Diamonds in the Data Mine

October 29, 2009

This is an interesting companion piece to the article regarding Gary Loveman’s hiring at Harrah’s. I really like how Loveman thought outside the box and reinvented the casino loyalty rewards program at Harrah’s to focus in on bringing in new customers and maintaining its regular customers. Of course the idea of treating customers differently is not new—airlines and hotels do this all the time—but it was nonetheless a really smart idea to try applying this to casinos. One of the really great things here is how Loveman recognized the veritable pot of gold he had in the data collected from the old loyalty program and then decided to take that data and use it to design a program based on the airline/hotel loyalty rewards programs. It is an idea so simple that I am shocked no one else had thought of it, but sometimes the best ideas are the simplest ones.

An interesting point not mentioned in the article is that, when you build customer loyalty like Harrah’s has done, the customers themselves help build your business through word of mouth. Here, Harrah’s has focused on customer service—even going so far as to tie employee bonuses to their property’s service rating—and, as a result has helped ensure their customers have a better experience. They have also started rewarding repeat visitors with chips and service incentives that match up with what they enjoy doing at the casino. As a result, you have happy, loyal customers. And, you know those customers are going to spread the word about the great treatment they got at Harrah’s to their friends, family, and coworkers, which means those folks are more likely to start frequenting Harrah’s as well and they in turn will spread the word to their friends and family. That, of course, is exactly what you want to happen when you are looking to build your customer base and your bottom line.

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The first thing that really caught my eye about this case was former CEO Phil Satre’s willingness to break the usual mold used by gaming companies by reaching out and hiring a business professor from Harvard Business School to serve as COO. Although the discussion of this case briefly touches on the fact that a number of people within the Harrah’s corporation were skeptical of this hire, I would imagine that this was a far bigger problem then the case discussion lets on. I am sure there was a lot of hostility towards Gary Loveman from those who were passed over for the COO job and a lot of skepticism from the remainder of the organization given that Loveman only had academic experience, had no gaming experience, and was an organizational outsider.

Even though Gary Loveman had previously done some consulting work for Harrah’s, Satre really took a big gamble here. If Loveman had flopped it probably would have cost Satre his job, given that he brought in an untested academic with no gaming experience to be his COO. I really like that Satre was willing to take that risk—he wanted to shake things up and he did so in a big way. And, as the case details, it really paid off, as Harrah’s thrived in Loveman’s tenure as COO, which ultimately resulted in Loveman’s promotion to CEO once Satre stepped aside from that position.

For Satre, I think the key here is that he took the right risk. Of course you do not want your CEO making crazy decisions on a whim, as that can really hurt the company. And, after the meltdown we have seen in the financial sector, I would imagine that it is harder for CEO’s to justify making risky decisions and I suppose in today’s economic climate, Satre might not have been able to pull this hire off. But here, Satre had a person he really believed in who had some experience dealing with Harrah’s and he decided that the risk of bringing in an untrained outsider was worth the potential pitfalls.

Now that Loveman has completed his transformation of the organization, and done so with a lot of success, his challenge in his new role as CEO is to find a way for the company to continue to grow without losing any of the elements that helped the company experience success during Loveman’s tenure as COO. As the case file notes, there have been some locations where growth has stagnated, and thus it seems like some of these properties have reached their maximum potential. So, with regard to the existing properties, Loveman will need to identify what properties still have potential for growth and make sure steps are taken to help these properties reach their full potential. It will also be important, however, to make sure that those properties that are topped out are maintained and kept fresh, so that the company does not start losing business at those properties.

Outside of promoting growth within the organization’s existing properties, Loveman will also have to decide if, when, and how he wants to expand the number of properties in the companies’ portfolio. There are two ways to achieve this. One way is to build new properties in both existing markets that the company feels can support additional properties and to build new properties in currently unserved markets. The other is to expand by acquiring competitors and taking some or all of their properties into the companies’ portfolio. Obviously the later option is somewhat easier, in that the properties are already up and running and ready to go. But, even if they choose that option, it seems likely that Harrah’s will need to expand into additional markets outside of those that the company—and any competitors it acquires—currently serve in order to branch out and reach new customers. With that in mind, Loveman will need to develop strategies for both methods of expansion and work to ensure that, as the company grows, it does not lose sight of the goals and competitive advantages it developed in Loveman’s tenure as COO.

