Oracle: Two is better than one CEO?

BBC ran a story that when Larry Ellison stepped down, Oracle board announced two CEOs as successors. Surprisingly, Co-CEO model is not really rare event. You may have up to five men contacting you as CEO from a firm called Mobi Wireless Management! Well, I am not sure how big Mobi is, but it has grown in three digit percentages in the recent years. Samsung, admittedly, is big and has three CEOs. There are probably about 1,000 listed firms across the globe that have more than one CEO. Co-CEO models are quite common in M&A cases, family owned firms, co-founded management and in firms that are experiencing leadership transition. There is an increase in the number of firms that adopt a Co-CEO leadership model.

While I may have some selfish interest in propagating such a trend, it is worthwhile to delve a bit deeper. I have been brought up listening to an old Hindi idiom: there can be no two swords in one sheath.  So how does it work? The question is really how it impacts shareholder value creation. The sub-question is when is it maximized?

Co-CEO of Willis North America Mario Vitale says that it will succeed if the the two or more CEOs complement each other in skills. While there are several other reasons, he states, with some excitement, another one: for the first time in his career he need not carry Blackberry to his vacation! But the Co-CEOs of  RIM (Research in Motion, that owns Blackberry) also did not need to carry theirs: they got fired recently for bleeding market share to Apple and Samsung.

Success of Co-CEO structure requires some ego-less understanding among the CEOs. Possible? I guess yes. Not many with bloated egos will even make it to such top slots. Of course, even without egos in clash, decision making can be a bit paralyzed. That may be avoided if the board clearly sets the agendas, specifies the scope of operations and spells out clearly the responsibilities – exactly what Oracle board did.

Co-CEO models are successful also when CEOs have different and far-flung geographical responsibilities or product-market domains.Whatever be the responsibility or scope, a very good understanding is still crucial. But understanding can also mean compromise – a killer of innovation.

Professor Stephen Ferris of the University of Missouri states a few other benefits. Most firms with Co-CEO structure do better than single CEO firms. Compensation for Co-CEO model is actually lower than single CEO model. Market reacts positively to Co-CEO announcements.

So there is reasonable cause for good cheer for Oracle. I hope it does great..

Preference Reversals: Oh Yeah? Did we change our mind?

So how can one’s change decision change based on how information is presented?

Recently, we encountered a strange situation in recruitment. We were looking at two resumes separately once and later together. When we evaluated separately we rejected Candidate A; but a week later when we evaluated jointly, we accepted him over Candidate B. Here is all the data we had: Candidate A had developed several marketing campaigns for about 5 years and had no college education. Candidate B had developed marketing campaigns for under 2 years and had a college degree. Everything else, including the firm that they were working last, was similar. The recruitment team cried foul.

Why would we reverse our preferences so? Let me provide another example:

Used car 1 has run 1,000 kilo meters and there is a dent on the front hood.

Used car 2 has run 9,000 kilo meters.

Please imagine that you evaluated the two options separately, as if the other option did not exist. Which one is your choice? Probably you will choose the second option. And now imagine evaluating the options together. Probably you now choose the first option. Research confirms that you are not alone.

Hsee, Loewenstein, Bount and Bazerman in their research state the reason to be “non-evaluability”; “some attributes are easy to evaluate independently, whereas other attributes are more difficult to evaluate independently.” In the above example, it is difficult to evaluate the impact of “a dent on the front hood”. Therefore, when evaluated independently, car 1 would be less preferred than car 2. However, when jointly evaluated, “no dent” and “a dent on the front hood” is not only comparable but the relative advantage of 1,000 kilo meters springs out when compared to 9,000 kilo meters.

Here are two more examples:

1. (a) Rs. 10,000 flood relief to you and Rs. 11,000 to your neighbour, or (b) Rs. 8,000 flood relief to you and your neighbour.

Possibly, option B would be chosen more when evaluated singly; there is a sense of equity which is absent in option 1. However, when jointly evaluated, I think we will choose the first option merely because it just has higher pay-out than the second.

2. (a) mp3 player for about 4000 songs with THD of 0.0005%, or (b) mp3 player for about 10,000 songs with 0.02% THD.

Lower the THD (Total Harmonic Distortion) better the fidelity. Again, the THD is difficult to evaluate independently. What does 0.02% THD mean to us when this this information is presented in isolation? Therefore, the number of songs predominates decision making when the options are presented singly. However, when the options are presented together, 0.0005% THD is far more superior than 0.02% THD and hence the preference shifts to the first one.

Clearly, the implications in for search engines are high. There is definite requirement of presenting key information in a format that is understandable and comparable.

For us, the age old adage of having choices on the table to compare is important. More so if the alternatives have attributes that are difficult to understand or evaluate.

We went ahead with Candidate A; so much for consistency in decision making!!

Wait for more…

Analyse this! An analysis of an analysis: Part – 2

In the last post, I indicated that regardless of equality of information, two persons may decide very differently based on what decision strategies each adopts. While there are innumerable strategies, a few of them stand out for mention.

You may want to revisit the table of analysis, for it will help in understanding the outcomes of the strategies discussed below.

Weighted Additive Strategy: Imagine you are extremely capable decision maker (i.e. list all alternatives and attributes, assess each alternative against each attribute and place weights across a set of attributes). Imagine your “importance” for floor area is 15%, location 25%, price 35%, quality 10% and design 15% (if we total weights of all the attributes 15%+30%+30%+10%+15%=100%). Your choice will be essentially that alternative that is maximum of performance x weightage. E.g., for House 1, the value is (0.15*1+0.25*1+0.35*7+0.10*5+0.15*1 = 3.8). Likewise, for houses 2, 3, 4 and 5 they are 4.35, 3.00, 4.80, and 4.90. House 5 will be chosen since it scores the highest. I am reasonably certain, considering what you have read just now, you have suspicion about your capabilities in such decision making. Your other suspicion that most would not engage such an exercise to decide is valid too. But it is undeniable that such a strategy would be the best in maximising value.

Lexicographic Strategy: The alternative with the best performance in the most important attribute will be selected. Consider price was the most important. House 1 will be selected. Even though, House 1 performs rather poorly in all the other attributes, they could be overcome by a great performance in the key attribute.

Satisficing Strategy: Alternatives are considered sequentially in the order they appear in the mind. The consumer would also keep a cut-off for performance in any attribute. Consider a minimum cut-off is “2”. Since, houses 1 & 2 have at least one attribute with “1” as performance value, they will be eliminated. House 3 will be selected. Alternatives that score extremely well in most attributes but lower than even one attribute will simply be eliminated (consider the plight of House 5).

Elimination by Aspects: It combines aspects of Satisficing and Lexicographic. The options that do not meet the minimum cut-off in the most important attribute are eliminated. In our case, assume price was the most important and minimum cut off is “2”. House 2 & 5 are quickly eliminated. Houses 1,3 and 4 are still in consideration set. Now the next most important attribute is selected. If location were the next most important attribute, then House 1 is eliminated and houses 3 & 4 remain. If no other important attribute remain, then based on Lexicographic Strategy, the alternative that performs the best in the most important attribute will be selected: House 4.

As one can see the choices changed depending upon which decision making strategy a consumer used, regardless of equality of information available for decision making. The implications are extremely important for the way alternatives are presented in a store or a search engine.

In the next post we will see how preferences or choices may change depending upon how information is presented.