Marina Gorbis's Blog, page 1397

If a Firm Declines Under a Female or Minority CEO, a White Male “Savior” Will Soon Arrive

When Fortune 500 companies are performing weakly, white women and people of color are more likely than white men to be promoted to CEO, say Alison Cook and Christy Glass of Utah State University. But if these leaders’ tenure is marked by declining performance, they are likely to be replaced by white men, a phenomenon the researchers term the “savior effect.” In only 4 of 608 transitions over 14 years was a woman or minority appointee succeeded by another woman or minority CEO.

Firms Far from the U.S. Write More Clearly

The further a company is from the United States, the clearer its press releases and financial disclosure statements are, according to a recent paper by Russell Lundholm, Rafael Rogo, and Jenny Li Zhang, all of the Sauder School of Business at the University of British Columbia.  

Startled by this finding, I called up Professor Lundholm and asked him to explain. Here’s an edited version of our conversation.

Why are far-flung firms seemingly more motivated to make their communications clear?

It’s related to the “home bias” problem. For a variety of reasons, investors have a bias against firms outside their home country, which makes them less willing to hold their stock. The bias increases with the distance between the investor and the firm. For instance, US investors are pretty happy to hold Canadian stock, but less inclined to hold UK stock, and even less inclined to hold Australian stock. Now flip it around and look at it from the point of view of the firm. If you’re in Australia and want to attract U.S. investors, you have to go the extra mile.

We found that the further the firm is from the investor, the more effort the firm puts in. That’s true whether it’s a regulatory statement, and MD&A disclosure, or a press release.

Is the home bias effect just limited to US investors?

No; you could do the same study in any country. For instance, a previous study found that Finnish investors have a bias against Swedish firms, and even had a bias against Finnish firms that wrote their financial reports in Swedish.

Back up a bit; how did you measure the clarity of these statements? 

We measured clarity with something called the FOG index, which has been around forever and is the go-to measure of readability. Basically it looks at the number of words per sentence, and the number of complex words (which is defined as a word containing three or more syllables). You add those up and multiply by .4 to get a score; if the score is 14, you need 14 years of education to read that. The readability of the US firms’ statements was about 18 — and yeah, you pretty much need a college education to read those documents.

We also looked at the number of numbers in the statements – after all, we are accountants! We wanted something tangible to add to the somewhat foggy FOG index.

It’s not perfect, but the FOG has been used for decades and is widely used. And of course there are facts that aren’t numerical, and there are some numbers that are redundant, but we looked at thousands of documents from companies in 45 countries and the effect was consistent.

From the headline, I’d assumed your finding was just tied to geographic distance, but when I read the paper, I was surprised to see you’d focused on five other types of distance, as well as physical distance. Why do that?

[A bias based on] geographic distance makes no logical sense [for an investor]. If we were shipping goods that weighed something, then yes, you’d predict a bias. But financial assets have no weight! There’s no reason geography should matter at all. But it’s by far the most powerful predictor of bias. So we thought, it’s clearly proxying for a collection of other things – let’s look for some of those other, maybe more logical, things.

So we started looking at differences in accounting practices and in investor protection — those were two that we studied quite a bit. We created these measures called accounting distance and investor protection distance, which basically measure how similar or different the laws (or the enforcement of them) are. And we found that these variables predicted the same behavior; if you’re from a country with different accounting rules then your communication is better, again to overcome the distance an investor might feel. Think of this kind of distance as “unfamiliarity.”

So which kind of distance mattered post?

Even though it’s the least logical, geographic distance. Even when we controlled for factors like accounting practices, investor protection, even language, there was still a home bias problem.

So do these efforts at clarity pay off?

The short answer is yes. The home bias still exists, but firms that provide more readable disclosures have more institutional investors. We compared companies within the same country — two firms inside South Africa, for instance — and the one that provides the more readable disclosure got more institutional investors.

What about the possibility that the US firms might just have hired terrible writers?

Actually since the US is biggest capital market in the world, with the best investor protections and very good accounting rules, we were expecting the US would be the best! When we found that the US firms had less clear communications and used fewer numbers, we sort of scratched our heads and went back to the drawing board. Then when we figured out it was the home bias effect, it made more sense.

Of course, another explanation could be that US firms are dominated by lawyers writing in legalese, which would ramp up their FOG index score.

But basically, if you don’t need investors from other countries, then you’re not as motivated to be clear or detailed in your public statements. Foreign investment may not be as important to US firms. If you’re a small country, then getting US dollars is a big inflow of capital.

But why doesn’t every company try to make their communications as clear as possible?