The Dean’s Disease

October 29, 2009

Considering where the candidates come from and what they end up doing when selected to serve as deans, I guess we really should not be surprised that this type of bad boss behavior is such a big problem amongst deans. You take someone filling one role—that of a lecturer and researcher—and you completely change their role to an administrative one but place them in charge of those still engaging in academic pursuits. It is kind of the classic example of the coworker promoted to a leadership position who gradually loses touch with what his former coworkers, who are now subordinates, are doing. You forget what it was like out there in the field, or the lab, or wherever you were working as an academic before your promotion, but you are expected to manage those who remain working in the academic setting.

I never really thought about it before, but this article really makes clear what a huge change it is to go from being an academic to being a dean. Most academics are trained researchers—they earned a Ph.D. and have been focusing primarily on research and on doing the other things–teaching, etc., that are required to succeed in the academic world. But, once you are hired to become a dean, that all changes. Now you are dealing with administrative matters and navigating the world of fund raising to keep those academics you left behind flush with resources for their research. And, of course, you are put in the position of having to say no to funding or approving certain research projects. Given the stark change in responsibilities, it seems unsurprising that deans undergo this big personality change. As a new dean, you no doubt feel the need to make a break with your past role in order to successfully transition into your new one. You cannot be too friendly with the academics, lest you be accused of favoritism, but if you are not friendly enough, you are distant and unsympathetic to what the academics face. In many ways, its a can’t win proposition.

I think one of the harshest truths from this article is the reality of what awaits those who do not succeed as deans. Once you have lost touch with your research area and with teaching, it seems like it would be almost impossible to successfully return to a role as an academic without catching some major breaks, especially when it comes to publishing your work. After all, for the research world at large you have been out of sight and out of mind while you were acting in the capacity of dean. Not a pretty picture, given that not everyone is cut out for these types of leadership roles.

Good to Great, or Just Good

October 22, 2009

This article certainly provides a damning analysis the research and conclusions set forth in Jim Collins’ book, Good to Great. Of course, despite what seem like readily apparent problems with the analysis, the book became a best seller and was apparently widely adopted in boardrooms worldwide. That in and of itself is not really surprising. Many managers and executives are constantly on the hunt for the next big thing in terms of management philosophy, as long as they do not have to come up with it themselves, of course.

What I find most troubling about Collins’ work is that, based on the study in this article, it seems that the firms Collins selected were not really that great to begin with. At least not based on overall shareholder return, which was apparently one of the criteria used to select the firms Collins studied. So basically it seems that he started with a bad sample set and then made the problem worse by applying faulty methodology to his study. And, while I realize that Good to Great was written eight years ago and success or failure can swing wildly in the business world in that time, I still find it ironic that Fannie Mae and the now defunct Circuit City are on the list of “great” companies. I think anyone picking up the book at this point in time would certainly be surprised to see these companies on the “great” list.

Given how influential the book became, I think it would be interesting to take a look at some firms that adopted the five principles that Collins claims would lead to sustained great results and see where they are several years down the line. I would be curious to see what, if any, impact the application of these principles to other companies had, assuming you could establish that it was actually the adoption of this new approach and not some other unique factor within the firm that caused any positive or negative results that may have occurred. While it would be hard to produce any hard and fast conclusions on whether the application of these principles was responsible for the end results, it would still be interesting to see what happened to these companies after they made the big switch. And, for those companies who tried these principles with little to no success, I would also be curious to see what happened to the managers or executives who lead the charge to adopt Collins’ principles.

What jumps out at me from reading this article is the fact that so few companies have tried or are trying an evidence based approach to management. I really found that to be amazing. I realize that it is easier to take pre-existing theories and ideas and simply try to wedge them into the management situation at hand, but to me, the problems inherent in such an approach are readily apparent.

