The Online Executive MBA program at The University of Nevada was the sole sponsor for TEDxUniversityofNevada. The event was held January 25, 2013 on the campus of the University of Nevada. There were 18 total speakers from the community, 100 registered participants, and about 30 volunteers. By all accounts the event was a big success.
One of the speakers in the business and entrepreneurship session was Laura Zander of Jimmy Beans Wool in Reno. In her talk, Laura briefly discusses how she started her company and has quickly grown it to a seven figure revenue stream. Laura gives examples from her own life about how the ability to dream big and stay flexible are important entrepreneurial skills.
Take the time to watch this video – it is very insightful. After you do, please share your thoughts in the comment section below!
German Engineering, Swiss Chocolate and Cheese, American Computers, Finnish Cell Phones: Domestic Conditions and Global Competence
When asked to name a product associated with a specific country, people are generally quick to respond. There seems to be a clear sense among people worldwide about which companies from which countries dominate industries. For instance, German companies dominate engineering based industries, whereas Switzerland is clearly associated with dairy-based products such as chocolate and cheese in addition to banking, precision instruments, and pharmaceuticals. Why? How do companies from a specific country develop superior competence in specific industries?
Michael Porter (Harvard Business School) addressed this question and published his findings in The Competitive Advantage of Nations (1990). He conducted a four-year, ten-nation study of the patterns of competitive success in leading countries. The findings support the results of previous research that companies achieve competitive advantage through acts of innovation. Porter’s primary contribution from this research is the conclusion that a nation’s capacity to innovate is affected by four broad attributes, the “diamond” of national advantage: 1) factor conditions; 2) demand conditions; 3) related and supporting industries; and 4) firm strategy, structure, and rivalry. These factors represent the domestic conditions companies face, that affect the level and type of innovation companies engage in.
Switzerland, chocolate, and cheese – the first component in the diamond, factor conditions or endowments play a role here. Porter differentiates between basic and advanced factor endowments. Basic factors are domestic conditions such as climate, land, natural resources, and population size. Advanced factors include education, infrastructure, and technology. During the agricultural phase of economies, the economic development of Switzerland was constrained by the type of land (rocks, not fertile) available. As a result, the Swiss agriculture was founded on a focus on dairy rather than on farming – resulting in superior expertise of “anything dairy related” and a competitive advantage in that area. Important to note is that Porter concluded that for sustained economic development advanced factors are more important than basic factors.
What about German engineering? Demand conditions in the domestic market direct where companies will place the relative emphasis with respect to product characteristics. What is most important to domestic consumers? Product quality, price, innovativeness, customization, or variety? Consumer preferences are in part based on the cultural characteristics. Germans are known to avoid risk and to prefer structure and predictability. Hence, German consumers look for products that are reliable, high quality, precise. German companies have been challenged to meet such preferences and have developed a competitive advantage based on the technical expertise that allows them to design and deliver products with such characteristics.
In the U.S., computer-related industries are well developed and internationally competitive. This has been a great advantage for American computer manufacturers, hardware and software. Silicon Valley is the world’s most famous industry cluster! Porter’s third factor, supporting and related industries, addresses the importance of outstanding, innovative domestic suppliers for companies to be innovative and develop competitive advantage.
Finally, Porter found that the competitive strategies that companies choose depend – to some extent – on their domestic, cultural context. For example, members of the top executive team in European companies, especially North European, tend to have a technical background. CEOs in European companies tend to have a Ph.D. in the relevant technical field and, hence, focus their attention on the technical aspects of the products rather than on the bottom line and short-term financial aspects of the company.
What about Finland and Nokia’s success? It seems that the climate in and the geographic location of Finland, basic factor endowments, are most useful in explaining this company’s competitive advantage! Finland’s harsh climate, the land covered by snow much of the year, required innovation as to wireless communication – more than in many other countries.
In conclusion, the companies that dominate certain industries in the global economy where able to develop competitive advantage based on the domestic conditions they were “blessed with.” In addition, countries that make investment in and development of advanced factors, such as infrastructure and education a priority create the conditions that are most important to domestic companies in their pursuit of competing successfully in the global market.
