Marathon runners and CEOs | MBA Learnings

A Google search for “CEO Marathon study” reveals a slew of articles talking about how marathon running CEO’s lead successful companies.

CEO Fitness Firm Value


The study has been quoted in numerous blogs and articles since it was published. Now, let’s take a closer look at the abstract of the study (the first line will do).

This study finds a positive relation between CEO fitness and firm value. For each of the years 2001 to 2011, we define CEOs of S&P 1500 companies as being fit if they finish a marathon. The literature suggests that fitness moderates stress and positively affects cognitive functions and performance. Accordingly, we find the strongest effects on firm value in subsamples where fitness is most important, i.e., for CEOs with high workload, above median age, and above median tenure. Fit CEOs are further associated with significantly higher abnormal announcement returns in M&A bids for large, public, and cross-border targets, concomitant with high stress. Our findings can explain the importance of CEO fitness in the managerial labor market and the trend among CEOs to stay fit.

This is a classic example of the identification error – mixing correlation with causality. Here is an example of the kind of issues that this study might have –
1. What if CEO fitness does indeed have a positive relation with firm value but, given the absence of other control variables, we don’t realize that it is actually healthy eating that really contributes to firm success? This is a great example of omitted variable bias.
2. There is just a positive relation between CEO fitness and firm value. What if it is high firm value that causes CEO’s to get fit and not the other way around?
3. Are marathons the only way CEO’s mitigate high stress environments? Could Yoga / video games be an option?

I could go on.

I have been guilty of not being critical about the identification error multiple times. And, a discussion of this study in our statistics class was a nice wake up call to be more critical about results from studies. Studies that might be published in obscure publications might be obscure for a reason. And, we should worry when we see studies that just find a positive relation between two variables.

To illustrate, some researchers in the 1980s concluded that the key to success was to boost self esteem. So, an entire generation of parents and educators focused on boosting self-esteem of kids by giving prizes to everyone and ensuring they always felt encouraged. It was only in the late 90s when a panel of psychologists who reviewed these studies concluded that the researchers had done it wrong. A trait that causes success is self control / high willpower. Kids with high self control inevitably do well and have high self esteem. So, while self esteem might be correlated to success, it is self control that has a causal relationship. There are many such examples.

Pay attention. This stuff matters.

Which discipline will you choose? – MBA Learnings

In a ground breaking book, “Discipline of the Market Makers,” Michael Treacy and Fred Wiersema argued that  outstanding companies typically pick one of the following 3 disciplines to excel in – Operational Excellence, Product Leadership and Customer Intimacy.

Operational Excellence: Companies who seek to excel though Operational Excellence seek to have the lowest total cost compared to their competitors. Companies like Wal-Mart and Amazon exemplify this discipline.
Product Leadership:  Companies that seek to differentiate by product leadership are characterized by a leading-edge “must-have” product or service. Think Apple, Nike.
Customer Intimacy: Customer-intimate companies are those that define themselves as not just providing goods or services, but as helping their clients be successful. Think Ritz Carlton or Zappos.

Their research found that these companies centered themselves around one discipline. Companies that tried to do all of these inevitably didn’t do as well. It is a fascinating insight and has a couple of interesting implications –

1. Know why you choose a product/service. My wife and I stocked up on winter clothes at “The North Face.” The North Face is known for outstanding product quality and we’re very happy with our purchases. However, we had a horrible experience dealing with their customer service number. After a few days of useless back-and-forth, we finally got the issue sorted at the store. So, would we recommend The North Face to friends? Absolutely. We chose it because of a top quality product and they delivered. Just don’t expect it to be cheap or for their customer service to rival Zappos.

2. Prioritize spikes over smooth edges. We are often taught to be smooth, rounded personalities. What we need to do, however, is to consider prioritizing developing areas of serious strength. It is these spikes that enable us to create real impact and make a difference. We can’t all be great at everything. Pick what you’d like to be great at and do enough of the rest so they don’t obstruct progress. Prioritize spikes. Pick.

Uber created a media storm yesterday with their CEO’s response to an executive’s irresponsible behavior. The company’s attitude shouldn’t be all that surprising. Uber, as a company, have clearly distanced themselves from the idea of customer intimacy with their actions. Their Product Leadership edge is questionable. It remains to be seen if they can succeed in their quest to build an outstanding company by continuing to excel in their operations while not letting their inadequate treatment of customers impede their progress. Time will tell.

Reward systems and culture – MBA Learnings

My favorite learning from my course on Leadership in Organizations was the link between reward systems and culture.

I have struggled with questions around culture for a long time. In the teams I’ve built over the years, I have found that I have succeeded and failed in equal measure on culture. Leadership definitely influences culture. But, I was always left with the feeling that it isn’t just about leadership.

