Article: Diamonds in the Data Mine

Posted October 29, 2009 by Loren Loiseau
Categories: BADM 720 - Organizational Behavior

Reference: Harvard Business Review, Gary Loveman

This is another great description of how ideas are formulated and tested using a reliable method. The article talks about how Harrah’s Entertainment analyzed customer behavior data to make decisions based on insight gained from the data.

The article says that Harrah’s mining and use of the data led to positive results in their business, however I submit there is something deeper going on here.  What really happened is that Harrah’s made an effort to understand their customers in order to figure out what the customers wanted from Harrah’s.  They dropped assumptions made by competitors and even internal analysis, took a step back and made an honest effort.  The fact that they used their existing data to achieve their goal, it was the commitment to bring value to the customer that made them successful.

Another aspect of Harrah’s success was the commitment to determining cause and effect and then measuring the results of actions taken.  These two steps are often ignored when businesses attempt to move forward.

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Article Review

Posted October 22, 2009 by Loren Loiseau
Categories: BADM 720 - Organizational Behavior

INDEPTH: IRAQ (CBC News Line, 7/9/2004)

If you looking for it, you will probably find it.  That’s what this article says about the US military intelligence effort to find WMDs in Iraq in order to justify the second US invasion of Iraq.

American intelligence had already decided the outcome of the WMD search and that the US would likely go to war.  The problem with this preconception is twofold:  the investigators misinterpreted ambiguous information, and their supervisors never challenged the conclusions.  In the end, only one thing matters:  they were wrong.

In business, misinterpreted data in favour of one’s own opinion is just as dangerous.  No information should be accepted at face value.  In organizations where workers have no say and are not allowed to question existing procedures, there is little chance that “group think” will not be a factor in bad decisions.

 Good to Great, or Just Good?

It’s interesting when someone’s refutation of a dogmatic argument is just as dogmatic as the argument itself.  In this article, the authors (Bruce Niendorf and Kristine Beck) blast Jim Collin’s book Good to Great saying that there are serious flaws in Collin’s reasoning.  There are logic flaws in this article as well.

Even with flaws, both works make great points.  First, companies need to use methods that they think are valuable in determining positive change.  In the case of Good to Great, the succesful companies used data mining and associations to look for patterns that might provide clues to positive changes.  However, Niendorf and Beck are correct stating that the companies did not complete the process by fully understanding the cause and effect of the patterns.  They simply assumed there was such an effect.The companies also needed to verify expected results.

Strategies of Effective New Product Team Leaders

This is a great article about behaviors of effective leaders working in new product development (NPD) and the organizations in which they thrive.  The best part of the article talks about how these organizations select the leaders, train them and allow them to operate.

Because behavior is very much affected by environment, it is difficult to be a good leader in an organization that does not allow that behavior.  In this case, the organization promotes principles such as collaboration, transparency, learning and other positive principles.  It all starts with an organizational commitment to effective leadership.  With that commitment, the company can build and improve the environment required for effective leaders.

HBR Article: Evidence-Based Management

Posted October 22, 2009 by Loren Loiseau
Categories: BADM 720 - Organizational Behavior

How many of us rely on cliches and platitudes when making business decisions?  Or, how many managers make decisions based on magazine articles or other marketing efforts?  In this article, Jeffrey Pfeffer and Robert Sutton talk about these issues and recommend a novel idea:  how about making decisions based on evidence?

There are many times when quick decisions need to be made and sometimes all we have is gut intuition and our experience, however the norm should be carefully planned actions and measured verification.  A methodical approach would start by researching relevant evidence already published.  It is likely someone else has done much of the work.  The second part is verifying that the action taken really did produce the expected results.  If decision makers would apply these two principles, they would be miles ahead of their competitors.

