Larry Bloom: How ‘mind fields’ can impact business decisions

Larry J. Bloom, Columnist

Larry J. Bloom, Columnist

According to experts, 85 to 95 percent of new products launched each year are failures. But since companies regularly consider industry data, market intelligence and relevant expertise as part of the decision-making process, these high failure rates are not likely due to a lack of information.

Rather, they are due to defects in our internal mental processes — flaws in the way we gather and process information that often go unnoticed and unaddressed. Here are three that can unknowingly create a virtual “mind field” of risk for business decisions such as new product launches.

1. Influence of the boss: Determining the level of sufficiency based on the source

In business, there are specific results that our boss or other stakeholders desire, and we attach strong feelings to achieving them. For example, if our boss has a significant attachment to launching a new product, we may spend disproportionately more time seeking information that validates the boss’s view than searching for information that conflicts with the boss’s desire.

As a result, we unconsciously go about gathering information under the boss’s influence and create an environment for faulty decisions. We end up living with the unrealistic but confident sense that we have figured out the way things are and that we have done that objectively. And if decisions do not go well, we find comfort that we can always blame our boss later.

2. Snap-judgment defense: The tendency to unreasonably defend decisions made solely on snap judgments

Due to the hard-wired threat response in our brain, we make rapid judgments about what is happening, which allows us to quickly determine what information is most relevant and then take speedy action. This is helpful when the threat is physical and we must act without delay.

But in business, we often find it easy to lose track of how quickly we are judging a situation or how much we’ve explained away.

Since we associate leadership with decisiveness, being decisive becomes a self-driven attribute causing us to focus solely on explaining and defending our snap judgment. Our logic circuits shut down and we are unable to objectively consider points of view that conflict with our own.

3. Shooting the critics: The tendency to marginalize people who disagree with us

Leaders know that any decision they make is subject to their judgment being questioned. And whether they’re fully aware of it or not, they’re really not in the market to have their decisions, beliefs and choices questioned.

Whether we are team leaders or CEOs, we subconsciously develop the tendency to marginalize people who disagree with us. When this happens, people stop telling the truth. They avoid rocking the boat and just quietly stay out of the line of fire.

The solution to this problem requires the courage to challenge our own thoughts. When these flaws in thinking are deeply entrenched, companies are at significant risk of being displaced by competitors, new technology and novel business models. By pausing to look for these cognitive defects, leaders can make better decisions, avoid problems, reduce risk, improve outcomes and never have to lament, “What was I thinking when I made that decision?”

Larry J. Bloom spent 30-plus years helping grow a small family business to more than $700 million in revenue. He is a consultant, the author of “The Cure for Corporate Stupidity: Avoid the Mind-Bugs that Cause Smart People to Make Bad Decisions,” and the owner of a start-up media and software company that promotes better thinking. For more information, visit www.curecorporatestupidity.com.

Don’t confuse doing the right thing with knowing the right thing to do

Michael Feuer

Companies typically want to do what’s right for those they serve. Key priorities should be customers, investors, employees and the communities in which the company is located — but not necessarily always in this order. The dilemma, however, is that many times short-term decisions can prove to be long-term problems that cause more pain than the initial gain.

It’s difficult to make all constituents happy every time. As a result, management must prioritize decisions with a clear understanding that each action has ramifications, which could manifest themselves in the short, intermediate or long term. Seldom does a single decision serve all of the same timelines. There are no easy answers and anyone who has spent even a short amount of time running a business has already learned this fact of life. So what’s a leader to do?

It’s a sure bet that investors want a better return, employees want more money and benefits, and customers want better quality products, higher levels of service and, oh yes, lower prices. This simply all goes with the territory and is a part of the game. The problem can be that, most times, it’s hard to give without taking something away from someone else. Here are a couple of examples.

Take the case of deciding to improve employee compensation packages. Ask the auto companies what happened when they added a multitude of perks over the years, as demanded by the unions? The auto titans thought they didn’t have much choice, lest they run the risk of alienating their gigantic workforces. History has shown us the ramifications of their actions as the majority of these manufacturers came close to going belly up, which would have resulted in huge job losses and an economic tsunami.