That’s a good question. Probably because there’s a thousand other forces at work. Clarity of these statements has to exist in an equilibrium with all the other things a company has to get done.

And the world inside these firms is complex. If you’re a big pharmaceutical company, you can’t just write, “We invented a drug; it was good.” We did try to control for complexity in our regression, to avoid punishing firms that are just more complicated in their structure.

You can also only put so many numbers into a report before you hit overload. We have some evidence from work we’re doing right now that there is such a thing as too many numbers.

Aereo and the Strange Case of Broadcasters Who Don’t Want to Be Broadcast

The Supreme Court’s big Aereo decision today came down to whether the company’s internet TV service more closely resembled a cable company or “a copy shop that provides its patrons with a library card” (the quote is from Antonin Scalia’s dissenting opinion). A majority of six justices decided it was more like the former, which seems pretty reasonable. But that led them to declare that Aereo’s business of giving customers access to free, over-the-air television programming via the internet amounted to a copyright violation, which seems a little crazy.

The culprit here, not surprisingly, is the U.S. Congress, in particular the amendments it made in 1976 to the Copyright Act. The Supreme Court had ruled in 1968 in Fortnightly Corp. v. United Artists Television and in 1974 in Teleprompter Corp. v. Columbia Broadcasting System that cable companies should be free to pass on broadcast signals to their customers. The broadcasters — at that time much bigger and more powerful than the cable companies — objected, and Congress, which has a habit of siding with business incumbents over upstarts unless those incumbents are overtly nasty and monopolistic, changed the law to effectively reverse the Supreme Court’s decisions. Since then, cable companies have had to get permission to rebroadcast over-the-air TV, and in recent years the big commercial networks have been increasingly successful in getting them to pay for it. At the same time, less in-demand broadcasters are able to force cable providers to carry them. Nice work if you can get it.

All this has contributed (it’s certainly not the main factor, but still …) to rising cable-TV prices, which are driving growing numbers of consumers to “cut the cord” and get all their entertainment via streaming services like Netflix and Hulu. But there’s still stuff on broadcast TV that people want to see. Like the Super Bowl.

One way to watch broadcast TV is really simple — get an antenna. And in fact over-the-air TV has been making a comeback in recent years, to the avowed delight of broadcasters. But in a spread-out land of mountains, valleys, and skyscrapers like the U.S., lots of people don’t have access to clear over-the-air TV signals, which is why the cable TV industry got started in the first place and why Aereo came up with its ingenious solution. With Aereo, the antennas are located in a data center with good TV reception, and the signal is transmitted to your TV via the internet.

That seems like a really smart, consumer-friendly technical solution. Cable providers understandably hate it because they don’t get to carry broadcast TV without permission. As for broadcasters, at first glance you might think they’d like Aereo. They’re no longer the all-powerful giants they were in the 1960s and 1970s, and should presumably be in favor of anything that has the potential to expand their shrinking audience.

Except … all the major commercial broadcast networks in the U.S. are owned by companies that also own cable channels — and, in Comcast Universal’s case, cable systems. So they’re deeply compromised, and they’re also trying to shift their purely ad-supported broadcast business models to something closer to cable’s mix of user fees and advertising.

This raises some profound questions. If the big commercial broadcasters will go to such lengths to keep others from retransmitting their programming, should they really be treated as broadcasters?  Should they continue to get cheap access to the broadcast spectrum — the “public airwaves” – and the right to force their way into cable system lineups? The whole structure of broadcasting that has grown up in the U.S. since the 1930s seems increasingly at odds with consumer demand and modern technology. But as the Supreme Court made pretty clear today, it’s most likely going to be up to Congress to bring the rules in line with new realities. I’m not holding my breath.

Good Managers Look Beyond Their “Usual Suspects”

In the movie Casablanca, there’s a famous scene where Captain Renault, the head of the French police, avoids investigating the murder of a Nazi officer by telling his people to “round up the usual suspects.” The implication, of course, is that everyone should look busy and professional, even if the routine doesn’t really accomplish anything.

I’m always reminded of this line when I see managers respond to performance challenges by putting together a task force of the “usual suspects” to deal with the issue. These task force members usually end up with multiple specialty assignments piled on top of their regular duties. And because these few go-to people are spread so thin, they ultimately don’t accomplish all that much.

Managers sometimes “round up the usual suspects” because they only trust a small number of people to handle key projects or initiatives. Every organization has its “glue people,” the ones who don’t show up in organization charts but are assigned to every task force or initiative because they are respected and trusted. For example, in one organization undergoing a major restructuring, each division designated a “transformation leader” as its point person for the work. However, each person also had significant managerial responsibilities, regularly represented the company at customer and industry forums, served on standing committees, and juggled other major project assignments. So while they were all capable and willing to do what was needed, the effort suffered due to lack of time and bandwidth.