HBS Case Study: Arrow Performance Reviews

Posted October 15, 2009 by Loren Loiseau
Categories: BADM 720 - Organizational Behavior

Using performance reviews to determine employee rankings and pay raises produces many undesirable effects and Arrow Electronics observed most of those effects during the first few years of using performance reviews.  This case highlights the difficulty in mapping some measure of performance to financial reward.

The biggest problem with a performance reviews is that it is not an objective or absolute measure of performance.  It is not an absolute measure because it is used to rank employees who are competing against a fixed raise pool.  With a fixed raise pool, employees already know that their compensation will not adjust significantly if they increase performance quickly.  A performance review is not objective because it relies on the judgement and biases of the manager.  Very often, subsequent managers over a group will rate individuals in very different ways.  As with any measure, the performance review can be manipulated to achieve dubious goals.

It would be better to pay employees market rate for their skills (assuming they apply the skills adequately in their jobs) and pay bonuses based on the financial success of the company.  Managers could then mentor the employees to help them improve their skills and have a higher market value.  This type of performance management will encourage more desirable behavior.

HBS Article: Sins of Commission, Be Careful What You Pay For …

Posted October 15, 2009 by Loren Loiseau
Categories: BADM 720 - Organizational Behavior

Companies often seek quick fixes to increasing employee performance and one such quick fix is “pay for performance.”  The concept sounds good, however the incentive rules may actually drive unwanted behavior.  For example, paying someone a flat fee for completing work may lead to sloppy results.

One of the reasons the desired behavior is not observed with various motivational strategies is that the desired behavior is not well-defined.  In the case of paying a flat fee for work, there needs to be quality standards that define acceptable results.  In this case, the work is not done until the quality standards are met.

The lesson here is that there is no quick fix.  Money is a good motivator and so are many other factors and it is very difficult to find cause and effect between motivational factors and behavior.  With Men’s Warehouse, money was only one of the motivators and it was used as a recognition tool rather than compensation.  Other factors included old fashioned celebration of success and other non-money rewards.

Getting control of your business

Posted October 11, 2009 by Loren Loiseau
Categories: Thoughts on Management

Step 1: Define what your customers need from you.

An effective business provides products that customers demand at a price they are willing to pay.  It’s important for a business to have a good handle on what products and services they provide within their target market.

Products and services are defined in terms of features and grades.  For example, a company might sell different kinds of wheel barrows with different features and specifications.  These product and service definitions will drive the business in quality and focus.

Step 2: Define what your business needs to produce its products and services.

A business transforms resources into products and services.  The transformation can be viewed as a one-step process with resource inputs and product/service outputs.  Step 1 tells us what we will deliver to our customers, now we need to identify all the resources required to make those products and services.  Several types of resources combine in the transformation:  people (skills, personalities, aptitudes, training), materials, money, customer input.  What resources are needed to produce your products?

Step 3: Define the high-level business processes, roles and responsibilities that turn resources into sales.

Now we break the one-step transformation from step two into major business processes.  The business processes tie the function of the business together as one cohesive whole.  Candidate processes are sales, marketing, product development, supply chain (purchasing, manufacturing, distribution), account management/customer support.  Candidate roles are a combination of external entities and internal roles defined by the business processes.  The most obvious role is the customer.  The important information to capture here is how the major processes interrelate to each other and how various entities interact with the business processes.

Processes have three aspects:  interface, internal procedures and internal inventory (physical and electronic).  The most important aspect is the interface, because it determines how the process fits with its peers and other entities.  The best interfaces are optimized based on the attributes of the consumer.

As processes are developed, internal customer/supplier relationships are developed.  Because all of the processes involve two-way relationships with the other processes, the customer/supplier relationships involve all combinations of business processes.  Recognizing this situation will highlight the interdependence of all groups in the company and will foster collaboration between them.

Step 4: Define the culture of the business.

It is relatively easy for a small business to establish a culture and virtually impossible for a large business to change, so it makes sense to be deliberate in establishing a culture as soon as possible.  Generally, culture can only be defined by a single person that has the majority of control in the company, a situation that exists when a company is small and diminishes over time.

