Many observers tend to conceive any changes in media businesses as trends that are irreversible or to combine them with other changes to make sweeping generalizations about industry conditions. The results are often wrong and distract observers from asking deeper more appropriate questions about longer-term developments and how media companies use the resources they have.
To understand changes one needs to consider developments separately to determine their origin and expected duration. This allows one to determine what are the result of external trends and what are the result of company choices. Only then can one begin combining them with other observations.
Thus, one needs to consider whether the ratings increase for AMC is due to people spending more watching cable channels or an effect of the AMC's investments in quality programming and the popularity of programs such as Mad Men? If it is the former, one can enjoy benefits with little effort or extra investment; if it is the latter, the company will want to consider additional investments in other programming.
Is the decline in broadcast television advertising in the first half of 2008 a harbinger of a advertisers moving expenditures out of broadcasting or a reflection of the current economy and the condition of the automobile industry and its declining ad budget? If it is the first, long-term trouble is brewing and companies will need to give significant thought to their business models and cost structures. If it is the latter, the financial difficulties caused by the reduction may be short- to mid-term and will merely have to be endured until conditions improve.
Is the decline the in national newspaper advertising the result of reduced spending by advertisers or because of changes in the number of national advertisers and the ways they allocate their budgets. The latter requires rethinking income potential and expenditures for selling national advertising, whereas the former will create less longer-term trauma.
Many observers also seem to think that budgets cuts are necessarily bad and unusual for companies, but they are normal occurrences because of the cyclical nature of advertising expenditures. When ad dollars are flowing vigorously, media companies expand their budgets; when that flow lessens, companies reduce their budgets.
What is important about budget cuts is that they be instituted in strategic way to leave the core capabilities of the firm intact so the firm can benefit when conditions change and not miss critical time and financial benefits by having to rebuild those capabilities when better times occur.
It is alo important that budget cuts not be made equally and across the board, but that they be made by clearly analyzing the necessity of existing cost structures and operations. The challenge for many traditional media is that they are labor intensive and labor costs often are the one of the leading portions of their expenses. If one must cut labor, it should be done considering which employees can easily be replaced later, whether all operations, products, and services need to be maintained, and whether outsourcing some functions is an option.
Many companies also forget to look at the top as well as the bottom of their operations when cost cutting occurs. Today, for example, many newspaper companies need to be asking whether expensive corporate offices, private jets, and high corporate salaries and perks are warranted and necessary or if they should cut those corporate expenditures and the management fees they lay on local newspapers to pay for them.
In times of change, one needs clear vision of what is happening to an industry and company and to ask broader questions than are typically asked in firms and by industry observers. Those who do so benefit; those who don't pay a price.
Sunday, August 17, 2008
Thursday, August 14, 2008
Is innovation over-rated?
Innovators are always the heroes of the story. They saw the opportunity when no one else could see it; they persisted stubbornly when everyone said they were a fool; they suffered hardship but eventually defied the odds to make it big, and so on and so forth.
And innovation is great. But we hear very little about the (undoubtedly many) poor sods who think they’re seeing something but it really is just their imagination, who persist stubbornly and foolhardily with something that ain’t never going to work, who continue suffering hardship till they vanish.
Do innovating firms perform better? Evidence from academic research on the topic is certainly equivocal: it is very hard to find solid evidence that firms that innovate (e.g. obtain more patents) perform better.
It so happened that I had a database of about 1300 firms active in some segment of the pharmaceutical industry, and all their innovations. Note, innovations do not all have to be real blockbusters but could just be new types of products or applications. These new types really can concern truly novel drugs new to the world but more often they concern a new dosage of some existing drug, a new intake form (e.g. pills versus injections), a new application of the same drug (i.e. a different disease for which a particular existing drug might also work), etc. Thus, not all of them are very radical innovations, but they are all new enough for them to have required clinical trials before their launch.
Using these data, I first tested, through some fancy statistical methodology, whether such innovations contributed to the growth of the firms over the subsequent years. The answer was a clear “no”; in fact, innovators grew more slowly.