Here’s another case in point: A financial services company was struggling to turn around a large business unit. One of the key initiatives was a new customer-service approach that involved a combination of new systems, training, and process changes. However, after almost a year of work and significant investment, very little had changed. In fact, the effort had generated some fear and resistance in the customer care centers and, if anything, performance was now worse. In response to pressure from the CEO to get the turnaround back on track, the business head “rounded up the usual suspects” into a task force to recommend how to accelerate progress. Of course, the members of this team, while all very capable and well-meaning, were the same ones who were leading the various project work streams – and they all had full-time “day jobs.” So due to the limited time available, they merely rehashed their recommendations for the project, and progress continued at a snail’s pace.

If any of this sounds familiar, take a step back and think about how to expand your talent pool to get the actual results you want. Do a quick mapping of your committees, task forces, and other special assignment groups, to see if you have a “usual suspect” bottleneck. Although individual executives may engage in this dynamic intentionally (like Captain Renault), most do not; it just happens. By sketching out these responsibilities, and looking at them holistically, it’s possible to see whether the same names come up again and again. If that’s indeed the case, then consider lightening the load for some by prioritizing assignments, consolidating teams, and, most importantly, adding other people to the list. Are there other capable people who would welcome additional assignments? Perhaps some high potentials who are not being fully challenged? Is it possible to trust some other people outside of your “usual suspects” circle?

On the flip side, if you feel that you are one of the overburdened few who gets called on over and over, speak up. In my experience, many of the “usual suspects” suffer in silence. They are flattered by the attention and the opportunities, but they become overwhelmed by the amount of responsibility and frustrated by the lack of time to get everything done. And because they are good corporate citizens who don’t want to disappoint, they don’t push back, which reinforces the “usual suspect” scenario.

Most organizations have ambitious agendas that are limited by the availability of key people. There may indeed be times when calling upon a few trusted people is the right approach, but doing it too often can be severely constraining. That’s why thinking outside the roster of “usual suspects” can help you distribute responsibilities in a more even, efficient way.

The Only Viable Strategy Is Adaptation

Most managers take it for granted that the world has become much more volatile and complex and that we need to constantly adapt.  The days when we could simply plan and execute are long gone.

So it was notable, to say the least, when Roger Martin recently wrote in Harvard Business Review that he thinks that all the talk about adaptive strategy is a cop-out.  In his mind, it is just a way for managers to get out of making hard, dangerous choices.

Martin, a former partner at the Monitor Group and Dean of the Rotman School of Management, has been one of the sharpest strategic thinkers for over two decades.  While I don’t agree with much of his argument, he makes some salient points that cannot be ignored.

Martin’s first objection is what he sees as an obsession with VUCA (volatility, uncertainty, complexity and ambiguity).  While there has been much discussion about these forces increasing over recent decades, Martin doesn’t buy it.  What about the Black Death killing 25% of Europe? Or Pearl Harbor?  Those were volatile, uncertain events weren’t they?

This is a somewhat facile argument.  Clearly, uncertainty and disasters are nothing new, but I don’t think anybody is arguing that they are.  Just because events were never fully predictable doesn’t mean that volatility, uncertainty, complexity and ambiguity haven’t increased. And just because some strategists have argued for a more nimble approach doesn’t mean they’re saying we ought to throw strategy itself out the window. So on logical grounds, he’s beating a straw man.

The simple fact is that managers talk of increased VUCA because that is what they see every day. We’ve seen these changes in our own lifetimes, and even over the span of a single career. Since 1960, the average lifespan on the S&P 500 has fallen from 60 years to less than 20.  Technology cycles have begun to outplace planning cycles. Increasingly, we need to manage not for stability, but disruption.

However, Martin’s rant against volatility is only a prelude to his larger point, which he says is that “people arguing that strategy needs to change are making the fundamental mistake of assuming that strategy is planning. This has never been the case.”

Here, he is on much stronger ground.  For too long, managers have confused planning for the hard work of strategy.  As Jack Welch put it, “the books got thicker, the printing got more sophisticated, the covers got harder and the drawing got better,” but none of that improved how enterprises performed.

In his book, Martin defines strategy as making an integrated set of choices about “where to play and how to win,” which is a very reasonable way to go about it.  I’ve previously defined strategy as “a coherent and substantiated logic for making one set of choices rather than another,” which amounts to much the same thing.