Basic math caused the problems. The prices charged for cars could not cover all of the legacy costs that accrued over the years, much like barnacles building up on the bottom of a ship to the point where the ship could sink from the weight. Hindsight is 20/20, and, of course, the auto companies should have been more circumspect about creating benefit packages that could not be sustained. Yes, the employees received an increase to their standard of living for a time anyway, but at the end of the day, a company cannot spend more than it takes in and stay in business for long.

Investors in public companies can present a different set of problems because they can have divergent objectives. There are the buy-and-hold investors, albeit a shrinking breed, who understand that for a company to have long-term success, it must invest in the present to build for the future. The term “immediate gratification” is not in their lexicon; they’re in it for the long haul. Another type of investor might know or care little about a company’s future, other than whether its earnings per share beat Wall Street estimates. These investors buy low and sell high, sometimes flipping the stock in hours or days. And, actually, both types are doing what’s right for them. The issue becomes how to serve the needs and goals of both groups. When a company effectively articulates its strategy, it tends to attract the right type of investors who are buying in for the right reason. This will avoid enticing the wrong investors who turn hostile because they want something that the company won’t deliver.

When interviewing and before hiring employees, it is imperative that candidates know where the company wants to go and how it plans to get there. Many times, this means telling the prospective newbie that the short-term compensation and benefits may not be as good as the competitors’ down the street, but in the longer term, the company anticipates being able to significantly enhance employee packages, with the objective of eventually outmatching the best payers because of the investments in equipment being made today.

The key to satisfying employees (present and prospective), investors, et al, is communicating the types of decisions a company will make over a specific period of time. Communication from the get-go is integral to the rules of engagement and can alleviate huge problems that can otherwise lead to dissatisfaction.

Knowing what is right for your company, based on your stated plan that has been well-communicated, will help ensure that you do the right thing, at the right time, for the right reasons.

Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at [email protected]

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Green Mountain appoints product-savvy Coke executive as CEO

WATERBURY, Vt., Tue Nov 20, 2012 – Green Mountain Coffee Roasters Inc. named Coca-Cola Co. executive Brian Kelley as CEO, betting on a product specialist to see it through intensifying competition that has eroded its share of the single-cup coffee market.

Kelley replaces Lawrence Blanford, who over five years grew Green Mountain from a little-known Vermont-based coffee maker to one of the fastest-growing U.S. companies, but whose reputation has been diminished recently by sales misses and questions about the company’s business model and accounting practices.

Green Mountain’s market value has increased five-fold since Blanford, 58, took over from founder Robert Stiller in 2007, but the stock is down more than 40 percent this year.

The company’s shares rose as much as 11 percent to $30.23 in trading on the Nasdaq on Tuesday.

Kelley, 51, brings a wealth of experience to Green Mountain, especially in areas where the company has had problems, such as product and supply chain management, analysts said.

“We view the announcement favorably as Kelley’s operations experience at Coke is an area of considerable weakness at Green Mountain,” Stifel Nicolaus analyst Mark Astrachan said in a note.

Green Mountain’s growth prospects have moderated since some of the company’s patents related to the design of its K-Cup refills used in its Keurig brewer expired in September, paving the way for a wave of new competition from the likes of Starbucks Inc. and Wal-Mart Inc.

The company, which short-seller David Einhorn last year accused of inflating sales figures, is also the target of a Securities and Exchange Commission inquiry into accounting and revenue-recognition

Intel CEO Paul Ottelini to step down in May

SANTA CLARA, Calif. Mon Nov 19, 2012 – Intel Corp. said on Monday that CEO Paul Ottelini would retire in May, stepping down from the world’s leading chipmaker at time when it is grappling with weak PC demand as the industry shifts towards mobile computing.

Intel’s board said it would consider internal and external candidates for the CEO position. It said in a statement that it expected the “leadership transition” to last six months.

The company said it would promote three executives to be executive vice presidents. They are Renee James, who is in charge of Intel software; Brian Krzanich, who is COO and also oversees manufacturing; and Stacy Smith, the CFO and director of corporate strategy.

Ottelini, 62, was the fifth CEO of the company, stepping into the post in the second quarter of 2005.

Intel was accustomed to being king of the personal computer market, particularly through its historic “Wintel” alliance with Microsoft Corp, which led to breathtakingly high profit margins and an 80 percent market share.