Then I thought “perhaps they are innovating because they’re running out of growth”, so I applied a different (and even fancier) statistical technique to correct for that. Still, the answer was a resounding “no”: innovators subsequently really had more trouble growing and it was a direct consequence of the innovations.
So then I thought, “Perhaps I am looking at the wrong thing; and I should not be looking at growth but at firm survival”. Therefore, I changed my (already fancy) statistical methodology to test the impact of innovations on firm survival. But no, innovators died (i.e. went bankrupt) more often than non-innovators.
Then I thought “ah, it must be because innovation is risky; innovators may be the big failures of the industry but they are probably also the biggest success stories (I should really have thought of this earlier… better not tell anyone…)”. So I used an even fancier statistical methodology to model not only the average survival probability of the innovators (vis-à-vis the not-so-much-innovators) but also their “variance”. But no… innovators really did fail more often than non-innovators and with very little “risk”! In layman terms: they died pretty quickly and you could be sure of that. No risk-return trade-off here: do not innovate and you’ll get higher return for less risk…!
So then I gave up.
Might the answer simply be that innovation really is not such a very smart thing to do for a firm…? It seems, as an organisation, your chances of success are quite a bit better, and with little risk, if you simply stick to your guns, or at least not try come up with the new stuff yourself (but just wait patiently to imitate it).
But if that is the case, perhaps we shouldn’t tell anyone… Because innovation really is great and, as a society, we need it. But if everyone finds out that you, as an individual firm, are better off without it, nobody might do it anymore… So let’s keep this one under wraps, and between you and me, alright…?
And innovation is great. But we hear very little about the (undoubtedly many) poor sods who think they’re seeing something but it really is just their imagination, who persist stubbornly and foolhardily with something that ain’t never going to work, who continue suffering hardship till they vanish.
Do innovating firms perform better? Evidence from academic research on the topic is certainly equivocal: it is very hard to find solid evidence that firms that innovate (e.g. obtain more patents) perform better.
It so happened that I had a database of about 1300 firms active in some segment of the pharmaceutical industry, and all their innovations. Note, innovations do not all have to be real blockbusters but could just be new types of products or applications. These new types really can concern truly novel drugs new to the world but more often they concern a new dosage of some existing drug, a new intake form (e.g. pills versus injections), a new application of the same drug (i.e. a different disease for which a particular existing drug might also work), etc. Thus, not all of them are very radical innovations, but they are all new enough for them to have required clinical trials before their launch.
Using these data, I first tested, through some fancy statistical methodology, whether such innovations contributed to the growth of the firms over the subsequent years. The answer was a clear “no”; in fact, innovators grew more slowly.
Then I thought “perhaps they are innovating because they’re running out of growth”, so I applied a different (and even fancier) statistical technique to correct for that. Still, the answer was a resounding “no”: innovators subsequently really had more trouble growing and it was a direct consequence of the innovations.
So then I thought, “Perhaps I am looking at the wrong thing; and I should not be looking at growth but at firm survival”. Therefore, I changed my (already fancy) statistical methodology to test the impact of innovations on firm survival. But no, innovators died (i.e. went bankrupt) more often than non-innovators.
Then I thought “ah, it must be because innovation is risky; innovators may be the big failures of the industry but they are probably also the biggest success stories (I should really have thought of this earlier… better not tell anyone…)”. So I used an even fancier statistical methodology to model not only the average survival probability of the innovators (vis-à-vis the not-so-much-innovators) but also their “variance”. But no… innovators really did fail more often than non-innovators and with very little “risk”! In layman terms: they died pretty quickly and you could be sure of that. No risk-return trade-off here: do not innovate and you’ll get higher return for less risk…!
So then I gave up.
Might the answer simply be that innovation really is not such a very smart thing to do for a firm…? It seems, as an organisation, your chances of success are quite a bit better, and with little risk, if you simply stick to your guns, or at least not try come up with the new stuff yourself (but just wait patiently to imitate it).
