Company Culture through Prof Sutton's Lens

Professor Bob Sutton is one of the most colorful business researchers on the Stanford campus, a Professor of Management Science at the Stanford Engineering School with more than 30 years of organizational research under his belt. These snippets from an interview with Melody Stone on Stride provide a toolbox full of insights from his work with companies such as McKinsey, Netflix, McDonald's, JetBlue and more: + Find out what the cultural norms at McKinsey are all about + What drove IBM's most famous change in the company's history + What are the underlying cultural differences between JetBlue and United ...and more... What 30 years of Stanford research tells us about company culture https://www.stride.com/blog/what-30-years-of-stanford-research-tells-us-about-company-culture

Ten Simple and Succinct Tips for Better Presentations

Jon Greer shares ten great tips for better presentations.

http://blogs.bnet.com/pr/?p=184
http://blogs.bnet.com/pr/?p=185&loomia_si=t0:a3:g2:r1:c0.5382&tag=loomia

83-year-old Billionaire Serial Entrepreneur Dishes Out Business Advice

Mann Power
Los Angeles, California
Smart Business
November 2005

Al Mann, the billionaire founder of Advanced Bionics (cochlear implants), dishes out management wisdom in this profile by Laura Taxel. Mann founded several companies among them Spectrolab (electrooptical systems, 1956 - today a subsidiary of Boeing), Heliotek (semiconductors, spacecraft solar cells), Pacesetter Systems (pacemakers, sold to St. Jude Medical), MiniMed (insulin pumps, sold to Medtronics), Mannkind Corporation, Second Sight, Bioness, Quallion, and Stellar Microelectronics.

Referring to the major elements required to create a successful business enterprise, Mann says, "Capital is most important, I can’t emphasize that enough...The failure of most promising businesses is usually due to inadequate funds for the start-up and early growth phase of the enterprise."

Communicating Vision

A common vision is the key to a productive, efficient and highly motivated team. But communicating a vision to the team is often challenging. The following story, quoted from Annette Simmons' excellent The Story Factor: Inspiration, Influence, and Persuasion Through the Art of Storytelling, helps explain the succinctness of a vision:

A man came upon a construction site where three people were working.

He asked the first, "What are you doing?" and the man answered, "I am laying bricks."

He asked the second, "What are you doing?" and the man answered, "I am building a wall."

He walked up to the third man, who was humming a tune as he worked [not sure why this is relevant, lol...] and asked, "What are you doing?" and the man stood up and said, "I am building a cathedral." (p. 16-17)



The vision brings all of the elements of a project - or of one's work in general - together, providing employees with the roots of their effort. Without vision an employee or team member is much like a tree without roots. I have found the bricks-to-wall-to-cathedral metaphor to be particularly powerful.

Perspectives on the Death of Capitalism - Part I

Following are some notes on the death of capitalism -

+ Marx was first to call for the death of capitalism – The Communist Manifesto (1847), Das Kapital (1867)
+ Herbert Stein, a former chairman of the President’s Council of Economic Advisers and an American Enterprise Institute fellow, claims that capitalism died with the advent of federal taxes (Stein, 1992). Using this rationale, one could date the death of capitalism to 1862, when the first federal income tax was imposed (during the American Civil War). However, this first tax was later repealed.
+ In 1913, Congress passed the 16th amendment to the constitution, authorizing the federal government to impose income taxes (Stein, 1992). Stein fervently believes that this was the beginning of the end of capitalism. Note that the first income tax was a paltry 2% and was applied only to the wealthiest Americans – a far cry from today! According to Stein, capitalism in the US died with Bush’s tax increase in 1990, a tax increase that was equivalent to 0.5% of GNP and led the country into recession. Stein equates federal taxation with totalitarian communism, and says that (today) ”It is taxes that make the world go round – or keep it from going round.”
+ In 1996, Lester Thurow, a widely respected economist and a Professor at MIT’s Sloan School of Business, published “The Future of Capitalism” (Thurow, 1996). Thurow does not so much call for the death of capitalism as much as for the end of capitalism as we know it.
- According to Thurow, there are five fundamental macroeconomic forces that will shape world markets in the 21st century –
* The end of communism – and the need to digest about one-third of humanity into a mostly capitalist system
* Shift to the information economy – and the geographical freedom “Man-made brainpower industries” allow for
* A new demography, characterized by two major trends:
> Massive migration from poor to rich countries, exactly when non-skilled labor is no longer needed
> New, very large class of elderly retired people in capitalist economies who depend on government payments for most of their income
* A global economy – “anything can be made anywhere on the face of the earth and sold anywhere on the face of the earth” – national economies less important, global conglomerates more important
* No dominant global power – “unipopular economic world dominated by the United States is over” (not sure I agree with this one, though)
* The two – conflicting – trends Thurow feels will bring about a massive change in capitalism as we know it are technological and ideological in nature –
* As far as technology is concerned, skills and knowledge have become the only sources of sustainable strategic advantage
* But ideologically, people are increasingly seeking to satisfy a need for short-term individual consumption maximization
* The development of skills and knowledge requires massive investments in infrastructure and education that are long-term in nature

(more to come)

Myths and Facts About...Venture Capitalists

For some more myths and facts about venture capitalists see:

Article in the Israeli business daily

See also my own...

