“The Sound of Competing” Episode 2: Harmony Versus Confrontation

Facing reality is more important than being nice.

Aversion to confrontation is embedded in many national and corporate cultures. Unfortunately, that niceness feature can turn into a nasty bug when it enables bad strategy and bad management.

Coca-Cola recently decided to issue stock that will dilute ownership of existing stockholders in order to pay huge compensation to top management. How huge? $24 billion. Twenty-six states in the USA spend less than that each year. That seems excessive, to put it mildly, even if you assume Coca-Cola’s top executives are the most talented people in the world.

Warren Buffett, Coca-Cola’s largest stockholder, abstained when the Board voted even though he thought it excessive too. He didn’t want to create a rift with management. That’s the downside of nice. Too much harmony, too little confrontation, too bad for shareholders. Shareholders at other companies, too. “Well, Coca-Cola did it for their executives…”

Then there’s confronting reality. The culture of the large automobile companies in Detroit has long been notorious as good old boys who don’t rock the boat. Look at what happened to GM when it chose to keep product defects tightly under wrap rather than face the issue head-on. This year it will probably recall more cars in the USA than it will sell.

If you don’t create a safe forum to say, aloud and in time, that the king has no clothes, the rest of the world will do it for you, and not so nicely. It is not a mere business school cliché, as so many companies discover too late.

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“The Sound of Competing” is a new podcast from Competing.com. It’s conversations from Ben and Mark, plus the occasional reckless guest. It’s remarkable. It mixes serious concepts with humor. It’s edgy without sacrificing critical thinking. It’s the antidote to the silly and shallow. Also, there are titanic battles between good and evil. A ping pong match between two strategy giants resulting in commentary smart enough to listen to.

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Competitive advantage comes not only from a company’s products or services but also from its management style. A collaborative culture inside the company builds competitive advantage in the marketplace.

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Are your most-dangerous competitors in the marketplace or inside your own company?

As a leader in your enterprise, you may seldom talk about internal competition, but you deal with it constantly. People are competing for the next promotion, the attractive assignments, and the workspace next to the window.

Manage that competition right and it helps the best ideas and talent rise to the top. Manage it wrong and it stifles collaboration. How you manage internal competition carries substantial consequences for your company and you.

Let’s look at examples from two Fortune 500 companies. Both were industry leaders that hired top talent, provided outstanding benefits, and promoted from within.

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Business strategy that results in lower ROI to stakeholders is an example of bad business strategy. Business strategy that results in lower ROI to a country is the result of bad politicians. In both cases some decision makers seem to not understand the second law of economics. Recent M&A activity by Pfizer and mega law firms tell it all. 
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There’s a story about an economics professor who went into a bar. The local crowd, intellectually curious after a few drinks, asked the professor to explain economics in two sentences. “First, there is no free lunch,” he said. “Second, incentives work.” We must wonder about this professor, though. He should have said a free drink would give him a mighty incentive to answer.

Economics has strayed far from its days as the study of human behavior. The tenure process has transformed economics into a branch of mathematics, quite irrelevant to today’s world. What we must remember is the hugely relevant second law of economics, described so aptly by the sober (?) professor.

Here are a few examples of this second law in action.

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LG and Samsung recently made smart decisions in the emerging OLED TV industry. Good for them, because competitive advantage comes from smart decision-making. What’s remarkable is that their smart decisions take them in opposite directions.
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Remember the bitter VHS versus Betamax war? Of course you don’t. You’re too young. I remember, though. I even took a stand in favor of Betamax. Betamax lost.

Remember the more-civil Blu-ray versus HD-DVD war? Of course you don’t. You were too busy pecking at your new iPhone. The iPhone came out in 2007. Blu-ray beat HD-DVD in 2008. That time my favorite won. No, that doesn’t mean I got smarter. It means the rest of the world did.

Now we have a war that didn’t happen, sort of, if we can imagine such a thing. According to Scott Wilkinson, Editor of AVS, LG is “forging ahead” with its OLED products for 4K/UHD TVs.1 (Don’t panic. That just means really, really good TVs.) Mr. Wilkinson also says Samsung has decided not to build a new facility to manufacture OLED panels for TVs, thereby calling off the war with LG.

LG and Samsung took opposite strategies, and both made smart decisions. The decisions would be equally smart if it were Samsung that was forging ahead and LG that was, as AVS said, “hitting the pause button.” But one of those smart firms is sure to be denounced later on for making a bad decision.

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“The Sound of Competing” Episode 1: Vision or Overconfidence?


Vision or Overconfidence?

Distinguishing between a vision (glory) and overconfidence (mirage) is important, critical, even imperative. Alas, it is also very tricky to do a priori; that is, before the fact. After the fact, we may be wiser. That’s one of the main arguments in Phil Rosenzweig’s new book, Left Brain, Right Stuff.

Rosenzweig makes valid points: no one thinks of him/herself as overconfident, and confidence, even in excess, may be the stuff that enables leaders to overcome resistance and skepticism. Still, we have encountered numerous occasions in which leaders, powerful executives, ignored early warning signs and crashed into mirages.

What does overconfidence look like? Or, perhaps, taste like. Coca-Cola is going all the way with its wonderful new toy, the Freestyle machine. These new and expensive dispensers are being deployed world-wide. The machines allow people to mix 146 possible flavors. They are incredibly fun and creative for those who crave designer sugar water. They raise vendors’ beverage sales as much as 6%.

And they will probably change nothing. Listen to the podcast to find out why, and which companies seem more likely to fall into the overconfidence trap.

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“The Sound of Competing” is a new podcast from Competing.com. It’s conversations from Ben and Mark, plus the occasional reckless guest. It’s remarkable. It mixes serious concepts with humor. It’s edgy without sacrificing critical thinking. It’s the antidote to the silly and shallow. Also, there are titanic battles between good and evil. A ping pong match between two strategy giants resulting in commentary smart enough to listen to.

Subscribe by RSS feed

Read More →