forward will be discovering the balance between what your customers want and where you can match that.”
D. Bell, S. Gallino, and A. Moreno, “Inventory Showrooms and Customer Migration in Omni-channel Retail: The Effect of Product Information,” a working paper. David Bell is the Xinmei Zhang and Yongge Dai Professor and professor of marketing at The Wharton School, University of Pennsylvania. Antonio Moreno is an assistant professor of managerial economics and decision sciences at the Kellogg School of Management. -
The article above is republished courtesy of Tuck School of Business. See more at: http://www.tuck.dartmouth.edu/newsroom/articles/showroom-showdown
Ken Shotts: Better Decisions Spring From Competition and Balance in OrganizationsWhat the Cuban Missile Crisis can teach business leaders about monopolists and informal power.
November 5, 2014|by Elizabeth MacBride
Former President John Kennedy (R) meets with then Secretary of Defense Robert S. McNamara and Chairman of the Joint Chiefs of Staff General Maxwell D. Taylor in the Oval Office at the White House in 1963. | Reuters/Abbie Rowe/John F. Kennedy Presidential Library and Museum/Handout via Reuters
Most people know what almost happened in the fall of 1962. After the Soviet Union started building nuclear missile launch sites in Cuba, U.S. military leaders advised President John F. Kennedy to bomb and invade the country. The world was perhaps never closer to nuclear war.
The Joint Chiefs of Staff, the military men recommending aggressive action, had stature and skill. Most were veterans of World War II. In addition to formal authority, they had incredible informal power that stemmed from their experience and from having the resources of the Pentagon at their disposal.
But Kennedy didn’t acquiesce. Instead, he sought the counsel of others, including his brother, Attorney General Robert F. Kennedy, Defense Secretary Robert McNamara, and experts at the Executive Committee at the National Security Council.
As a result of having competing policy ideas to consider, he was able to develop a policy that combined blockade and diplomacy, possibly averted a war, and resulted in the establishment of the famous hotline between Washington and Moscow.
The Cuban Missile Crisis is a compelling example of the difficulties that confront a leader advised by people of great but informal power. Sometimes, a decision maker may lose power to those beneath him or her in the chain of command because of other players’ ability to set agendas or conceive and carry out policies so expert they crowd out other ideological viewpoints.
New research from Kenneth W. Shotts, the David S. and Ann M. Barlow Professor of Political Economy at the Stanford Graduate School of Business, and Alexander V. Hirsch, associate professor of political science at the California Institute of Technology, analyzes this balance of power between leaders and the policy developers around them.
The analysis, based on a simple mathematical model, offers insights for leaders who want to make the most of people with informal power without being overwhelmed by them. The researchers found that the best way to restrain actors with a lot of informal authority, also called “policy-development monopolists” in the research, is a system of checks and balances.
“The lessons are about how to harness the informal authority to aid the organization,” Shotts says. It’s useful to have competition as well as counterbalancing authority, he says.
“Broadly speaking, the way to restrain a monopolist is to threaten an outcome she dislikes unless she develops a high-quality policy that promotes the decision maker’s objectives,” Shotts says.
Illustration by Tricia Seibold
The researchers say leaders can improve the quality of their decisions and take advantage of monopolists’ skills by:
• Establishing in-house policy development capability
• Delegating authority to someone who counterbalances the monopolists
• Fostering competition between policymakers with different ideas
In the case of the Cuban Missile Crisis, Kennedy used two of these tactics — he developed internal policymaking authority in the Executive Committee at the National Security Council. He also relied on competing policymakers — his brother and McNamara — to weigh in against the Joint Chiefs. The result was that he had an ultimately successful, robust policy plan to keep the missiles out of Cuba and forestall a military
encounter.
The Model
The researchers’ mathematical model treats policymaking as a game. Each actor aims to win with his or her own policy idea. The quality of the ultimate decision is defined to include some elements valued by both the decision maker and the person with informal authority. Those elements include cost savings, efficiency of implementation, and low risk of the outcome. For instance, in the Cuban Missile Crisis, a policy that reduced the risk of nuclear war was clearly in everyone’s interest.
