Friday, July 22, 2016

Amphibious Coffee Maker: How Alessi Became Profitably Artistic

I don’t want to get too personal, but I am tempted to suggest that you own some product or products made by Alessi – products that make you feel vaguely artistic and unique even though they are mass produced and sold to millions of people. If you are familiar with the history of Alessi, you may know that these products are radically different from their original collection of serving tools for the food and hospitality industry, a classical low-margin high-volume good with professional buyers. From the design of the Alessi good you own – and the price – you have probably guessed that it is a high-margin good. And you are not a professional buyer of household goods.

How did Alessi make this change in product focus? This is the topic of an article in Administrative Science Quarterly by Elena Dalpiaz, Violina Rindova, and Davide Ravasi. They show that, interestingly, this move into a much more profitable and “cushy” market segment was controversial and complex. Professional serving tools are designed differently, made differently, and marketed differently than the artistic goods that Alessi now focuses on, so this was a change in philosophy and in skills.

Their article explains how this was done, and how other firms can learn from the transition, giving a full picture of how a complex change process was done. I will just tell you one element: the role of the amphibious coffee maker. What makes a coffee maker amphibious? It can live in two environments, moving smoothly from kitchen, where it functions well, to living room, where it looks good. Amphibious products, both concept and actual product, were used internally in Alessi to explain the strategic change. They were used externally to guide customers along the path from a set of truly artistic (but less useful) products that were sold in small numbers in the transitional period to the mass-produced and more useful (but still pricey) products that Alessi wanted to sell.

This is a very important insight. Amphibious products created a bridge in the customers’ mind between the artistic and the useful. With this bridge in place, the customer was willing to adjust the price range paid for a coffee maker, or an egg stand, or a wine bottle opener.

Amphibious products also created a bridge in the organization between its origin as a maker of mass-produced serving tools to its destination as a maker of artistic household goods. Alessi’s products were now amphibious; Alessi was now amphibious.  Truly an interesting success story.

Friday, July 15, 2016

Will it be a Success? Evaluating Creative Ideas in Firms

You probably know someone who owns an Apple Watch, or maybe you own one yourself. Is it a creative idea? Well, the multi-function watch was creative the first time it appeared in Science Fiction writing, but that was long time ago. Technologically a watch with the Apple Watch functionality has been possible for a while too, but firms have waited because they were unsure if it could become a success. If fewer and fewer people wear watches, because smartphones do the same job and much more, why make a watch? In fact, the potential for success of Apple Watch was in dispute as soon as it was launched, and it is still not settled. This is an issue that surfaces again and again – firms need to estimate the potential success of ideas, both creative ones and more conventional ones.

In a forthcoming paper in Administrative Science Quarterly, Justin Berg looks at that question through a new lens: who makes the best estimate? Is it managers (who make the decision), creators (who come with ideas), or people generally (who could be customers)? The question is important because it reflects an ongoing tension in firms. Creatives think that managers don’t have the right kind of thinking to appreciate their work, and managers think that creatives are poor decision makers, especially when evaluating their own work. Theoretically the key difference is between the divergent thinking that underlies creativity, and the convergent thinking that underlies analysis and decision making. 

What kind of thinking fits what kind of task is a good topic for discussion over drinks, but we won’t know the answer without studying it, as Berg did. To make sure the creative content was easy to evaluate, he used proposed circus acts, and drew creators and managers from the industry (yes, of course there is a circus industry).  The answers are easy to summarize, and important too.

The creators are right: They are much better at assessing creative success than managers are. In fact, managers could be the worst, with laypeople doing better in one measure of assessment accuracy.

The managers are right too: Creators are bad at assessing the success of their own work (you get no points for guessing that they over-estimate it). Even more interesting, a creator with a strong past success is especially bad at assessing, probably because of overconfidence. This gives a good rule of thumb for those who will become managers at some point: If a creator says, “I know product idea this will success/fail because [insert own success story here]”, you know exactly who to ignore. But the other rule of thumb is to ignore yourself. Have the creators assess each other’s ideas, or you can’t do that, use laypeople.

