Monday, April 30, 2012

Biased Samples Hike Executive Compensation

When company boards of directors set executive compensation, they often benchmark against peers to determine the appropriate pay levels.  Unfortunately, as this Business Week article by Zachary R. Mider and Jeff Green indicates, many firms choose "peers" that are much larger than them.  Bigger firms tend to pay their executives higher salaries.  Thus, choosing to benchmark against bigger companies creates heftier pay packages.  For instance, the authors report that:

Setting the CEO’s salary is one of the most important duties of a public company’s board. So CBS (CBS) directors decided to give Chief Executive Officer Leslie Moonves a $69.9 million pay package last year only after assessing the competitive market for senior executive talent. The board of directors, however, looked at companies that are, on average, more than twice as large as CBS and included many in businesses far afield from media.

CBS is not alone though. The practice appears pervasive in publicly held corporations.   According to the authors, four of five academic studies that they found on this subject demonstrated evidence of bias in the selection of peer groups by boards of directors.   Why do directors build these clearly biased peer groups?  They want to stay in the good graces of the CEO, and they are often executives themselves... and would like similar treatment when their compensation packages are set.

Sunday, April 29, 2012

Is Telecommuting Effective or Not?

Christopher Shea of the Wall Street Journal reports on a new research study by E. Glenn Dutcher in the Journal of Economic Behavior and Organization.  Dutcher examines the work of telecommuters through an experimental study.  He finds that their productivity depends on the type of work that they are doing.  If the work is rote and repetitive, then people tend to be more productive in the office than at home.  However, if they are performing creative tasks, then they appear to be more effective at home.   The evidence suggests that an informal work environment may be more conducive to creativity. 

I would add a bit more to this interpretation.  I think the lower productivity for rote work conducted at home may be accounted for by the fact that one has many other options for how to use your time at home.  If you have boring work to do at the office, you may be constrained in your ability to procrastinate while doing other more enjoyable activities.  On the other hand, when you are at home, there may be many more desirable activities that you can pursue instead of the repetitive work associated with your job. 

Friday, April 27, 2012

Teaming is a Verb!

My friend and frequent co-author Amy Edmondson has a terrific new book out titled, "Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy."  I strongly recommend the book.   Amy is one of the world's leading scholars in the area of team learning.  Here's a short excerpt from a HBS Working Knowledge feature on the book; it captures the essence  of her argument:

In these prior treatments, team is a noun. A team is an established, fixed group of people cooperating in pursuit of a common goal. But what if a team disbands almost as quickly as it was assembled? For example, what if you work in an emergency services facility where the staffing changes every shift, and the team changes completely for every case or client? What if you're a member of a temporary project team formed to solve a unique production problem? Or you're part of a group of managers with a mix of individual and shared responsibilities? How do you create synergy when you lack the advantages offered by the frequent drilling and practice sessions of static performance teams like those in sports and music?

Teaming is a verb. It is a dynamic activity, not a bounded, static entity. It is largely determined by the mindset and practices of teamwork, not by the design and structures of effective teams. Teaming is teamwork on the fly. It involves coordinating and collaborating without the benefit of stable team structures, because many operations like hospitals, power plants, and military installations require a level of staffing flexibility that makes stable team composition rare. In a growing number of organizations, the constantly shifting nature of work means that many teams disband almost as soon as they've formed. You could be working on one team right now, but in a few days, or even a few minutes, you may be on another team.

I find her argument about teaming very compelling.  Consider your own organizational context.  How many temporary, fluid team structures exist in your workplace?  To what extent is teaming a verb, rather than a noun, in your firm?  If you want to learn how to lead in that type of dynamic environment, then I recommend taking a look at Amy's book.  

Thursday, April 26, 2012

What Every HR Exec Should be Doing


 Liz Ryan has a terrific post at Business Week about the 10 things every HR executive should be doing.   According to Ryan, these 10 actions all help the HR chief achieve his or her ultimate goal: "It’s every HR chief’s highest calling to make sure his or her employer has the most excited, switched-on, and capable people on the market."

Ryan's whole list is excellent, but I especially liked her final two points:

9. Asking your team members every day for their input on your business, their own careers, and life in general—not via a sterile, once-a-year “employee engagement survey.”

10. Replacing fear with trust at every opportunity, in policies, training sessions, management practices, and via every conversation in the place.

These two points cannot be reinforced enough.  Asking for input on a regular basis will accomplish so much more than any annual survey could ever achieve.  Fostering trust will do the same.  If people have been asked for input, and if they trust senior leadership, they will commit wholeheartedly to the organization and go above and beyond the basic duties of their position.  

Does Exercise Make You More Intelligent?

Forbes reports on a series of recent studies suggesting that regular exercise may keep us mentally sharp.  For instance, they write that, a Canadian research study found that, "A six-month stint of strength training slowed dementia in 70- something women."   Apparently, the cognitive benefits extend to young people as well.  Forbes reports about a University of Illinois study which concluded that, "Children  exhibit sharper thinking and quicker learning when they’re fit and exercise regularly compared with those who aren’t and don’t. Kids who were fit and exercised regularly scored higher on numerous cognitive tests and were also better at multi-tasking and memory recall."   Let's all go hit the gym! 

Wednesday, April 25, 2012

Is Doodling Something to be Encouraged?

The Wall Street Journal has an interesting article about doodling in today's paper - yes, doodling.  The article actually features how some firms have created workspaces with lots of whiteboards and chalkboards so people can display ideas visually.   They also describe how some firms hire graphic facilitators to help teams display their ideas during brainstorming meetings.

