The Strategy Seminar: Business Leaders-Virgil Cammack-Academic Article-Human Capital and Social Capital in Entrepreneurs and Managers of Small and Medium Enterprises

In Felicio Augusto, Eduardo Couto, and Jorge Caiado’s article Human Capital and Social Capital in Entrepreneurs and Managers of Small and Medium Enterprises, the authors examine the characteristics of both human and social capital. As the article’s title states the study was conducted with small and medium size firms. This was done across numerous industries within a small open economy country. The study’s hypotheses were as follows:

H1:    Human capital elements (knowledge, experience, professional field, cognitive ability and proactivity) are associated with elements of social capital (status, entanglement, complicity, personal relationships, family support and social relationships).

H1a.  An entrepreneur’s elements of human capital are related to his elements of social capital –namely, family protection and complicity.

H1b.  A manager’s elements of human capital are related to his elements of social capital -namely, power and influence.

H2.    Business sectors and industries influence different relationships within human and social capital.

H2a.  Across different industries an entrepreneur’s elements of human capital are linked with his elements of social capital -namely, family protection and complicity.

H2b.  Across different industries a manager’s elements of human capital are linked with his elements of social capital -namely, power and influence.

The hypotheses above where supported by the study. Though there is further need for study in the interdependence and causality of social and human capital elements –as the study noted –the study nevertheless provided insight into the “best fit” for manager and entrepreneur types in general and for manager and entrepreneur types per industry. It should not seem surprising that entrepreneurs would need elements of support (since they are responsible for raising the capital and overcoming other start-up obstacles) and managers need elements of power and influence (since they must accomplish tasks without the control inherent in ownership).

Entrepreneur types and manager types might naturally be drawn to their roles as entrepreneurs and managers; however, if this is not the case, an analysis such as this one is beneficial to both types in helping them find their natural place. Understanding one’s role and recognizing what one needs from human and social capital can only make the journey easier.


Citation.
Augusto, Felicio, Eduardo Couto, and Jorge Caiado. Human Capital and Social Capital in Entrepreneurs and Managers of Small and Medium Enterprises. Journal of Business Economics & Management; Jun 2012. vol. 13 issue 3. pp. 395-420.

Alec Korogodsky - Current Event Post - What Really Happened to Hostess?

                We’d be lying if we said we’re not going to miss Hostess products. Who never enjoyed taking a bite out of a Twinkie, a classic snack that almost embodied Americana? But I think what we can all agree on is we won’t miss the mismanagement and overcompensation of Hostess management. Hostess is in complete liquidation and is ceasing its operations; no longer manufacturing American classics such as Twinkie’s, Cupcakes, Ho-Ho’s, Zingers, Wonder Bread, and a myriad of other products (can you tell I love my junk food?) But what really happened?

                Management is claiming the shutdown is due to a massive labor strike. To quote CEO Greg Rayburn on Friday, “We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike. Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders.” But who caused this massive strike? In January of this year the company filed for bankruptcy, the second time in over two years while top management received over an 80% raise!  The tensions came to a boil when the Baker’s Union became infuriated at managements request for a 300% raise to the ineffective CEO at the time. This caused the Baker’s Union to strike at 24 of Hostess’ 33 plants, and management caved. Instead of giving into the concessions, they took the money and ran, shutting down Hostess

                So what really caused Hostess to shut down? First off, their products were getting old. People were still buying Twinkie’s but not for a price that gave the company good margins and raising the price would cut demand. Forbes argues that management should have been creating new products with higher margins instead of proverbially trying to motorize a horse and buggy. Another reason was the ridiculous slashes in wages and benefits management was proposing. If it’s been a while since you’ve taken economics, remember that everything has a market price, even labor. To cut the cost of labor to well below market price is just asking for a labor strike, which is exactly what happened.

                To sum it up, it wasn’t the fault of the employees, or the fault of the unions for the demise of Hostess. It was the incompetence of upper management to adapt to an ever changing market, the greed of the top executives to give themselves outrageous raises and bonuses that no one in their right mind would believe they earned. Corporate greed and incompetence is what killed Hostess.  Top executives of similar companies should take notice. I wouldn’t be surprised to see new innovations in the snack food industry in response to the sudden demise of a snack food giant.

Sources:

http://www.examiner.com/article/what-happened-to-ho-hos-should-we-mourn-the-demise-of-hostess-brands

http://americablog.com/2012/11/hostess-twinkie-ceo-salary.html

http://www.forbes.com/sites/adamhartung/2012/11/18/hostess-twinkie-defense-is-a-management-failure/

Alec Korogodsky-Practitioner Article-What Is Your Digital Business Strategy?