But if that is the case, perhaps we shouldn’t tell anyone… Because innovation really is great and, as a society, we need it. But if everyone finds out that you, as an individual firm, are better off without it, nobody might do it anymore… So let’s keep this one under wraps, and between you and me, alright…?
Tuesday, August 12, 2008
Who should come first? Shareholders? Are you sure…?
Herb Kelleher– the founder and former CEO of American icon Southwest Airlines – used to say: “We place our employees first”.
That’s a fairly extreme thing to say though, especially in corporate America, that you do not place your shareholders first.
Of course he would always be quite quick to continue: “Because if you have happy employees, you will get happy customers, and if you have lots of happy customers, shareholders will inevitably become quite happy to”. Now you could be inclined to say “ah, so it’s all the same; at the end of the day all parties’ interests are aligned”. In the long run that may be true, but in the short run such an “employee orientation” – the choice of who comes first – can lead to rather different decisions than a “shareholder value orientation”. And at Southwest they do put their money where their mouth is; they for instance provide perfect job security. Consider, for example, Southwest’s response to 9/11, which triggered a global airline crisis, prompting many companies to execute the hatchet on their employee head-count:
Southwest Airlines’ current President and COO (Colleen Barrett) said: “Southwest has not had a layoff in its thirty-year history and is not contemplating one now” (after which employees collectively organised an internal giveback effort, called “Pledge your Luv”, offering up to thirty-two hours of pay during the last quarter of 2001).
In contrast, US Airways paid $35 million in lump-sum retirement benefits to its former top three executives, while 12,000 employees were laid off and pilots agreed to $565 million in concession in their own retirement plans. Rakesh Gangwas, briefly chairman and CEO (who received $15 million of the 35 million) declared, a few days before resigning, that “the September 11 attacks had allowed the airline to restructure and downsize in ways that would have been impossible otherwise”.
Of course US Airways filed for bankruptcy in 2003, while Southwest recovered in less than a year.
Placing employees first may be suboptimal in the short run but in the long run it’s a different picture. You don’t become a better organisation by having “better shareholders” (whatever that may be). You can most definitely become a better organisation by having better employees. Truly prioritising the well-being of your employees just might pay off financially in the long run too. Loyalty, trust, extraordinary effort, etc. are reciprocal things; we give it to those from whom we receive it. And organisations and employees are no different.
That’s a fairly extreme thing to say though, especially in corporate America, that you do not place your shareholders first.
Of course he would always be quite quick to continue: “Because if you have happy employees, you will get happy customers, and if you have lots of happy customers, shareholders will inevitably become quite happy to”. Now you could be inclined to say “ah, so it’s all the same; at the end of the day all parties’ interests are aligned”. In the long run that may be true, but in the short run such an “employee orientation” – the choice of who comes first – can lead to rather different decisions than a “shareholder value orientation”. And at Southwest they do put their money where their mouth is; they for instance provide perfect job security. Consider, for example, Southwest’s response to 9/11, which triggered a global airline crisis, prompting many companies to execute the hatchet on their employee head-count:
Southwest Airlines’ current President and COO (Colleen Barrett) said: “Southwest has not had a layoff in its thirty-year history and is not contemplating one now” (after which employees collectively organised an internal giveback effort, called “Pledge your Luv”, offering up to thirty-two hours of pay during the last quarter of 2001).
In contrast, US Airways paid $35 million in lump-sum retirement benefits to its former top three executives, while 12,000 employees were laid off and pilots agreed to $565 million in concession in their own retirement plans. Rakesh Gangwas, briefly chairman and CEO (who received $15 million of the 35 million) declared, a few days before resigning, that “the September 11 attacks had allowed the airline to restructure and downsize in ways that would have been impossible otherwise”.
Of course US Airways filed for bankruptcy in 2003, while Southwest recovered in less than a year.
