Lehman Brothers’ did not Walk to Talk of its Mission Statement

BRW reports:  “Lehman Brothers’ mission statement nodded in all the right directions. It told employees and investors that

We are one firm, defined by our unwavering commitment to our clients, our shareholders, and each other. Our mission is to build unrivalled partnerships with, and value for, our clients, through knowledge, creativity, and dedication of our people, leading to superior returns to our shareholders.

However, the investment bank did exactly the opposite, gorging on low-quality mortgages and nearly felling the global financial system. Rather than ‘set and forget’,  [mission statements] should be part of a conversation between staff and management.”

(BRW August 26-October 6, 2010, p. 78)

New Management Focus: Invest in Relationships!

Designing an organization requires making a million decisions both large (e.g. picking a strategy) and small (e.g. picking out paper for the PC printer). It is easy to get lost in the trivial instead of focusing on getting the critical elements right. In my courses, I try to present ideas and frameworks that help identify what is important. At the recent Academy of Management Conference in Montreal I came across a phrase that was new to me. In my view,  it crystallizes what managers need to do to design an organization that is able to respond to all the unexpected events that invariably occur in the life of an organization:

The person who articulated this idea is Jodi Hofer Gittel.  She has studied the practices of the fantastically successful Southwest airlines for over a decade. Gittel was asked to comment on an earlier presentation in Montreal by the former CEO of Southwest airlines, James F. Parker. Parker remarked that when he first joined Southwest as an in-house lawyer he thought that letting employees at headquarters spend days planning the annual Halloween party was a poor use of the company’s resources. But he later came to appreciate that this activity, rather being wasteful, was an efficient way to allow low-level employees practice leadership skills that could be carried over into their regular jobs.  It was also an investment into forming strong bonds among employees that would enable them to tackle other challenges together or simply help each other out when one of them ran into problem. Top down organizational design sees it the task of management to coordinate people by dividing up the work into separate well-defined roles. An organization like Southwest asks employees to figure out in part themselves how they need to coordinate their actions to get the jobs of the airline done. Investing in strong relationships is the basis for bottom up coordination. Gittel explains that such relational coordination requires three foundations:  shared knowledge, shared goals and mutual respect. Parker went on to say that Southwest was able to deal with the dramatic fall in demand after September 11, 2001, because employees had such a strong identification with the airline, and with each other, that they were willing go along with big operational changes to help save costs. At the same time, management did bear the short-term cost of not laying off employees as most other airlines did because these violate psychological contract Southwest had developed with its people over three decades.  Parker emphasized that if people feel that the company “loves” them, then they will be much more willing to accept changes that require sacrifices on the part of individuals. This idea of coordinating people by investing in developing strong relationships rings true for me when I ask myself what distinguishes organizations that are able to change their practices and respond effectively to unforeseen challenges.

As an aside: Parker reconfirmed for the evolutionary theorist in me that organizational practices at Southwest came about in large measure because of idiosyncratic constraints the airline faced in the early period rather than because an organizational designer had evaluated different options and then decided that it was a really smart idea, for example, to just fly one particular airplane type or to encourage flight attendants to crack jokes.  Many effective organizational practices emerge without foresight. The task of the manager, then, is often simply to recognize when something works and then expand the practices and making sure not to tinker with the formula for success whose causal microstructure is not fully understood by the managers themselves. Just like an as an aspiring parent, as a manager you often don’t have to understand why a practice works as long as you understand that a practice works!

You Don’t Have to Pay Employees More Than the Competition to Keep Them Happy

Returning to Chicago for the first time in three years, I went to two of my favorite restaurants. In one, Lulu’s, most of waitresses and busboys I had seen three years ago were still there. In the other, I recognized no one except for the owner. So I asked the owner of Lulu’s if he was paying his people more.  He said: “No.” I asked him a second time. He still said:  “No.” Confirming the lesson that many management professors emphasize in the context of the Southwest airline example, you don’t have to pay people more than the competition to keep them happy. Lulu’s is a fun place and the interior design is attractive, providing employees non-monetary rewards. Evidently the owner is also not getting on the nerves of his staff.  Jokingly he says in front of one of his female employees: “I cannot even get rid of the people I would like to see go.” The lady—who must have been working there for at least 8 years—interjects: “I knew you were going to say this.” The general lesson (except perhaps for Wall Street before the crash) is: You don’t need to pay people more than the competition. But the total rewards of working for you have to be more than the total rewards of working for someone else. Otherwise people will leave.

