What does Buffett hold?

http://blogs.forbes.com/streettalk/2010/02/27/berkshire-hathaway-1b-investment-holdings-at-yearend-2009/

Why Do MBAs Make Better CEOs?

MBA programs have taken a lot of criticism over the last year or two. According to naysayers, they are guilty of many crimes: teaching the wrong financial models, riding roughshod over risk management, sidestepping business ethics, overheating the managerial job market, hiding from the real world, and cloistering students in academe.As a result, so the script goes, we have a generation of business leaders tainted by greed and short-term thinking.Hence, the recent global economic crisis. Oh, and remember Jeff Skilling of Enron? He had an MBA, while Bill Gates and Steve Jobs didn't even finish college.

Now, we enjoy a good debate. And we're ready to take criticism on the chin. But we also prefer analysis to anecdote.

In our ranking of the 100 best-performing CEOs in the world, published in the January February issue of the Harvard Business Review, we sought to judge the performance of business leaders in a new way by focusing on objective gauges of long-term performance. That is, we measured the performance of chief executives over their entire time in office, rather than focusing on the last year—or worse, the last quarter. As part of the analysis, we evaluated the impact of having an MBA on a CEO's overall position in the ranking. This gave us fascinating data to contribute to the great MBA debate.

Not a Necessity

Initially, we'd hoped we could analyze our whole sample of 1,999 CEOs from the world's top companies for the effects of an MBA on their ranking position. Remember, our data was based on long-term performance—to be precise, return on shareholder investment and change in market capitalization over a chief executive's entire tenure. If business schools encouraged short-term thinking and unfettered greed, then having an MBA would surely be correlated with a low ranking. At this point we were keeping an open mind.

While information about educational credentials wasn't in the public domain for all countries, CEOs' academic records were widely available in France, Germany, the United Kingdom, and the U.S. That left us with 1,109 of our original 1,999 to analyze—still a sizable sample and statistically significant enough to work with.

Fewer than one-third of the CEOs in our reduced sample of four countries had an MBA. So let's be clear. We're certainly not saying it's a necessity for getting the top job. But it could still be sufficient to improve performance.

As it turns out, we found a definite correlation between holding an MBA and achieving high performance as a CEO over the long term. In our list, CEOs with an MBA ranked on average a full 40 places higher than those without. Indeed, half of our top 10 went to B-school (although, admittedly, one of them dropped out before getting an MBA).

What does that mean in terms of performance? CEOs without MBAs had average shareholder return of 81% over the course of their entire tenure, while those with MBAs averaged total returns of 93%, a substantial improvement.

Next we looked at those who had become CEO before the age of 50. The effect of an MBA was even more significant for this group. The advantage went up from 40 places to 100. Our study controlled for a great many other variables that might have explained the superior MBA performance: industry, company size, the CEO's starting year, even prior company performance (to guard against the possibility that MBAs fared better, for example, by selectively choosing companies that were already doing well). Time and again, the MBA advantage persisted.

Magic MBA Ingredient

The big question is, why? The simple answer is that something in the MBA curriculum or experience helps a CEO add value, particularly if that executive has comparatively few years of business experience. But what exactly is this magic MBA ingredient? Here, we're forced to part from our data and speculate.

For some graduates, an MBA simply gives them better skills. It can add right-brain creativity and warmth to left-brain logic and financial acumen. Or vice versa. It can even help get the hard and soft skills working together.

For others, an MBA is a badge of excellence. After all, top schools only accept a chosen few. And most top companies look among the elite for their leaders.

An MBA may also provide a network of other rising stars. This network offers business contacts, opportunities, and priceless advice. And it lasts for an entire career.

So far, so good. When we blogged about our findings on hbr.org, several readers suggested a less obvious but equally convincing advantage. Those who choose to do an MBA, the readers said, are opting to improve themselves. Their openness to ideas and willingness to learn is going to benefit them all the way to the top—and long after they arrive in the executive suite.