Placing employees first may be suboptimal in the short run but in the long run it’s a different picture. You don’t become a better organisation by having “better shareholders” (whatever that may be). You can most definitely become a better organisation by having better employees. Truly prioritising the well-being of your employees just might pay off financially in the long run too. Loyalty, trust, extraordinary effort, etc. are reciprocal things; we give it to those from whom we receive it. And organisations and employees are no different.
Thursday, August 7, 2008
Narcissus versus Humble Bloke – and the winner is…?
Have you heard of Narcissus – the character in Greek mythology? Narcissus was an exceptionally beautiful young man. He was so beautiful (and full of himself) that he fell in love with his own reflection in the water. He could not bring himself to stray from the well and did not even drink the water; fearing he’d disturb the water reflecting his image and would not see himself again. Our word “narcissistic” – to describe someone full of himself – is derived from it.
How would you recognise a narcissistic CEO (as certainly not all of them are exceptionally beautiful)? Seriously, think about it, what would you say are signs of a CEO who is narcissistically full of himself…?
Someone who always has his photograph displayed very prominently in his firm’s annual report? The CEO’s prominence in the company’s press releases? How often he uses first-person singular pronouns (such as I, me, mine, my, myself) giving interviews to the business press? Or his financial compensation relative to the second-highest paid executive in his firm?
Arijit Chatterjee and Donald Hambrick, of Pennsylvania State University, measured all of these things, among 111 CEOs, and used them to construct a measure of their narcissism. They selected their 111 CEOs from the computer hardware and software industries because prior writers on Leadership had suggested that narcissism in a CEO might actually be a good thing in very dynamic, fast-changing industries – which these two are. They then examined a bunch of characteristics of a firm’s strategy, to figure out what narcissistic CEOs do differently than their more humble counterparts (in between periods staring at their own reflection I guess).
And guess what, they found that the more narcissistic types changed their firm’s strategy more often than the humble blokes. Moreover, they also tended to undertake a lot more – and a lot bigger – acquisitions. The performance of their corporations (perhaps partly as a consequence) fluctuated quite heavily, in comparison with the humble types.
But what about the level of their firms’ performance; it may have fluctuated more heavily but did the narcissistic guys on average achieve higher or lower performance?
Neither. They didn’t do better, and they didn’t do worse (both in terms of return on assets and total stock market performance).
Arijit and Don concluded, “that narcissistic CEOs favor bold actions that attract attention, resulting in big wins or big losses, but that their firms’ performance is generally no better or worse than firms with non-narcissistic CEOs”.
However, I’d say they’re worse; you’re better off without them. It is not only money that matters; these types are plain annoying. If they don’t bring in more dosh than their more pleasant counterparts, you’re better off with humble bloke.
How would you recognise a narcissistic CEO (as certainly not all of them are exceptionally beautiful)? Seriously, think about it, what would you say are signs of a CEO who is narcissistically full of himself…?
Someone who always has his photograph displayed very prominently in his firm’s annual report? The CEO’s prominence in the company’s press releases? How often he uses first-person singular pronouns (such as I, me, mine, my, myself) giving interviews to the business press? Or his financial compensation relative to the second-highest paid executive in his firm?
Arijit Chatterjee and Donald Hambrick, of Pennsylvania State University, measured all of these things, among 111 CEOs, and used them to construct a measure of their narcissism. They selected their 111 CEOs from the computer hardware and software industries because prior writers on Leadership had suggested that narcissism in a CEO might actually be a good thing in very dynamic, fast-changing industries – which these two are. They then examined a bunch of characteristics of a firm’s strategy, to figure out what narcissistic CEOs do differently than their more humble counterparts (in between periods staring at their own reflection I guess).
And guess what, they found that the more narcissistic types changed their firm’s strategy more often than the humble blokes. Moreover, they also tended to undertake a lot more – and a lot bigger – acquisitions. The performance of their corporations (perhaps partly as a consequence) fluctuated quite heavily, in comparison with the humble types.
But what about the level of their firms’ performance; it may have fluctuated more heavily but did the narcissistic guys on average achieve higher or lower performance?
Neither. They didn’t do better, and they didn’t do worse (both in terms of return on assets and total stock market performance).