Shotts says the researchers have steadily found other situations in which their research yields insights: how the financial industry should be regulated; effects of term limits on state legislatures; and even, perhaps, the question of why citizens elect populist leaders.
Illustration by Tricia Seibold
What Does a Monopolist Look Like?
The first step for a decision maker is to recognize a person or group with informal authority. In the Cuban Missile Crisis, the monopolists looked like military heroes. In the workplace, a monopolist is someone with the skills necessary to develop a new project, anything from charm to experience to the harder skills, like technical mastery. Monopolists’ ability gives them de facto power within an organization, even if they don’t have formal power. Shotts and Hirsch argue leaders do well to recognize such policy developers, respect them, and keep them engaged and in check.
“In our model ... the key problem is that a policy developer can use informal agenda-setting power to promote her own interests without benefitting the decision maker,” Shotts and Hirsch write.
Using the Model to Find Flaws in Decision-Making
Monopolists can be found throughout the political system. In state legislatures, for example, term limits reduce the power of legislatures and increase the power of governors and interest groups, especially in small states that don’t have professional legislative staff. With the power of lobbying organizations or state bureaucracy at their disposal, these monopolists can craft policy at a higher level than the legislators, who have less internal capacity to research or do the groundwork necessary to craft detailed legislation.
In a society aiming for representative government, that’s probably a bad outcome, though the researchers say that it’s possible a number of powerful interest groups could balance each other out and leave even a term-limited legislature in control.
Another interesting application for this research is financial regulation. One popular theory suggests that the industry should be regulated by insiders — people with expertise who understand the complexity of finance. Many of the regulators who oversee American finance are seen as having close ties to the industry, including the Securities and Exchange Commission, which regulates public companies and banking, and the Financial Industry Regulatory Authority, an industry group that regulates broker-dealers.
But Shotts and Hirsch’s research indicates a regulator in opposition to the industry — a skeptical overseer — is most likely to produce the best outcomes for leaders because that overseer can counterbalance monopolists.
The researchers said that in their model, “there is no public-policy justification for creating a pro-industry agency.” Their model suggests that the only reason for a pro-industry agency to exist is because of the industry’s desire to “capture” the agency.
The researchers suggest their model could also shed light on other areas of political economy, including, most tantalizingly, why people elect or follow populist leaders who have extreme political leanings.
In those cases, the citizens — the decision makers — may seek to counter the influence of economic elites — the monopolists — by electing someone in opposition to them.
“The model supports the idea that systems work best when there is a balance of power of viewpoints, and that people act to bring a system back into balance when it has fallen out of whack,” Shotts says.
The article above is republished courtesy of http://www.gsb.stanford.edu/insights/ken-shotts-better-decisions-spring-competition-balance-organizations
Take a Look at Yourself in the Leadership Mirror
Manfred Kets de Vries, INSEAD Distinguished Professor of Leadership Development & Organisational Change | October 23, 2014
To gain a better understanding of your leadership strengths and weaknesses, take a look at yourself through the eyes of others.
How we see ourselves is often very different from how we appear to others. Actions we believe reflect decisive or confident characteristics may come across as controlling or arrogant while attempts at openness may be perceived as being indecisive or weak. Understanding how supervisors, co-workers, direct reports and clients perceive us can give valuable insights into our leadership behavior and help us become more effective leaders, better able to embrace and adapt to change.
In the increasingly networked 21st century it’s even more important for leaders to have a high level of self-awareness, to clearly understand why they act as they do, and how their behaviour affects and is perceived by others. By knowing themselves successful executives are better able to keep a clear vision of where their organisation is heading, have greater success in communicating this vision to others, and are more able to make the decisions that transform this vision into reality.
