Archive for February, 2011|Monthly archive page

Manager influence goes up when they are less certain

This counter-intuitive notion is the key conclusion of new research coming out of the Stanford Business School.  This research has important implications for senior managers as well as industries that sell expertise such as professional services, advertising agencies and recruiting firms.  

The researcher, Zakary Tormala, had subjects evaluate the appeal of a restaurant based on the assessment of two different reviewers.  Half the participants read the review by an expert (a professional food critic) while the other half read a review by an amateur.  Half of each group saw a review that was highly certain; the rest saw a review that was tentative.

Overall, while the confident amateur inspired subjects to give better ratings than the uncertain one, the less assured expert prompted higher ratings than the certain expert. The findings suggest people do not necessarily mistrust confident experts, but sometimes people are more persuaded by experts who are not confident.

What is behind this phenomenon?  Chock it up to a concept known as expectancy violations. People expect experts to be confident. Violations of that expectation surprises them, resulting in the individual taking greater notice and giving the opinion more credence. In the research, subjects reported being more surprised by the uncertain experts and the confident amateurs.

These findings do not suggest that CEOs should project uncertainly about their company’s prospect to become more influential. Having your audience take notice is not a substitute for ignoring a relevant message.  To be persuasive, managers must balance surprise with credibility. Being credible means a delivering message that is relevant to the core argument or issue.

Complementary research by Tormala also looked at how people view potential. Interestingly, the initial findings seem to show that people value high potential more than high achievement.  In one basketball study, people read the scouting report on a player and were asked to predict their salary level. Some subjects read the actual stats for the player’s first five years in the league while others read predictions for the first five years’ performance. The numbers were identical. On average, people gave the rookie over 20% more in salary in year six than the veteran.

These findings were similar to those found in the restaurant review study.   Proven achievement is very certain and predictable. At the same time, potential is uncertain and exciting.  The potential for multiple outcomes could lead to higher than expected results, and as a result, greater expectations for performance.

For managers and external experts, there are some key takeaways to build influence and trust:

  1. Foster a communication approach that emphasizes honesty, empathy and integrity;
  2. Adopt a more humble tone and style in place of the standard confidence-based rhetoric;
  3. Demonstrate analytical and process transparency underlying the opinion.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

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Strategy for risky and uncertain markets

The political turmoil in the Middle East over the past few weeks reminds us how risky emerging markets can be.  In rapid succession, Tunisia, Egypt, Jordan, Yemen and Bahrain have experienced significant unrest resulting in the destabilization of local economies as well as the foreign firms that operate and sell there.  Caught unprepared most multinationals across a variety of industries got hammered.  For example, Thomas Cook Group, a tour operator, announced that they would lose $32 million due to the Egyptian and Tunisian uprisings.  Lafarge, a large French cement provider, saw its share price fall four percent in one day.

Despite a semblance of normalcy, all emerging markets contain a myriad of risks – by themselves or in combination – ranging from war, civil unrest, and arbitrary government actions to executive abduction, natural disasters and large currency fluctuations. Magnifying the local hazards are fragile infrastructures, weak government institutions and socio-cultural chasms. 

Not surprisingly, political and economic risk is not limited to the Middle East.  Other rapidly growing flashpoints pose considerable risk for Western companies that depend on location operations and markets.  As examples, both Korean states technically remain in a state of war; nuclear-armed states India and Pakistan have fought 4 wars over the past 60 years and still have a simmering dispute over Kashmir and; China has territorial issues with all of its neighbors and experiences thousands of anti-government incidents every year.  For these countries as well as many others, disorder is not a question of if but when.  

In order to understand and cope with these risks, prudent executives need to consider three fundamental questions:  1) What is the likelihood of the most plausible disturbances; 2) What is the potential business impact of each of these problems and; 3) How can the company preempt these problems or mitigate the impact following the disruption.  To help firms make the right strategic choices, we deploy a comprehensive analytical framework that drills deep into the regional political and economic environment to develop integrated market and non-market risk management strategies.