We'd like to add a final suggestion of our own. Our ranking shows that no country or industry has a monopoly on excellence. This indicates that business leaders ought to look outward—to new geographies and sectors—for role models. An MBA program, or at least a good one, gives just such a perspective, especially if it recruits a globally diverse student body. And here our speculation is backed up by research. An INSEAD colleague, Professor Will Maddux, has carried out experiments demonstrating conclusively that the simple fact of having lived abroad makes people more creative.

The most successful MBA graduates are probably those who manage to mix all of the above ingredients into a potent cocktail of excellence. Perhaps they're the ones who made it into our top 200. Today's MBA students should take note.

Herminia Ibarra is a professor of organizational behavior and the Cora Chaired Professor of Leadership and Learning at INSEAD, the international business school with campuses in France, Singapore and Abu Dhabi. Morten T. Hansen is a management professor at the University of California, Berkeley, School of Information, and at INSEAD. Urs Peyer is an associate professor of finance at INSEAD.

http://www.businessweek.com/bschools/content/feb2010/bs20100218_190012.htm

Using behavioral science to improve the customer experience

By guiding the design of customer interactions, the principles of behavioral science offer a simple, low-cost route to improved customer satisfaction.

Service operations seem a natural setting for the ideas of behavioral science. Every year, companies have thousands, even millions, of interactions with human beings—also known as customers. Their perceptions of an interaction, behavioral scientists tell us, are influenced powerfully by considerations such as its sequence of painful and pleasurable experiences. Companies care deeply about the quality of those interactions and invest heavily in effective Web sites and in responsive, simplified call centers.

Yet the application of behavioral science to service operations seems spotty at best. Its principles have been implemented by relatively few companies, such as the telecommunications business, which found that giving customers some control over their service interactions by allowing them to schedule field service visits at specific times could make them more satisfied, even when they had to wait a week or longer. Many more companies ignore what makes people tick. Banks, for example, often disturb the customer experience by altering the menus on ATMs or the interactive-voice-response (IVR) systems in call centers. They fail to recognize the psychological discomfort customers experience when faced with unexpected changes.

Likewise, for every restaurant that surrounds a bill’s arrival with a succession of complementary desserts—thereby capitalizing on the customer’s preference for service encounters that end positively—there are a lot of call centers that ignore the importance of a strong finish. Indeed, many companies actively work against one by placing so much emphasis on average handling times that they inadvertently encourage agents to end a call once its main business is complete, leaving customers with memories of brusque treatment.

It doesn’t have to be this way. Academics such as Professor Richard Chase at the University of Southern California’s Marshall School of Business have used research on how people form opinions about their experiences to design actual services. In a 2001 Harvard Business Review article,¹ Chase and his team even laid out principles for managers to consider when designing any customer interaction. Get bad experiences over early, so that customers focus on the more positive subsequent elements of the interaction. Break up pleasure but combine pain for your customers, so that the pleasant parts of the interaction form a stronger part of their recollections. Finish strong, as the final elements of the interaction will stick in the customers’ memory. Give them choice, so they feel more in control of the interaction. And let them stick to their habits rather than force them to endure the discomfort and disorientation of unexpected change.

Here we review the experience of an insurance company that used those principles to improve its customers’ satisfaction significantly, with no incremental costs or fundamental changes in people or infrastructure. A systematic approach like this one is needed to counteract the natural tendency of service operations to focus on the needs of IT systems and work flows, not to mention the preferences of employees, managers, and service providers, largely ignoring the way customers perceive their service interactions. If companies in a broad range of service industries—including banking, telecommunications, and retailing—applied a rigorous approach, they would reap significant economic benefits, ranging from reduced churn to greater cross-selling to additional customer referrals.

Setting the stage

Executives at a leading North American health insurer sought to help patients manage their treatment programs for serious long-term illnesses, such as diabetes or congestive heart failure. Conditions like these are difficult to manage because treatment is often protracted and outcomes can depend on the patients’ willingness to make significant lifestyle changes.