Yet to make decisions about “where to play and how to win” we need to make assumptions about the state of the world, the state of our competitors, and the state of technology. But today, billion-dollar businesses can be built and entire categories redefined in a matter of months, so these assumptions need to be constantly revisited.

While I agree with Martin that strategy and planning are two different things, they are undeniably linked.  Both require us to make predictions and prepare for future opportunities and challenges.  In a fast moving world, where technological cycles outpace planning cycles, we need to continuously reevaluate the context in which we operate.

That’s why I’ve argued for a more Bayesian approach to strategy in which we’re not trying to “get it right” as much as we are trying to become less wrong over time.  That requires a more adaptive approach, but also substantive differences in how we operate—less hierarchical, more agile, and more sensitive to changes in the marketplace.

It also compels us to make important changes to our business systems that enable us to integrate prediction and planning into normal operations.  It’s no longer possible to separate strategy work from everyday activities – something both Martin and adaptive strategists like Rita McGrath actually agree on.

Clearly, Martin has made some weak arguments, but as I noted above, that shouldn’t obscure his underlying point, which is an important one.  Strategy has always required us to make hard choices in an uncertain context and managers have shown a disturbing tendency to seize on any pretext to avoid making those choices.

As he describes in an earlier piece in Harvard Business Review, VUCA is only the latest in a long line of such pretexts.  However, as he also writes in that article, “the natural reaction is to make the challenge less daunting by turning it into a problem that can be solved with tried and tested tools” and that’s where he veers off course.

Bayesian strategy is not a reversion to earlier toolsets, but a recognition that our present ones are woefully inadequate.  In effect, we must continue to define “where to play and how to win,” but on a radically compressed time frame.  That doesn’t make strategy easier, it makes it exponentially harder.

Yet still, it must be done.  In an age of disruption, the only viable strategy is to adapt.

Don’t Play with Dead Snakes, and Other Management Advice

“If you see a snake, kill it. Don’t play with dead snakes. And everything looks like a snake at first.” This sounds like it might be advice from a paranoid outdoorsman. But its author, Jim Barksdale, meant it as a guide to the business world — that dangerous environment where, famously, only the paranoid survive.

During a long and illustrious career that is far from over (you can read all about one of his most recent ventures — building the most direct fiber-optic connection between Chicago and New York – in Chapter One of Michael Lewis’s new book), Barksdale has become a big believer in the value of the folksy aphorism as management tool. The Mississippi-born former IBM salesman, FedEx COO, and CEO of AT&T Wireless and Netscape Communications argues that funny sayings, especially if they involve animals, stick with people in a way that PowerPoint strategy slides usually don’t.

There are whole collections of Barksdale sayings online. Lots of them aren’t original to him, but former colleagues still tend to identify them with him. Which is why, when I got Barksdale and his fellow former Netscaper Mark Andreessen on the phone recently to talk about Barksdale’s pithy take on the role of bundling and unbundling in business strategy, conversation inevitably turned to some of his other proverbs. What follows is the continuation of that discussion, edited for readability and length:

HBR: Marc, are there any other Barksdale sayings you can think of with key strategic implications for today’s business leaders?

Andreessen: Well, how about this one? “In the battle between the bear and the alligator, what determines the victor is the terrain.”

Barksdale: I heard that from somebody, somewhere, way in my past life, and used it repeatedly in trying to push people to figure out the right terrain to take on a competitor.

HBR: What do you mean by the terrain, then?

Barksdale:  Well, in the animal world, a bear is not going to whip an alligator in water. And an alligator isn’t going to whip a bear on dry land. So, it’s not just the fighter, it’s the terrain that they’re on, the market they’re in. You know, who’s your customer base that you want to take somebody on in? Where do you want to be in this strategy? I like animal analogies to get the point across, just like parables. People can remember that, they can’t remember some long strategic discussion with a lot of PowerPoint pictures.

HBR: Well, here’s another one. There are lots of these Barksdale sayings online; one can find them pretty quickly. This is Barksdale’s three rules of business. “One, if you see a snake, shoot it. Two, don’t play with dead snakes. And three, everything looks like a snake at first.” What does that mean?

Barksdale: Well, when we were first getting started at Netscape, and I was the old man working with Marc and all of his 18-year-old buddies, it seemed like they used to love to have get-together meetings to discuss problems that could have easily been resolved at the base level. They could have just taken care of it.

So, the first rule of snakes is, if you see a snake, which is a problem — I had to explain that to one lady who accused me of not liking snakes — you kill it. You don’t shoot it, by the way, you kill it. It’s hard to shoot a snake. Anyway, you kill it. Just take care of it.

