Executive Leadership


I’m not sure what my favorite part of the Elizabeth Holmes story actually is.  It is tempting to focus on the welizabeth holmes fortunehole “self-made billionaire” bit, or the “billionaire before the age of 30“, or that she has 84 patents to her name while also running a hyper-growth company.  There is also the fact that she recognized that her age would be an obstacle for investors, so she assembled what some have called the most impressive board of directors ever. Of course there is also the “female version of Steve Jobs” angle, as he is apparently also her idol, and she is doing a killer impersonation.

But no.  Instead, my favorite thing about Elizabeth Holmes is that she and I share something important – we are both wusses. According to Inc., Holmes has a deep seated “aversion to needles“, which helped inspire her to approach the blood testing market from a new angle. The focus of most business model innovation is identifying unmet value that can be created for customers, and she used a well-established fear as a starting point. From there she has guided her ideas into some pretty awesome directions, guided by cutting edge science, to destroy the typical business model for the $73 billion diagnostic-lab industry with extremely inexpensive blood tests that can be conducted with no-pain blood draws of tiny samples that allow a huge range of tests from a single sample. All of this is then implemented in tiny labs, outside of the typical doctor’s office setting. Now she and her company (Theranos) are racking up FDA approvals to bring this all to market, starting with a huge partnership with Walgreens.

Starting with a clear value proposition, and then driving that insight into transformative new directions guided by research-driven science, Elizabeth Holmes has the world at her fingertips.  She has her sights set on creating a new market and ecosystem that does not yet exist – one that focuses on a more democratic approach to medicine with an empowered and informed patient that better monitors their own health throughout their life at a reasonable cost. I’ll bet this is just the beginning.

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For many people, the biggest issue in politics today is jobs. To me, it seems that America could learn a lot from Mr. Jobs about creating jobs.

From the beginning, Steve Jobs was an imaginative and farsighted thinker.  He built Apple into one of the most valuable companies in the world by focusing on two things: 1.) Creating value for people with innovative products that simplified people’s lives and 2.) Constructing new markets from scratch for these products.

Apple is really just a tremendously successful construction company. [Market Construction]

Think of all of Apple’s biggest revenue drivers: iPod, iPad, iPhone, iTunes ß each of these constructed a new market from scratch. Apple has excelled because they construct new markets that create value in people’s lives.

Why is it so great to be in the [market] construction business? There are big advantages to this approach: Better margins, less competition, more job growth, and first mover advantages.  When you pioneer, you set the standards – just ask Mark Zuckerberg at Facebook!

The market construction business is not easy, but it’s worth it. Market construction requires a different frame of thinking. The questions revolve around what could be rather than what is. Leaders think about how customers might re-imagine their experience of a product (think Apple’s mouse for computer interaction; mobile music libraries; a person’s entire life in their pocket command center). Market construction also requires a different approach to marketing / development. Questions become: Who is the customer? (You must find them because they don’t know they need you yet). What do they want from the product? (They don’t know yet.  You have to educate them). What is the right price point? (You decide, based on the value you create for customers).

For America, real and substantial job growth will come from innovative market construction. Simply, America needs to get back into the construction business

America has struggled to truly transition from ‘old industries’ where we had strong capabilities (for example, the auto industry, textile industry, and most manufacturing industries) into ‘new economy’ markets that are only beginning to emerge.

The good news is that America is exceptionally well prepared to lead in this century, but we will need to follow Apple’s example of leading on new frontiers.

The biggest areas for growth in the next 20 years, essentially the real estate with the largest “green fields” ready for market construction, will likely be in the areas of: Life sciences (personalized medicine), technical services, green technology, new sources of power generation, nanotech, pharma / medical devices.

The government can play an important role in four key ways:

  1. Fund basic science (in areas too expensive for industry to drive cost effectively)
  2. Aid fast growing companies however they can (particularly in ‘targeted’ industries)
  3. Support business-enabling infrastructure (infrastructure bank, high speed rail)
  4. Get out of the way (avoid regulatory interference)

Essentially, the government can double down on [market] construction.

Steve Jobs was a visionary. America could use a new generation of visionaries that put on their hard hats as market construction engineers and deliver the jobs of the future.

For more, I was part of a panel on “To the Point with Warren Olney” on PRI/NPR talking about these issues: click here for a link to the broadcast of the show.

 

Could the Oracle of Omaha have made a mistake?

All people are subject to biases that influence the way we see and interpret information.  These biases tend to be deeply rooted in our experiences, and are usually very helpful in making effective decisions.  As researchers we have found that often top executives are particularly subject to such cognitive biases.  Very powerful CEOs are especially vulnerable as their judgment has served them well through the years.  The issue in the Lubrizol situation is probably not that Warren Buffet intentionally white-washed the insider trading situation to his shareholders – it is more likely that he has been viewing the situation through the lens of his experiences – which tells him that David Sokol would not engage in such behavior.  Several specific biases could be at work.  As David Sokol is a lot like Warren Buffett – also born and raised in Omaha, wealthy, successful, and generally conservative with Midwestern values – he may be subject to a type of similarity or projection bias in which Mr. Buffett projects his own extremely strong personal values onto David Sokol.  Mr. Buffett may also be subject to a halo effect bias in which Mr. Sokol’s business values and success in other areas are falsely believed to extend into his personal values.  In each of these situations, a CEO is probably not aware of how their experience is blinding them, or leading them to selectively perceive certain information as more important than other information.

