clair015

Outsourcing is one of those words that have become hideously fashionable in corporate lingo in the last 5 to 10 years. A business cynic – which obviously I am not! – might conjecture that perhaps it is popular because it appeals to some fundamental human desires for shirking and procrastination, finally telling managers “to stop doing certain stuff” rather than always pushing them “to do more”. I, as a more thoughtful business observer, on the contrary, think that outsourcing often makes sense, simply because you cannot, and should not try to do everything yourself. Other companies can sometimes do a particular thing better and more efficiently than you, if alone because they can bundle and specialise in it, and then you’re better off buying it from them. Some companies take it a bit far though… Some time ago I was talking to a senior executive of a major airline and they actually had the idea that in the future they might be able to get rid of all their staff, facilities, pilots, plan...

Jessica Nolan , a researcher at the University of Arkansas, was interested in persuading residents of a particular California Community to conserve more energy at home. For this purpose, she designed four types of notes, to be delivered to people’s homes. These notes (roughly) said the following: 1. do it because it helps the environment 2. do it because it benefits society 3. do it because it saves you money 4. do it because everybody else is already doing it Before using the notes, she knocked on a number of residents’ doors and asked them which of the four arguments would most likely persuade them. Pretty much everybody said, “Not the fourth! (I care about the environment, I care about society, I certainly care about money, but I couldn’t care less about what everybody else is doing”). But did they? Subsequently, Jessica sneaked out at night and hammered one of the four notes on each door in the community. Some time after that, she went back to check people’s meter readings. And...

Why are so many executives so pre-occupied with the size of their company? Like bigger is always better. It especially annoys me when it is used as an excuse for acquisitions. “This take-over will immediately make us the largest company in the industry”. So?! What is your point?! I am sure being the biggest can have certain advantages, but that doesn’t mean that bigger (let alone being the “biggest”) always automatically is better. If you can explain to me why more scale is better, ok, but until then, I remain sceptical. Of course company size is often associated with (financial) success. For example, the firms that always feature on “the most admired companies” lists are usually Behemoths such as Toyota, Dell, Intel, Wal-Mart, and Pfizer. Several of them became big through acquisitions. And I am sure a company worth £10 billion attracts quite a bit more attention (for instance in the business press) and admiration than any of the 10 companies that they acquired that were worth a mere ...

No, we should not stop saying that the market is efficient. We should stop saying that, because the market is efficient, the most efficient firms prevail. Because they do not. And that is because there are always multiple markets going on at the same time. Take a firm in any market of your choice, and then consider this firm’s internal labor market. It often is a very competitive race who is going to be the CEO of the company. Yet, the characteristics that make a person more likely to win this race do not necessarily make him or her a good person to lead the company. Let me explain. An interesting line of research in social anthropology analyzed what type of person is more likely to rise through the ranks to become the headman of a tribe. Often, this would be the most fierce, ambitious and aggressive warrior, who would be willing to take on all his opponents in the quest for leadership. Yet, interestingly, although characteristics such as fierceness and ambition would be helpful in bec...

The economist Jovanovic wrote, about a quarter of a century ago, “efficient firms grow and survive; inefficient firms decline and fail”. What he meant is that the market is Darwinian; it will rule out the least efficient firms, with habits and practices that make them perform comparatively badly, and it will make sure efficient firms prosper, so that only good business practices prevail. Yeah right. When you look around you, in the world of business, one sometimes can’t help wonder where Darwin went wrong… How come we see so many firms that drive us up the wall, how come we see silly business practices persist (excessive risk taking, dubious governance mechanisms, corporate sexism, grey suits and ties to name an eclectic few), and how come so many – sometimes well-educated and intelligent – people continue to have an almost unshakable belief that the market really is efficient, and that it will make the best firms prevail if you just give it time? That’s because the logic is not entire...

As a professor of strategy, lately I've been getting asked quite a lot, "What can our company do to survive the downturn?" I'm sorry, but the real answer is, "Not a lot." The market is Darwinian: the strongest ones survive. And an economic downturn is like winter in Alaska; many animals can live a happy life in Alaska all through spring, summer, and fall, but when winter comes, it's not a great place to be. It's a much tougher environment — and only the fittest survive. If you're not very strong, if you haven't accumulated much body fat or haven't developed the ability to hibernate, I am afraid it is going to be tough for you, too. "But what can I do to become stronger? Get thicker skin? It's getting a bit cold here!" you might cry. Well, I am sorry (again), but winter in Alaska is not a great time to try and become stronger. It is a tiny little bit late for that... But I do think there are a few survival techniques from loo...

There is ongoing debate whether performance related pay for top managers – in the form of stock ownership, options, or other types of financial incentives – actually works. We know it alters their behavior but does it improve it? I’ve quoted some of the research in this area before but, in a way, whether or not it does, it remains a bit strange that top managers would need performance related pay. As I have said before, do you really want someone at the helm of your company if he or she only works hard and smart if they are directly rewarded for it? On the other hand, I have to admit, no matter how rhetorical this question is intended, I do guess it is only human… It is only human that our behavior is altered due to performance related pay; and you and I are probably no exception. The trick then, of course, is to get the right measurement system, and perhaps to no overdo it; too much performance related pay may alter the behavior of top executives in ways you had not quite in mind when...