Various aspects of culture are important to address:  work intensity, hours per week, compensation, decision making processes, delegation of responsibility, team work, etc.  By establishing an effective culture, the company can build a cohesive group of people that will work toward company goals.  The success of most companies can be copied from a superficial point of view, however any company advantage due to people resources is nearly impossible to copy.

The most important cultural ideal should  be collaboration, which requires communication and commitment.  In a culture of collaboration, no group will feel superior to another and all groups will be viewed as essential to the success of the business.  The biggest driver for collaborative behavior is consistency of rewards across the company relative to the company’s overall success.

Step 5: Establish an expectation for quality.

Quality is a boolean.  A product or service is either good enough for the consumer or it isn’t.  The easy target for quality is measuring products and services that are delivered to the customer, however due to the internal supplier/customer relationships, quality is an issue for the breadth and depth of activities of the business.  Whenever a supplier delivers a product or service, reasonable effort should be made to ensure a high level of quality.

Quality involves collaboration between suppliers and customers.  As customers interact with suppliers, they learn what works and what could be better.  When a collaborative effort exists, customers will be able to communicate with suppliers to help reach mutually beneficial changes in the interaction.

Step 6: Establish expectations for improvement

Improvement happens on two levels:  small improvements at the lower process levels and large improvements that involve major components of the business.  Focusing on both of these levels is essential for a business to become more efficient over time.

The primary source for improvement ideas is the people performing the work.  It is important to develop a culture and processes where peoples’ ideas are capture, vetted and processed through an improvement process.

Step 7: Establish goals

Goals are important for a company to move forward and can address quality, efficiency and sales.  The goals need to be reasonable and based on the phase of the company in its life cycle.  For a mature company, the focus might be on efficiency and looking at untapped related markets.  For a new company, sales might be the primary focus.

It is good to separate goal achievement from compensation because goal-based motivation often induces behavior that is not beneficial to the overall success of the company.  For example, a bonus based on a sales goal may lead to a salesperson to meet the goal but not exceed it.  Goals should provide a company-wide focus on success.  Tieing compensation to company success rather than goals is much more effective for motivating the right behaviors.

Step 8: Execute

All the planning in the world is pointless without execution.  To that end, a company needs to have mature project management skills to keep focus on moving forward.  Project management involves understanding what the business needs to change in order to be more successful.  Possibilities are prioritized, planned and executed according to the needs of the business.

The first priority should be to make changes required to conform to the decisions from steps one through seven.  Once these changes are made, then the company enters the continuous improvement mode where further changes are designed and executed.

Case Review: Nordstrom: Dissention in the Ranks?

Posted October 8, 2009 by Loren Loiseau
Categories: BADM 720 - Organizational Behavior

From Harvard Business School.

Built on great customer service, hard work and employee commitment, Nordstrom became one of the top retail stores.  The company was started in the early 20th century and survived through a couple of generations of the Nordstrom family.  By the time this case was documented, many of the practices of the company were called into question.

The interesting subtext of this case is about how a company did not adjust to cultural changes.  When the company was founded there were few labor laws and people tended to work a great deal and often with little pay.  Over time, the company maintained the same level of expectations while the culture moved in the direction of labor unions and more restrictions on how companies can treat their employees.  By the late 1980’s, the company was completely out-of-step with our culture.

The consequence for Nordstrom was legal findings against them for breaking modern labor laws.  Essentially, Nordstrom was found to be mistreating its employees by creating a culture where the employees were not paid for all their hours worked and creating a stressful environment where employees felt they had to break the company rules in order to keep their jobs.

Ultimately, what Nordstrom did was induce behavior in its sales force where sales people would not report activities correctly and even “steal” from other employees by taking credit for their sales.  It is very possible the Nordstrom was able to make more money as a company, but in the end company practices cost them much.