Friday, July 8, 2016

Fancy Stuff: How to Make People Really Like a Type of Product They Used to Despise

Let me start this post with a confession. I like whisky and think the different types taste very different from each other, I also like cognac but can’t tell them apart well, and different types of grappa I can tell apart but don’t really have an opinion on which ones are better. OK, so now you know my bias, which is important for what follows, and many of you have probably made an assessment of how (un)cultured I am.

But here is something to think about first: why did I mention grappa along with the other two alcohols? A few years ago, that would have been pretty insulting to whisky and cognac, but now it is natural at least among some people. And that is a big change with some importance outside drinking too, for example for management. In a paper forthcoming in Administrative Science Quarterly, Giuseppe Delmestri and RoystonGreenwood write about the Cinderella-to-Queen transformation of grappa, and what it means for our understanding of categories in general, and specifically organizations in markets.

Their paper is great in its description of how a dilemma for grappa producers, and their solution to it, solves a puzzle for researchers: why do different product types have different status rankings, and how much does that change over time? Grappa was cheap booze for the underclass. That was not ideal for grappa makers, who very much would have liked higher prices. But as long as rich people everywhere – in Italy too – though that grappa was no good, preferring other alcohols instead, that was not going to happen.

Some grappa producers were able to find a path to higher status. It involved failed attempts and even a bankruptcy, and exactly that combination of failure and eventual success let Delmestri and Greenwood work out the process. The paper has much more detail than I can give here, but the short story is that a rise in status involves distancing from the low-status past and present (detachment), copying of related high-status products (emulation), and connections to the broader society (sublimation). All needed to be done, and the “raw materials” for all needed to be present. The story of grappa’s rice to high status is interesting because it shows exactly how customers can change their minds when all the right levers are pulled. It took bottles designed to resemble perfume flagons, single-grape distilling and regional labeling, and linking to Milanese high fashion to make grappa fashionable and prestigious, but it could be done.

I think the story is also interesting because it suggests a condition that needs to be present for it to work. Grappa became high status after a long campaign. Can any regional or local product accomplish the same? Before you say yes, consider this: Italy is a pretty cool place, so grappa had a good starting point.

Sunday, July 3, 2016

A Whiter Lamar and Lei: Resume “Whitening” Happens and Gives Success

Presumptive GOP presidential nominee Donald Trump labeled President Obama “Kenyan” and claimed he was born outside the US, and has also tweeted a picture of presumptive Democratic presidential nominee Hillary Clinton with the text “Corrupt” and a red (not yellow) David’s star. What does that have to do with the title of this blog? Well, people’s perceptions are colored by associations, and many have negative views of Africans (and African Americans) and Jews. And Asians (and Asian Americans).

So how to get a job if you belong to any group that is subject to discrimination? Discrimination is well known, and both individual students and university career service employees know the answer. A resume can be “whitened” by removing signs such as a distinctive African American or Asian name, and by removing work experience or volunteering naming (or even entire activities) that gives out racial signs. I know people who have done it. It is disturbing both to them and to their friends, not least because any kind of resume tampering has ethical implications, and the idea that one can improve the odds of getting a job by removing mention of volunteer work is so obviously wrong, even if it is correct.

In a paper forthcoming in Administrative Science Quarterly, Kang, DeCelles, Tilcsik, and Jun examine both how and why people whiten resumes, and the effects it has. Let me start with the most shocking finding. Not only does whitening work, by giving higher likelihood of a callback (we knew this from prior research), but it works equally well for firms that signal a commitment to diversity. So, firms that say they value diversity are not truthful. But, students believe them, so they will engage in less whitening of their resumes when the employer has job listings that signal that they value a diverse workforce. Ironically, this turns statements on the value of diversity in job listings into a trap for job seekers, who will not whiten their resumes and suffer discrimination.