The insight from the class is that our best lever to changing culture is changing the reward system. Many seemingly disjointed learnings and experiences from the past few years clicked right into place.

Let me explain – every organization or team has a reward system comprised of tangible and intangible rewards. Tangible rewards are typically salaries and bonuses. Intangible rewards are what we decide to celebrate – e.g. in organizations where the senior management celebrates failure, failure is an example of an intangible reward. Every organization has quirks – some celebrate data-driven decisions, others celebrate good research while some others celebrate feats of engineering. This is, then, how leadership influences culture. Data-driven leaders encourage data-driven decisions (think Jeff Bezos), engineering-driven leaders reward feats of engineering (think Larry Page), etc. It is vital leaders take the time to build intangible reward systems because company cultures can end up feeling weak otherwise. And, outstanding organizations tend to always have strong, almost cult-ish, cultures.

This has so many interesting implications for us. I’d like to pick 3 –

1. If you’ve wondered why change initiatives regularly fail at large organizations, a big contributor is leaders not supporting change messages with change incentives. Saying an organization will support “disciplined experimentation” or “sales force collaboration” and not changing incentive systems to reward failure or team work changes squat.

2. Every time we lead teams, let’s be very conscious about what we celebrate and what we tolerate. We end up getting the behavior we tolerate and what we celebrate become the intangible rewards. So, if you want to encourage crazy ideas, celebrate crazy ideas and if you want to see innovation, encourage and celebrate failure. Whatever happens, pick something. Not picking is picking too.

3. Finally, we all have personal cultures. Let’s think about what that culture should be.. and what behaviors we must reward to get there.

Cultures persist. To change a person or organization, we must begin with changing culture. The good news is that we influence it with our reward system.

That doesn’t necessarily make changing culture easy… but it sure is worth the effort.

FOMO – MBA Learnings

Wikipedia describes FOMO or Fear of missing out as a form of social anxiety, whereby one is compulsively concerned that one might miss an opportunity for social interaction, a novel experience, profitable investment or other satisfying event.

I’m sure you’ve experienced FOMO at various times in your life. It turns out graduate school is a fantastic lab to study FOMO. Given the intensity of competition between various priorities, FOMO could be a huge problem if you let it. Author and Professor of psychology, Dan Ariely, claims that FOMO is fear of regret that we have made the wrong decision on how to spend our time as “you can imagine how things could be different.”

FOMO is the sort of problem that can plague us through our life. As business leaders, entrepreneurs, and investors, it will always be tempting to follow the latest fad. As parents, it will be tempting to push our kids towards the latest and greatest achievement. As people, we’ll be sorely tempted to try various external quick fixes in our own pursuit of happiness.

So, how do we avoid FOMO? Based on my limited experience, here’s 3 thoughts that might help –

1. Understand your core priorities. First, no matter what we do, understand why we’re doing what we’re doing and what our priorities are.

2. Do you own homework and go in with a hypothesis. The biggest cause for FOMO is when we don’t do our own homework. This lack of work can lead us to believe everyone else around us knows exactly what they’re doing. The solution to this is to always go into what we’re doing with a hypothesis. Top venture capital firms are increasingly adopting the idea of a thesis-driven approach to investing. And, the best hypotheses/theses are aligned firmly with core priorities.

3. Be willing to have discussions around your hypothesis and change your mind. No hypothesis/thesis is final, of course. It is completely okay to decide to change your mind after discussions. People around us often have incredible insights about us that will help us on our journey. But, at the risk of repeating myself, it matters that we always have a clear thesis that we’re testing. We’re the drivers here.

The underlying principle here is to shift focus from what everyone else around us is doing to what we’re doing. No one really knows what makes sense for us. That’s not to say we know much better but we probably have the best shot at it. So, let’s use the privileged position to figure out what would actually work.

In that sense, avoiding FOMO becomes really easy when we realize that it isn’t about “them.” This is all about us. It’s our life and it is up to us to make it meaningful, to make it count.

GTA Advanced’s surprise bankruptcy – MBA Learnings

If you’ve been following the tech news, you’ve probably heard of the recent bankruptcy of Apple’s Sapphire glass partner – GTA Advanced. This was the quote from Apple following the announcement –

“We are focused on preserving jobs in Arizona following GT’s surprising decision and we will continue to work with state and local officials as we consider our next steps.” 

The quotes in news headlines in the following morning used words like “unexpected,” “surprised,” etc., etc. But, as we did in our accounting class, one look at the SEC filing of the company at the end of June says otherwise –

GTAT Cash Flow Statement


The cash flow statement above shows that it had lost $165M cash over the quarter and had only $330M cash left. Now, this can’t be looked at in isolation of course. If they were due a massive repayment by a customer, then we would have to reconsider our conclusions. However, they only had $14M of accounts receivable due. They were just stuck in a very expensive business without the necessary scale. Given the rapid rate at which they were losing money, one could predict that they wouldn’t last longer than 2 quarters. And, they didn’t. You could also argue that they could have raised a large amount of money via external financing. But, as you might imagine, the list of financiers who would like to get in at this stage was likely going to be very small.