The second rule is, once it’s taken care of, don’t keep having debates about it, which is don’t play with dead snakes. And one time, Marc may remember, I cut off the heads of a bunch of little rubber snakes and threw them out in the audience of Netscapers. They loved that and stuck them on their cubicle walls to remind them. Just keep moving forward. Even if you’re wrong, just keep moving. We were so anxious to get products out the door, and we were at lightning speed, thanks to Marc and his folks, we just wanted to keep moving. So, don’t play with dead snakes.

And the last point, which is to me the most important and salient: all opportunities start out looking like a snake. If it wasn’t a problem, there is no opportunity. Because opportunities come from solving problems. So, kill it, don’t play with it, and then they all look like snakes in the beginning. The great business successes have all come from solving some seemingly insurmountable problem. Or non-obvious problem.

HBR:  Any thoughts on that, Marc?

Andreessen:  Well, I’ll give you one more if you want it.

HBR:  Sure.

Andreessen:  It’s not the size of the dog in the fight, it’s the size of the fight in the dog.

Barksdale:  That’s very old, and again, not original, but it was useful at some stage. I heard a great speech the other day, the commencement address by this admiral at the University of Texas. He talked about the boat men of the SEAL teams, and how it was not necessarily the biggest guys who could get the boat out and back as quick, but the smaller men who just had more heart.

Andreessen:  Well, if you’ve ever actually spent time in a dog park, you see this all the time, which is, the dominant dog is invariably about 15 pounds soaking wet.

HBR: I want to try one more that’s much more specific than these, about experimenting on the Internet. It goes: “First you try something. Since it’s just software, there’s no need to bend any sheet metal or trouble the guys on the loading docks. Second, you post it on the net. If it works, it’s a product. If it doesn’t, it’s market research.”

Barksdale:  It’s market research, that’s right.

HBR: That’s something that you encountered back at Netscape. It seems to have become very much the ethos of modern digital business, right?

Barksdale:  As an old-line business guy, the most profound thing that hit me when I got to Netscape was that it was so easy to do things on the Internet that were so hard in the hardcore world of transportation or communication.

One of which was market research. Companies used to spend a ton of money testing products with focus groups and market research teams. On the Internet, just put it up. If people hit on it, it’s a product. If they don’t, it’s market research. It didn’t cost you anything, or it didn’t cost you very much.

In other words, you were immediately international. As soon as we brought the Netscape browser up, the beta version, we were worldwide. That was so hard to do in the real world, nobody could even conceive of it. Companies would go 30 years before they’d try their first international businesses. We were immediately international. There were so many things that the Internet brought, and we, being one of the early companies, were able to observe it like it was some new law. It was profound, and it was fascinating, and it was a lot of fun. It also allowed us to move very quickly.

HBR: So, Marc, that ethos of, you just throw something out there and try it, that is sort of becoming this dominant ethos, right?

Andreessen:  This is a really big deal. The changes have continued. Once we were up and running as Netscape, we were able to do new things very fast. But it still took a lot of effort and a lot of money to get Netscape itself, as a company, up and running.

I would say the biggest change is, if you wanted to start a new Internet company 10 years ago, you probably needed to raise $20 million, just to get started. You would spend $5 million on Cisco routers and $5 million on Sun Servers, and $5 million on Oracle software, and then you’d write Yahoo a $5 million check to get distribution. And then you could try all your new ideas.

Today it’s advanced to the point where entire companies can get up and running — to provide global services, in some cases to millions or tens of millions of people — for less than a million dollars. It’s become routine, to a shocking degree. A lot of the Internet startups that we see coming through here raising money are startups that raised a half million dollars, that still have most of it in the bank. It’s four kids and their laptops, and the entire company is run on the cloud, on Amazon Web Services, on Salesforce.com, NetSuite, and Gmail. These companies have effectively no capex. It’s literally their laptops and their ramen noodles, and that’s it. And they walk in the door, and sometimes they have five million users in 170 countries. And that’s just a phenomenon that’s never existed before.

HBR: Do you think it’s a potentially temporary phenomenon? Like, it’s this moment when everything’s wide open? Or, do you think conditions are permanently changed?

Andreessen:  I think it’s permanent. I mean, I’m a believer. You’d have to believe the Internet itself fundamentally shuts down or gets much more restricted and controlled, you know, which is why battles around things like net neutrality are so heated. But, as long as the Internet keeps working the way that it fundamentally does, then this is a permanent state of affairs.

