Lessons learned through a discussion of the Amazon-Zappos deal

Last week as we heard the news of the Amazon-Zappos deal an on-line discussion started between a few of my fellow students at the AGSM MBA. We discussed whether it was a good idea, what will the effect of it on the culture of the two companies, etc.

Amazon has always been a company I admired (and had some very good customer service experience with), so I was glad that as part of the discussion and even more glad to come by this movie clip of Amazon CEO and founder (Thanks Amit). You never know how much of what the CEO is actually saying is happening in real life. But, there is no doubt that Amazon is a success story. And I think that the principals they stand for and Jeff Bezos is presenting in the video are very similar to things I write about a lot in this blog.

Obsess over customers (not over competitors) – I love this approach. First, because it takes the company out of the regular We (or I) culture. As humans we attribute to much importance to ourselves in the mind of others. And this translates to companies’ strategies and tactics that focus on the company and not on the customer. Nobody really cares about company X. People care about themselves. But the second part of this concept is even more important. We spend so much of our lives comparing ourselves to others, using benchmarks, thinking – I want to be like him/her. We forget to be ourselves. We forget to excel at what we do. We forget to exploit our comparative advantage. Instead of focusing on them, we should focus on us. And I know what you are thinking. Isn’t that a contradiction? You just said that we should stop with the culture of we. Well it isn’t. They can co-exist. And anyway, F. Scott Fitzgerald famously said that “the true test of a first-rate mind is the ability to hold two contradictory ideas at the same time”.

Invent – There is no doubt in my mind that the need (and ability) to invent is and will be the hallmark of successful people and companies and out changing world. Not only invention of new products but also of process, of business models, of ideas and of sharing mechanisms. A company that puts invention as its core belief represent, in my mind, a great manifestation of everything that is good in the capitalistic system.  

Think long term for customers not according to customers – Again, two very strong ideas. Long term. The financial crisis has proved, if any more proof was needed, how important the idea of long term thinking is. Again, it is a manifestation of a very basic human trait that is discussed a lot these days. The need for immediate gratification. I hear about the Gen Y phenomena and the fact that people today are looking for immediate gratification and I involuntary cringe. This is not something we should celebrate. This something we should avoid. I think mentioning the famous marshmallow experiment is enough to make my point. Patience and perseverance, in the business world are essential. The second part of this concept is about customers and that they don’t always know what they want. Listen to your customers, but don’t be entrapped by them.

And not less important: “it’s always day one”. There is always more to learn, discuss, improve and question.

Elad

Live long and prosper in horse manure

Photo by Rikki_

My friend Jonathan sent me a link to an article writing in the subject of the email: “long, physiologic and fascinating”.  The article, from “The Atlantic Online”, bears the very promising headline: “What makes us happy?“. Although I don’t think it actually answers this question, it sure does give you a very interesting journey of trying to understand it.

In a nut shell, the article describes the writer impressions from spending one month in the file room of the Harvard Study of Adult Development, one of the longest running – and probably the most exhaustive – longitudinal studies of mental and physical well-being in history. It begun in 1937 as a study of healthy, well adjusted Harvard sophomores (all males) and it has followed these subjects for more than 70 years. I will leave the work of reading the article and answering the question “what makes us happy?” to you, but I do want to quote and comment shortly on two quotes I liked in particular.

The first quote is a very short story the manager of the research, Dr. George Vaillant, gives as an answer to one of the questions:

… [T]he story of a father who on Christmas Eve puts into one son’s stocking a fine gold watch, and into another son, a pile of horse manure. The next morning, the first boy comes to his father and says glumly, “Dad, I just don’t know what I’ll do with this watch. It’s do fragile, it could break.” The other boy runs to him and says, “Daddy! Daddy! Santa left me a pony, if only I can just find it!”

We always hear the importance of looking on the part of the glass that is half full, and not the one that is half empty (link in Hebrew). As I mention in my e-book, In Randy Pausch ’s last lecture he said: “We cannot change the cards we are dealt, just how we play the hand“. When is the last time you woke up to see horse manure on your table and thought to yourself – this is an opportunity. They say that times of depression are times when people get rich. It is the people who can see the opportunity in the horse manure. The following thought is self evident. When you are assembling your team – are you looking for people who opportunities in horse manure?

This is the second quote:

In fact, Vaillant went on, positive emotions make us more vulnerable than negative ones. One reason is that they’re future-oriented. Fear and sadness have immediate payoffs – protecting us from attack or attracting resources at times of distress. Gratitude and joy, over time, will yield better health and deeper connections – but in the short term actually put us at risk. That’s because, while negative emotions tend to be insulating, positive emotions expose us to the common elements of rejection and heartbreak

I talk a lot about short-term versus long-term thinking in this blog. And about the fact that short-term thinking is to be blamed for a lot of the problems this world is facing.  Actually, my last post was about this subject. I also mentioned, a couple of times, that I believe the most important challenge of a leader is the dissipate people fear’s about the future. This outlook on the subject, gives another explanation, why long term view is so important and why it is so hard to reach. This also explains why the talent of leadership is so important and why we need to create processes that help us overcome out behavioural tendencies 

Elad

What can learn from the marshmallow?

photo by bill barber (very sporadic)

I have been watching this fascinating six minute lecture by Joachim De Posada from TED. In it, he describes the famous experiment with kids and marshmallows. They took a group of four year old kids and gave them a marshmallow. Then, they told them that if they will wait for 15 minutes without eating the marshmallow, they will get an extra marshmallow. About two thirds of the children ate the marshmallow right away.