Arijit and Don concluded, “that narcissistic CEOs favor bold actions that attract attention, resulting in big wins or big losses, but that their firms’ performance is generally no better or worse than firms with non-narcissistic CEOs”.
However, I’d say they’re worse; you’re better off without them. It is not only money that matters; these types are plain annoying. If they don’t bring in more dosh than their more pleasant counterparts, you’re better off with humble bloke.
Tuesday, August 5, 2008
How to make a compelling corporate strategy in six easy steps
What is the “strategy process” that I observe in most corporations?
Step 1: On the 15th of October (or whatever month), we send a memo to our business unit managing directors that we will need their unit’s strategy input by the 1st of December, including an explicit elaboration of how it fits in with the corporation’s overall strategy.
Step 2: BU’s management thinks, “What was the corporate strategy again?” and looks up last year’s document.
Step 3: It takes note of what its business unit’s input needs to be – in terms of the guidelines provided by corporate – and, after a week or so, assigns some junior staff members, consultants or interns to provide the numbers about the market, forecasts, benchmarking (in terms of what competitors are doing) and so on. They give them last year’s document and also send round an e-mail to all team leaders urging them to diligently provide the necessary data (“because it is that time of year again” and corporate wants it by the 1st of December).
Step 4: After two weeks, BU management thinks, “Wonder how that is going?” and finds out that the team leaders have not been very quick to provide the necessary information. After another e-mail (marked “urgent”), information starts flowing in and by mid-November there is a big pile of data. In the subsequent two weeks (while flipping through last year’s documents a bit), they write a number of pages about what the unit has been doing over the past year (which corresponds remarkably well with what they said last year they would be doing), what they will be doing next year and how it is all contributing to (yes, even driven by!) the overall corporate strategy. On the 1st of December, we note from our e-mail inbox that we received their document last night on the 30th of November (just in time!), at 11:37pm, which makes us realise, with a slight feeling of guilt, that we had just gone to bed at that time (after finishing that rather good bottle of Australian Shiraz).
Step 5: The next day, we flip through the various units’ strategy documents and put them aside. Some time during the first week of January, we flip through them again and take last year’s corporate strategy document out of the drawer. We then think about all the activities the corporation is engaged in and – usually with the aid of our strategy department or, in the blissful absence of such a group, a consultant or two (they usually hunt in packs) – we come up with some overarching logic (and a quite compelling one, we proudly congratulate ourselves) of why we are doing the various things we’re doing anyway.
Step 6: On the 1st of February, we send the document to all company directors and business unit managing directors. They look at its shiny cover (with a picture of us standing in front of our new corporate building – we first objected against having our own picture on the cover, but PR convinced us it would give it a more personal touch), read the first page (checking the acknowledgements for their name), briefly flip through some of the other chapters, and put it in a drawer.
Where it remains until the 15th of October, when we remind them “it is this time of year again”.
Step 1: On the 15th of October (or whatever month), we send a memo to our business unit managing directors that we will need their unit’s strategy input by the 1st of December, including an explicit elaboration of how it fits in with the corporation’s overall strategy.
Step 2: BU’s management thinks, “What was the corporate strategy again?” and looks up last year’s document.
Step 3: It takes note of what its business unit’s input needs to be – in terms of the guidelines provided by corporate – and, after a week or so, assigns some junior staff members, consultants or interns to provide the numbers about the market, forecasts, benchmarking (in terms of what competitors are doing) and so on. They give them last year’s document and also send round an e-mail to all team leaders urging them to diligently provide the necessary data (“because it is that time of year again” and corporate wants it by the 1st of December).
Step 4: After two weeks, BU management thinks, “Wonder how that is going?” and finds out that the team leaders have not been very quick to provide the necessary information. After another e-mail (marked “urgent”), information starts flowing in and by mid-November there is a big pile of data. In the subsequent two weeks (while flipping through last year’s documents a bit), they write a number of pages about what the unit has been doing over the past year (which corresponds remarkably well with what they said last year they would be doing), what they will be doing next year and how it is all contributing to (yes, even driven by!) the overall corporate strategy. On the 1st of December, we note from our e-mail inbox that we received their document last night on the 30th of November (just in time!), at 11:37pm, which makes us realise, with a slight feeling of guilt, that we had just gone to bed at that time (after finishing that rather good bottle of Australian Shiraz).
