Tuesday, January 24, 2012

Research In Motion and its new CEO

The two co-CEOs and founders of Research In Motion (RIM), the smartphone company, maker of the "Blackberry," have resigned their roles and appointed an insider, Thorsten Heins, as the new CEO. The founders, Jim Balsillie and Mike Lazaridis, will remain on the board, the latter as vice-chair.  In an email to RIM employees, they wrote, “Almost two years ago, we made the very difficult decision for RIM to go it alone – to not follow the path of our competitors and adopt a third-party operating system. We knew then that the ability to control our destiny and differentiate our own platform, products, services and brand would be vital to our future. With this decision and the transition that followed came great scrutiny. We felt we were right and so we stayed the course. With this transition to a single, unified platform, this was the right time to make this change.”

In short, smooth sailing. But will it be so smooth? The RIM stock price fell 9.1% after the announcement. The “street’ worried that Heins was good at implementing changes, but was not good at envisioning new directions. Indeed, Heins, in describing the company’s plans, said that, “It is going to be continuity, but its is not going to be standstill.”

Of course, Heins choices and prospects for success depend on whether or not the company’s current trajectory is sound. The co-founders’ email is suggestive here. They defend their decision to stick with their own operating system. Yet this decision has made it difficult for RIM to compete with Apple and Android-enabled smart-phones, both of which are supported by a dense ecology of “App” developers. The smart phone, once a business appliance, has become a consumer product.  Apps, unnecessary for the corporate executive, are essential for the consumer. Indeed, one of RIM’s operating principles was to sell its phones through companies. But increasingly, companies are letting consumers buy their own smart-phones.

Seen in this light, the founders’ evocation of “our destiny” has a bit of a mythological feel.  Indeed the email paints the picture of the two founders heroically sticking to their guns in the face of much opposition, in order to secure the firm’s future. 

But when myth is present, irrationality is not far behind.  In a classic study of the Saturday Evening Post magazine, Abraham Zaleznik argued that successors to its founder, Cyrus Curtis, slavishly stuck to his operating traditions, strategy and corporate mythology; namely, the magazine as representing a tranquil small-town America, just when the country was rapidly urbanizing.

It may seem sensible for Heins to genuflect to the founders, after all they remain on the board and he operates in their shadow. But uprooting a mythology provokes psychological difficulties as well. We are all emotional creatures of the human family. When we face high stakes events we code them, sometimes consciously, and sometimes not, as family dramas. Corporate succession can evoke the psychological process through which children transcend their parents’ worldview and their way of life. This process is often taxed by feelings of guilt. We are after all grateful to our parents for giving us the chance to live, and for ensuring that we will survive our infancy and childhood psychologically and physically intact.  In transcending them, in becoming different, despite our dependence on them, we may feel that we have to reject what they stood for and believed.

This resulting guilt can have two contradictory impacts. It may inhibit us in choosing what we yearn for, hence the difficulty some children have in marrying outside their parent’s faith or ethnic group. Or, we may turn the guilt to our favor, interpreting it as a sign that our parents have oppressed us and that we need to be free of them. We turn our guilt against them and in the process we devalue them.

Perhaps Wall Street is wondering if Heins can mobilize the psychological aggression required to uproot and devalue what may be RIM’s mythology, at least as it is being written by its founders.  To do this, he has to overcome two sources of guilt. One source is based on the simple fact that, like good parents, the founders have created enormous opportunities and wealth for thousands of people.  What does it mean to devalue their judgment? The other is based on the fact that, should he choose to launch a new strategy, he will upend careers and relationships, with no guarantee that he will succeed. To create he has to destroy.

This is one reason why companies facing turning points in their business, sell themselves. The buyer --another company, or sometimes a corporate raider --enters the scene feeling no obligations to the founders and the mythology they created.  They think in fresh ways and use destruction creatively to create a new business model.  Perhaps the street is wondering if Heins can mobilize this aggression?  If there is wisdom in crowds, the answer would appear to be “no.”

Monday, January 16, 2012

The Federal Reserve, Hero Worship and Groupthink

The Federal Reserve Board committee released transcripts of its proceedings in 2006, somewhat to its embarrassment. Participants in the meetings over the course of the year discounted for the most part the possibilities of a housing market downturn. Moreover, they doubted, that should a downturn occur, it would have much collateral damage on the rest of the economy. In a New York Times report on the transcripts, Timothy Geithner is quoted as saying about the housing market, “We just don’t see troubling signs yet of collateral damage, and we are not expecting much.”

The Times also reports that Alan Greenspan retired that year. At his last meeting, in February of 2006, committee members praised him. Geithner said, “That Mr. Greenspan’s greatness still was not fully appreciated." He added to some laughter, “I’d like the record to show that I think you’re pretty terrific, too. And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative. The Times goes on to note that Janet Yellen, another committee member, praised Greenspan saying, “It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.”

