Category Archives: Evidence-based Management

Steve Jobs Health Capital & Apple Stock

A simple rumor about Steve Job’s health sent Apple Stock lower today by 32 cents, December 30, 2008, reported many newspapers including the L.A. Times.  No objective facts, just conjecture about his health status suggested to enough investors that there was a human capital threat to shareholder value at Apple to sell shares.

It’s a high-profile example of the importance of one facet of Human Capital, that of “presenteeism” and poor health. Presenteeism is the presence of sick employees on the job, who are unable to perform at their normal peak because of health problems.  It’s a serious threat to the livelihood of a firm who, in Apple’s case, depend heavily on the leadership of their founder and current CEO, Jobs.  If Jobs is unable to perform fully – or horrifyingly – if he’s unable to work at all, it would have a material effect on Apple’s ability to continue to produce iPhones, iPods, iTunes and the plethora of profitable innovations released recently under his watch.

It’s also a special case example of why leadership due diligence is a necessary part of Enterprise Risk Management.  Jobs ability to work at full performance is a material risk to the longevity of the firm.

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Leader Due Diligence – Psychometrics as Part of Financial Transparency?

With the Bernie Madoff being the latest in a series of massive financial frauds caused by leaders who misrepresented themselves, the time may have come to broaden the financial world’s definition of “transparency”.  I’d like to offer a broader view to include publicly reported reports on leadership knowledge, skills, abilities, traits, values and interests.  Would you have invested in Madoff’s Ponzie scheme if you had previously reviewed a report from a trusted authority on leadership assessment that noted he is low on conscientiousness and prudence?  How would a board view this same report on a founder-CEO?

How well do you know your leaders?

How well do you know your leaders?

Poor leadership is common, but leaders rarely fail in such a public way.  In one study of nearly 400 Fortunte 1000 companies, 47% of executives and managers rated their company’s overall leadership as fair or poor; and only 8% rated it as excellent (Csoka, 1998).  Personality traits predict both performance and ineffective leadership.  For example, conscientiousness is one of the “Big 5” factors of normal personality that has been shown to consistently predict both job performance and dishonest behavior in the worklpace. Former professors of mine, Robert and Joyce Hogan have written extensively about this area, and have authored some of the better classical test theory instruments for normal personality, the “dark side” or disfunctional leadership, and leader motives, values and preferences.  None of these sorts of assesments are typically used systematically to plan CEO development in private by the board.  And it is entirely unheard of for these reports to be shared publicly with prospective customers, partners and shareholders.  Perhaps we should reconsider making these transparent, systematically, given the risk and lack of confidence in markets of late?   The free paper I drafted, “The Three Stooges of Operational Risk: Advances in Leadership Due Diligence and Rasch Measurement” proposes a way of improving our leadership assessments.  If desired, they could be used for this transparency purpose.   I welcome your feedback.

Special thanks to Alexei M for inspiring this idea.

References

Csoka, L. S. (1998).  Bridging the Leadership Gap.  New York: Conference Board.

Hogan, R., Curphy, G., & Hogan, J. (1994).  What We Know About Leadership: Effectiveness & Personality.  American Psychologist 49(6), 493-504.

Robie, C., Brown, D., & Bly, P. (2008, March).  Relationship Between Major Personality Traits and Managerial Performance: Moderating Effects of Derailing Traits.  International Journal of Management, 25(1), 131-139.

Free Swimming Assessment – Rasch Measurement Demonstration

The Scientific Leader is pleased to give away our free Swimming Assessment Measure (SwAM), based on Rasch Measurement.  By giving it away, our goal is to introduce the simplicity of the Rasch approach in a way that is helpful to teaching children how to swim.   After developing it based on professional swimming instructors’ own checklists, I found it invaluable for focusing my son’s swimming lessons on the areas he needed to work on.  Rasch allowed him to avoid focusing on tasks he had already mastered, and those that were too hard.  I was pleased to watch him progress up the chart as he mastered more and more swimming skills.

We would be pleased to work with any other swimming professionals to continue to improve and expand this instrument.  We also ask that anyone who uses it, shares their data with us as you collect it, and email to sales@scientificleader.com

Silver Lining to Financial Crisis?