Every company is different. They have different products, different employees, and different goals. So, with that in mind, how do you not sit down and try to figure out how—and more importantly if—a particular strategy will work for your company? I suppose if you asked these managers they would tell you that taking something that works elsewhere and applying it to their company promotes efficiency. Why reinvent the wheel, right? But it seems crazy not to spend some time figuring out (1) why the strategy you want to adopt worked at the originating company, (2) what is different about your company, and (3) how could those differences create problems for the strategy you want to adopt.

I suppose there is a certain fear/peer pressure element at work here. If company A is using a hot new management approach and other companies begin to emulate it and show some success with that approach, if you are a CEO, you do not want to be running the lone company that is not using that approach, especially if your company is—or already was—struggling in comparison to these other companies. So you go with the flow and use the new approach, regardless of how it fits within the dynamics of your company. If it works out, great, and if not, you were applying a tried strategy, so at least you have that to hang your hat on when you go to face the board of directors.

I guess another problem with adopting this approach is the experimentation aspect. If you are going to come up with a new approach to doing things, it requires trial and error—in other words, experimentation. Experimentation, however, does not always lead to profit. If you try a bunch of things and, through trial and error, you come up with the next great marketing approach you are a genius. But, if you run through these processes and nothing works, you have wasted a bunch of time and have nothing to show for your efforts. And, if you are the person in charge, you may well find yourself fired. So, I can see why a manager may want to avoid experimentation and stick with a tried and tested theory that has worked elsewhere.

But, I think focusing on the possible drawbacks to evidence based management misses the big picture. Yes, if you use an evidence based approach you may occasionally wind up with a series of unsuccessful experiences, but you also may wind up being the person or company that came up with the next big thing everyone wants to copy. But, you have the advantage, because you developed this strategy with your team or product in mind, something those who will later try to copy your strategy will not have. In the long run, for both managers and companies, it seems like the benefits of this approach outweigh any possible negatives.

As this article details, it seems like pretty much everything that could go wrong in the operation and management of the intelligent community did go wrong. You had people operating with a presumed conclusion looking for and identifying evidence that they could construe in a way to support that conclusion, supervisory failures, and a lack of appropriate sources. When you have a failure of this magnitude on a number of different levels, the result is what you have here, a major disaster and a huge embarrassment.

Reading this article makes me think of the different consequences this type of behavior would have if it had taken place in a private business instead of the government. Unlike a corporation, when a government entity like the CIA fails in such a huge way, you have time to fix the problem by cleaning house, replacing management and the head of the organization, and doing what is necessary to fix the problem. The government will continue to fund the CIA until it gets things worked out, so the CIA is not going to cease to exist because of this—it just gets a major overhaul in hopes of fixing the problem. But the CIA will continue on, and eventually will probably repair the damage to its reputation caused by these problems.

For a corporation, however, a major meltdown like what the intelligence community experienced could be fatal. In a private company, this kind of public failure of operations drives customers away. And, unlike government entities, there is no guaranteed stream of revenue to keep the company afloat. So, if I am the head of a company, or even a middle manager, I am going to be on the look out for groupthink, systemic failures, and management failures, to make sure my company does not suffer a major blunder that damagers its reputation like the intelligence community’s reputation was damaged here, because, unlike the CIA, my company probably will not recover.

The thing I liked about this article is that it really highlighted how complex being an effective leader can be. Effective leadership is not just about being charismatic or knowledgeable in your field. And, it is not just about being able to make the correct decision quickly and acting decisively.  Effective leadership is the sum total of a wide variety of parts that all must function as a coherent unit in order for the manager, and his or her organization, to succeed.

The study really highlighted the dynamic impact that the ability to manage personalities can have on whether a leader is effective. I really liked that the article focused on all the different people the managers had to deal with and who could have a positive or negative impact on what the managers were trying to accomplish. How to effectively manage your team of people and lead them to success while dealing with the demands and expectations of upper management, the concerns and biases of those working in areas outside of yours, and the personalities, attitudes and perceptions of your team is one of, if not the, biggest issues we face as managers.