Hence, it is actually very surprising that Apple and the media were “surprised” at the bankruptcy.

My learning was that a working knowledge of accounting goes a long way. Irrespective of whether or not you foresee yourself in a role that involves finance, the ability to read financial statements can help a lot. For example, most large corporations provide stock and stock options to employees. How many of these employees actually read their own company’s financial statements?

Perhaps reading financial statements of organizations whose fate influences us (e.g. a key customer or supplier or a target employer) may help prevent a bad surprise or two. That could end up saving us a lot of mental and financial pain.

Encouraging the devil’s advocate – MBA Learnings

In our pre-term class on Leadership in Organizations, we spent a few hours on personal and organizational decision making. A recommended tactic was to assign a team member to play “devil’s advocate” on all important decisions. This move is designed to eliminate confirmation bias and “yes-and-yes” decisions.

As we spent a lot of time discussing the importance of a devil’s advocate, I thought I’d share the story of the how the devil’s advocate came to be – with due thanks to Decisive by Messrs Chip and Dan Heath.

For centuries, the Catholic Church made use of a “devil’s advocate” in canonization decisions (i.e., in deciding who would be named a saint). The devil’s advocate was known inside the church as the promotor fidei—the “promoter of the faith”— and his role was to build a case against sainthood and, thus, force the decision maker to consider 2 points of view.

Pope John Paul II eliminated the office in 1983, ending 400 years of tradition. Since then, tellingly, saints have been canonized at a rate about 20 times faster than in the early part of the twentieth century.

So, if you have team members and friends who frequently play devil’s advocate, encourage them. And, I hope you will consider assigning a person or group of people to play devil’s advocate on all important decisions.

Decision making and trade-offs – MBA Learnings

Many of us are in graduate school to learn. There are many interesting things we expected to learn – develop understanding of strategy and marketing, for example, or learn to work better with teams of diverse people. I believe that the most important thing we are being asked to learn is something we might not have expected – decision making and trade offs.

Here’s the context – every student has 6-7 competing priorities. They are
academics (the rigorous study part that makes sure you have 100 pages of readings and an assignment to turn in every week)
career (thinking about long term choices, internships and post school career plans)
extra-curriculars (student clubs and activities that are a great way to folks who have similar interests as well as test your leadership)
social (there’s a dinner, an outing somewhere, or a party pretty much every night)
– “me” / ourselves (eat, sleep, exercise, reflect)
family (for many, this includes partners and kids on campus. Also includes parents)
– “past life” (i.e. all those friends we’ve lost touch with once we got here :-) and old projects that we worked on that we definitely have neglected)

As you can tell on first glance, that’s a lot of priorities. In my mind, the most critical of these priorities is “me/ourselves” – if we don’t take of ourselves, the rest of the priorities fall apart. Additionally, it is tempting to give up food, sleep and exercise in our bid to do them all. But, there’s only so much we can do in a day and not taking care of ourselves can dilute our efforts on the rest.

But, given this context, it is easy to see why this is a lesson in decision making and trade-offs. At any given moment during the day, there are potential ways to spend time on pretty much any of these priorities. There are multiple career/extra-curricular/social events that happen every day in addition to all those papers that need to be read. I think this is great preparation for life in the future. For many of us heading into graduate schools, our 20s have largely been about us. We graduated from university, dived into our work lives and gave it our all. We spent extra time on things we enjoyed. Full stop. But, life post school changes quickly – many of us are contemplating families or are just starting married life. We’re all going to be in careers that, as a general rule, will never ask for less time. We will need to keep learning and growing while also making sure we give back.

In some ways, these competing priorities never go away. The challenges of balancing these never get easier. This is just a fantastic time to fail and, in the process, learn how to do it right. I’d like to share my 3 biggest lessons from the process –

1. Make decisions easy for yourself by being crystal clear about your core priorities. If you aren’t clear about the relative importance of your core priorities, you are going to drain your energy every day just thinking about these decisions. Once you get clear on your own priorities, decisions get much easier.

2. Pre-decide your days and weeks as far as possible. Most of the time, you have enough information to plan in advance. There’s a high return-on-investment on being brutally organized. Pre-decide by blocking off your time for the week based on your priorities. If you don’t prioritize exercise and sleep, other things will get in the way. Be proactive to drive your own agenda. Or someone else will.

3. Make time to reflect. The more busy things are, the more you need time to reflect. Learning-by-doing is incredibly inefficient if you don’t have enough time to take stock. Again, the return-on-investment on a little reflection time is incredibly high.