What do you think? Please share your thoughts in the comment section below!
Yvonne Stedham, Ph.D.
Yvonne Stedham is professor of management, a 2010 University of Nevada, Reno foundation professor, and co-director of the Center for Corporate Governance and Business Ethics in the College of Business. She received a Ph.D. in business and an MBA from the University of Kansas, Lawrence, Kansas and undergraduate degrees in economics and business from the Rheinische Friedrich Wilhelms University, Bonn, Germany. She teaches undergraduate and graduate courses in international management and human resource management at the University of Nevada, Reno and the School of Management in Ingolstadt, Germany.
Her research focuses on cross-cultural aspects of management and business ethics. Stedham serves on the State Council for the Society for Human Resource Management (SHRM) as well as on the Nevada World Trade Council (NEWTRAC). She provides consulting and training services to many companies, locally, nationally, and internationally.
The phrase ‘best practices’ as applied to software applications is relatively new. In the twenty years I was associated with the software industry, first as a programmer, then as an analyst and eventually as consultant and product manager, I never used or heard the phrase. There were good reasons for this, but before I can explain them, I need to establish some background.
If you thought about the title of this post, you might well ask yourself, “What do you mean – practices? What does that have to do with software? You mean – written the best way? Or – the most bells and whistles?
What the phrase ‘best practices’ alludes to in relation to a software package is something that I stress in my MBA classes because it surprises many people – the fact that ‘practices’ – business processes the dictate what your company’s employees will do and when they’ll do it – are ‘baked into’ any non-trivial piece of software. When you buy a software application – let’s say your company has decided it could benefit from a Customer Relationship Management (CRM) package - then you are locked into the processes, the practices that are built into the software. If you use the package, then you WILL feed it the information it needs, in the format it requires it and in the sequence it wants it. This is so whether or not you work that way now, whether or not you currently have the required information available and whether or not the process fits your company’s culture.
Well, you say, software can be modified, right? Right – for a price. The first price you pay when you modify COTS (common off the shelf) software is that you defeat the reason you bought the package in the first place – it was written, debugged and ready to use. The second price is Yankee dollars, lots and lot of them. It is widely known that the cost of consulting and modification for most ERP (enterprise resource planning) installations is greater than the multi-million dollar cost of the software itself.
Thus, it is critical to the success of a software package installation to thoroughly investigate the practices built into the application before you buy; and this brings us back to the notion of ‘best practices.’ Almost no software is developed, even by very large software companies such as Oracle or SAP, without a client. The client supplies the specifications for the application – the screens it should show, the information it needs, the reports it should produce and so on. Of necessity, the software mirrors the processes needed to satisfy the requirements. Because the early clients of a newly developed software application are typically large, successful organizations, the marketing arms of large software companies began, about fifteen years ago, to promote these ‘baked in’ processes as ‘the best practices of the best corporations.’ Applications developers are thus able to develop the software once and sell it multiple times – a very profitable undertaking. To understand the marketing coup that this was, it is necessary to understand the many circumstances under which ‘best practices’ are actually a detriment.
What is wrong with doing my inventory the way Mercedes Benz does it, you may ask. Or, why shouldn’t I want to handle my accounts receivable the way Nestle does? First, issues can arise due to disparities of size between your organization and Mercedes. Organizational size breeds process complexity, complexity that leads to high cost and long learning curves for software to support it and likely to a multitude of reports and functions that smaller companies will never use. Even more importantly, standard processes make it impossible to achieve sustainable strategic advantage from your software enabled process. A highly advanced, non-standard logistics process is what gives Wal-Mart a strategic advantage over competitors and the ability to grow market share and sustain growth. A very non-standard computer supported order fulfillment process is exactly what has enabled Amazon to become a major player in multiple retail marketplaces. As you may have already surmised, the software that supports Amazon and Wal-Mart, at least in the critical areas mentioned, is (and has to be) as non-standard as the processes themselves.