Interesting Facts About Venture Capitalists

ragingacademic

Some Comments on the "Entrepreneurial Type"

According to Kaplan (2003), entrepreneurial types share a number of characteristics; they actively seek out opportunities, always on the look-out for the chance to revolutionize a business model in order to more effectively profit from a given market segment; they are disciplined in their pursuit of opportunities; they have an aptitude for pursuing the best opportunities; they execute rather than leading to “paralysis by analysis”; and, they develop and draw on a network of contacts in order to achieve their goals (p. 13). Stevenson and Gumpert (1991) delineate the character of the entrepreneur along two dimensions ; on the one hand, entrepreneurs have “self-perceived power and [the] ability to realize goals,” while on the other hand they are determined to reach a “desired future state characterized by growth or change” (p. 11).

In an extremely interesting paper, two scholars with completely unpronounceable names…Beugelsdijk and Noorderhaven…set out to show, empirically, that there is a significant difference in the psychological profile of the entrepreneur vs. that of a typical member of the population at large (2005). They find that “…entrepreneurs can be characterized by an incentive structure based on individual responsibility and effort, and a strong work ethic” (p. 160).

Kaplan provides a useful framework within which the degree to which the characteristics of the entrepreneur influence managerial action can be assessed (p. 13). An entrepreneurial manager’s strategic orientation is driven by the perception of opportunity; his commitment to such opportunities is revolutionary rather than evolutionary, and can frequently be of short duration; his commitment of resources utilizes a multi-stage approach which provides for minimal exposure at each stage of the process; resources required for the completion of tasks are more typically rented or leased than owned to allow for flexibility in future action; and such a manager will maintain a flat managerial structure, intertwined with multiple informal networks which extend beyond the manager’s immediate organization.

References

Beugelsdijk, S., and Noorderhaven, N. (2005). Personality Characteristics of Self-Employed; an Empirical Study. Small Business Economics, 24, pp. 159-167.

Kaplan, J. M. (2003). Patterns of entrepreneurship. New York: John Wiley & Sons.

Stevenson, H. H., and Gumpert, D. E. (1991). The Heart of Entrepreneurship, in The Entrepreneurial Venture, Boston, MA: Harvard Business School Publications.

Venture Capital and the Structure of the Venture Capital Environment

Venture capitalists are professional investors who manage private equity, investing in young companies at an early phase of their corporate existence and nurturing such companies over the long term with the goal of gaining abnormal returns on their investment. Such investors organize in firms (henceforth VC firms). A VC firm (e.g. Kleiner Perkins Caufield & Byers) is a partnership between individual venture capitalists (the "general partners") that organize for the purpose of managing one or more venture capital funds (e.g. KPCB Java Fund).

A venture capital fund manages assets invested by the general and the limited partners. Typically, the general partners contribute about one percent of the total fund's assets and manage the fund's day-to-day operations. The limited partners, who invest the balance of assets, are passive participants (In order to retain limited liability, the law restricts limited partners from taking an active role in the day-to-day management of the fund.). As compensation, the general partners receive an annual management fee that ranges from one percent to two-an-a-half percent of the fund. In addition, they receive, on average, about 20% of any distribution. The limited partners receive the balance of the distributions.

A 1988 Venture Capital Journal Study found that the majority of limited partners are institutional investors. Of the $2.95 billion raised in 1988, 46% came from pension funds, with an additional 12% from endowments and foundations and 9% from insurance companies. Corporate venture capital subsidiaries accounted for 11% of investments, individuals and families for 8%, and foreign contributions totaled 14%.

The venture capital fund is set up as a limited partnership with a predefined lifetime, usually ten years with an option to extend the fund for up to three additional years. For a VC firm to remain active, a new fund is raised every three to six years - therefore, VCs are repeat players in the investment arena. New funds make most major investments (The companies in which a VC invests are called portfolio companies) within the first four to five years so that investments can be exited and gains distributed within the appropriate timeframe (Gompers 1996). At any given time a VC firm will have a number of funds under management ongoing concurrently.

ragingacademic


Reference

Gompers, Paul A.(1996). Grandstanding in the venture capital industry. Journal of Financial Economics, 42, 133-156.

Interesting Facts About Venture Capitalists

Some interesting things to know about venture capitalists...