Deeply understand the local society

Firms often have a great deal of knowledge about the customers, suppliers and regulations in the markets they operate in.  Yet, these same firms will possess significant cultural and historical blind spots which prevent them from truly understanding the pulse of the nation as well as its relations with its neighbors.  In the case of Egypt, virtually every multinational was caught unprepared by a situation that could have been anticipated given current political realities – extreme income inequality, religious conflict, a 30 plus year old authoritarian regime and political leadership behind a 82 year old dictator and his cronies.  To better understand their international markets, companies need to closely monitor political, social and economic developments both historically as well as up close on the streets. 

Choose a lower risk market strategy

Out of fear or ignorance, many firms choose to follow the market entry strategies of their competitors or peers. While executives may feel that they are playing it safe by replicating a rivals’ strategy, they are often unwittingly magnifying their own risk by ignoring better options.  For example, foreign direct investment (i.e. setting up a plant) may be an ideal approach during stable periods.  However, in turbulent times, an immobile and vulnerable fixed investment can turn into a corporate albatross.  Lower risk entry strategies could include joint ventures, strategic alliances, licensing strategies or in the simplest case, simple exporting. In addition, companies can choose to base vital assets like data centers and manufacturing in nearby but more stable geographies (Israel vs Egypt) while leaving less critical operations in the target market.    

Develop and refine contingency plans

Recent events in the Middle East as well as the Asian financial crisis of the 1990s have taught us that turmoil can spread quickly throughout a region. This means that managers need to anticipate potential problems and have plans ready before the crowds flood the streets. Companies should regularly engage in scenario planning where alternative operating models could be evaluated against key objectives like investment rate of return and supply chain viability.  Much of this planning should include non-market tactics such as political lobbying, coalition-building with your peers and participation in local associations and industry bodies.  However, firms need to tread carefully to avoid a nationalistic or religious backlash.  A case in point was the American conglomerate ITT who was implicated in the overthrow of Chile’s Allende government in the early 1970s.

Given the potential,  firms can ill afford to ignore doing business in emerging markets.   However, managers need to tread carefully and strategically manage their risk.

For more information on services and work, please visit the Quanta Consulting Inc. web site.

Making sustainability live in your organization

Most executives I speak with acknowledge sustainability’s strategic imperative. A few of them have understood the transformational impact of sustainability and have moved boldly to realign their operations and cultures in order to reap significant business value. This value creation includes tangible outcomes such as improved brand image and supply chain efficiencies as well as intangible benefits like enhanced employee morale and greater appeal to new recruits.   While the majority of organizations have similar ambitious goals, many are unclear how to turn intent into results.

Recently, MIT’s Sloan Management Review looked at how companies were responding to the emergence of sustainability as a mainstream business driver. The study found that most organizations fall into one of two groups: a select group of embracers and the masses of cautious adopters.  Embracers such as GE, Unilever, Walmart, P&G and SAP recognized early that they can leverage sustainability strategically to outflank competition, drive brand differentiation and revitalize supply chains. To bring this vision into action, the embracers quickly integrated sustainability strategies and practices into the core of their business and organizational models. The results have been impressive:  enhanced corporate reputations, significant supply chain savings, higher product margins and a lower environmental footprint .  

On the other hand, the cautious adopters have been more reactive and timid.  They see sustainability as important but within the context of efficiency gains and risk management.  In their planning, sustainability is pursued as a series of tactical initiatives executed within their current organizational model.  In most cases, results have been modest with little appreciable change in competitive position.  Not surprisingly, cautious adopters will be challenged to overtake the embracers as long as they continue to treat sustainability in such an incremental fashion.

Interestingly, capital spending was not a barrier to action.  Despite recent economic and political uncertainty, 60% of surveyed firms reported increasing their 2010 sustainability investments.  What then is holding back most companies?

To drive sustainability, executives need to change the way they do business.  The implementation strategies of embracers offer a number of lessons, including: 

Move early even if there is incomplete information

Brian Walker, CEO of sustainability-leader Herman Miller furniture believes that many sustainability decisions “can’t be reduced simply to a formula or financial return…it requires a bit of instinct, a gut feeling of where you want to go.” In most industries, there are sufficient best practices and case studies to help firms move forward with plans that improve sustainability competitiveness.