                In this particular article the authors are arguing that managers have a responsibility to maintain an IT infrastructure not only for the possible returns from using technology but how technology can give their firms a competitive advantage. The authors begin by describing how Netflix evolved their strategy from providing DVD’s through the mail to streaming movies and shows through the Internet, and eventually linking streaming Internet straight to television. Thanks to maintaining a long term evolving business strategy Netflix is primed to dominate the movie and television show rental market for years to come. Next the authors argue that IT should be created as a strategic asset that is directly in line with the firms overall strategy. They believe that firms struggle with IT strategy because firms have trouble communicating their strategy and hiring managers to make decisions regarding IT at every level. The authors propose a theory to over come this called ITracy.

                ITracy involves what the authors call the three pillars: synchronizing IT and business strategies, effectively governing IT, and managing IT with discipline. In regards to synchronizing IT, Michael Porter’s three principles to gaining a competitive advantage through IT are referred. The first principle is changing the industry structure by using IT to tilt the balance of power in the favor of the firm. The second is by using IT to outperform rivals by either cost differentiating or serving a highly niche segment effectively. The third way is to create new businesses using IT.

                To govern IT effectively, the authors argue that governance involves five principles. Managers must decide what IT decisions are crucial and who should be making them. The second principle is how the function of IT should be organized. Next managers must determine what to spend on IT projects and how to distribute between projects by prioritizing which IT projects are most essential to achieving the firm’s overall strategy. The fifth principle is managers must decide what to outsource and what to keep within the firm. Managing IT with discipline involves managers having a vision about what the future of IT potentially holds for their firm and how they can be one step ahead of the competition to ensure they get a competitive advantage.

                Reading this article Best Buy kept coming to mind. Its plain to see that retail stores are slowly being crushed by the online marketplace. Companies like Borders and Blockbuster have been annihilated by their online competitors. However Best Buy continues to open stores and bring in a steady revenue stream. But why is that when you can just order your electronics online instead of going to the store? Because Best Buy saw the growing popularity of online shopping and instead structured a fantastic IT strategy and dominate the online electronics market. Their website is very easy to use and provides either home delivery or in store pick up allowing convenience to the consumer. If Blockbuster developed a similar IT infrastructure years ago they would most certainly be thriving today.

Source:

Mithas, S., & Lucas, Jr., H. C. (2010). What is Your Digital Business Strategy? IT Professional, 12(6), 4-6. Retrieved from http://libproxy.uhcl.edu:2086/xpls/abs_all.jsp?arnumber=5662565&tag=1

The Strategy Seminar: Business Leaders-Henry Vargas-Current Events Article-Windows 8 and the New Era of Microsoft

Windows 8 and the New Era of Microsoft

            Microsoft recently put out in the market in the center of Times Square New York and all around the world their new version of Windows software, Windows 8 and their surface tablet. There is a lot of pressure since the company and CEO expect the product to regain over the market lost to Apple and Google. Some critics believe that the future of the company depends on how popular is their new software.

            The new design is completely different than what it has been seen before with Windows 7, therefore, Microsoft is risking losing old Windows users to its new version by pushing them away from what they know how to use and prefer and not being good enough for new users who belong to the competence. New PC’s have already installed Windows 8, and those with Windows 7 would have to pay the costs to upgrade their computers. Microsoft believes their dominance in the computer market could be lost if this new concept is unsuccessful.

            CEO Steve Ballmer believes the new software to be like a dream where everything is possible to do and even when nothing is done it is still entertaining. There are different selections of devices, where the new tablets and best PC’s are included. Ballmer wants for Windows 8 to become an essential part of everyone’s life in regard to screen technology.

            The new devices are significantly different in that they are touch screen as well as controlled by the usual keyboard and mouse, to please differing preferences in the population. While some users like the new look of the mosaic of options others believe it could puzzle and irritate those who are used to the common Windows look, especially when using the desktop mode and not being able to see the usual icons, making it hard to adjust to the new version.

            The risk is large, critics say; this new version appears to be a mix between the old known Windows and a fresh tablet device which is uncertain to succeed. Windows 8 is expected to compete with other tablets, especially Apple’s. Experts say that this could be the last shot for Ballmer to bring about success to the company, if this does not occur, Microsoft should be looking to make a change in CEO. During the time Ballmer has been CEO the stocks of the company have devaluated to about half, therefore with Windows 8, they cannot risk losing to much as they have invested already about one billion in marketing for Windows 8. Ballmer own about 4% of the stock and Bill Gates owns 5.5 % of the stock.

