Back to B-School

Ahh, high school. The time in one’s life where buying the right sweater seemed just as important as having clean air to breathe. While most of us have at least some fond memories of high school, many are happy to leave those days of adolescent angst behind. So what happens when you find out that the business world is more like high school than you thought it would be?

New research from the Kellogg School of Management finds that in the world of VC firms, there are established cliques (the cool kids, if you will) and new kids, or new firms, trying to find their way into the cliques.

The research was conducted by Yael Hochberg, a professor at the Kellogg School of Management; Alexander Ljungqvist a professor at New York University’s Stern School of Business; and Yang Lu, an assistant VP at Barclays Capital. Here are some of the effects of VC cliques they found, as reported by a Kellogg Insight article:

• Established firms field each other new, promising deals that they can’t take on themselves. This makes finding funding easier for start-ups, but makes it difficult for new VC firms to find these deals.
• VC firms tend to flock to areas of new business creation, and those that have been in the same location for a long time establish strong networks and relationships with the entrepreneurial community. Therefore, it’s nearly impossible for new firms to break into areas like the Silicon Valley and Boston’s Route 128.
• Firms that are open to outsiders may be punished for betraying the confines of the clique as well. “Incumbent” firms that do business with newbies experience an average 2.3 percent reduction in opportunities fielded by their network, a number that increases over time.

However, the research also finds that new firms can eventually find their way in with established VCs. When new firms approach incumbent firms with the offer of entering a new market, established firms may be willing to suffer their network’s disapproval for the new opportunity.

While this research deals with VC firms specifically, it made me curious whether any of you reading this have ever felt in a business situation like you were back in high school. If so, please leave a comment and share your experience.

Letter jacket image courtesy of Flickr user grovesa16, CC 2.0

A response to the criticisms lobbed at MBA programs for producing flawed business leaders has been for programs to ramp up their ethics offerings. But according to Roger Martin, head of Canada’s Rotman School of Management, what future business leaders really need is an education in multiple fields, including design.

In Martin’s new book The Design of Business: Why Design Thinking is the Next Competitive Advantage, he argues that MBA programs focused solely on analytical thinking have made business managers lose their creative and intuitive sides. A blend of “design thinking” and analysis, Martin argues, could help MBA grads emerge as more complete managers.

So how can you integrate design thinking if you’re already in the business world? Fast Company blogger Dev Patnaik recently participated in a lecture with Martin, and shared a few tips from their conversation:

• 1. Think of yourself as a designer when working out business strategies: Coming up with business strategies should emphasize possibilities over existing information and frameworks. Patnaik writes, “You can’t analyze your way to real strategy. You have to create it from data, guts, empathy, creativity and a little thin air.”
• 2. Make your leadership style a blend of analysis and intuition: Patnaik brings up the often-cited Steve Jobs to illustrate this point. While Jobs’ intuition has produced great innovations like the iPod, his lack of business analysis has led to flops like the Power Mac G4 Cube. Business leaders need to work on developing both skills.
• 3. Throw out your templates: True “design thinking” happens when managers try to solve a problem or create a product that hasn’t been seen in any form. However, Patnaik writes, “Most people, whatever their background, are more comfortable reapplying a formula that has worked in the past than at generating new possibilities. They just try to use a template from an existing success, which is the chief reason we see so many copycat products and copycat strategies.”

Eames chair image courtesy of Flickr user geraintandkim, CC 2.0.

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Michael Norton, a marketing professor at the Harvard Business School, specializes in consumer psychology and social enterprise. Last week, he shared his research on what he calls “The Ikea Effect,” which explains how getting customers more involved in a product or service — often with their own labor — can make them value it more. Today, he talks about how companies like Google use corporate giving to encourage customer and employee satisfaction and loyalty.

BNET: How did you get started looking into the effects of corporate philanthropy?

Norton: With collaborators from the University of British Columbia, I looked into the idea that money doesn’t make people that much happier. People believe that increasing their income over time will make them much happier, and that is not necessarily the case. Money makes you happier…but only a little bit. We had the idea that maybe when people got their money, they didn’t spend it in the right ways to make them happy. In our study, we made them spend money in different ways to judge which of those made them happy. As it turns out — and it’s a nice message — the way to use money to make you the most happy is to spend it on other people. We’ve shown in a bunch of contexts that it makes you demonstrably happier.

Then we said, “If that works at the level of the individual, how can corporations use this knowledge to change the way they interact with their employees or customers?” Usually firms give money in a lump sum to charity hoping for some PR effect. But those metrics are difficult to evaluate. If a company gives its employees vouchers to give to charity, we can look to see if the employees are happier and have higher satisfaction and loyalty to the company. Our studies show that, in fact, is the case. So, companies can look at both the impact their contributions had on the world and also how good it was from a business point of view.