Since decision making is a core part of this experience, I’ve been working on more specific tactics that help ease the difficulty level. More on those in the coming weeks..

Ask the customer – MBA Learnings

When we encounter a situation or problem, we always have an intuitive response to it. And, one of the biggest learnings in the first 2 weeks of our marketing management class has been to remind ourselves that we are weird and just “ask the customer.” This is because many of the decisions we make involve other people as our customer – e.g., decisions we make within our companies that impacts our customers, consulting advice we give to clients, and other help/advice we offer to friends or family. “Ask the customer” doesn’t always translate literally to asking the customer what they might want. It involves really understanding the person/organization we’re creating a solution for.

The best illustration of this is from an excellent TED talk by Rory Sutherland

“Here is one example. This is a train which goes from London to Paris. The question was given to a bunch of engineers, about 15 years ago, “How do we make the journey to Paris better?” And they came up with a very good engineering solution, which was to spend six billion pounds building completely new tracks from London to the coast, and knocking about 40 minutes off a three-and-half-hour journey time. Now, call me Mister Picky. I’m just an ad man … … but it strikes me as a slightly unimaginative way of improving a train journey merely to make it shorter. Now what is the hedonic opportunity cost on spending six billion pounds on those railway tracks?

Here is my naive advertising man’s suggestion. What you should in fact do is employ all of the world’s top male and female supermodels, pay them to walk the length of the train, handing out free Chateau Petrus for the entire duration of the journey. Now, you’ll still have about three billion pounds left in change, and people will ask for the trains to be slowed down. ”

We’re wired to think of situations from a point-of-view that is recently available to us. I hesitate to even call it our point of view because, sometimes, we take advice we receive too literally and forget to filter it to suit our own style. In short, our intuitive responses make us inadequate givers or takers of advice.

So, the next time you’re making a decision that influences a customer, take a moment to reject the intuitive response. Take a moment to think about how the customer behaves – ignore what they say and listen what they do. It is likely you will be closer to an answer that will work within that context.

Omitted variable bias – MBA Learnings

One of the nicest things about being in graduate management school is that the classes have a lot to do with many of the things I have been reading about over the past few years. So, I’m excited to share some of my favorite learnings from classes under the “MBA Learnings” series. I don’t have a defined schedule for them yet but you should see these learnings pop up every once a while.

Today’s learning is a concept called “Omitted variable bias.” The origin of this idea lies in statistics but we all see this nearly every day of our lives. Most of the false claims we hear fall prey to omitted variable bias. And, let’s face it, we hear many false claims.

Here’s an example of a claim – “People who eat _____ (insert healthy product) have low cholestrol/better health in some other way.” That might be true on the surface but the equation misses variables like existing health of people who eat healthy food and amount of exercise done by people who eat healthy food. Without considering the entire picture, the claim is false. Badly conducted studies see one event frequently connected to another and incorrectly assume one event causes the other.

The omitted variable bias, thus, points to our tendency to frequently miss the entire picture. An application that comes straight to mind is when we interview for a new job/role. If things go well, we feel really pleased with ourselves (“I prepared really well”) and, when things go bad, we feel demoralized. There are a couple of important variables we often neglect –

1. The biases of our interviewers. Companies and interviewers select people they “get.” If your interviewers are strait-laced suit-wearing types, the chances that you’ll get a job you are well qualified for in jeans and a t-shirt is low. You only really influence one part of the outcome of an interview. A lot lies in the hands of your interviewers.

2. The culture of the firm. The interview process beautifully illustrates the power of culture. If a firm has a fairly homogeneous culture and, let’s face it, most great firms do. Then, being on the right side of the culture line puts you in great stead. If you have a “Googliness” rating of 9/10, you are likely going to be a hit with most of your interviewers at Google.

3. The dynamics within the firm. There’s a lot going on within the firm – internal candidates are being pushed for the job, your hiring manager is feeling the pressure because of a failed quarter, the company’s earnings call didn’t go great, etc. All of this stuff adds up.

So, what happens when we take omitted variable bias into consideration? First, we learn not to overstate or understate our contribution. Yes, our contribution matters. But, only so much. There’s a lot that lies beyond our control and there’s no need for the manic high or the depressive low.

Second, we learn that to distinguish between actions and outcomes. There is a saying that life is 10% action and 90% reaction. Perhaps interviews aren’t any different. Now that we’ve realized that people’s reaction to our actions is a large part of what happens to us, it helps to just direct our focus to that important 10%. By being the best we can be, we give ourselves a shot at maximizing the impact of that 10%. That’s all we can do. Once it’s done, focus on the next action as any time spent worrying about outcomes is time taken away from that next action.

From omitted variable bias to interview learnings to philosophy – you’ve got to love statistics!