But in the fast-growing and cut-throat mobile world, Intel is struggling. Its market share is less than 1 percent of smartphones, trailing Qualcomm Inc,. Samsung Electronics Co. Ltd., ARM Holdings Plc and others.

That leads some investors, who are already concerned about a lackluster global economy, to ask if Intel’s invincibility has come to an end and whether the company’s potential for profit and revenue growth may come back down to earth.

Shares of Intel were halted early on Monday.

How Dwight Smith engineered a company turnaround as well as an ESOP — through faith

Dwight Smith, CEO of Sophisticated Systems Inc.

Dwight Smith is not ashamed or embarrassed that his Christian views drive his behavior in his business, Sophisticated Systems Inc., a supplier of information and technology solutions.

“This business is part of my testimony,” the CEO says. “So the blessings that the Lord gives me, if I live according to His will, will come to me and through me to others. I really believe in it.

“I am a very committed person. What that means is I pray about the business plan. I pray over the business every day.”

When Smith puts his life and work in God’s hands, he knows God then uses him.

“I believe in servant leadership,” Smith says. “And I think that when things go poorly, the leader should be front and center. When things go really well, the leader should be invisible.”

A serious business situation taught him that lesson. Smith’s company was about 10 years old, doing well and business was good. Then the red ink appeared, and he had to do some soul searching to find a solution.

“We had a terrible year; we lost almost $700,000,” he says. “When you are losing money that fast, that means you are borrowing money to keep afloat. So just imagine after being in business 10 years, waking up and you are $2 million in debt. And you just had a $700,000 loss.

“I remember getting on my knees and praying, ‘Lord, I’ve messed up your business. I have messed up my business. Will you take it and fix it?’”

Then he waited. He didn’t tell the people in the company the business was losing money until later. Smith didn’t want to panic them and felt confident that with some divine help, he could get out of the situation. With patience and some careful management, things started to look brighter.

“A year or so went by, and we turned it around, and we were making money again,” Smith says.

At that point, he called for a company meeting and made a confession.

“I said to the people, ‘A year or so ago, we almost lost everything,’ and I was looking at the audience, and they were horrified,” Smith says. “So I said to them, ‘How many people in this room tonight would’ve wanted to know that your company was struggling, that we were in bad shape?’ Every single hand in the room went up — and I didn’t know what to say.”

Smith explained that his experience working for IBM had taught him to share information only on a need-to-know basis.

“I just didn’t think the people needed to know,” he says. “I said, ‘The other thing is, I consider this to be a family, a big old family. So I’m the parent and you’re the child, and I’m protecting the children from bad things. I apologize. If we ever go through this again, I will be more open.’”

The following year, the company paid off the $2.1 million in debt and had a $300,000 profit. It didn’t borrow again after that for seven years.

When he heard the support from the employees at the company meeting, it got the ball rolling for another positive change in Sophisticated Systems.

“I can’t believe how many people have believed in this business, who have supported me through thick and thin, who would’ve always been there,” he says. “It is said, ‘For whom much is given, much is required,’ and that is because so many people have given to me, and I’ve asked for absolutely nothing in return.”

Smith, grateful for the support (some employees even offered to take a pay cut to keep the doors open), decided the company should pursue an employee stock ownership plan.

“I think that was the best decision I ever made — sharing the ownership with people whom I care about and whom care about their business, our business,” he says. “Why would the people who work here, who create the wealth and the value — why shouldn’t they be owners? They behave like owners. We ought to do that.”

Employees now own 40 percent of the company, and Smith owns the rest.

Smith is committed to causes outside his company as well. He and his wife, Reneé, founded the Thanks Be to God Foundation to support entrepreneurship and children across the globe. Last year, Smith went to Africa to climb Mount Kilimanjaro to raise funds. He made it to the summit in 10 days.

“We were hoping to raise $15,000,” he says. “The community came forward, and we raised $60,000 for the climb. All the stuff that I do, I kind of feel like Forrest Gump, where Forrest just ends up in all places at all times. That just made life so enjoyable, so overwhelming. It was such a humbling experience.”