I love the concept.   I've worked with graphic facilitators on numerous occasions, and they really do help a team capture their ideas, and they help team members build on each others' ideas very effectively.   If we want teams to be creative, then we need to recognize that capturing elements of the conversation visually can be critical.  If we want people to learn from one another, then whiteboards and chalkboards can be very helpful. After all, consider a classroom without a chalkboard or whiteboard... could we learn as effectively in that environment.   Finally, we have to remember that some people process information more effectively if data and concepts are visually displayed.  Not everyone learns or thinks best if they are simply listening to conversation or looking at spreadsheets.

Tuesday, April 24, 2012

Why Humans Don't Excel at Multitasking

The Shops at Target

As we all know, mass merchandisers and department stores face stiff competition these days.  Online retailers continue to disrupt the brick-and-mortar retailers.  Moreover, many of these firms face intense price competition with their rivals, and they sell many items at steep discounts.  For years, Target has fought to differentiate itself, to do more than just sell the same goods others do.  They have tried to avoid direct price competition on some items, by selling exclusive designs and premium private label products not found at other retailers.  Now, they have launched Shops at Target - an interesting innovation in the mass merchandiser industry.  According to the company,

Through this ongoing program, Target will partner directly with the shop owners of specialty stores and boutiques to co-create affordable, limited-edition collections for its guests.  The first flight of The Shops at Target features five exclusive collections from five U.S. specialty stores: The Candy Store, Cos Bar, Polka Dog Bakery, Privet House and The Webster.

The innovation here is that Target is NOT partnering with well-known designers in these situations.  They are partnering with small, independent specialty shops.   In so doing, they avoid the competition to sign up those well-known designers, while also offering something even more unique and off-beat.   After all, other retailers have raced to sign up designers for exclusive collections, imitating Target's strategy.  As that has happened, the expense associated with this "arms race" has become quite high.  This strategy tries to find a way to move beyond that arms race.

 The limited-edition nature of the collections seems intended to drive traffic too - "Come now to see what's here, because it won't be here for long."   As we know, increasing frequency of trips is crucial for retailers.  When a shopper comes more often, they tend to buy other items perhaps not on their list.  In the end, the question will be:  Will shoppers pay premium prices for these products, and will Target be able to avoid deep discounting associated with slower-moving items in these collections? 

Monday, April 23, 2012

Do Older Entrepreneurs Have an Edge?

Marc Freedman
Marc Freedman, author of The Big Shift: Navigating the New Stage Beyond Midlife, has published an interesting blog post over at Harvard Business Review.  The post is titled, "Why Older Entrepreneurs Have an Edge."  The article cites research indicating that many entrepreneurs are older than we might think:

The findings reinforce consistent research from the Kauffman Foundation, which shows that for 11 of the 15 years between 1996 and 2010, Americans between the ages of 55 and 64 had the highest rate of entrepreneurial activity of any age group. The National Journal reports that 9 of the nation's 15 million small-business owners were born before 1965.

Freedman does acknowledge, though, that many of these new start-ups are sole proprietorships or very small businesses.  Still, he points to research showing that certain kinds of creativity and innovation do increase later in life.  Freedman points to the work of University of Chicago economist David Galenson.  His research distinguishes between "conceptual geniuses" and "experimental geniuses."   The former produce breakthrough insights, and they tend to do so early in life.  The latter refine their ideas through trial and error over time, and they tend to come up with their innovations much later in life.   Experimentation and refinement take time.

I like the blog post, but I really do think the focus on physical age is not critical.  The most important factor driving whether you can be a successful entrepreneur is your mindset, not your age.  Are you open to new ideas?  Are you willing to take risks and try new things?  Are you always learning?  Do you engage in disciplined experimentation?   These kinds of questions determine whether you have the mindset to be a successful entrepreneur, whether you are 25 or 65 years of age.  

Friday, April 20, 2012

The Hottest Growth Stock of the Past 25 Years? You'll Never Guess!

In an HBR blog post this week, Bill Taylor asks the question:  What's the highest performing stock in the United States since the 1987 market crash?  Is it Starbucks?  Microsoft?  Apple?  GE?  How about a company named Fastenal?  What?  Fastenal?  Many readers won't even know what they do.  Fastenal is the leading distributor of nuts and bolts in the United States.  Yes, you read that correctly.  Nuts and bolts.  The company's stock has risen 38,565 percent since October 1987.    Taylor explains that Fastenal has been successful because it has been "deeply committed to a one-of-a kind strategy."  I don't disagree at all.  However, I think there is more to the story.

Fastenal is a retailer/distributor, with 2,600 stores at which they sell their products.  Of course, we all know the story of many brick-and-mortar retailers that have seen their businesses fundamentally disrupted in the Internet age.   We have all watched as Netflix and RedBox delivered a one-two punch to Blockbuster, for example.  However, Fastenal has done an amazing job of innovating its business model before someone else came along to disrupt them.   On the one hand, they have brought the Red Box model to the fastener business.  According to the 2011 President's Letter:

In 2010, we installed 1,358 machines, representing a 240% increase over 2009. In 2011, we picked up the pace and installed 5,528 machines, an increase of 287% over the 2010 number. Why are so many customers utilizing our FAST SolutionsSM (industrial vending)? I believe it’s simply a better way to buy industrial supplies. Think of it as a fully customized and automated Fastenal store within the customer’s location.

On the other hand,Fastenal has embraced the internet as well.  According to the Annual Report, " generated an average of 1.15 million visitors per month in 2011 (up from 727,000 per month in 2010), and the value of our web orders grew more than 500%."

How many brick-and-mortar retailers have done that type of remarkable job reinventing themselves, while not at all denigrating the service provided to customers in their traditional retail locations?  To me, that ability to reinvent, while maintaining and enhancing the core business, is what makes Fastenal stand out.