Excellent leaders persevere in the face of adversity such as the current financial crisis.  We need to help our people through difficult times, with personal resiliency and authentic optimism about the future.  We have to be candid about the dire situation of the financial markets and the significant pain and suffering that awaits employees in countries affected by the downturn. In the US, the likely long-term recession or horrific possibility of a sequel to the great depression is a possibility we must acknowledge.

But today, November 27 2008, is the day people in the US celebrate those things we appreciate.  On Thanksgiving, can we also have a vision of the big picture beyond the painful side of the crisis?  Can we credibly claim an upside?  The Scientific Leader thinks so.  I’ll outline some of the potential good that may come to business as a result of this difficult time, and welcome your own ideas:

  • Demise of Snake Oil
Could it be that a massive financial belt tightening across industries and boarders will cause leaders to consider the evidence before they buy?  I suspect that managers and employees will be more prudent than ever before, when cash is extremely limited.  As Bob Sutton notes that 90% of Consultant’s advice is crap; those of us in the 10% minority who use evidence may see an uptick in our business.

  • Respect for Uncertainty

Too few leaders historically cared about risk and uncertainty as major aspects to business management.  But the recent high-profile collapses may have changed this forever.  Lazy managers and leaders of the past would rely more on intuition and judgment instead of the more complicated and tedious methods that use probability.  But as Richard Feynman once noted, “Mother Nature Can’t Be Fooled”.  The scientific method requires uncertainty to approximate the truth.  Leaders who seek to manage risks and returns would do well to study the leadership methods to measure and value risk and uncertainty.  These include Monte Carlo and Real Options methods as part of a portfolio in managing Enterprise Risk. 

  • Substance trumps slick

Will companies managing through this downturn tolerate glitz without substance?  Will the trash and trinkets given away at large-company meetings lessen?  I don’t know for sure, but I suspect there will be less tolerance for this in the near term at least.  The free t-shirt for the “flavor of the month” initiative may be as endangered as the constant initiative churn that burns capital without creating value.  Demonstrable value may come into vogue again.  The Scientific Leader’s “Cue See” model attempts to be a practical way of discerning and improving the value creation process.

  • Global Cultural Savvy

With the US Dollar likely to follow the way of Zimbabwe, firms heavily dependent on the dollar will have to hedge their risk.  Even small to medium sized firms may be wise to consider holding retirement and other assets in foreign equities, currencies, bonds, and hard assets like gold.  To do this, Americans will have to learn more about other countries rules.  In many cases, people will find that places such as Singapore and Hong Kong have even more freedom than the so called “land of the free”.  Americans may have more sensitivity to different ways of working and doing things, rather than a mindless, “US is Best” mantra of the past.  Businesses like Peter Schiff’s Euro Pacific Capital are staged to take their business and help them diversify.

What upsides do you see from such a crisis for business?

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Marriott Brand Equity Overcomes Hiccups

I’ve been fond of Marriott Hotels for many years.  Marriott properties are consistently clean, affordable, and the restaurants are good.  I especially liked the J.D. Marriott in Hong Kong – their Dim Sum breakfast was amazingly good.  Because I’ve had such a good experience, I strongly prefer Marriott to other brands.

Recently, my family took a vacation to the Marriott Timber Lodge.  They offered us a special deal, as “Marriott Rewards” members with tens of thousands of “points” from prior visits, and we got a great bargain.  But after we reserved our room, my wife noticed some bad reviews on tripadvisor.com about this particular property.  They claimed that lackadaisical European students took jobs there to ski, but didn’t give good service and that the rooms weren’t clean.  Worried, but skeptical, we called customer service.  The representative politely reassured us that we had numerous sources of recourse if we were less than satisfied, so we went ahead and checked out the hotel ourselves.

While it wasn’t a flawless stay, the hotel was absolutely beautiful, clean and organized for lots of complimentary fun.  The location is excellent – nearby many nice Lake Tahoe activities and restaurants – right on the Nevada-California boarder.   Our reservation included a sofa bed for our two boys, and when we noticed our room didn’t have one, we were pleased to get a much better and bigger room with a better view.  Kevin, the housekeeping supervisor, gave one of our already discounted nights for free to compensate for our trouble.  The rest of the stay was just great.  We had a wonderful time.