A few of the organizations that have received support through the foundation include Big Brothers/Big Sisters, The Fellowship of Christian Athletes, Campus Crusade for Christ, The TBTG Scholarship fund and others. 

 

How to reach: Sophisticated Systems Inc., (614) 418-4600 or www.ssicom.com

 

RadioShack CEO steps down as company tries to hasten revival

FORT WORTH, Texas, Wed Sep 26, 2012 – U.S. consumer electronics chain RadioShack Corp. said CEO James Gooch will step down effective immediately, as the company seeks to revive its flagging fortunes.

“The board decided that the timing was right,” said company spokesman Eric Bruner.

“Moving forward with the decision sooner rather than later will help establish the right leadership to address the company’s challenges,” Bruner said.

The change comes at a time when RadioShack is struggling with low margins and vacancies in key executive positions.

The company, whose shares were up 2 percent in pre-market trading, reported an unexpected loss for the second quarter and suspended its dividend to help pay down debt.

RadioShack, once famous as a source of parts and tools for radio and electronics enthusiasts, has been increasingly focusing on selling low-margin phone calling plans and smartphones, particularly the Apple Inc. iPhone.

The company, which has a market value of about $255 million, was bumped off the S&P MidCap 400 index this week as its market capitalization was too small for it to be included in the S&P 1500. The shares have lost nearly three quarters of their value this year.

RadioShack said its board was conducting a search for a successor and would not rule out internal candidates. CFO Dorvin Lively will be the acting CEO.

Gooch, 44, joined RadioShack as CFO in 2006 and became CEO in May 2011.

RadioShack’s stock was up 2 percent at $2.61 in premarket trading.

Stec CEO resigns on insider trading charges

SANTA ANA, Calif ., Tue Sep 18, 2012 – Solid-state drive maker Stec Inc. said its founder and chief executive of 22 years, Manouch Moshayedi, resigned due to a civil complaint filed against him by the U.S. Securities and Exchange Commission in July.

Mark Moshayedi, the outgoing CEO’s brother and the company’s COO, will take over as interim CEO, the company said in a regulatory filing.

The U.S. regulator said in July that it had filed a civil complaint against Stec’s 53-year-old CEO for insider trading after he sold a significant portion of his holdings and shares owned by his brother.

The company had disclosed in 2009 that the SEC was conducting a formal investigation involving trading in the company’s securities.

Manouch Moshayedi will continue to be on the company’s board, Stec said.

Manouch and Mark Moshayedi founded Stec in 1990 and owned about 17 percent of the company’s outstanding common stock as of Dec. 31, 2011, according to the company’s annual report.

The Santa Ana, California-based company’s auditor PricewaterhouseCoopers LLP resigned on Sept.12. Analysts said the breakup could be a fallout of the insider trading charges.

Stec, once a leader in the flash drive storage industry, has seen its sales plunge over the last couple of years as larger players in the hard drive market such as Western Digital Corp. and Seagate Plc have eaten into its share.

Best Buy’s new CEO wants to learn from the front line

NEW YORK, Tue Sep 4, 2012 – Best Buy’s new chief executive, Hubert Joly, will spend much of his first week on the job wearing a blue shirt and working the floor as a salesman at the chain’s stores in Minnesota as the restructuring expert tackles criticism that he lacks retail experience.

Just like any other new employee, Joly will be trained to serve customers, stock items, accept returns and go on calls with Geek Squad agents.

“The last time I worked in a store was in 1975,” Joly, 53, said in an interview with Reuters on Monday, one day before officially taking charge as CEO of the world’s largest consumer electronics chain.

“I want to not learn our businesses from the headquarters,” Joly said, “I want to learn from the front line.”

That’s not to say that he does not already have some plans for Best Buy, which is facing cut-throat competition from the likes of Wal-Mart Stores Inc. and Amazon.com, as well as a takeover attempt by founder Richard Schulze.

He said he plans to cut non-salary expenses and woo holiday shoppers with a three-pronged strategy of offering competitive prices, stocking the right amount of hot products and improving customer service. Joly declined to be more specific.

Best Buy could use some improvement in those areas. Last year, it struggled to keep up with online demand and failed to fulfill less than 1 percent of its customers’ online orders during the Thanksgiving holiday weekend and the following week.

