clair015

“Successful firms are characterized by maintaining bottom-up driven internal experimentation and selection processes while simultaneously maintaining top driven strategic intent” Stanford professor Robert Burgelman once wrote. And I thought “What…?!” What (on earth) might Robert mean with that? I don’t know but I am willing to take a guess. Let’s take the first part: “Bottom-up driven internal experimentation and selection processes”. You have to realise that Robert spent much of his academic life in Intel , studying how they developed strategy. And he found that for instance their big success – microprocessors – wasn’t the result of some planned analytical strategy-making process at all. Instead, Intel’s top management had allowed employees to work on some of their pet projects and technologies that these individuals were very enthusiastic about, but from which is was actually quite unclear if they would ever lead to anything useful (and profitable). Many of these pet projects failed...

“ Strategy making in the emergent stage can be viewed as a social learning process in which managerial action and cognition are intrinsically intertwined”, Stanford professor Robert Burgelman once wrote. And I thought “What…?!” But the more times I read the sentence, and the more I thought about it, and the more I compared it to the strategy-making processes in the (successful) companies I have seen from up close, it actually started to make sense… (although I acknowledge that I have no confirmation that the interpretation I came up with, of Robert’s gibberish, is actually what he meant with it!) 1) In a strategy-making process “managerial action and cognition are intrinsically intertwined”; what the heck might he mean with that? Well, if I think about the companies I’ve analysed, in pretty much all cases, strategy was not the result of a one-time rational analytical process but there was quite a bit of trail-and-error to it. The firm, for whatever reason, tries something new – a new...

A famous experiment by Nobel Prize winner Daniel Kahneman and Amos Tversky went as follows: Imagine that the US is preparing for an outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programmes to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programmes are as follows: If programme A is adopted, 200 will be saved. If programme B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which one of the two programmes would you prefer? Kahneman and Tversky found that a substantial majority of people would choose programme A. Then they gave another group of people the assignment but with the following description of the (same) options: If programme A is adopted, 400 people will die. If programme B is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will...

When you have a team of people working on a common task, who all fullfil a similar role in the team (like a football team, a string quartet, a team of engineers, etc.) should you pay them all pretty much the same, or would you be better off creating quite different levels of remuneration within the team? This question can stir a fair bit of debate, and I have heard it been argued one way and the other. “You should pay them all the same” some loudly proclaim, “because they’re a team and you don’t want to create envy and inequality within the group!” Others will bellow in agony: “But you need to incentivize people – stupid!; equal pay kills their motivation; you should pay more to people who (seem to) contribute more, to keep them happy while stimulating the others to better themselves!!”. And who knows whether it is one way or the other. The problem is, it is very difficult to research properly, and find a conclusive and reliable answer. You’d of course need information on the exact rem...

Are firms sometimes inclined to conceal negative information, for instance in their communication to shareholders? Some years back, two researchers – Eric Abrahamson from Columbia Business School and Choelsoon Park, at the time at the London Business School – examined this question systematically. Their answer – perhaps not surprisingly – was “yes”. Fortunately, however, they did not stop there. Because perhaps the more interesting question is, “who is concealing the bad stuff” or, put differently, which firms are inclined to hide their dirty laundry? Eric and Choelsoon investigated so-called letters to shareholders of 1118 companies as published in these firms’ annual reports. There is quite a bit of evidence that these letters to shareholders form one of the main communication devices of firms to their shareholders and that they have some real impact on companies’ share price. Eric and Choelsoon, through computer analysis of the wording of these letters, made a measure of how much n...

“In Search of Excellence”, “Built to Last”, “Profit from the Core”; you may have read some of these best-selling business books. They usually follow a simple yet appealing formula. They look at a number of very successful companies, see what they have in common, and then conclude “this must be a good thing!” Yet, reality – and strategy research – is a bit trickier than that. One conclusion many of these business books draw is that one should focus on a limited set of “ core activities ”. For example, “Profit from the Core” authors Chris Zook and James Allan find that 78% of the high-performing firms in their sample of 1,854 companies focus on just one set of core activities, while a mere 22% of the low-performing companies did. Hence, they conclude that companies should focus.* Simple isn't it? Yeah, but a bit too simple... What this “advice” ignores is that often underperforming companies diversify into other businesses in order to try to find markets that are more rewarding for t...

The world of business is risky. That’s inevitable. We can analyse all we want, plan, debate, gather information and think it through till it gives us a migraine, sometimes things just don’t work out and nobody could have foreseen it. So what makes for a good risk manager? Well, it is someone who carefully chooses the best odds. He will sometimes win, and sometimes lose. But, always, he will make quite deliberate and careful trade-offs between his assessment of risk and return; the most expected return for the least risk. Sometimes good managers accept a low return when it is safe (like buying government bonds); sometimes they accept a lot more risk in return for a higher expected return (like investing in the stock market). Bad managers are those people who just don’t get it. They accept worse average returns for higher risks. And this is where it gets tricky. Because if they accept very high risks, in spite of lower average returns, every once in a while one of these morons will actua...

What’s all the noise about being a public company anyway? I recently asked the CEO of a FTSE 250 company “what’s the advantage of being listed?” She shrugged and said “I don’t know; it can give you access to some capital I guess but, apart from that…”. Of course it is rather “sexy” and exciting. Many CEOs don’t just want to be a CEO; they want to be the CEO of a public company. But what really are the advantages of having your company listed on the stock exchange? Naturally, selling equity is a source of money, but of course there are other sources of capital which could suffice for your investment plans. But, alright, I’ll give you that; it’s one potential source of money. Yet, I would say this source comes at a cost. Investment bankers will be able to spell out to you – in much much, much detail... – what the advantages and disadvantages are of the various sources of capital, including equity. However, I think they’re forgetting one. I recently spoke to Bill Allan; CEO of THUS (the ...

It is a well-known phenomenon from social psychology that people are reluctant to voice minority opinions. My guess is you may recognise this issue and feel it yourself sometimes; when a whole group of people seems to agree on something (a course of action, proposal, etc.) but you have doubts about it, there is a bit of a psychological hurdle to speak up against it. And if you do collect the courage to speak up against it, you do so reluctantly, ready to take the heat. And we’re right to be reluctant to speak up. Research also shows that minority dissenters are often “punished”, in the sense that people in the majority group get irritated, will blame you for the deal falling apart, may even start to give you the cold shoulder if not spit in your tea when you’re not looking. Therefore, quite often, people don’t speak up at all if they disagree with a particular course of action, if they feel they would likely be the only ones against it. Instead, they stay quiet. And there is an interes...