While analysts have not made the connection, it is likely that praising Greenspan and discounting the impact of the housing market went hand-in-hand. When Greenspan retired many commentators suggested that he was one of the greatest Federal Reserve Board chairmen of all times. Yet in retrospect we know that he oversaw and supported the greatest asset bubble since the Great Depression. Hero worship can hamper clear thinking. It is one specific example of how an interpersonal process can introduce irrationality into group life.  A hero may be someone we love but more importantly, the hero is someone we identify with. In Freud’s term, the hero becomes, an “ego ideal.”  The ideal symbolizes our own prospect of becoming a hero as long as we are loyal to the image of the ideal we hold in our minds. This helps explain what appear to be Geithner’s sycophantic remarks. He was in effect praising his own and his colleagues’ perspicacity.  It was a form of self-praise by association. This also helps explain why committee members were so blind to the calamity unfolding in front of them. Had they taken the warning signs seriously, and the transcripts are clear that they were presented with such signs, they would have been demoting their hero and attacking their inflated sense of self-worth.

The link between the interpersonal process and rational deliberation is a complicated one. A person in a group has to assert herself to make her opinion known and to influence her peers. This process of self-assertion can provoke respect, but it may also stimulate competitiveness. Similarly, a person has to mobilize skepticism to test his peer’s opinions. While being skeptical is one way to take a peer’s opinion seriously, a skeptical remark can mask personal antagonism and communicate a belittling. Hero worship certainly privileges the interpersonal connection above thinking, and at the same time bonds group members together through their shared adulation. The bonding paves the way for groupthink. Beware the group that does not attend to its own group process!

Sunday, January 8, 2012

Yahoo once again

The Yahoo board has appointed Scott ‘Thompson as its new CEO. It provokes a bit of a sinking feeling in me and apparently in the market as well. Yahoo’s stock dropped modestly after his appointment. Thompson is a technology person, a product person, with little experience in media and advertising. How can he help Yahoo growth its advertising revenue?

One senses in Yahoo’s situation the spectacle of psychological drift, or what is called “decision avoidance.” One view of the situation is that Yahoo faces a fundamental choice between two conceptions of its identity. Is it a “content company” or is it a “connector company?” Connector companies like Google or Apple use content to increase their usefulness as connectors. Thus Google excels in search and Apple in distributing music. Content companies rely on connectors to disseminate their content. Disney, one of the great content companies, has just signed an agreement with Comcast, a connector, to distribute its content across a wide variety of media devices and platforms.

Can a firm occupy both spaces at the same time?  One classical theory of competition, based on the work of Michael Porter of the Harvard business school, suggests that this is difficult. If you try to occupy both, the specialists on either side of you can deliver better value as either pure connectors or pure content providers.

In behavioral economics it is commonly presumed that we use our feelings to anticipate the gains we will get upon choosing one of a number of options. We try to anticipate our future pleasure or regret. It turns out that we are quite bad predictors of how we will feel in the future. This is not surprising since feelings arise directly from the “here and now” of our experience. The psychodynamic conception of decision-making by contrast, puts great store in the feelings stimulated by the process of choosing itself. It focuses on the “here and now.” Being stuck in the middle, as Yahoo is, and deciding to choose one exclusive path over the other is itself a painful process. Because the selection is so difficult, the decision-process stimulates anxiety in its own right. Elsewhere, I have called this the challenge of the “primary risk.”

Of course a group of executives or board members have methods to structure the selection process in the hope of reducing the pain; for example, by listing the risks of each option, assessing the company’s current strengths and weaknesses, and comparing the firm to its competitors. These are sensible methods, but they rarely determine the decision. A group facing a primary risk must at some point take a leap of faith.

But what happens when a group makes a leap of faith. As the term “faith” implies, it is not a rational process. Instead, followers willingly forgo their sense of autonomy by placing their future in the hands of the leader with whom they identify. Why should an adult be willing to forgo control over his or her fate? Because through identification, they no longer feel the pain associated with the decision process. The leader agrees, so to speak, to acquire their pain in exchange for their loyalty. In addition, by identifying with the leader, as Freud once noted, they gain a new psychological connection to each other.

One sensible question to ask is whether or not Scott Thompson has the psychological makeup to be such a leader. The Wall Street Journal reports that one acquaintance described him, as not a “micromanager.” Instead he chooses good people, gives them the authorization to the work as they see fit and then measures them by their results. This style, admirable when a company faces operational rather than identity challenges, may prove insufficient in Yahoo’s case.  When Steve Jobs returned to Apple for his second coming, he made a critical decision to overturn a policy of allowing other computer manufacturers to produce Mac “clones.” He reasserted his vision of Apple as a company with a proprietary platform, through which software and hardware were seamlessly integrated. It is likely that instead of feeling pain, he felt conviction, something his predecessors sorely lacked because they were failing. So perhaps the better test for Thompson is not his management style, but his capacity to feel and communicate conviction.

It sounds strange that a business conundrum of the kind Yahoo faces should provoke what sounds like an irrational if not a primitive process. But this is what happens when risk and uncertainty predominate. Most of us are familiar with Walt Kelley’s phrase, mouthed by Pogo, his cartoon character, “We have met the enemy and it us.” Through modernization, we have vanquished many of nature’s threats -- disease famine, floods -- but we have created an economy of sufficient complexity that the threats we feel and the risks we face, grow out of our relationships to one another. And as Freud pointed out, as humans socialized in families, we are an uneasy compromise between what is rational and what is not.