Step 5: The next day, we flip through the various units’ strategy documents and put them aside. Some time during the first week of January, we flip through them again and take last year’s corporate strategy document out of the drawer. We then think about all the activities the corporation is engaged in and – usually with the aid of our strategy department or, in the blissful absence of such a group, a consultant or two (they usually hunt in packs) – we come up with some overarching logic (and a quite compelling one, we proudly congratulate ourselves) of why we are doing the various things we’re doing anyway.
Step 6: On the 1st of February, we send the document to all company directors and business unit managing directors. They look at its shiny cover (with a picture of us standing in front of our new corporate building – we first objected against having our own picture on the cover, but PR convinced us it would give it a more personal touch), read the first page (checking the acknowledgements for their name), briefly flip through some of the other chapters, and put it in a drawer.
Where it remains until the 15th of October, when we remind them “it is this time of year again”.
Friday, August 1, 2008
DISSAPEARANCE OF A FINANCIALLY GOLDEN NEWSPAPER PERIOD
Voices in and around the newspaper industry would have us believe the industry is falling apart and taking its last gaps. Investors are fleeing newspaper companies, publishers are decrying the lack of newspaper advertising growth, debt challenges are plaguing many companies, and there are layoffs and buyouts everywhere.
If one rationally looks at the industry, however, one sees that it is fundamentally sound, but that a unique, financially golden period in its history is ending. It is that change which is creating the bulk of the turmoil in the industry, but the biggest problem is that those working in the industry have short memories about the newspaper business and don't remember it any other way.
The generation leading newspapers and newspaper companies today has only experienced a period in which extraordinary growth of advertising increased newspaper revenue across the nation. That growth, combined with the development of local monopolies, created a period that enriched papers highly. This, of course, created great interest in investors and produced capital that allowed public companies to grow and acquire papers, driving up newspaper prices and the value of newspaper assets.
Today, the conditions that drove the growth of the past 3 decades are ending, wealth is being stripped from the industry, investors are losing interest, and publishers are struggling with negative and low growth.
Things are terrible, right? They are worse than every before, aren’t they?
Those views are only true if one takes a limited historical perspective and conceives the industry as a way to riches, something few newspaper owners did in generations past. With the exception of a few major cities, one could not get rich being a newspaper owner. Publishers nationwide could make a living in newspaper, but much of their reward came from being socially influential in the community. Before the extraordinary profitability of the last quarter of the 20th century, newspapers were relatively unprofitable and breaking even was the primary financial goal of most publishers.
Contemporary developments are taking us back toward that situation, but even with the u-turn in the business, we need to recognize that newspaper revenue today is better than it was in 1950s, 1960s, 1970s, 1980s, and 1990s. In fact, adjusted for inflation, newspapers in 2007 had two and a half times the advertising income that they had in 1950. In terms of employment, there are still twenty percent more journalists working in newspapers than in the highly profitable years that fueled the growth of corporate newspapering.
Those working in the newspaper industry need to be realistic and understand what the effects of contemporary changes mean. They don’t mean disaster, but they mean changes in the business of newspapers, the way the industry has operated for the past three decades, and how they need to perceive the industry.
If one rationally looks at the industry, however, one sees that it is fundamentally sound, but that a unique, financially golden period in its history is ending. It is that change which is creating the bulk of the turmoil in the industry, but the biggest problem is that those working in the industry have short memories about the newspaper business and don't remember it any other way.
The generation leading newspapers and newspaper companies today has only experienced a period in which extraordinary growth of advertising increased newspaper revenue across the nation. That growth, combined with the development of local monopolies, created a period that enriched papers highly. This, of course, created great interest in investors and produced capital that allowed public companies to grow and acquire papers, driving up newspaper prices and the value of newspaper assets.