            In my opinion, Microsoft is a follower in the aspect that they come up with new products after the market has been established. Time will tell if Microsoft can still compete with the new markets.

Work Cited:
Goldman, David. In Windows 8, Ipad has its first real challenger. CNN Money.  October 26, 2012 Retrieved from: http://money.cnn.com/2012/10/26/technology/mobile/windows-8-tablets-ipad/index.html

Prigg, Mark. Microsoft's big gamble: Critics say firm 'risks alienating users' as Windows 8 software and Surface tablet go on sale around the world. Mail online. 06:37 EST, 25 October 2012 Retrieved from: http://www.dailymail.co.uk/sciencetech/article-2222981/Windows-8-launch-Critics-say-firm-risks-alienating-users-software.html

Tsukatama, Hayley. Microsoft’s Surface tablet, Windows 8 operating system go on sale. Washington Post Technology. October 26 2012 Retrieved from: http://www.washingtonpost.com/business/technology/surface-windows-8-go-on-sale/2012/10/26/b987d26c-1f90-11e2-9cd5-b55c38388962_story.html?wprss=rss_national

The Strategy Seminar: Business Leaders-Virgil Cammack-Practitioner Article-A Context-Oriented Approach to Leader Selection: A Strategy for Uncertain Times

          On A Context-Oriented Approach to Leader Selection --A Strategy for Uncertain Times

 

In the Lucy Povah and Kate Sobczak article A Context-Oriented Approach to Leader Selection --A Strategy for Uncertain Times, the authors maintain that successful leaders have “learning agility,” which is the ability to apply experience to new and different situations. The authors propose their “L-I-V-E-D” (Learning Agility, Intelligence, Values, Emotions, and Drive) model for context-oriented leader selection. Over this L-I-V-E-D framework in leader selection is placed the External Context, the Business Strategy, and the Internal Culture. The idea of a “fit” in leader selection is that the prospective candidate’s            L-I-V-E-D core elements of leadership must “fit” into the company-specific environment (external context, business strategy, and internal culture). The authors admit that the most important core element Learning Agility is the most difficult to measure.

What is unusual about this article is the authors’ sense of disdain for using the potential candidate’s life history in evaluating his core elements or fit within the company-specific environment. The authors want to test and create simulations for reactions and indicators of the core elements. It is as if during a candidate’s entire life he was acting and not representing himself truthfully, and to reveal his true nature he must be tested, even though, of course, he knows he is being tested and would most likely act out the desired behavior.

Another unusual element about the article is that the needed business strategy and needed internal culture was already known by someone other than the future company leader. It is this person or persons that set these parameters by which the candidate is judged. I beg to ask the question:

If you have someone that already knows the needed strategy and needed internal culture, isn’t your search for a company leader over? Don’t you just choose that person?

Great leaders demonstrate the needed strategy and needed internal culture, often to the shock and horror of the company insiders and vested stakeholders. Iconic leaders set the standard --against a contrasting backdrop of peers.

WORK CITED

Povah, Lucy and Kate Sobczak. A Context-Oriented Approach to Leader Selection:  A Strategy for Uncertain Times. People & Strategy. October 2010; 33(4):40-47.

Theory Testing Article - Alec Korogodsky - "Executive Perquisites, Excess Compensation, and Pay for Performance

                It’s no secret that the general public feels the majority of top executives are vastly overpaid. One aspect many relate to excess executive compensation is executive perquisites. An executive perquisite is a benefit given to an executive which is not included in their compensation package. Examples of executive perquisites are the use of a company automobile or aircraft for personal reasons, various club memberships, services such as legal, financial, and tax, and other expenses not related to business matters. But do executive perquisites really contribute to excess compensation? The article reviewed attempts to answer the matter using statistical sampling and testing of three hypotheses to see whether or not executive perquisites really are associated excess executive compensation.

                As mentioned, the authors developed three hypotheses to test in their search to find whether executive perquisites are related to excess compensation. The first hypothesis is that executive perquisites have a positive relationship to the level of executive compensation. The second hypothesis is that executive perks have a positive relationship to relative executive compensation. The difference in the second hypothesis than the first is that it tends to deal more with the compensation of other executives in the same industry. The third hypothesis formulated is that executive perquisites have a positive relationship to the performance of the firm, as is argued by many of the firms themselves.