The key to determining whether the ‘best practices’ of a software application package are really the best for you lies in understanding what aspects of your business model are core competencies, activities that distinguish your business from others in the same marketplace. A close second in importance is performing a process audit during the purchase cycle of any large software package in order to determine just how different the embedded ‘best practice’ is from your current processes. The need to make large adjustments to existing processes in order to accommodate a new software application is one of the most widely acknowledged sources of installation failure.
William L. Kuechler, Jr., Ph.D.
William Kuechler is professor of information systems and chair of the information systems discipline at the University of Nevada, Reno. He holds a bachelor’s degree in electrical engineering from Drexel University, and a Ph.D. in computer information systems from Georgia State University.
His academic career follows a successful industry career in information systems development and consulting. His work experience brings insight to his teaching of both IS management and technical material and brings a wealth of practical background to his research. Kuechler’s two primary research themes are the cognitive bases of IS use, development and education, and design science research in IS. He is on the editorial advisory board for the Journal of Information Systems Education and is an associate editor for the Journal of Information
The financial meltdown of 2008-2009 brought the attention of both the media and regulators back to the failure of corporate governance practices in general, but specifically on executive incentive systems which encourage risky investments. One of the most controversial issues is how executives are compensated and whether that impacted their risk-taking behaviors.
The outrage about executive pay was caused by the large pay-packages of some banking firms which eventually received bailout money from the federal government in the form of TARP money. CNN money has listed 2007 pay-packages of top executives from nine such banks. For example, in 2007 the total compensation for Kenneth Lewis of Bank of America was $24.8 million.
The role of incentives in risk-taking is even greater in the banking industry where the amount of debt is larger when compared with industrial firms. This is highlighted by the following article from Financial Times:
“The problem with this is that bankers are incentivised to seek bigger and riskier bets because volatility increases upside return without affecting downside risk. They are similarly encouraged to increase balance sheet leverage since this further magnifies the pay-off. And this incentive has been greatly reinforced by bonus targets related to return on equity – a classic inducement to short-term risk-taking.” By: John Plender, Financial Times, 25th Oct., 2011.
Critics of incentivized executive pay systems have proposed many ideas to curtail executive incentives in order to control the risk-taking behaviors. Such demands recur after every major economic crisis. For example, New York Times reported on March5, 1934 that Sen. Burton Wheeler complained about “Corporations in the red paying excessive salaries.” Recently, these proposals have been discussed across many countries. For example, in June 2010, U.S. regulatory agencies jointly issued the Final Guidance on Banking Incentive Compensation, designed to ensure that incentive compensation policies do not encourage imprudent risk taking in financial institutions. In last 3-4 years, countries like Canada, Germany and Holland have seen similar proposals. However, one needs to also consider other factors which have led to the growth in executive compensation and risk taking simultaneously. For example, the role of corporate boards which decide on how much to pay in what form to pay?
Corporate scandals of the last two decades or so have pushed board structures towards more independence from the management. The enactment of Sarbanes-Oxley Act (2002) and subsequent adoption of listing requirements by the national stock exchanges have made it mandatory to have a majority of independent directors. A push towards smaller and outsider dominated boards from the proponents of corporate governance reforms have significantly reduced the managerial representation on boards. These changes might have had impacted the quality of managerial evaluation and monitoring effectiveness of boards as outside board members rely on the insider directors for valuable information about a firm and its investments. In the absence of managerial inputs, outside board members could find it difficult to evaluate the quality of managerial decision making and may not design a compensation scheme that balances growth with risk taking.
We really need to understand whether the absence of these executive directors from the board room exacerbated the CEO power and hence the CEO pay-package and excessive risk taking. Without understanding these issues, we might end up adopting yet another defective system of executive incentives which almost certainly could expose us to the risk of another financial crisis.
Dr. Arun Upadhyay teaches finance courses in the College of Business at University of Nevada Reno. His primary teaching area is corporate finance. Before moving to academic world, Dr. Upadhyay worked for several years with a commercial bank in the area of credit analysis and international banking. He received Ph.D. in finance from Temple University. Prior to moving to University of Reno, he worked at University of Alaska Anchorage where he was awarded College of Business and Public Policy Best Teacher award. Dr. Upadhyay also served on the Investment Advisory Commission of Municipality of Anchorage.