In the corporate world today, people expect to be persuaded rather than compelled, and leaders need a high level of emotional intelligence to be able to understand and manage their own, and others’ emotional responses if they hope to build culturally, intellectually and functionally diverse (and virtual) teams able to stimulate creativity.
Unfortunately many of today’s leaders lack this self-knowledge. They are not very reflective of their actions; they may even suffer from hubris, lacking a sense of humility that allows them to clearly see where their weaknesses lie. Asking others what they think of our actions is not the best way of finding out. People are not always straight-forward and executives may be reluctant to be seen “seeking
approval”. The INSEAD Global Leadership Centre has taken the findings of its leadership development work (gleaned over 10 years of leadership coaching), to develop the Global Executive Leadership Mirror (“The Global Mirror”), providing a lens through which executives can take a closer, 360 degree look at their own personal leadership behavior.
360-degree feedback
The Global Mirror is a psychometrically-validated survey with which participants can compare their own perceptions of their leadership behaviour with the perceptions of between seven to 15 others (supervisor, co-workers, direct reports, clients and other stakeholders). Information garnered from this 360-degree survey is much more powerful than any form of self-assessment, as executives have too many blind spots to be able to honestly appraise themselves.
The survey is divided into three parts, looking at the executives’ leadership behaviour, their capabilities at coping with stress and the overall effectiveness of their leadership performance.
Part one focuses on 12 leadership dimensions (illustrated below) that are key to ensuring global executives are equipped to lead teams, organisations, and leverage networks effectively to achieve organisational and personal goals.
By answering questions such as: Am I fair in my actions?, “Do I persevere despite setbacks?, Do I take responsibility for my actions?, Do I analyse my feelings before acting on them?, Do I follow through with my commitments?, executives can analyse their answers against the responses from those they work with, to gain a higher understanding of why they act as they do and help them to become more effective in dealing with others, encouraging them to be reflective rather than reactive in their actions.
The second part of the mirror is a ‘Life Stressors and Wellbeing Resources’ indicator designed to help
leaders identify where their stress levels are in relation to work, relationships, health and finances, and to recognise the cognitive and social structures (a combination of social and psychological mechanisms) they need to have in place to manage life’s pressures. Different people react to stress in different ways and it’s crucial that leaders recognise their individual stress levels and capacity to tolerate stress to avoid burnout.
The third and final part of the Global Mirror, ‘Perceived Leadership Performance’, measures the participants overall effectiveness as a leader. The perception of a leader’s organisational effectiveness can be used to gauge how well they doing in their leadership role. Questions are designed to gauge on the leader’s effectiveness in two key areas: the visioning, empowering and energising part of the leadership role (the charismatic dimension), and the architectural dimension (pertaining to the structural measures that need to be put into place to obtain the required results). As with the other indicators, the gap between self-perception and the perception of others can be very revealing.
Know thyself
Leadership is a team sport. It’s about energising and empowering people in their organisations, ensuring the right structures are in place and, being able to implement change. Effective leaders realise that to improve their competencies as the captain/coach of their team they need to genuinely assess their own strengths and developmental areas, and understand how others perceive their leadership. By understanding why they act as they do, and where there weaknesses lie, leaders will be able to make better decisions and lead others to better performance.
When the first known Greek philosopher, Thales of Miletus, was asked what was the most difficult thing in the world, he answered, "To Know Thyself." That observation, made more than 600 years BC, is as true today as it was yesteryear. And wise as he was, he may have figured out that often the best way to know yourself is to see yourself through the eyes of others.
Manfred Kets De Vries is the Distinguished Professor of Leadership Development & Organisational Change at INSEAD and The Raoul de Vitry d'Avaucourt Chaired Professor of Leadership Development, Emeritus. He is the Founder of INSEAD's Global Leadership Centre and the Programme Director of The Challenge of Leadership, one of INSEAD’s Top Executive Development Programmes.
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The article above is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu
Read more at http://knowledge.insead.edu/leadership-management/take-a-look-at-yourself-in-the-leadership-mirror-3651#mbiyLlkTKGhc6WqD.99
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