Balance a long term vision with concrete short term wins

While long term success favours the ambitious, the reality in most organizations is that short term project wins are needed to generate operational experience and catalyze change.  One IT CEO I worked with refused to implement a large scale sustainability initiative until the firm had garnered sufficient learnings from a couple of pilot programs. 

Integrate sustainability into the organizational structure and operations

Sustainability must be woven into the fabric of the organization and not siloed within a specific department.  For example, GE and Nike translated their bold sustainability mandate directly into their operating units, practices and cultures.  Santiago Gowland, Unilever’s VP of Brand and Corporate Responsibility, says that his company views sustainability as a key business growth lever, treated at the same level as HR, Marketing and Supply Chain Management. For Unilever, sustainability is a new way of doing business.

Leverage top down and bottom up commitment

While getting a strong mandate from the Executive Team and Board is crucial, much of the early effort and ideas must come from the lower ranks.  One firm I worked with gained environmental leadership in their industry mainly through the efforts of a highly motivated, cross functional volunteer committee of low and middle level employees.

Make sustainability integral to key product, service and supply chain decisions

Inputting sustainability criteria into decision making and operational analysis is essential for developing a business case and gaining external compliance.  Companies like SAP and Walmart have driven sustainability savings and compliance using tools like Product Life Cycle Analysis, which look for opportunities to reduce environmental impact while generating significant cost savings.

Successfully deploying sustainability strategies requires more than lip service.  As well as putting their money where their mouths are, practical executives will seek to embed sustainability practices and beliefs within their companies.

For more information on services and work, please visit the Quanta Consulting Inc. web site.

Group dynamics can stifle innovation

For most companies, conventional wisdom says that collaborative teams offer the best path to generating compelling innovation.  Behind this notion is that high-performance and diverse groups are best suited to cope with technology complexity, commercialization challenges and  as well as stick handle through management gates such as securing buy-in and resources.  In fact, I have argued this point in my blog on a number of occasions.  A recent Wharton research paper suggests that other innovation strategies could be more effective.

Professors Christian Terwiesch and Karl Ulrich contend that common group dynamics are anathema to developing breakthrough products, unique ways to save money or revolutionary business models. Instead, they believe the next Facebook, Twitter or iPad could best be germinated by an inspired innovator with plenty of time to ponder and experiment.  If this approach sounds familiar, it has been the modus operandi for some of the most famous inventors including Thomas Edison, the Wright Brothers and Steve Jobs.

The researchers undertook a series of experiments to understand which of two different innovation processes – the conventional team-centered model and a hybrid individual/team approach – delivered the greatest number of high quality new product ideas. In the traditional model, peers were encouraged to collaborate to produce new ideas. With the hybrid approach, individuals were first encouraged to brainstorm and refine new ideas by themselves and then to present them to a group for vetting and elevation.

The study concluded that the hybrid process resulted in three times more ideas than the team-based process.  More importantly, the findings also showed that the hybrid approach generated (on average) significantly better quality ideas, including the most preferred idea in the experiment. These findings run counter to current innovation best practice which stresses team-focused models.
 
A hybrid process is more successful because it can mitigate the harmful effects of group dynamics and catalyze more “out of the box” thinking. According to the authors, group dynamics can harm the innovation process in many ways.  For example, in brainstorming sessions several people can quickly dominate a conversation often restricting the sharing of all potential ideas. In other cases, individuals may think less critically about a problem because they are happy to let others do the heavy lifting.  And, those people who lack confidence or internal credibility are more likely to practice self-censorship within peer groups.   Finally, groups can be a breeding-ground for organizational barriers such as cultural norms and management bias that limit creativity and critical thinking.
 
Multi-functional collaboration among diverse, smart and passionate individuals remains an important means to filter and refine the most exceptional ideas. To minimize the negative effects of groups and organizational dynamics while still encouraging collaboration, firms can deploy a number of powerful methodologies and tools.  These could include innovation tournaments – where ideas compete for attention and resources within a transparent and objective process – as well as an “online suggestion box” where ideas can be independently and anonymously evaluated.

The research’s conclusion is not to eliminate collaboration.  Rather, it suggests that an individual’s creativity needs to be fostered and protected early on in the innovation process before group dynamics can limit choice and quality.  It will be interesting to see  if these conclusions are supported by real-life experience.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.