Marketers Don’t Need to Be More Creative

Marketers worldwide grew up with John Wanamaker’s famous marketing aphorism, “Half of my advertising is wasted; I just don’t know which half.” That pithy quote is now a misleading anachronism; we can know which half. Digital media and tracking technologies, along with dramatically improved analytics, now mean that serious marketers — if they really care to know — can have an excellent idea of just how effective (or wasteful) their advertising really is. Ignorance is now a choice, not an excuse.

This new reality has sparked global Game of Thrones-like hostility and rivalry in the marketing and advertising communities. Traditional “creatives” and disruptive “technologists” are locked in global conflict for bigger budgets and influence. “Ad Creativity Takes Back Seat to Tech at Cannes,” The Wall Street Journal recently declared. At the advertising industry’s most prestigious, sybaritic, self-indulgent, and self-awards gathering, the “Mad Men” are losing to the nerds, quants, and geeks. Couldn’t happen to a nicer bunch.

“In the last five years the industry has changed more than in the last 25. It’s created chaos,” Unilever Chief Marketing Officer Keith Weed told Cannes attendees. “What’s changed so radically is we’re no longer just competing with the geniuses that create content in places like Hollywood, we’re competing against everyone.”

“The question is,” said Miles Young, CEO of WPP subsidiary Ogilvy & Mather, “can there be enough focus on creativity?”

Unfortunately, that’s the wrong question. If there’s anything all that chaos and competition of the past five years should have taught agencies, it’s that too much “creativity” celebrated by marketers and advertisers really isn’t. Advertising creativity has long been a bit of a con job; the media world is filled with costly creative that neither builds brands nor sells products. The better argument is that traditional advertising and marketing firms have pathologically overinvested in creativity while consistently underinvesting in meaningful metrics. An even better case might be made that the multimedia successes of Google, Twitter, Pinterest, Instagram, Facebook, and so on, highlight just how flaccid and ineffective most creative advertising and market work has been. What’s the secret sauce these technologies all have in common? Their creativity is measurable, trackable, and accountable. That’s a winning combination. If you’re a brand manager or CMO, that’s what you should care about.

The ongoing revolution that “may reflect angst felt on the creative side of the industry as digital technology changes consumer behavior and complicates the ad world” (as The Journal put it) is less about creativity than the future of accountability. Smart advertisers don’t privilege good creativity over good metrics. Metrics let you learn in ways that creativity does not. The ability to see who takes an in-store selfie or tweets a product complaint confers power and insight. New media should inspire new metrics. New metrics should create new accountability. New accountability should provoke and promote new kinds of creativity.

When marketing metrics were crude, vulgar, and Wanamakerian, creativity was more important because, frankly, it at least offered the appearance and illusion of effectiveness and control. Creatives could both figuratively and literally “own” the brand story. But in an era where machine-learning algorithms can sync clicks, pupil dilation, tweets, likes, recommendation engines, and home delivery services, creativity becomes less a focal point than a measurable means to a business end. True creative genius may transcend metrics. But anyone regularly exposed to advertising or marketing campaigns knows first-hand that even brilliance, let alone genius, is in shockingly rare supply. That’s why marketers, advertisers, and brand leaders are wiser to invest in monitoring, measurement, and analytics. Whirlwind romance shouldn’t excuse limp underperformance.

Marketing creativity — and creative marketing — should no longer escape, elude, or fake accountability. That nervousness and discomfort manifesting in the suites and sands of Cannes are symptomatic of an elite that will quite literally be held to account for the measurable impact of their creative work. If that “creative” campaign doesn’t move the needle of a net promoter score, then what was creativity’s point? To win an award at Cannes, perhaps?

No, the essential question serious and strategic marketers and advertisers should ask isn’t, “How can we make ourselves more creative?”; it’s “How can we make ourselves more accountable?” Technology should be seen less as a medium of creative expression than a platform for assessing how well people engage with and get value from our products and services.

Greater accountability enables and invents greater creativity; greater creativity, alas, doesn’t invent or inspire greater accountability. Yesterday’s CMOs still cling to Don Draperian hopes of creativity with minimal accountability; tomorrow’s CMOs understand that accountability will make authentic creativity even more valuable.

The New Marketing Organization

An HBR Insight Center




Your Marketing Organization Needs an Overhaul
CMOs and CEOs Can Work Better Together


Marketers Need to Think More Like Publishers
Brands Aren’t Dead, But Traditional Branding Tools Are Dying

The Cost of Combining the CEO and Chairman Roles

Will Netflix’s shareholders be sorry that they voted to let Reed Hastings carry on as both CEO and chairman? A look through the research on combining and separating out the two roles suggests that, much like most splits in life, the answer is… complicated.