BNET: What companies have a great strategic approach in their corporate giving?

Norton: Google has been an innovator here. A few years ago, they gave their [advertising] clients vouchers for the nonprofit donorschoose.org, where teachers in the public school system post projects that their school systems can’t afford. A teacher might post that she wants to provide her class certain books that aren’t in her school’s budget, and givers can choose to back that. Google’s customers got to choose where the money went. It’s a great example of a company engaging their customers in charitable giving in an effort to make their customers appreciate them even more.

BNET: So this covers writing checks, but how do companies encourage corporate volunteer efforts within their ranks? Do these programs also increase loyalty?

Norton: There are companies doing amazing things with volunteering. Volunteering is a strong predictor of how happy people are in general with their lives. I think the trick is that volunteering in general is hard. So, with many people, if their company gives them a day off to go build houses, it’s not necessarily a positive thing. The nice thing about giving away money is that it’s quick, people enjoy it a lot, and the company can get a lot of benefit from it.

Next week, we’ll hear more from Professor Norton about corporate philanthropy, including his assessment of the well-known and sometimes criticized Product Red Campaign.

When a business gives away its products for free and sustains itself through advertisements alone, how can rivals that charge for their products and services compete? This is one of the questions addressed in new research by Ramon Casadesus-Masanell, an associate professor at Harvard Business School, and Feng Zhu (pictured), an assistant professor at the Marshall School of Business at the University of Southern California. Through an email exchange, Casadesus-Masanell and Zhu discussed with me some of the concepts covered in their study “Strategies to Fight Ad-Sponsored Rivals.”

BNET: Your research looks at ways that companies charging fees for products and services can compete with other companies offering those things for free. This is a problem that has famously affected the entertainment industry and old media; what other sorts of businesses are being affected?

RCM & FZ: Ad-sponsored products and services are increasingly prevalent in many industries. In addition to traditional media industries such as newspapers and television, today we can find many free products and services in many different industries such as online services (e.g., social networking sites such as Facebook, content sharing sites such as YouTube, email services such as Gmail and Hotmail, and online searches such as Google and Microsoft Bing), software applications (e.g., many of the iPhone applications), paper cups from FreePaperCups.com and free phone calls (e.g., Blyk). Read the rest of this entry »

What would happen if you got rid of your sales staff’s quotas? Would they slack off and make your profitability plummet?

According to new research from the Stanford Graduate School of Business, the opposite very well may happen: eliminating quotas can provide a means of boosting your profits.

Quotas are generally seen as a way to encourage and pay off employees who work the hardest, but researchers Harikesh Nair, a Stanford GSB associate marketing professor, and Sanjog Misra of the University of Rochester found that quotas can actually encourage employees to make fewer sales. Nair explained how in a Stanford press release: Read the rest of this entry »

This year, fewer new Harvard Business School graduates took jobs on Wall Street, which may seem on the surface like a bad market indicator. But this is actually a positive signal, according to Ray Soifer.

In case you missed it, The New York Times reported that Soifer, a Harvard MBA and founder of Soifer Consulting, released his 2009 Harvard MBA Indicator, which draws its conclusions from looking at the jobs taken by each year’s Harvard MBA graduates. When too many end up with Wall Street jobs, Soifer says, this indicates that the market could be getting too hot and is therefore heading for a fall.

The Times explains: Read the rest of this entry »

Remember when people used to make it a Blockbuster night, and the lines at your local video store snaked all the way back through the foreign film section? Chances are, if you’ve visited a video store lately, it’s been a lot less populated. In fact, according to a recent Knowledge@Wharton article, Blockbuster plans to close 40 percent of its stores over the next two years to focus on its digital rental service.

The culprit behind Blockbuster’s woes, not to mention the closing of many a beloved mom-and-pop video store, is Netflix, the subscription-based DVD rental service that delivers movies to our mailboxes in ubiquitous red envelopes. In “Netflix: One Eye on the Present and Another on the Future,” the Wharton community weighs in on the company’s past and present successes and the challenges it faces from competitors such as iTunes and digital streaming channels like Hulu.

No matter how Netflix fares in the future, the article points to a few keys to its successes so far that are worth studying, no matter what line of business you’re in. Read the rest of this entry »

Michael Norton is a professor in the marketing department at Harvard Business School.  His areas of interest include consumer psychology and social enterprise. Norton and his colleagues have researched the way consumers value products more when they have been involved in the labor of making them, a concept they call “The Ikea Effect.” I talked to Norton about why this works and how some companies are finding ways to capitalize on it.

BNET: Would you define “The Ikea Effect” for us?

Norton: The Ikea Effect is this notion that we had a few years back. The archetypal example is a horrible looking mug sitting on someone’s shelf.  Do they just have bad taste?  Why is that ugly mug there? A lot of people have ugly things lying around because they made them themselves; they went to some pottery class when they were 23 and made a vase that is lopsided and hideous and no one would ever buy it. But people hold on to these possessions like they are worth a million dollars.