This article is a nice counterpart to a blog posting I recently read at Wally Bock’s Three Star Leadership Blog, which discussed whether leadership can be taught. As Wally pointed out, leadership is not something that you can teach—it is “an apprentice trade.” You have to learn it as you go by trial and error. When you read something like this study, it becomes clear why you cannot just teach someone to be a great leader. There is no way a classroom can teach you how to manage the diverse personalities and goals that different groups at your company will have. You have to figure that out as you go. And we are always learning. If you move from company A to company B, although you may have learned techniques for dealing with the personalities and issues you face at company A, you then have to go through the learning process anew as you figure out how the personalities and organizational structures function at company B.

Another interesting aspect to this study was the impact that having R&D appointed team leaders versus team leaders from some other area had on whether the leader was effective. It seems that R&D folks felt that they should control the entire development process, and, as a result, their leadership style was geared towards maintaining total control and protecting their original area—the R&D area. I suppose that it is a natural instinct to try and protect what you see as your area, but it is somewhat disconcerting to think that the people who should have the most vested interested in the success of new product development are the ones doing the least effective job of leading others towards accomplishing that goal.

Wow, I am not sure Arrow could possibly have a worse approach to performance evaluations. While I can understand being frustrated when all of the evaluations came back essentially the same, I cannot believe that they actually made the managers do them over. How can you expect employees to find the review process to be at all meaningful when you first receive one score and set of comments, and then, when the boss is unhappy with the results, they are sent back for a re-do and you receive another set of scores that are, in all likelihood, very different from the first set. If I were one of those employees, the second set of scores would have no meaning for me, because it is clear that the changes were made on a company wide basis at management’s direction. No employee is going to think that these second set of scores is what their supervisor really believes. Honestly, I would not be surprised if some of the reviewing managers actually said as much to the employees in delivering the second set of performance reviews.

The fact that most employees will view the new reviews as being of questionable validity is only the tip of the iceberg here, however. I think most employees are smart enough to view this as being an effort to push down scores so that salaries can be kept low. The reality is, that was part of the purpose behind this re-do, since one of the problems with the first set of reviews is that everyone would be entitled to a maximum salary increase, which the company could not afford. Gaming your review process to keep salaries down is bad enough, but to do so in such an obvious way is just awful from an employee morale standpoint.

Another problem here is that upper management has just made a clear statement to the rest of the company that, in their view, when it comes to the review process, lower level management does not know what they are doing. How can you undermine your management staff like this? This kind of thing is really damaging to managers, as it results in employees not taking their managers seriously. And to undermine them on something that most employees consider pretty straightforward is even worse. If I was one of these employees, I would be wondering what upper management thinks of these managers’ performance in other areas, given that they apparently cannot even be trusted with completing performance evaluations.

What’s amazing to me, is that apparently Arrow did not feel they had done enough damage with the re-do of the performance evaluations, because they continued to try and game the system to reach what upper management saw as the “correct result.” How do you get any kind of meaningful results when you first mandate what percentage of employees receive a certain overall score, and then, when that does not work out, you mandate that every employee receive a below average score of two on at least one criteria? And how do you expect employees to take the process seriously, when it is being changed again and again and they know that every employee is required to get a two? I would guess that most employees do not really believe that they performed at a two level, and instead just feel that they received that score because corporate mandated it.  

The most telling thing to me, is that one of the goals of changing the review process was to allow upper management to be able to tell who was worthy of promotion based on the written performance review. To me, that is an impossible goal, and it’s made even less possible when you mandate that a certain percentage of employees receive a particular score or you require each employee to get a two in at least one category. As an upper level manager, you have to be able to trust your managers to know who should and should not be promoted—they are the ones dealing with their employees on a daily basis. If you are the boss, you need to trust that your managers will give you proper guidance on who should be promoted and when. You are far more likely to get that information, however, by addressing promotion issues with your managers on a one-on-one basis, rather than trying to deduce who the best candidates are from what a manager writes down on a form that he or she has to share with the employees.