Netflix’s shareholders notwithstanding, most people assume the right answer is to keep the two roles separate, in the interests of diversity of thinking and proper CEO oversight. And that’s how pretty much every research report starts — before going on to explain why it probably isn’t so.

Back in 2006, for instance, in an article in our magazine entitled “Before You Split that CEO/Chair…,” Robert Pozen, chairman (but not CEO) of a Boston-based investment management firm, cited three studies from three different countries (the U.S., the U.K., and Switzerland) which each found no statistically significant difference in terms of stock price or accounting income between companies that split the roles and those that combined them. These findings echoed dozens of previous ones going as far back as 1996.

Yet over the same period, a steady stream of business thinkers and practitioners offered up reasons (if not data) for why splitting the two roles could cause trouble. In 2003, for instance, in “In Defense of the CEO Chair,”Harvard Law’s William Allen and William Berkeley (who was chairman and CEO of the eponymous insurance holding company) argued that doing so would create two armed camps that would interfere with productivity. Two years later, Jay W. Lorsch and Andy Zelleke similarly argued in the Sloan Management Review that splitting the two roles blurs lines of responsibility, distracts both parties, and creates power struggles.

Maybe that’s why the 2012 research from Matthew Semadeni and Ryan Krause at the University of Indiana’s Kelley School was so widely reported as suggesting that the roles should not be split unless the company is doing badly. But a closer look shows the findings have more in common with the “it doesn’t make any difference” camp than the headlines would suggest.

The study looked at three scenarios, all of which involved what happens when a combined CEO/chair is split. In the first, a sitting CEO/chair gives up the CEO role but remains chairman, essentially making the incoming CEO an apprentice. In the second, the incumbent CEO/chair leaves (voluntarily or not), and the positions are filled with two separate people. In the third, a CEO/chair remains CEO but gives up the chair to another (what the researchers referred to as a demotion). In that last circumstance, if the company was in difficulties, the data indicated that splitting the two roles, so that someone could ride herd over a less-than-ideal CEO, made a positive difference. But in the first two cases, once again, the data found no difference in company fortunes. From this, Krause drew a general if-ain’t-broke-don’t-fix-it conclusion, not because splitting the roles would cause harm but because when a company is doing well, it doesn’t appear to matter which model you follow.

That same year, though, a more obscure study from GovernanceMetrics International, highlighted by the Harvard Law School Forum, approached the question from a different angle, tracking not just the effects but the costs of splitting the two roles.

The 2012 study looked at 180 North American corporations with a market capitalization of $20 billion or more. Given the complexities of running such large businesses, it was thought, differences in cost and performance of different leadership structures would be especially marked.

And differences there were. Surprisingly, combining the two roles cost more than splitting them – much more. Median total compensation (base salary, bonus, incentives, perks, stock, stock options, and retirement benefits) of executives holding both positions was $16 million. That was nearly 60% more than the median combined compensation ($10.6 million) awarded to the two individuals in companies in which the positions were split.  Considering that median income for the chair-only position was just under $500,000, it’s hard not to avoid drawing the conclusion that the order-of-magnitude $5.4 million extra the CEO receives for taking on the additional chairmanship duties is rather a lot. This impression is further strengthened by the fact that the median income for non-independent chairs was $630,930 — more than 50% higher than the $417,910 for independent chairs (making a company run by a separate CEO and independent chair a real bargain).

One might argue that differences in compensation reflect differences in corporate performance, and if that’s the case, it would be a strong argument for combining the two roles. That was so in this study – but only in the short term. Median one-year shareholder returns for companies in which the roles are combined were an impressive 11.65%, compared with a distinctly anemic 2.27% for those in which the roles were separate. Over time, however, performance for the first group lagged and the other improved such that shareholders shelling out for a combined CEO/chair received five-year returns of 31.3% while their counterparts, paying considerably less to both their CEO and chair, were enjoying an even more impressive 39.96% return.

Put all of these finding together, and perhaps the only conclusion one can draw is that the higher long-term returns for companies in which the roles are separate come from struggling companies that take steps to address the inadequacies of their CEOs (or that lower returns in companies where the roles are combined come from allowing a poor CEO too much latitude for too long).

Otherwise, most of the research suggests that Netflix’s fortunes, like most companies, will be what they will be – regardless of whichever governance system the shareholders vote in.