The study also provides insight into the thinking behind whitening through a series of in-depth interviews on how it was done, and why students would or would not whiten resumes. First, it was clear that whitening meant breaking a barrier: students believe in meritocracy, and value their own identity and experience. Doing it is as unpleasant as it sounds. But still, many (not all) students knew the risk of not getting callbacks if their resumes were not white enough, and chose to do it. The techniques used were largely truthful: A “white” hobby could be added, and “Black” or any Asian markers could be removed from voluntary organization names. More radically, an Asian student could replace the given name with a chosen whitened one, or use both, and an African American student could pick the least black-sounding name even if it was a middle name not normally used.

The findings are remarkable and discouraging because they are from the USA, which is one of the most diverse and meritocratic job markets in the world. One might hope that time will work against the discrimination that gives a need to whiten, but then again, political and social signals are currently not encouraging.

Saturday, March 26, 2016

What kind of company is DoorDash? A question of identity

Wall Street Journal reported that the venture DoorDash, which is backed by the prestigious venture capital firm Sequoia Capital, recently raised an additional $127 million in capital. We are used to seeing high numbers for Silicon Valley firms (DoorDash is from Stanford), so this is not so surprising in itself. But, the story has some interesting details.
What interested Wall Street Journal is that this was a so-called “down” round in financing. A down round means that the company is valuated below the earlier round, so the earlier financiers are taking a loss (again, Sequoia). Finally, $40 million of the new capital came from – you have guessed it by now – Sequoia. This looks a bit like a problem.
So what exactly is DoorDash? It describes itself as a “software-enabled logistics company”, but more concretely, you would normally use it to order food deliveries from various restaurants that don’t operate their own delivery service. Given the value, it obviously delivers a lot of food, so far 22 urban areas.
Beyond the fact that so many million dollars seems a lot for delivering food, what exactly is the problem? The practical problems are that it is not profitable (yet, as they always say) and that it has problems retaining employees. But perhaps a more serious problem is in understanding what kind of company it is. Delivering food to someone is clearly logistics, but there is a catch: the deliveries are actually done by contractors, not DoorDash itself. So the logistics company is really a contracting company.
A contracting company can actually be a good thing -- Uber is very valuable and is also a contracting company, not a taxi company. In fact, one may wonder why DoorDash don’t just describe themselves as an online delivery network, like Uber calls itself an online transportation network. As a first cut, that seems like a good metaphor, although it immediately brings to mind an important difference between the two. Cars move around, and Uber gets a big advantage from knowing exactly where they are. Most restaurants stay put.
This gets to the core of the DoorDash dilemma. Companies form identities, which in turn influence how customers think of them and what other companies they compare them with. It also influences how other companies get founded and choose to compete with them. DoorDash can’t have an Uber identity because Uber’s greatest strength is their weakness. But the inside looks pretty Uber-like, so having another identity of logistics is also a thin story. Finding a good identity will be important for them because it will affect their value now and later.
Identities and their consequences is something that researchers have worked on for a long time. For a good sample of research on how identities are formed and what they do, I would suggest looking at research by Navis and Glynn on the emergence of new market categories, published in Administrative Science Quarterly. Many of the practical problems of forming identities and living with the consequences are nicely developed there.

Monday, August 31, 2015

Who does the iPhone compete with? Apple’s latest alliances suggest new competitors

We have just received the news that Apple and Cisco have become partners, with the goal of better integrating iPhones with corporate networks in general, and specifically with Cisco products for visual conferences over videolink or web services. This is short time after Apple became partners with IBM to create apps (software) for the workplace. While the IBM partnership is mostly oriented toward the large corporations that IBM serves, Apple also has many partnerships in which it either helps develop apps or helps app-developing firms connect their offerings to give greater functionality for small businesses.