 The truth is that at this point we really do not know what really happened with these Lubrizol shares.  A federal investigation and lawsuits from shareholders will sort out the facts.  The simple point is this – sometimes we see what we expect to see, or what we want to see, at times projecting our own values onto those we trust.  Warren Buffett has made a career out of poring over data but ultimately trusting his instincts.  It may be that the shroud of his experience – clouded by key cognitive biases – has finally led him astray.

CEO pay is a very complex issue that involves a lot of tradeoffs. Ford‘s Alan Mulally represents a particularly interesting situation – he is among the absolute best executives in the world right now. In the last few years his work at Ford has been truly remarkable by nearly any metric. Further, he took an incredibly difficult job (Ford was behind when he took over and was falling fast), and he was soon faced with the most turbulent competitive landscape the automotive industry has seen in the last 50 years. Both of his primary American competitors went bankrupt. Yet through this fire, he skillfully led Ford through tremendous changes and has the company incredibly well positioned to be exceptional for the next few years – even ranked as a more attractive stock than Apple by CNNMoney readers.

This is what makes the issue so difficult. Does this tremendously successful CEO deserve a big paycheck? Absolutely. Does he deserve a $55 million dollar paycheck? That is the real question. The head of the UAW, Bob King, made this distinction very clear, which highlights the moral center of this debate. He specifically said that he does not think “any human being in the world” deserves that much money. This raises questions that business schools, boards of directors, and society at large need to contend with – do we believe that epically-large pay packages are morally responsible? Everyone agrees that long-term oriented pay packages are ideal for CEOs, as they help to solve the agency problem inherent in large public organizations by effectively aligning the CEOs interests with the interests of shareholders. However, the academic literature has shown that long-term contingent pay can be effective even if it does not involve incredibly large absolute dollar amounts. With this in mind, Bob King may be right – enormous pay packages might not be morally right. But I can assure you that until CEO labor markets adjust to bring down these huge pay packages, the best people (Alan Mulally included) will be tempted to go to organizations where they can get the best rewards for their talent.

I think this is where Notre Dame has the opportunity, and maybe the responsibility, to be a voice at the center of the debate. Given our vision to help corporate America have the courage to Ask More of Business, we need to help influence leaders and especially boards of directors to make more responsible decisions that embrace long-term contingent pay without falling victim to the easy way out of rewarding great leaders with exorbitant packages just because they feel like everyone else is doing so. Further, market leaders like Ford could use this as a ‘teachable moment’ to show their peers that truly amazing talent can be fairly compensated with large but not excessive pay packages even in the face of epic leadership we might be able to get closer to making this a reality.

For more, also see the press release Notre Dame put together about my comments:  ND Expert.  I also had the opportunity to speak with Jack Nerad on his nationally syndicated radio show about these issues more broadly. The interview should be airing in the next few weeks:  America on the Road.

A few days ago Steve Jobs announced that he was taking another leave of absence from Apple to focus on his health.  See a story on his announcement here. Of course, we all wish him the best and a safe recovery. However, this situation raises some interesting leadership questions and highlights some of the dangers of executive hubris.

The Danger for Apple

In fact, I would argue that Steve Jobs is putting Apple in a very dangerous position. Uncertainty around executive leadership is always difficult for large public firms, but is particularly precarious for an innovation-driven company in a highly chaotic consumer market. Apple faces highly tumultuous markets with nearly all of its products. Research has shown that temporary changes in leadership lead to inhibited steward-type behaviors in which the interim leader is less likely to enact significant changes as they lack the credibility and power to carry out any real change. Given the importance of fast action in the markets where Apple competes, this could be a real threat to the company. Depending on the length of the absence, constrained leadership could lead to innovation stagnation, which could also seriously hurt the Apple brand.

A Solution

The most important issue for Apple at this point is to create a long-term plan for succession to ease market anxiety over the loss of the brand’s most important face. Given Steve Jobs’ centrality to the Apple brand and culture, it is likely that he will continue to hold significant sway over the organization for the long term regardless of his official title at the firm.  Since the confusion associated with his frequent coming and going over the last few years has been so disruptive, it might be in Apple’s best interest to shift him out of day-to-day leadership role into a more stable advisory role, such as continuing his board chairmanship but moving him out of the CEO role.

Root Cause Analysis:  Executive Hubris

It would be easy for Apple to let Steve Jobs push them around on these issues, since he is so important to the firm, is a founder, and is the public face of the company. In fact, top executives are often subject to narcissism biases and hubris that can lead them to become so focused on their own legacy that they inadvertently choose paths that are in their own best interest rather than the organization’s best interest. It is not clear that such leaders always recognize that this is happening, making the problem even more difficult to solve.