Marriott’s excellent brand is a good example of what Industrial Engineers and Lean Six Sigma practitioners would consider variance reducing mechanism.  These are the sorts of advanced topics The Scientific Leader enjoys teaching to advanced practitioners, called “Black Belts” and “Master Black Belts.  Brand equity is created because companies like Marriott consistently deliver the value they promise.  Consistently good performance causes people to associate all services of Marriott as valuable and consistently good.  Consistent performance is possible because firms like Marriott systematically manage their processes, both inputs such as high quality employees, training and high quality furnishings; and they combine these together so consistently well that it makes customers happy.

Customers return the favor by being willing to give more business, telling their friends and paying premiums beyond those without such a good reputation.  In my case, the brand also overcame some small negative feedback on a Web 2.0 social network.  Because I already had such a good impression of Marriott, I discounted heavily the negative feedback on tripadvisor.com; and now that I’ve experienced Marriott’s Timber Lodge myself, I can completely ignore the negative feedback as we had a great time.

Could Marriott have improved their process and not had the hiccups I experienced, or those of the customers who wrote on tripadvisor.com?  Sure, they can and should.  Lean Six Sigma methods can help.  But Brand involves the complete set of memories I’ve had of all the value I’ve gotten from them.  One “delighter” was that every time I called the front desk, they answered, “How may I serve the Barney family today”?  That’s not happened to me before.  Little touches like this are pleasant surprises, and because my total experience was great, I’m still very loyal and will continue to differentially frequent Marriott whenever I can.  What brands make you loyal?  Have you noticed that superior brands lower the cost of sales and reduce sales variability?  Are you making investments in your company or personal brand? Do you consider your Brand management as part of your Enterprise Risk Management process – to mitigate customer and marketplace risks?

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Successful Wal-Mart CEO Succession Plan

The world’s largest retailer, Wal-Mart, announced that it has chosen Mike Duke to succeed H. Lee Scott Jr. as CEO and President, according to the New York Times.  I’m surprised that the pundits wouldn’t anticipate this succession move.  Scott, 59, is providing a responsible, smooth transition at a time when Wal-Mart is positioned to be the top performer in the Dow Jones Industrial Average, and over the last eight years of his leadership was able to more than double its’ annual revenue to $378.8 billion, according to Bloomberg.  And he’s not abandoning ship – he’ll remain Chairman of the board’s executive committee.  This appears to be a textbook excellent succession:

  1. Wal-mart grew it’s leadership bench strength sufficiently to provide an internal candidate
  2. The transition is at a time when the firm is doing well.  Further, as the US goes deeper into a recession, consumers are likely to switch from higher priced goods to shopping at Wal-Mart.
  3. Mr. Duke has held a variety of roles, including most recently running their challenging international operations.  These experiences give him unique, general management perspective on making decisions to help the complex multinational win in the brutally competitive low-priced retail goods segment.
  4. Mr. Scott will continue to be involved with the company, and provide coaching and counsel to ensure a smooth transition.

Even though some analysts are surprised, the NYSE took the news well, and Wal-Mart gained 2.8% on the news.  Those of you who are a bit surprised with this might appreciate an excellent book The Scientific Leader recommends by Robert Barner, “Bench Strength: developing the depth and versatility of your organization’s leadership talent“. It’s a good blend of science and practice, and is very accessable to lay leaders.  Do you have a succession plan with sufficient bench strength to provide this sort of smooth transition? How evidence-based is your information on this bench strength?  Is it more than a company-sanctioned documented rumor?

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Brilliant Process Flow Diagram of Financial Crisis

Three cheers for the blog at mint.com, that crafted a masterful flowchart of the current financial crisis.  Not only is it simple to understand, but they also name the so-called “pundits” who said the crash could never happen. Check it out below:

The clarity of the complex root causes really comes to life in their graphic.  Scientific minded leaders strive to communicate with this level of clarity.  The Scientific Leader‘s next book has a chapter by Andrew Abela on the evidence for communication, and using pictures and simple words is one major aspect of excellent leadership.  Who else loves this graphic?

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