Clearly, Apple is interested in becoming more of a company that serves businesses, in addition to its current strength in serving consumers. The opportunity for Cisco, IBM, and other partner firms is that so many employees own iPhones, often as a result of their own choice rather than a company purchasing policy. Integrating the iPhones deeper into what the company does can be an opportunity for simple tasks like meetings over a distance, and for more complex processes like scheduling, staffing, and sales. From the viewpoint of firms that provide these services now, the iPhone looks like a Trojan horse – something that got into the business because it looked nice and harmless, but is now ready to become a potent competitor.

So who does the iPhone compete with? The interesting feature of these competitive moves is that an iPhone (in fact, any smartphone) can be programmed and networked in so many ways that it is very unclear where the limits are. Both established Apple partners and new firms can apply their creativity to the task of seeing what business activities can be improved by integrating iPhones. Already we know that any video-conference service other than Cisco should be worried because the link between Apple and Cisco link takes advantage of the complementary business presence and software/hardware of Cisco and personal presence and software/hardware of Apple. But that is just a starting point. The next steps can happen very quickly, because starting new app-based businesses these days can be done within a few weeks.

Network Advantage in competition among firms comes from placing the firm in a position where it can benefit from its network of partner firms. It is not surprising that Apple is working hard to get network advantage, because their business is based on products that connect to networks and let their owners get personal network advantages.

More to read:
Clark, Don and Daisuke Wakabayashi. 2015. Apple, Cisco Unveil Business Partnership. Wall Street Journal, Aug. 31 2015.

Thursday, July 23, 2015

Will Greeks invest? How Domestic Strife Influences Investment Decisions

Much has been written about the aftermath of the Greek crisis, but a key point raised in a recent Wall Street Journal article is the significant distrust of politicians and divides among people following the contentious politics around the referendum on the bail-out package that was offered Greece from the EU (but actually withdrawn before the vote date). Greeks on the left and far right don't trust EU, and many would like to leave the Euro. Greeks along the political spectrum believe their politicians cannot be trusted to govern competently.

Distrust and divisions matter because the Greek recovery will largely be determined by how much Greeks believe in their country. Currently, others do not. Even worse, many of the wealthiest Greeks have moved their money abroad and may well decide to keep them there until they see how the economy is doing. But an economic recovery requires someone to invest in business. Will the citizens of a nation with distrust and divisions invest?

A useful comparison for Greece might be Kenya, for two reasons. First, Greece is now a developing economy, and Kenya has been one for a while. Second, while the distrust and divisions in Greece are recent, Kenya has long been divided ethnically and politically, and distrust of the state runs deep. In recent research published in Administrative Science Quarterly, Chris Yenkey examined the spread of stock market investment in Kenya. Stock market investments are now wide-spread after the exchange in Nairobi opened, and it is spread nationwide but with some areas seeing more investment than others.

What drives investment under these conditions? Success. The strongest driver of investment by a Kenyan is how much profit others have had from their investments. That is not surprising, but there are many other results that are very interesting, and informative for Greece. First, divisions have strong effects. The investment results of others matter much more if they belong to the same ethnic group. People pay more attention to similar others, even if they are looking at objectively the same thing – stock market gains. Second, distrust matters. People living in towns with political leadership from a rival ethnic group paid less attention to the profits of those from different ethnic groups.

Equally important, the divisions can be bridged. In Kenya, people who lived in neighborhoods or worshiped in religions with a mix of ethnicity paid more attention to those who were different from themselves. People who saw much national (rather than ethnic-political) advertising were less likely to see only the gains of same-ethnicity others. Division and distrust are in the minds of people, and differences can be thought of as harmful division or helpful diversity.

The result is some old fashioned advice for Greece. Do whatever is necessary to bring the people together. Do whatever is needed to help them think of the nation rather than its politicians. The new part is that these actions are not just for reducing conflict and increasing confidence in life. They also help investment, and can be important for improving the economy.

Fidler, Stephen. 2015. Greeks, Economists Part Ways on Benefits of Eurozone. Wall Street Journal, 23/7/2015.