For PGA Players, Driving Now Beats Putting as the Most Lucrative Skill

As golf courses used by the Professional Golfers’ Association have changed in recent years—with the fairways getting longer, the grass height in the rough being cut shorter, and the cups being shifted to locations that are harder to reach—driving has replaced putting as the professional golfer’s top money-making skill, according to a study by Carson D. Baugher and Jonathan P. Day of Western Illinois University and Elvin W. Burford Jr. of Junior’s Shaft Shack in Forest, Virginia. Previous studies showed that putting was a player’s most lucrative capability, but drawing on recent PGA Tour data, the researchers found that a 1-standard-deviation increase in driving distance would have boosted a player’s earnings by an average of $671,779.15 in 2013, whereas the same relative increase in putting skills would have raised his earnings by just $510,195.91. Iron, chipping, and sand skills remain significantly less important than driving and putting.

For Breakthrough Innovation, Focus on Possibility, Not Profitability

More than 15 years after its founding, Google remains a company that inspires profound admiration — and at times, a bit of confusion.

The company is currently investing in self-driving cars, a futuristic idea that some people believe will never be achieved. It’s also rolling out Google Glass, a wearable computing device that’s inspired skepticism and some mockery.

The derision is misplaced. As someone who’s been involved in marketing breakthrough innovations, I’m convinced Google’s approach is the right one. Google is focused on possibility rather than profitability — a mindset that’s necessary to create innovations that transform categories. Many breakthrough innovations I’ve led have suffered when I’ve let the profitability mindset creep in. Google should be admired for first setting out to answer the question: “Is this possible?”

Successful innovations programs create a balance between the probable/profitable short-term programs and the possibility programs that challenge the status quo. Unfortunately, most companies are organized and focused on the probable/profitable short term, and therefore miss the potential of breakthrough innovation that comes from being focused on the possible.  This is frequently how well-established category leaders miss opportunities that transform their categories.

Programs that transform take patience. Speed to market, probability of quick return, and profitability mindset have to take a backseat to truly delivering a product that delights the consumer in every aspect. My perspective on this comes from my own experience.

At Keurig, the pod-based coffee company where I worked as president for six years, sales grew at a 61% compound annual rate, propelling Keurig Green Mountain from $500 million to $4.5 billion in net sales from 2008-2013.  Keurig machines sit on the counter in more than 18 million households. Most people think that Keurig just recently appeared.  But in fact, Keurig was founded more than 15 years ago.  The first machines were sold in 2000.

Today, The brewers cost $100 or $150, still a significant premium to the standard drip coffee maker. But what many people forget is that in its early years, Keurig brewers cost $900 apiece. Early K-cups were made by hand. Keurig opted to  start out in the office coffee market, not the consumer market. That made the $900 price point competitive and acceptable. The whole approach to the office became a way to commercialize the design quicker and to gain consumer experience as the company drove the brewer down the cost curve. The wider diversity of coffee drinkers in an office (vs. a single consumer household) planted the seeds of the importance of having an eco-system of brands beyond our own. This led to the variety and partnering strategy that has been at the core of Keurig’s success. Today, Starbucks, Dunkin Donuts, Folgers, Caribou, Peets, and Snapple, to name just a few, participate as partners in the system.  It’s the only brand of single serve that offers a wide variety of brands of coffee and roasts, along with other beverages.

If the company’s founders and early leaders had focused on profitability instead of possibility, I’m not sure the system would have been as successful. And they certainly wouldn’t have invited the competition to share in the system to maximize the variety. Variety accelerated the growth.  It was the vision of transforming the way consumers make coffee that took them on the decade long journey to success, growth and profitability.

Possibility sharply focuses the scope of the breakthrough innovation. If the only question is “Is it possible to make it?”, then that question defines who you bring onto the team both from a capability standpoint (can this person help us figure it out?) and from a character standpoint. (Specifically: Does this person bring an optimistic or pessimistic perspective?) People who make great leaders of breakthrough innovation programs always ask the “What if” question. It frees you to look for talent and resources beyond your company — who are the partners who will share your vision, who bring incremental talent and cross-category perspectives to make this work?

One of the key ingredients to the possibility mindset is the addition of truly understanding what the consumer wants.  The question isn’t just “Is it possible to make it?” but “Is it possible to make exactly what your specific target consumer wants?” In contrast, the profitability mindset shuts down ideas and shortcuts the process. It stifles creativity and likely limits the team to only those ideas, capabilities, business models, and resources already inside the company.

Once the original ‘is it possible’ question has been solved for, the trick is to apply the same optimistic, focused thinking to the commercialization process. Now that we know it is possible to make, is it possible to make smaller, faster, better, and more cost effectively?

The opportunity is to create a win-win:  Create something that is right for the consumer and by doing this, transform a category and create a long term sustainable growth opportunity for the company.

Google is looking at “possiblity’ with Glass and self-driving cars. Both may seem like strange or silly innovations today, but over time they could turn into true breakthroughs and gain wide acceptance.

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