Constructing Relational Databases to Study Life Histories on Your PC or Mac

In this article, I present a strategy for designing relational databases with the program FileMaker Pro (FileMaker) to study the histories of individuals and organizations. The approach facilitates efficiency in inputting data and flexibility for constructing statistical analyses from the rawdata. The key feature of the strategy is to define the basic unit of observation in the database in terms of an agent, an event, and a date. Given that programs such as FileMaker can easily sort data by agent and date, once one structures the data correctly, he or she can construct well-ordered event histories for agents, even if the researcher enters the data in an unordered fashion. By using events that happened to an agent at a particular time as the basic unit of observation, one maintains maximum flexibility to do statistical analysis that aggregates basic data in different ways. This article illustrates the power of the approach by outlining ways to analyze changes in geographic distances between two events marking the life histories of chemists. Download Article.

The Wrong Stuff Blog

We seem to have a built-in tendency to want to learn from successful people and pay little attention to failures. We also have a hard time admitting mistakes. In fact, what dintinguihses mature and, dare I say, clever,  indivdiuals is precisely that they can admit mistakes and learn from them.  Kathryn Schulz, who is about to publish a book on the subject, has published on Slate a number of great interviews and reflections on being wrong. The one with Alan Dershowitz is particularly interesting. If you want to start with the most recent entry, start here: The Wrong Stuff

Constructing Relational Databases to Study Life Histories on your PC or Mac

Dramatic Challenge to Barnes & Nobles Business Model

This one of the most vivid examples of challenges to the existing business model of a firm. The Wall Street Journal reports:

After nearly 17 years of consistent growth, Barnes & Noble is stumbling. Revenue fell 3% to $5.12 billion for the fiscal year ended Jan. 31, 2009, while earnings dropped about 45% to $76 million.

When it launched the iPad last month, Apple championed a new approach to e-book pricing. Earlier this year, most large publishers agreed to establish a so-called agency model, where the publisher receives 70% of the digital price while e-book sellers act as agents and receive 30%. While some best sellers remain at $9.99, many major authors are priced at $12.99 or $14.99.

For many digital booksellers, the new model is good news: Instead of having to pay publishers half, or $12.50, for the e-book edition of a $25 hardcover book, and then sell that book at a loss—for, say $9.99—to match Amazon’s cutthroat prices, the bookseller now gets 30% of the newly-set $12.99 price, or $3.90. Since it hasn’t paid anything for the title, it is ahead of the game.
But for Barnes & Noble, the model can’t hide a brutal reality: $3.90 is a fraction of the $12.50 it now earns on a full-priced hardcover priced at $25. If e-book sales become a quarter to a third of the market, store revenue would plunge.

Faced with such a scenario, Barnes & Noble is re-examining its business model.

Read the full story in the Wall Street Journal.

Australian School of Business Team Teaching Award

Google’s New Search Homepage: Integrating Quantitative and Qualitative Data as well as Intuitions

CEO Q&A: Greg Bourke

What is your number-one tip for managing people?

Be empathetic: When you understand the issues that constrain staff from doing their job you will usually identify bigger issues in the organization.

Is there a lesson you have never forogotten?

Progress is not perfection.

From BRW, April 29-June 2, 2010, p. 12.

Excellent Overview of the Philosophy of Social Sciences

Daniel Little’s article for the Cambridge Encyclopedia of Philosophy provides an excellent overview of the key issues in the philosophy of social sciences. You can read it here.

CEO Q&A: Lincoln Crawely

What has been your greatest regret in Business?

That I didn’t really get to know and accept my strengths and weaknesses earlier.

From BRW, April 15-21, 2010, p. 10.

Logical Incrementalism in Product Development

This little exerpt from the NY Times explains well the concept of logical incrementalism in management.

Mr. Schmidt didn’t stop there. He acknowledged that “Google might not get it right the first time,” and said that Apple probably wouldn’t either, briefly alluding to some better features coming with the second generation of the iPad. But he said both companies would have “the next two to three years to figure it out.”

The Power of Infinity

Steven Strogatz explains beautifully how the concept of inifinity first tripped up philosophers but then provided them with a powerful tool to calculate things that could not be calculated without taking things to inifity. I wish I had had as good a math teacher as Strogatz. The lesson here is also that Strogatz does not provide a solution to Zeno’s paradox but that he shows that even without fully removing the puzzles around infinity one can use the concept to get more knowledge in other areas.
Read his column Take It to the Limit.