Category Archives: Human Capital

CEO Pay vs. Iron Man & LeBron

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CEO pay is back in the news. Harvard Economics professor Greg Mankiw offers a NYT piece on executive compensation and income distribution suggesting that the public is ok with large incomes of sports stars or actors (like Robert Downey Jr in Iron Man) because they understand how these people contribute. In contrast, understanding what executives add is much more complex. Paul Krugman responds, with an angry rant arguing that few of the top earners are stars or athletes and maintaining his position that executives are greedy and overpaid. This seems like a nice point to debate in a strategy classroom. Are executives overpaid? You might want to conclude the discussion with Alison Mackey’s SMJ article that applies actual data analysis to the question (instead of angry rhetoric). She found that “in certain settings the ‘CEO effect’ on corporate-parent performance is substantially more important than that of industry and firm effects, but only moderately more important than industry and firm effects on business-segment performance.” That is, in some cases, up to 29% of the variance in firm performance can be attributed to the CEO. In the case of a Fortune 500 firm, that could easily amount to billions.

Contributed by Peter Klein and Russ Coff

Do MBAs destroy value?

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MBA programs help students gain general human capital which may give them a feeling that they can solve problems in a broad range of contexts. Some have lamented how this can result in arrogant behaviors that make them hard to work with. Scott Adam captures this problem admirably below. It might make sense to use this to imbue students with a sense of caution as they enter the workforce.

Contributed by Russ Coff

Homer’s Oddity: A Human Capital Chip

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The Simpson’s clip below illustrates how human capital can be co-specialized with other assets to create an advantage. The Intel chip, once paired with Homer, becomes a strategic asset in the pastry sciences. In this way, human capital becomes industry and firm-specific and can be a source of competitive advantage especially if rivals have no substitutes. This is also related to Lazear’s skill weights model where unique combinations of general human capital form highly idiosyncratic knowledge bases. Could Homer be a source of advantage for Dunkin Donuts? Who would reap the gains?

Contributed by Russ Coff

Zappo’s Zaps Mgrs: A whole holacracy

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Zappos is moving to a holacracy whereby managers and job titles go by the wayside (see this CNET article among others). This is a real kick in the head to bureaucracy and hierarchy. How does this organizational design mesh with their strategy of customer service and innovation? Another nice example is Valve — see the Valve post on this site. These examples can seed a discussion of strategy, structure, and organizational design as well as a critical analysis of many practices taught in business schools. Such radical forms can be very hard to design and implement. One problem that Foss explores in a recent Organization Science paper is incentives, motivation, and the tendency of managers to meddle in tasks that they say they have delegated. Here is an entertaining Zappo’s commercial to ease into the topic (though one of the many Dilbert videos would be quite compatible as well).

Contributed by Russ Coff

Human Capital Dilemmas

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As a strategic asset, human capital poses critical challenges because it can often be hard to trace productivity to individuals (causal ambiguity or social complexity). This makes it hard to reward and motivate key people. Or, in this case, allows slackers to get away without working. One of my papers (Coff, 1997) addresses these management dilemmas directly.

Contributed by Russ Coff

Outliers and Competitive Advantage

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Competitive advantage is often driven by outliers. However, betting on outliers can be risky business. This video illustrates that average performers might be better over the long haul unless you are able to really identify who the outliers are (and it is not based on luck). Denrell and Fang have a nice paper on how trying to pick extreme outliers will mean that you are wrong most of the time.

Contributed by Russ Coff

Impossible Goals…

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This gets at diagnosing problems when failing to achieve goals. Which is the problem, “the impossible goal, the il-advised goal or the one you never told me about?” Nice discussion starter…

Contributed by Russ Coff

Oh No, He’ll be an Engineer!

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This short Dilbert clip identifies the emergence of “the Knack” a capability to understand, create and fix all mechanical and electronic objects. While it is silly, it also illustrates that exceptional capabilities also come with issues of fit. The firm that is able to provide a unique home for such misfits might enjoy a competitive advantage (I’m sure you can think of a few examples).

Then, there is this clip with Wally which shows what it is like when such engineers are valuable and rare – they can enjoy tremendous bargaining power…

Continue reading →

Turning Around Chrysler … Again

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This clip is an interview to Sergio Marchionne, CEO of FIAT and Chrysler, from “60 minutes.” Marchionne explains the process of transforming the struggling company into a profitable contender in the world market. This helps to introduce topics such as merger integration, alliances, strategy implementation, and turnaround strategy. There has been some buzz about Chrysler having an IPO. This adds an important stakeholder component since the main barrier to the IPO is disagreement on the purchase price for shares owned by the autoworker healthcare trust (42% of outstanding shares).

Contributed by Elisa Operti

Son of the CEO Promoted

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Here is another ONN report about the “hard work” required for the son of a CEO to secure a promotion to CEO. Silly? Of course. However, there may be a serious discussion of succession in family businesses in there somewhere (e.g., See this Schultze et al. Org Science article).

Contributed by Russ Coff

Apple’s Addiction to Samsung

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Apple is famous for being secretive about it’s proprietary knowledge. One would think that they would love to stop handing over their most strategic technical knowledge to Samsung, their biggest rival in smartphones. Nevertheless, all existing iOS core processors have been manufactured by Samsung. They just can’t stop themselves — the A7 chip continues the multi-year pattern of outsourcing production of the heart of the iPhone to their chief competitor. Rumors have been flying that Apple is going to switch to a new supplier, TSMC (Taiwan Semiconductor Manufacturing Co). That may still happen in the near future but the fact that Apple could not shake it’s dependence on Samsung quickly despite large investments in TSMC speaks to the extent of Samsung’s manufacturing advantage. This would seem to prompt a nice discussion of capabilities, rivalry, and alliances…

Contributed by Russ Coff

Capabilities: Matrix Mouse

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This mouse clearly has extraordinary capabilities. These are especially notable after it acquires the VRIN resource (cheese). Which is the critical resource, the cheese or the ability to acquire it at a discount (e.g., still being alive)?