Today, the conditions that drove the growth of the past 3 decades are ending, wealth is being stripped from the industry, investors are losing interest, and publishers are struggling with negative and low growth.
Things are terrible, right? They are worse than every before, aren’t they?
Those views are only true if one takes a limited historical perspective and conceives the industry as a way to riches, something few newspaper owners did in generations past. With the exception of a few major cities, one could not get rich being a newspaper owner. Publishers nationwide could make a living in newspaper, but much of their reward came from being socially influential in the community. Before the extraordinary profitability of the last quarter of the 20th century, newspapers were relatively unprofitable and breaking even was the primary financial goal of most publishers.
Contemporary developments are taking us back toward that situation, but even with the u-turn in the business, we need to recognize that newspaper revenue today is better than it was in 1950s, 1960s, 1970s, 1980s, and 1990s. In fact, adjusted for inflation, newspapers in 2007 had two and a half times the advertising income that they had in 1950. In terms of employment, there are still twenty percent more journalists working in newspapers than in the highly profitable years that fueled the growth of corporate newspapering.
Those working in the newspaper industry need to be realistic and understand what the effects of contemporary changes mean. They don’t mean disaster, but they mean changes in the business of newspapers, the way the industry has operated for the past three decades, and how they need to perceive the industry.
Executives: super-human after all…
It is a well-known aspect of our everyday behaviour: when we perform well, we credit ourselves; when something goes wrong we blame something (or someone) else. This effect – known as attribution bias – has been well-documented by social psychologists, but I guess we didn’t really need their research; it is quite a common phenomenon in everyday life.
Professors John Wagner and Richard Gooding, at Michigan State University, examined whether managers suffer from the same bias. They rounded up a 102 executives and subjected them to some lengthy experiment and statistical analysis – the details I won’t bore you with because the answer was (surprise, surprise), yes. When a company’s performance is great, executives claim (and actually believe!) that it is due to their brilliant efforts; when, vice versa, their company’s performance sucks, it’s someone else’s fault and they’re really really not to blame, honoust. Yep, executives are just like humans.
Then, however, John and Richard did something rather interesting. They did not only ask these executives to interpret the performance of their own companies (as explained above); they also asked them about what they thought caused the performance of their peers/competitors…
As said, when their own company was performing well they attributed it to their own efforts, while when they were performing badly they blamed some external circumstances. Yet, when assessing their colleagues’ performance, the bias flipped! When other executives’ firms performed well, the managers said “it’s due to some external circumstances” while when their colleagues’ firms were underperforming, they attributed it to these persons’ errors!
I believe this extremity hadn’t been documented before, among humans, other mammals or reptiles. But I guess it is just very very human, which is perhaps some sort of a consolation? After all, it just shows managers are the most human among us.
Professors John Wagner and Richard Gooding, at Michigan State University, examined whether managers suffer from the same bias. They rounded up a 102 executives and subjected them to some lengthy experiment and statistical analysis – the details I won’t bore you with because the answer was (surprise, surprise), yes. When a company’s performance is great, executives claim (and actually believe!) that it is due to their brilliant efforts; when, vice versa, their company’s performance sucks, it’s someone else’s fault and they’re really really not to blame, honoust. Yep, executives are just like humans.
Then, however, John and Richard did something rather interesting. They did not only ask these executives to interpret the performance of their own companies (as explained above); they also asked them about what they thought caused the performance of their peers/competitors…
As said, when their own company was performing well they attributed it to their own efforts, while when they were performing badly they blamed some external circumstances. Yet, when assessing their colleagues’ performance, the bias flipped! When other executives’ firms performed well, the managers said “it’s due to some external circumstances” while when their colleagues’ firms were underperforming, they attributed it to these persons’ errors!
I believe this extremity hadn’t been documented before, among humans, other mammals or reptiles. But I guess it is just very very human, which is perhaps some sort of a consolation? After all, it just shows managers are the most human among us.
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