Patients participating in an experimental health-management program received regular, scheduled calls from a team of nurses over a period of several months. The calls aimed to deliver additional support to patients undergoing long-term treatment, by helping them understand the available options and stick to their treatment regimes, as well as reinforcing lifestyle changes recommended by their doctors. Improved compliance helps insurers too, as better outcomes reduce the overall cost of treatment.

In the past, the clinical-treatment program for each patient had determined the content of such calls, and the company used what it considered to be a tried-and-true method for managing them. Team members had received guidelines on the objectives of the calls and used a checklist to sequence discussions with customers.

Behavioral science in action

To see if this approach could be improved, the company divided the nurses into two groups—approximately 20 in a pilot group and another 20 in a control one—and began applying a behavioral-science lens to the interactions of the former to test different versions of the call structure. Postcall surveys measured the customers’ satisfaction with each call and with the company. Key customer and operational metrics (including sign-up rates) helped estimate the financial impact. The pilot team used behavioral-science principles throughout the interactions.

1. Get bad experiences over with early

The team identified difficult issues—for example, the forthcoming lapse of certain insurance benefits or the need to transfer from one facility to another—and moved them to the start of the call. It also set up a later phase built around constructive coaching from the nurses on how to deal with the issues raised earlier. In addition, general questions that were likely to make patients uncomfortable (about current pain levels, smoking habits, eating patterns, and alcohol consumption, for instance) were moved from the end of the call to the beginning.

2. Break up pleasure and combine pain

By combining the most challenging elements of a call in its first phase, the health-management team could focus on positive aspects during the rest of it. The team found that patients responded very positively to coaching by nurses, so there was an effort to ensure that coaching on multiple topics was an explicit part of every phase of the call. A nurse might, for example, discuss the next treatment steps, how the patient could take advantage of all covered benefits, and ways of minimizing out-of-pocket expenses. There was also an effort to resolve all possible issues within a call and to transfer it to other groups only as a last resort.

3. Finish strongly

The conclusion of the health-management calls was scripted to finish on a positive note by emphasizing the tangible insurance benefits available to patients and, where medically appropriate, the likelihood of a successful outcome to the agreed-upon action plan. At the end of a program lasting several months, with calls taking place every month or so, patients received a final call from their health-management nurse. This call ended by celebrating their progress, reviewing the goals they had met, and summarizing the positive steps they had taken to achieve those goals.

4. Give customers choice

The company made an effort to give customers explicit choice on three critical elements: the type of treatment plan, which facilities to visit and which doctors to see, and the timing of future calls. In each area, the nurse was guided to tell the customer, “You have a choice; let me give you some options.” Customers explicitly had the right to make the ultimate decision, though the outcome may have been limited or strongly suggested—for example, “Hospital A is closest to your home, but B is only 15 minutes further away, and it has a specialist unit with a great track record at treating your condition.”

5. Let customers stick to their habits

In many situations, it was important for patients to change their lifestyles—say, by eating different foods, consuming less alcohol, or exercising. To encourage patients to make these changes while minimizing the discomfort they generated, nurses introduced them gradually over a series of calls. Dietary changes might be discussed initially, for instance, followed by encouragement to begin exercise. The nurses also tried to reframe the patients’ perceptions of the severity of the changes by comparing them with more unfavorable alternatives: for example, “instead of eliminating your favorite foods altogether, why not just try picking low-fat varieties next time you are in the store.”

The team also worked to ensure that the calls themselves became a positive habit for the patients. This approach gave them the option of having the same nurse on follow-up and promoted a consistent approach for every call, so that they became used to the interactions.

Results

The effect of the changes was significant. Patients in the test group reported an average satisfaction level seven percentage points higher than that of patients in the control group—for calls with the same basic content. These patients’ satisfaction levels with the company was on average eight percentage points higher than that of the control group. More important, patients in the test group were on average five percentage points more likely to say that the calls had motivated them to make positive changes in their behavior.