Dr. Upadhyay’s research focuses on corporate governance issues. He studies corporate leadership structure and executive compensation. He has published articles on board structure in high quality finance journals such as Financial Management, Journal of Corporate Finance and Journal of Business Finance and Accounting. His work has been presented at various national and international conferences.
“Whosoever desires constant success must change his conduct with the times.”
— Niccolo Machiavelli
In 2008, Apple became the top retailer of music in the world. They passed Wal-Mart, Best Buy and Amazon and they did it without shipping a single CD. Coinstar, who owns Redbox, is participating in a $7Billion industry and is attempting to unseat Netflix in its distribution model. Redbox has 28,000 kiosks and has rented 1.7 Billion movies.
What happened to Tower Records and Circuit City and Wal-Mart?
In a board room somewhere, the board of directors at Blockbuster Video failed their shareholders, probably 10 years ago. The company was committed to a certain way of doing business and didn’t leave any way to evolve easily. They may have been profitable at the time, but they failed to develop a strategy and marketing plan that would allow them to compete in the age of broadband against Netflix or against distribution convenience at Redbox. By the time they developed something, it was too late. They were too slow to change and those that did were more successful.
Apple, a technology company, figured out how to harness technology to sell music on devices that they developed. iPod’s are extremely well designed and easy to use. By developing the music distribution model to go with the device, the were successful in selling both. By increasing the number of iPod users they were able to increase the amount of music available. Their strategy created a network externality that allowed Apple to benefit exponentially as they sold more devices and made their music compatible on other devices. (and others made their devices compatible to Apple’s format). Microsoft tried a similar strategy, but folks didn’t like the device enough to generate the same market share. Somewhere in a board room Sony must be kicking themselves. When I was a teenager, the Walkman was everything. Sony had the technological know-how, they had the content, but failed to deliver a device. They were outdone by a computer company which is now a consumer product company.
It’s not just about strategy, marketing and finance, good leaders have to see the future and not be afraid to act. I was fortunate enough to see Scott Klososky speak this year and he talked about this. (visit his blog here: http://www.klososky.com/ts_blog/) He offered that a leader that doesn’t understand technology and trends is only 60% of a leader. Companies can no longer afford to ignore this or risk failure. He mentioned Apple and Blockbuster and these concepts resonated with me.
I teach Marketing and Economics but this only offers a part of the picture students and business leaders need. You need good strategy, good marketing plans and you need to understand your markets. Most importantly you need to understand where the market is going. Trends become magnified and more important. It creates a lot more risk and uncertainty. Redbox could have easily failed as could Apple, but by not acting, you could end up like Blockbuster.
Jim McClenahan is the Director of Management and Executive Programs for Extended Studies at the University of Nevada, Reno, responsible for more than 150 professional development courses annually as well as several major conferences. He serves as the Treasurer to the Northern Nevada Chamber of Commerce, chair of the Schools to Careers committee for Washoe County and on the advisory board for St. Albert the Great Catholic Church. He completed his MBA at the University of Nevada, Reno in 2006.
Far too few leaders understand the value of employees that tell us what we need to know instead of what they think we want to hear. Many leaders view a lack of dissent as a good sign, but it is actually a very bad sign. In his book “Becoming The Evidence-Based Manager,” Gary Latham says the following:
An absence of complaints is often an indicator of an absence of hope. By embracing and welcoming criticism, you send your people a strong signal that you care about their concerns. They may have discovered that the vision and goals that were bang-on in the fall are no longer on target this winter. Dissent is an antidote to groupthink, which occurs when people agree with that they know to be wrong. (p. 53).
Hope thrives when people are willing to put forth effort to accomplish goals they value and understand how to achieve. You need to know immediately when people begin to lose confidence in the vision or no longer clearly understand how to make daily progress in work they find meaningful.
Encouraging dissent will help ensure that both the content and process of your leadership is relevant and effective. Your role as a leader is to not to control but rather to convene the conversation about how to best execute the strategy.
What do you think? Please share your thoughts in the comment section below!