clair015

“They were running hand in hand, and the Queen went so fast that it was all she could do to keep up with her: and still the Queen kept crying 'Faster! Faster!' but Alice felt she could not go faster, thought she had not breath left to say so. The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything”. Have you read Lewis Carroll’s “Through the Looking Glass”? If so, you might remember the passage above when Alice meets the Red Queen. They are running and running, but appear to be stationary. Competition among organisations can have the same effect. In order to keep up with competition, firms have to change continuously, in terms of adopting new technologies, launching new products and services, adapting to new business models, etc. Sometimes it can feel like a race, and be quite exhausting. “Suddenly, just as Alice was getting quite exhausted, they stopp...

Well, it came from the US. And, alright then, a bit from the UK. For the (blissfully) ignorant among us, what is it? It is the view that the purpose of a public corporation is to maximize the value of the company for shareholders. Traditionally, we find this orientation in Anglo-American societies. The view that the public corporation is more a social institution which has to consider the interests of various stakeholders, including shareholders but also employees, customers, the local community, etc. is the traditional soft stuff found in other parts of Europe and Asia (although, over the last decade or two “shareholder value orientation” has been spreading like a forest fire – pardon the analogy – gaining geographic terrain even in previously unlikely homes such as Germany, France and so on). Whenever I ask a group of executives or MBA students in my classroom “to whom is the primary responsibility of a company?” nine out of ten people will wholeheartedly shout “shareholders!”, with ...

Most acquisitions fail. That’s not even a point of debate or opinion anymore; the evidence from ample, solid academic research is quite overwhelming: about 70% of acquisitions destroy value, and this has been the case for many, many decades. The question is, of course, what causes acquisitions to fail, and what causes managers to undertake them in spite of their rather dismal track record? Various complementary explanations have been offered but, remember, “failure” here simply means that the acquiring company does not create sufficient extra value out of the acquisition to recoup its (usually rather hefty) acquisition premium. One prominent explanation is that the average CEO suffers from “hubris”, or “overconfidence”. They think they will be able to create more value through the acquired company than these silly people who are currently running the show, because of “synergies” or simply because they’re much better and smarter than the sorry souls who are currently messing about in t...

What do CEOs really do? Stevie Spring, CEO of Future Plc (the magazine publisher), recently expressed it to me in the following way: “I am not really the Chief Executive; I am the Chief Story Teller”. What (on earth) did she mean with that? What really is an organisation? Well, it is a group of people – sometimes a rather large group of people – (supposedly) working towards a common goal. This goal may simply be profit, but it certainly helps if we have a common idea of what we’re trying to do in order to make a profit. Hence, it is about setting a clear strategic direction. A clear strategic direction is not a 40-page document outlining a firm’s strategy – that’s a drawer-filler. It is a concise set of choices that determines what we do and don’t do. For example, for Future it’s something like “special interest, English-language magazines for young males, possibly with spill-overs on-line and in terms of events”. Hence, they would for instance do a magazine on “guitar rock” but not on...

Sometimes CEOs are just like normal people. Normal people – you and I (well... at least you) – as we know from ample research in social psychology, have an inclination to conform to certain peer groups, in the way we dress, speak, which music we like, how often we brush our teeth, buy a car or go on a holiday. Yet, on the other hand, we also like to stand out from the crowd (if just a little bit). It’s known as “optimal distinctiveness theory”. We see the same thing in organisations. Some years ago, I was working with an executive (which will remain blissfully anonymous) in charge of expanding his company into foreign markets, mainly through acquisitions. We analysed his strategy and various market characteristics, through which it became obvious that the Scandinavian market, in his line of business, appeared to be particularly attractive. Yet, he clearly did not even want to think about entering this area. When I persisted in probing why, his answer was frank: “Look, none of my major ...

“Financial forecasting appears to be a science that makes astrology respectable”, Burton Malkiel , professor of economics at Princeton, once said. As you know, analysts, employed by investment banks, follow a number of firms (usually in a particular industry), evaluate them and offer us recommendations – in terms of “buy”, “sell” or “hold” – whether we should invest in their shares. However, on average, these analysts give the advice “sell” in less than 5 percent of the cases. Yet, clearly, more than 5 percent of listed companies’ share prices go down. So what’s going on? Well, there are various explanations but one is that, for various reasons (pertaining to incentives in investment banks), analysts are inclined to cover firms that they expect will go up in terms of share price. Therefore, perhaps an even more important decision than whether to recommend “buy, sell or hold” is the decision which firms to cover. And this is where it gets tricky (and almost a self-fulfilling prophecy). ...

Remember the old anecdote of the man looking for his keys under a lamp-post? Here’s my version: A guy exits a pub in the middle of the night. There, he sees a man on his arms and knees under a lamp-post, clearly looking for something. He asks him “what are you looking for?” and the (slightly inebriated) man answers “the keys to my bicycle; I must have lost them”. “I will help you look” says the guy, and on his hands and knees he starts to search too. After a good ten minutes have passed though, still not having found the keys, he turns to the inebriated cyclist and says “are you sure you have lost them here, we’ve looked all over and they’re nowhere to be found?!” “No” says the man (pointing towards a dark spot to the side of the road), “I lost them over there, but there it is so dark, I would never be able to find them”. The morale of this well-known story is that we often look for solutions where there is light and we can see stuff, while the real cause of the problem lies in an area...

As a junior professor, starting to teach strategy at the London Business School, one of the first cases I ever discussed was that of a hotel chain in the south of the US, called La Quinta . It was a great example, not only because it came with a video featuring the famous Harvard Business School professor Michael Porter (who was goofy enough to make me look normal), but because it illustrated a particular point well: That, over time, successful organisations become both more complex and more simple. What the heck did I mean with that (my students tended to ask)?! Well, over time, successful firms fine-tune their organisations to do even better what they already do well. They learn to operate through a particular set of procedures, gradually develop and employ a very appropriate yet intricate incentive system, organise a few specialist departments or functions focused on some specifically thorny issues, and grow a culture which is highly suited for the task at hand. And, as a result, t...