Notably, the program didn’t significantly affect the company’s costs or change key operational metrics, such as the length of a call or the number of calls a day. Moreover, test group nurses reported an average level of job satisfaction higher than that of the control group nurses. Finally, the impact was rapid. Most of the increase in the satisfaction levels of the test group patients happened within two weeks.

Many other service industries could benefit from a similar approach. By breaking down frontline transactions and rebuilding them with behavioral and experiential principles, companies could systematically achieve rapid, measurable improvements in customer satisfaction.

About the Authors

John DeVine is a principal in McKinsey’s Miami office, and Keith Gilson is a consultant in the Toronto office.

https://www.mckinseyquarterly.com/Operations/Performance/Using_behavioral_science_to_improve_the_customer_experience_2525?gp=1

Give and take Will Pepsi profit by enlisting the public in its philanthropic efforts?

THE 107m Americans who tuned in to watch the Super Bowl on February 7th did not see any advertisements for Pepsi. Instead of spending $20m on a handful of 30-second spots, the firm decided to give that amount away. Under the slogan “Refresh Everything”, the Pepsi Refresh campaign asks the public to vote online for charities and community groups to receive grants ranging from $5,000 to $250,000. A few days before the game its arch-rival, Coca-Cola, was also bitten by a charitable bug. It promised to give $1 to the Boys & Girls Clubs of America every time someone watched its Super Bowl ads on its Facebook page, up to a maximum of $250,000.

Pepsi Refresh is probably the most prominent example so far of “cause marketing”—trying to win customers by ostentatiously doing good. Other recent examples include Chase Community Giving, in which small charities competed to win $5m in donations from JPMorgan Chase, and American Express and NBC Universal’s “Shine A Light” programme, which awarded a grant of $100,000 to a small business chosen through its website.

Marketing people say consumers are increasingly trying to do good as they spend. Research in 2008 by Cone, a brand consultancy, found that 79% of consumers would switch to a brand associated with a good cause, up from 66% in 1993, and that 38% have bought a product associated with a cause, compared with 20% in 1993. Rather than try to make products that can be marketed as ethical in their own right, such as “fair trade” goods, firms are increasingly trying to take an ordinary product and boost its moral credentials with what one marketing guru calls “embedded generosity”. The fad for online competitions to award the handouts also appeals to another trend, so-called “slacktivism”, whereby people are turning to the internet to give their consciences a boost without doing anything more onerous than clicking a mouse a few times.

The strategy seems to be working, judging by the proliferation of articles (such as this one) noting Pepsi’s campaign. JPMorgan Chase claims its campaign was not marketing, but simply an attempt to manage its existing corporate philanthropy more imaginatively. If so, its marketing staff are missing a trick, given that around 2m people signed up to vote on Facebook, many of whom were not existing Chase customers. Moreover, the favourable headlines generated by Chase’s $5m outlay contrasted strikingly with the grudging reaction to Goldman Sachs’s launch around the same time of a $500m campaign to support small businesses.

Although the public likes online popularity contests, they can have unintended consequences. Chase, for example, caused a fuss by excluding a pro-life group and an outfit that wants to legalise cannabis from its competition. Moreover, many firms see virtue in tying themselves to a particular cause. Ten firms, including Gap, Apple and most recently Nike, have deals with (RED), a scheme fronted by Bono, a rock star, to raise money to fight AIDS. It has raised $140m so far, despite fears that, as Susan Smith Ellis, its boss, puts it, “it would be just a big launch on Oprah then never heard of again.” Equally, Pepsi’s efforts to promote healthy lifestyles while selling healthier products and Coca-Cola’s various initiatives to protect water supplies in developing countries are critical to the pair’s future. Refreshing everything, in contrast, is a more nebulous goal.

http://www.economist.com/businessfinance/displaystory.cfm?story_id=15501657&fsrc=rss