                The sample of firms was taken from a list of firms whose sales revenues equaled at least six billion dollars, as it is expected that these firms will give higher perquisites. The authors then focused on CEO compensation only, and eliminated firms with changes in CEOs and firms with missing variables. They then divided the firms into two categories, perk firms and other firms. They then input various data including salaries, bonuses, and any other total compensation. Using a regression model, they then compared the inputs of firms that offered higher perquisites to those who did not offer so many perks. They also tested relative pay and perquisites to test the second hypothesis. A separate model was used to test for the third hypothesis using performance measures.

                The results proved hypothesis one to be correct, and hypotheses two and three were rejected. The study found that firms with higher CEO compensation also tend to offer higher perquisites. The average compensation for all firms was $6.3 million total compensation. When separated into perk firm and other firms, perk firms averaged $12.6 million as opposed to the $4.8 million average of other firms. It was also shown that there was no difference between perk firms and other firms in residual values, indicating that CEOs of firms which offer higher executive perquisites are not overpaid in relation to other CEOs. When studying the measures of performance such as return on assets and stock returns, it was shown that there is also no relationship between higher perquisites and higher performance.

                Based on these results one can conclude that there is no relation between executive perquisites and excess compensation. The rejection of the second hypothesis tells us that CEOs who receive compensation in excess to other CEOs do not receive more perquisites than the others. I believe this article can give executives under pressure from their shareholders to relinquish some of their perks a sigh of relief. This study clearly indicated that perquisites offered to executives are in relation to their total compensation and therefore firms should continue offering the same perquisites they were before the publishing of this article.

WORKS CITED:

Liu, H., & Yin, J. (2009). Executive perquisites, excess compensation, and pay for performance. Journal of Academy of Business and Economics, 11(3), 260. Retrieved from http://libproxy.uhcl.edu:5879/global/article/GALE|A272484654/e9ae96da67eddb1bf6347b0bf802f820?u=txshracd2589

                

The Strategy Seminar: Business Leaders -Virgil Cammack

Houston, we have a problem.

The space shuttle Endeavour arrived at Edwards Air Force Base on route to its final resting place as an exhibit at the California Science Center. The winding down of the space program is deeply felt. The Endeavour’s passing symbolized that Houston, the home of Mission Control, was no longer the hub of space exploration. California, the final resting place for the Endeavour, was also a hub of space innovation. It was where the shuttle’s main engines were manufactured, its heat shields were designed, and “fly-by-wire” technology was developed (Endeavour’s Journey: For Giffords, a shuttle salute from the sky. Sept. 21, 2012. Houston Chronicle. Associated Press).

Space exploration is being decentralized with more work given to private companies which for perhaps political reasons are geographically dispersed throughout the country. Industries such as the space industry are best managed when they are centralized geographically. There is the tendency to conglomerate when downstream industries are heavily dependent on upstream input (Ellison, Glenn and Edward L. Glaeser. Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach. University of Chicago). As Michael E. Porter put it, “Geographic, cultural, and institutional proximity leads to special access, closer relationships, better information, powerful incentives, and other advantages in productivity and innovation ….“ Porter states that competitive advantage is found in concentrations of highly specialized skills, institutions, and related businesses (Porter, Michael E. Clusters And The New Economics Of Competition. Harvard Business Review. vol. 76, issue 6, pp. 77-90. Nov/Dec 1998).

There is a bill being introduced to aid congress in taking the administration of NASA away from the president, the Space Leadership Preservation Act. Stated by Rep. John Culberson, “. . . to restore the NASA we know and love. The NASA that we know is capable of maintaining that world leadership in space exploration . . . .” This bill is designed to counter the emerging space programs of other countries, particularly China, by allowing a concentration of effort at the traditional NASA sites (Campbell, Kyle. Bill seeks to alter how NASA is led. Sept. 21, 2012. Houston Chronicle). The hope is that if NASA is taken away from one party and shared by both parties, the management of the program can be left in the hands of the scientists. Funding would not be cut, and the program would not be micromanaged at the whim of sitting a president.

Three other space shuttles have been retired: Enterprise at Intrepid Sea-Air-Space Museum (New York), Discovery at the Smithsonian Institution’s National Air and Space Museum (Chantilly, Virginia), and Atlantis at the Kennedy Space Center (Merritt Island, Florida) (Endeavour: Last journey, through contentious space. Sept. 23, 2012. Houston Chronicle, taken from the New York Times). The space shuttle program is retired, but NASA need not be retired (or minimized) or spread to the far winds.