In 2010, it made a bad bet on pricier 3-D televisions that customers did not embrace.

“There are a few areas where we will strive to do better,” Joly said. “We will not take anything for granted.”

Going forward, Joly also plans to take advantage of Best Buy’s clout with key suppliers by reaching out to them to develop “deeper strategic partnerships.”

“There are different ways to skin a cat in terms of a partnership. It can be exclusive (products), it can be unique shopping experiences, it can be deals, you know, a whole variety of things,” Joly said, without giving more details.

WellPoint CEO Braly steps down, Cannon named interim CEO

INDIANAPOLIS, Wed Aug 29, 2012 – WellPoint Inc. CEO Angela Braly abruptly stepped down from her post on Tuesday following growing investor dissatisfaction with the health insurer’s financial performance.

WellPoint, the No. 2 U.S. health insurer, said it will look at both internal and external candidates for a replacement. Shares in the company rose more than 4 percent in after-hours trading.

John Cannon, the company’s executive vice president, general counsel, corporate secretary and chief public affairs officer, will serve as interim president and CEO, WellPoint said. Lead director Jackie Ward was named non-executive chair.

“We thought the board would provide Ms. Braly with some more time to right this ship but view the executive change as a step in the right direction,” BMO Capital Markets analyst Dave Shove said in a note to clients.

WellPoint still has an uphill battle ahead, with fierce competition among health plans in states like California and Virginia that may not be resolved by year’s end, Shove said.

“Regardless of who is at the helm, we need to see a quarter of clean operations before we get constructive,” he said. “We believe a change at the top is positive, but new leadership will not grow earnings on its own.”

As CEO since 2007, Braly has shepherded WellPoint as the U.S. healthcare system faces one of the biggest transitions in its history, including a new law that will extend coverage to more than 30 million uninsured Americans and the expansion of private management of government-run health plans Medicare and Medicaid.

More recently, Braly helped orchestrate the company’s planned purchase of Amerigroup Corp. for $4.46 billion, a deal that will nearly double its Medicaid business, managing the U.S. government’s health plan for the poor.

But the company has also made missteps in its expansion, including a proposed rate increase in California that made headlines in early 2010 at the height of a Congressional fight over the healthcare overhaul. Surprising losses from its Medicare plans in northern California weighed on financial results last year.

In its most recent quarterly report, the company cut its full-year profit forecast, saying it was trying to maintain its pricing levels even with greater competitive pressure from rival health plans. Since then, it has been meeting with investors to lay out its strategy for improving performance and the board recently issued a statement in support of the direction taken by management.

“Our Board continues to believe that time will prove the wisdom of potentially transformative actions taken under Angela’s leadership,” Ward said in a statement. “But now is the right time for a leadership change.”

Cannon will help oversee the integration of Amerigroup, whose shareholders have sued over accusations that its advisers at Goldman Sachs Group Inc. had a “hopelessly conflicted” role in the company’s sale. Goldman, according to the lawsuit, pushed Amerigroup toward a quick deal with WellPoint over a more lucrative merger with another unnamed company.

Navistar CEO retires; ex-Textron exec is interim CEO

LISLE, Ill. Mon Aug 27, 2012 – Navistar International Corp. CEO Daniel Ustian is retiring, and former Textron Inc. executive Lewis Campbell will replace him immediately as interim CEO, the truck and engine maker said on Monday.

The company, which is struggling to win U.S. regulatory approval for a new generation of diesel engines, also named Troy Clarke as president and chief operating officer. Clarke is currently Navistar’s president of truck and engine operations.

Shares of Navistar, which had shed nearly half of their value in the last six months, rose 3.6 percent to $23.81 in morning New York Stock Exchange trading.

“Lewis Campbell is a high-caliber executive who brings to Navistar deep and broad strategic, technical and operational skills and a proven track record of leadership with global industrial companies,” said Michael Hammes, Navistar’s independent lead director.

Campbell, 66, was Textron’s CEO from 1998 to 2009. He previously spent 24 years at General Motors Co. in various executive roles.

For much of the past year, Navistar has been trying to win approval from the U.S. Environmental Protection Agency for a new diesel engine technology that would lower emissions of nitrogen oxide, a pollutant linked to asthma, without using urea.