There’s something about imbuing a product or an endeavor with your own labor that makes you come to overvalue it. It becomes part of you; the more labor you put into it, the more you value it. From a retailer’s or a marketer’s standpoint, that seems quite strange. The more labor a customer has to put into assembling something themselves, the less you can charge for it because people don’t like to assemble things themselves. Think about the nightmare of assembling a bicycle on Christmas morning.

It would appear like you would have to charge less, but after the fact, people seem to have really enjoyed assembling these products. So, now they overvalue them compared to what other people would pay for them.

BNET: Then how does a company get consumers to value the process of labor rather than dread it, so it can make its products more popular?

Norton: Prospectively, people try to avoid labor, but retrospectively they really like the experiences they’ve had.  People are making a mistake; they believe they want to avoid labor, but they really like doing it more than they thought than they would. So, the challenge for the marketer is to make them value that experience prospectively.

It’s that way with many things in life. In general, people don’t want to try new things…they want to sit home and watch TV. But if you interview people, the things that are most meaningful in their life are the things they really had to try very hard for, like doing well in an extremely difficult class that they did not want to take.

Some companies are trying to make the self-creation process more fun. Converse, for example, has a strong design-your-own-shoe component on their website.  The labor that you are engaged in is virtual. You are getting some of the same aspects of self-assembly and self-expression that you would get if you had to make something on your own. But Converse removes some of the difficulties of working with tools and makes it more fun, so customers are willing to engage in it.

Some companies don’t have you do the labor, but they make sure to show you the labor they engage in on your behalf.  People not only value their own labor highly, they value the notion of people laboring for them. Effort equals value. On the travel site Kayak.com, when you search for flights, they show you every airline they are looking through for you over time. Orbitz just shows you a progress bar and then pops out the results. We’ve done research that shows that when Kayak reveals this exhaustive process on screen, users think Kayak is working harder for them and they like the search results better.

BNET: How do you create a convenient consumer experience while still getting the buyer to appreciate it?

Norton: There’s a tension between services that happen really quickly versus those that take longer. My graduate student Ryan Buell has looked into the fact that when service occurs instantaneously, you lose the ability to signal that you are providing a valuable service. People receive their money from an ATM machine instantaneously — and they do value the convenience factor, inherently — but they also seem to place a separate value on the work a teller does for them when they get cash, even though it takes longer. We’re researching this balance of providing service quickly but still slowing it down enough so customers realize the value of what you are doing for them.

In general, when encouraging customers to take on some of the labor involved, you shouldn’t just think rationally about what they should value but really look at what they do value.  If they value their time at all, they should value you assembling things for them. They should always favor fast over slow. But slowing things down so they understand the value being provided is a little bit of a strange concept.

For the past two weeks, I’ve posted highlights from my recent conversation with Tuck School of Business at Dartmouth professor Ella Edmondson Bell, author of the forthcoming Career GPS: Strategies for Women Navigating the New Corporate Landscape, about the challenges that women face in today’s workplace and what women can do to better succeed in business. In this third and final installment, I gave Bell the chance to respond to a question raised by my fellow BNET Insight blogger Sean Silverthorne. 

BNET: A recent post citing Sylvia Ann Hewlitt’s research that 84 percent of executive women compared to only 40 percent of men have seriously considered leaving their jobs in the past year sparked a big discussion about why women are unhappy at work. I was curious if you agree that women are often more unhappy at work than men, or if you had any other comments on this.

Bell: I’m not sure if women are unhappy or if they feel they’re not being given the same opportunity. If they feel that they aren’t being appreciated and aren’t being heard, and if they feel that their contributions aren’t considered important, I don’t call that unhappy. I don’t like that particular framing. I think unhappy needs to be really, really unpacked. It’s the fact that [women are asking], “Am I being appreciated for what I bring to the table? Am I being heard? Am I being solicited? Am I being challenged?” That’s a lot deeper than being happy. Happy is far too simple for me. Read the rest of this entry »

When is the last time you gave serious thought to keeping your top performers engaged and happy? If you answered “before the recession,” you’re not alone. Many managers have faced more immediate concerns about keeping their companies afloat, and this paired with the fact that there aren’t a lot of jobs out there right now means that employee job satisfaction might have slid down the list of priorities.

A recent article from the MIT Sloan Management Review warns managers that once conditions improve, the number of executives leaving their companies for new opportunities historically spike.

Elizabeth Craig, John R. Kimberly and Peter Cheese write in “How to Keep Your Best Executives” that now is the time to get serious about employee retention strategies. They list three keys to keeping employees satisfied and happy within your company: Read the rest of this entry »