+ Venture capital is not about seeking risk, it is about reducing risk - this is very counter intuitive since from the outside it seems as if VCs are risk seekers, when in practice they will do everything in their power to invest in the safest entity they can identify
+ For every startup a venture capital firm invests in, it receives 1,000 business plans, follows up on 100, invites 10 to present, follows up with 2-3 and then invests in one.
+ VC compensation structure has evolved so that the VC no longer has to be successful in order to strike it rich themselves; this is a big part of the problem with VCs today - and just like prices are said to be "sticky" (they easily increase but are slow, i.e. sticky, to decrease), the same goes for compensation packages - it's difficult to knock them back down...

ragingacademic

The Rhetoric of Mission Statements

Theoretically and in a historical context the mission statement was at the core of a firm’s strategic directive. A mission statement should define the purpose of the organization, and function as a core component of the company’s vision, ethics and values. However, more recently, mission statements have become an object of play, to be reflected upon, revised and rewritten as frequently as organizations are reengineered, reorganized and downsized. This has served to degrade the value of the mission statement in the eyes of the average employee, and to allow for the build-up of a great deal of sarcasm and cynicism (many first-hand experiences...); further, recent debacles at a large number of venerable and respected American companies such as Enron, MCI WorldCom, Tyco and others – and the inexcusable behavior exhibited by the leaders of these organizations – has provided clear evidence that senior management does not pay more than lip service to said statements.

Mission statements present a conundrum of sorts. Ron Graham, of the College of New Jersey, explained why in a wonderful little essay:

There are two problems with using mission statements in this way:
1. If the staff is already focused on what it's supposed to be doing, it doesn't need the mission statement;
2. If the staff is not focused on what it's supposed to be doing, then there is a problem more fundamental than the need for a mission statement.(Graham, n.d.)

Jaffe (2007) provides an excellent three-part guideline for creating mission statements that should not simply become rhetoric… “First, it's no more than a single sentence long; second, it can be easily understood by a 12-year-old; and third, it can be recited from memory at gunpoint.”

A mission statement can provide an important foundation for a company if crafted right; it can be a point of ridicule and employee criticism when not. It should not be arrived at through consensus – employees’ ideas should most definitely be solicited, but at the end of the day the mission statement should reflect managements’ vision.

A couple of examples:

Scott Adams (of Dilbert fame) created the following corporate mission statement for Logitech:

"The New Ventures Mission is to scout profitable growth opportunities in relationships, both internally and externally, in emerging, mission inclusive markets, and explore new paradigms and then filter and communicate and evangelize the findings." (Graham, n.d.)

In order to consult for Logitech Adams fooled senior management and represented himself as a “credible consultant” - with the (well paid...) result being the mission statement above!

Obviously, this is an example of a terrible mission statement…

In contrast, State Farm’s mission statement closely follows the guidelines laid down by Mr. Graham: "To help people manage the risks of everyday life, recover from the unexpected, and realize their dreams."

And perhaps the best mission statement ever put together is the mission statement for the human race - as can be found in the book of Genesis: “Be fruitful, and multiply…”

Indeed.

Want to explore some mission statements?
Try Man on a Mission, a blog dedicated to making mission statements public.

Reference

Graham, R. (n.d.) Mission Statements.

Jaffe, A. (2007). How Business Partners can Create a Joint Vision. The Wall Street Journal Center for Entrepreneurs StartUp Journal.

On the Evolution of Management Thought

Kohelet ben-David, King of Jerusalem, says in Ecclesiastes 1:9, “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.” If management theories indeed do evolve, they must evolve from something. It is quite evident that modern management thought builds on the foundations laid by pioneers such as Taylor (Scientific Management), Fayol (Administrative Management), and Mayo (Behavioral Management). But to what extent is management thought shaped by current business events?

Daniel Wren, in his seminal book, The Evolution of Management Thought (1994), does not approach this question with haste, posing a very similar question himself early on in his quest to synthesize and analyze the history of managerial thought; Wren asks, “How have our concepts of managing organizations evolved throughout history?” (2005, p. 5) – yet in doing so Wren has already assumed the conclusion so aptly captured by the title of his treatise. Nevertheless management theories have not evolved solely as derivatives of historical foundational thought; nor are they unique outgrowths of the contemporaneous environment – rather, they are a combination of the above. New theories evolve from the historical foundations of managerial thought but are shaped by the current business environment and the challenges the current environment poses. As Wren writes, “Our ideas about people, management and organizations have evolved within the context of various cultural values and institutions throughout history” (p. 12). Neither one nor the other then – but rather a combination of both approaches, evolutionary and current as well.

References

Kohelet (n.d.). Ecclesiastes 1:9

Wren, D.A. (1994). The evolution of management thought (4th Ed.). New York: John Wiley & Sons.

Wren, D.A. (2005). The history of management thought (5th Ed.). New York: John Wiley & Sons.