What Steve Jobs Could Learn From Bill Gates

There is precedent for founders moving out of CEO roles but continuing to hold significant sway in the firms they created. Bill Gates is one example, as he has continued to stay involved in the big decisions at Microsoft as board chairman, while giving up his full-time job as CEO of the company he founded to pursue other interests. In this case, Steve Jobs could potentially save the company a lot of ongoing uncertainty by transitioning out of his official role as CEO to deal with other important issues in his life.

Although the issues are challenging, it may be time for Apple to stand up to Steve Jobs. Whether or not they will is another story.

For more, also see the press release Notre Dame put together about my comments:  ND Expert.

Click here to read some Sternberg files

“The universe is full of magical things, patiently waiting for our wits to grow sharper.” – Eden Philpotts

The following list comes from Robert Sternberg, a Yale PhD and professor, who is one of the world’s leading authorities on human intelligence.  The actual list comes from the website of Michael Anissimov a science/technology writer and blogger  who blogs on issues of transhumanism, AI, and other topics.  It is a fantastic collection of ideas from Sternberg on the paths to failure taken by otherwise very intelligent people.  Some of this comes off as ‘obvious’ but collectively the list is very insightful.  Enjoy.

Content from Sternberg, R. (1994). In search of the human mind. New York: Harcourt Brace.  Click here to buy the book through Amazon.

Why Intelligent People Fail

1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance.

2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads.

3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless.

4. Using the wrong abilities. People may not be using the right abilities for the tasks in which they are engaged.

5. Inability to translate thought into action. Some people seem buried in thought. They have good ideas but rarely seem able to do anything about them.

6. Lack of product orientation. Some people seem more concerned about the process than the result of activity.

7. Inability to complete tasks. For some people nothing ever draws to a close. Perhaps it’s fear of what they would do next or fear of becoming hopelessly enmeshed in detail.

8. Failure to initiate. Still others are unwilling or unable to initiate a project. It may be indecision or fear of commitment.

9. Fear of failure. People may not reach peak performance because they avoid the really important challenges in life.

10. Procrastination. Some people are unable to act without pressure. They may also look for little things to do in order to put off the big ones.

11. Misattribution of blame. Some people always blame themselves for even the slightest mishap. Some always blame others.

12. Excessive self-pity. Some people spend more time feeling sorry for themselves than expending the effort necessary to overcome the problem.

13. Excessive dependency. Some people expect others to do for them what they ought to be doing themselves.

14. Wallowing in personal difficulties. Some people let their personal difficulties interfere grossly with their work. During the course of life, one can expect some real joys and some real sorrows. Maintaining a proper perspective is often difficult.

15. Distractibility and lack of concentration. Even some very intelligent people have very short attention spans.

16. Spreading oneself too think or too thick. Undertaking too many activities may result in none being completed on time. Undertaking too few can also result in missed opportunities and reduced levels of accomplishment.

17. Inability to delay gratification. Some people reward themselves and are rewarded by others for finishing small tasks, while avoiding bigger tasks that would earn them larger rewards.

18. Inability to see the forest for the trees. Some people become obsessed with details and are either unwilling or unable to see or deal with the larger picture in the projects they undertake.

19. Lack of balance between critical, analytical thinking and creative, synthetic thinking. It is important for people to learn what kind of thinking is expected of them in each situation.

20. Too little or too much self-confidence. Lack of self-confidence can gnaw away at a person’s ability to get things done and become a self-fulfilling prophecy. Conversely, individuals with too much self-confidence may not know when to admit they are wrong or in need of self-improvement.

ndEach year the Alliance for Children and Families sponsors a trend report that summarizes important trends facing the non-profit community.  In the past this report focused on combining the work of the Alliance’s Severson Information Center staff with the insights of non-profit CEOs and program leaders.  This year, the University of Notre Dame’s Master of Non-Profit Administration group is co-sponsoring the report, and they are adding the insights of some Notre Dame faculty to the mix.  I was asked to give a management professor’s perspective on the impact of these trends.  Below is a summary list of my thoughts.  A more detailed description of each of these points is available by clicking here.  The full 2009 Non-Profit Trend Report should come out this fall and will be available at the Severson website.  For now, you can see the 2008 Non-Profit Trend Report.

1.  A Focus on Evidence-Based Performance

2.  Re-Orienting to the New Customer

3.  Keeping Talent in Tough Times

4.  Strategic Approaches to HR in the New Knowledge Economy

                  – Open-Source Models of Project Management

                  – Tapping the Millennials

                  – Older Adults as Expert Professionals on the Cheap  

5.  Disseminating Best Practice Benchmarks

6.  The Mixed Impact of Non-Profit Consolidation

7.  Funding Model Evolution

8.  Madoff-Era Insecurity, Trust, and Ethics Issues

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