Contributed by Russ Coff

A 5 Forces Happy Meal

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Fast food workers all over the U.S. are striking in hopes of doubling the minimum wage (from $7.25 to $15 per hour). However, a a recent AP news story states: “No group along the food chain, from the customers to the companies, wants to foot the bill for higher wages for workers.” The tactic is a classic move to change the structure of the 5 forces to grant more bargaining power to the workers. However, overwhelmingly, these workers are not unionized so the prospects of sustaining a prolonged, organized strike are quite limited. Furthermore, there are many unemployed workers who might step into their jobs if given the opportunity. All of this suggests that the structure of the industry will hinder their attempt to garner bargaining power. This seems like a good “ripped from the headlines” case to discuss with students to drive home the application of 5 forces analysis.

Contributed by Russ Coff

The Peter (not Paula) Principle

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The Peter Principle states that people will rise in an organization to their level of incompetence. A recent HBR blog by Tomas Chamorro-Premuzic explains why this might apply to men but not women. In essence, the attributes often associated with many high profile leaders (Steve Jobs, Richard Branson, etc.) are, much more frequently associated with failure than success but the failures are not as well publicized. In contrast, research suggests that women are more often linked to leadership styles that may be less flashy but are, on average more effective. However, in looking for the male archetypes, many incompetent men are promoted leaving few opportunities for effective women. This article would likely prime some rich class discussion on the topic. The following TED talk by Sheryl Sandberg will also spur discussion:

Contributed by Aya Chacar

CATME Teamwork System

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Many strategy faculty use teams in their classes. The CATME.org website has multiple tools to support the effective use of teams in higher education. Team-Maker is a tool for assigning students to teams based on instructor-specified criteria. Instructors can choose from a library of questions, such as students’ schedules or majors, or write their own questions. Team-Maker collects the information from students and allows the instructor to assign use that information to assign students to teams based on the criteria and weighting that they choose. CATME Peer Evaluation is a tool for self- and peer evaluations of students’ contributions to their teams that is based on research. The system automates the data collection and analysis and allows instructors to release feedback to students. There are many optional follow-up questions about team processes that are taken from published research. CATME Rater Calibration allows instructors to assign students to practice using the CATME behaviorally anchored rating scale by rating fictitious team members. CATME Meeting Support provides templates for team charters, meeting agendas and minutes. Teamwork training modules are in development. The website shows research and other information about these tools.

Contributed by Misty Loughry

Apple’s Rotten Core Competency?

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Apple’s board is growing impatient and is calling for increased innovation as they try to put the loss of Steve Jobs behind them. At the same time, projections indicate that their anticipated product changes will be incremental at best. A recent article coins the term “frosted glass effect” to describe the incremental innovations that signal a fast moving challenger will soon leapfrog over a stodgy slow moving incumbent (like Apple). Not to be left out, the Onion has entered the fray as well. In short, stakeholders are wondering how critical Jobs was to Apple’s “organizational” capabilities — Has the core competence really rotted away? Some discussions of dynamic capabilities place great emphasis on organizational routines as the key elements that drive the ability to acquire, integrate, recombine and release resources and capabilities (e.g., see Winter). The importance of Jobs, in this case, shifts our attention to key individuals who may be essential components in harnessing and directing routines. Without a rudder, the routines may lose much of their value. Of course, this steers us solidly into a micro-foundations perspective (e.g., see Barney and Felin or Foss)…

Contributed by Russ Coff

Teens Enriching Uranium (ONN)

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The Onion offers another entertaining report about teens enriching and selling uranium. While the discussion of “Toping” is a bit silly, the question about stemming the diffusion of some innovations is central to technology strategy. More seriously, why don’t we see wider diffusion of this 75 year old technology?

Contributed by Russ Coff

Free Org Change Videos

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Education Portal has put together a series of videos on Organizational Change that seem like a nice addition especially for online or part time courses. Education Portal Academy offers these videos for free. The content is fairly basic but some of it might be very useful to augment other course materials. This could help you cover these topics outside of class if you want to do an experiential exercise in class (see, for example, the org change ruse on this site) or if you want to give students some additional background resources.

Contributed by Russ Coff

 

 

Team Capability Inventory

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You can take internal analysis down to the team level with a quick introductory exercise. The object is to find some commoFantastic4n capabilities across the team (beyond the obvious) and to find some unique capabilities that each person brings to the table. Then the team must describe how some of the unique capabilities could be leveraged in a team project.

  1. Objective: Find Capabilities. Uncover 3 abilities all members of this small group have in common (other than the obvious things such as you have taken the same classes). For example, all may have strong spreadsheet skills or all are good at interviewing. Then identify 1 capability that is unique to each person in the group. For example, only one is an accomplished musician or has contacts in the insurance industry. Continue reading →

M&A: Resistance is Futile

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The Star Trek reference to the Borg may be lost on most of today’s students. However, their method of absorbing all life forms with which they come in contact is similar to how some firms integrate targets. I recently taught the GSK/Sirtris case in which there is a debate on how much to integrate a target that has a culture of innovation. Ultimately, Sirtris was fully integrated and the original research capabilities were lost. The final decision to shutter Sirtris came just as one of the original co-founders published promising new findings.

Contributed by Russ Coff