15 years later those same kids, now adults, were invited again. This time the researchers surveyed their status in life. It turned out that the kids who did not eat the marshmallow right away were all very successful, had great grades and were doing very good socially. The kids who ate the marshmallow right away, were generally doing much worse, many of them, dropped out of school.

I heard about this experiment a number of times and I find it fascinating, but, I am not sure what the immediate implications of it are. If I am a parent you young children, what should I do to make sure that my child is in the group that waits?

But in this talk, De Posada explains, that this ability to postpone gratification, is predictive of success, because many times in life, if you wait, your success is bigger. He gives the example of a salesman not going for the quick deal, but sitting diligently with the clients to find out their real needs, thus making a more profound and sustainable sale.

I think there is a great lesson here. In a world ruined with havoc because of short term goals and gains the inclination to wait, to think things through, to try one more check, is increasingly important. And it is growing in importance even more, as are world is getting faster and faster. We hear a lot about flexibility of firms, their ability to respond quickly to the markets and the importance of constant change management. I am not saying all of that is wrong. But I am advocating, at least as part of some process, to be more patient. To learn to postpone our immediate gratification.

The problem is that it is extremely hard. Most people have a lot of trouble dealing with the unknown future and taking risk is part of the game. But there is a difference between taking a calculated risk and just taking a risk. So, how can me incorporate flexibility and risk taking and still think things through.

As usual, I think the answer lies in creating a better process, which will enable quick decisions within a more general framework, which keeps some kind of boundaries and keeps evaluating and re-evaluating decisions. This is, off course, easier said than done. I have a thought. Maybe, firms fail because they try to be both risky and prudent? What if we would allow our employees to be risky and flexible, but will create a better debriefing process. Create a process that checks every decision with milestones, ignoring sunk costs. Maybe, because we know the problems, the solution should be different?

Elad

Should we set goals as leaders or as managers?

photo by isobel t

People with clear, written goals, accomplish far more in a shorter period of time than people without them could ever imagine (Brian Tracy)

Earlier this week I read an article in Knowledge@Wharton called: “Is This Madness? How Losing by Just a Little Can Help a Team — or Company – Win“. This article describes research done on basketball teams who are losing by just a little on half time. The research shows that these teams come out of the half time and improve their performance usually wining the game. From this and other research, an idea of the importance of small achievable goals is described. A short excerpt:

A lot of tools are used in the workforce to motivate people, such as wages, bonuses, etc. While surely these things can have motivating effects, one should not underestimate the potential importance of psychological motivation as well. This paper shows that the psychological impact of being behind by a small amount can cause significant increases in performance … Berger and Pope suggest that the role of managers as motivators looms larger — to set goals that are understandable, achievable and within reach.

That made me think again about what I believe is the difference between leaders and managers. Leaders should deal with the future, with creating a clear picture of the world in order to dissipate the natural fear inhabited in each and every one of us. Thus, a leader focus is on the future. A manager, on the other hand, should focus on the immediate actions of his employees and on ways to help them become remarkable at what they do by finding their talents and utilizing their strength.  A big part of this is motivating them and setting the right, achievable goals. Helping people accomplish things they never could imagine.

 The problem is – and being in a MBA program myself right now, I can see it personally -the conventional wisdom is that management and leadership is the same thing. That all managers should also simultaneously be leaders. This makes managers, who should focus on their employees and the short-term achievable goals, focus instead on the far future, setting far and unreachable goals. It also puts people who do not have the talent and skill to deal with the long term future, deal with it. What follows is wrong use of goal setting that leads to disaster.

So, when you are setting goals for your employees, are you thinking like a leader or like a manager?

Elad 

Tell me how you measure me and I will tell you how I will act

The recent crisis in Wall-street created a hefty discussion regarding the compensation senior mangers received. What I get by reading a little of this discussion, is that there is a general line of thought according to which the problem was the lack of connection between the long term success of the company and the compensations of senior managers.

Today I read this article in Knowledge@Wharton site about the difference between public and private company managers. This got me thinking that the problem might not be that the compensations of managers was not connected to long term, but that the demands investors and analysts had from public companies themselves were short terms. The compensations senior managers got were in line with the demands of the investors of the company. They should be.

Most of the analysis you see in the stock market is short term. It always surprises me that when a company publishes good reports the stock price rises. The question should not be the current reports, but the reports of three to five years ahead. This in turn percolates into the boards of directors. If the board, which is supposed stand for the investors, if focused on the short term, than this is what the senior managers will do. Focusing on the bottom line is important, but you should not focus on the bottom line of your next report, but on the bottom line of the report you will publish in three years.

This is a cultural and managerial problem. We focus too much on the short term. This is why companies don’t invest as much as they should in human resources and training. You can only see results for this kind of investments if you wait for a very long time. So, the investors can point fingers to the senior managers for their large compensations, but until they change their focus to the long run and enforce this kind of thinking on their directors, there will be no change.

Elad