This is an interesting excerpt. It really is amazing how damaging a poorly thought out compensation incentive system can be to a corporation. I thought the Albuquerque example was particularly amusing. One would have thought that they would have anticipated that this result might happen. Was it really that surprising that a system that encouraged drivers to finish their routes as quickly as possible would result in the drivers cutting corners in an effort to earn their pay in as little time as possible? Apparently so. I would be interested to know what the result of the grand jury investigation was, as clearly the citizens and/or political establishment were not happy with the results produced by this system.

I found the discussion of the dangers of stock options particularly telling in light of some of the corporate meltdowns brought on by cooked books over the last few years. Nothing like an incentive to bring stocks to a high point, regardless of whether the company is actually succeeding to encourage CEOs and the like to engage in less than honest conduct so that they can exercise their options at the highest possible value. I personally would be interested in knowing what the average difference was between the stock value based on the cooked numbers and the true value of the stock. I wonder how much difference in compensation it took to encourage these CEOs to sell their companies down the river.

I really like the Men’s Wearhouse approach of using compensation as a reward, but not using it to drive employee behavior. The employees get rewarded and get to share in the profits of the company, but are not encouraged to take shortcuts and or engage in other bad behavior to game the system in hopes of maximizing their compensation. I would imagine that a system like that would be far more successful at bringing about desirable behavior then the traditional incentive based systems.

That being said, I wonder if the compensation based incentive system is too entrenched in American corporate society to be eliminated or even modified to be more like the Men’s Wearhouse approach. Despite all of the problems we have seen from companies using this system and the scrutiny place on executive compensation, we have not really seen much evidence of companies moving away from stock options as a means of compensating executives. If the recent financial meltdowns have not encouraged companies to revamp these systems then I wonder if anything will.

Nordstrom Case Study

October 7, 2009

My initial reaction to the Nordstrom case study is that Nordstrom sounds like a terrible place to work. Why would anyone want to work in a situation where you are essentially forced to under report your actual hours worked in order to meet some artificially created hourly sales quota and avoid workplace repercussions. Clearly some Nordstrom employees agreed, resulting in the union filed complaints and class action lawsuit. The media and other retailers apparently agreed as well, as demonstrated by the negative press and the fact that other retailers declined to adopt Nordstrom’s policies.

What is interesting to me, however, is that a large percentage of Nordstrom employees clearly did not find this system unfair. The union received minimal support from Nordstrom employees and was ultimately kicked out of the unionized stores, so it seems apparent that most employees were satisfied with the current system and objected to the efforts to change that system. Although I personally would not want to work under such a system, I can see why those who do—especially those who thrive in that system—would not want to change the system. While employees do give up some compensation by declining to declare certain hours worked, it is apparent that a number of employees have used the system to earn far more then they would at competing retailers. While I am sure that the example employee earning $80,000 is an extreme outlier, the average Nordstrom sales associate still earns a lot more than comparable associates at competing retailers.

Also, it seems like those who thrive in this system are very likely to be promoted, so that is another reason employees would be in favor of it. Essentially, this system weeds out the weak sales people, either by encouraging them to leave voluntarily or by forcing them out when they fail to meet their hourly sales quota. For those who remain, a promotion seems inevitable, since only those who meet or exceed these sales targets will be allowed to stick around.

What this case study tells me, is that Nordstrom’s sales quota system created a strong culture in which those employees that stuck around were the ones thrived under that system—earning more money and getting to keep their jobs in the process. Those who did not thrive either left or were forced out for not meeting the hourly sales quota. As a result, you have an organization made up primarily of employees who succeeded under the current system—earning far more than they would at competitors—and thus you have an organization in which the bulk of employees are big supporters of the system and will react in anger to those who try to change it. This is personified in the fate of the union, which was decertified despite bringing about changes to Nordstrom’s time keeping system and winning back pay for a number of employees.