I read an interesting article on behavioral economics by Harry Quarls, Thomas Pernsteine, and Kasturi Rangan, in "strategy+business" magazine.  According to the authors, behavioral finance supports a counter-intuitive strategy of loving your market "dogs" (underperformers) over your stars.  They pose a few questions up front: 

• What if conventional wisdom is wrong?
• What if corporations would be better off shortchanging their stars and nurturing their dogs?
• What different decisions would managers make then?

Conventional Approach is Stars Over Dogs
Quarls, Pernsteine, and Rangan write:

"In the course of maximizing shareholder value, senior executives routinely face decisions about which of their companies' businesses should be nurtured, which should be starved, and which should be sold. The typical strategy is to invest more heavily in the 'stars' that are earning superior returns on capital, while starting or selling the underperforming 'dogs' This is the conventional approach in corporate finance and has become so ingrained in corporate finance and has become so ingrained in management practice that it is almost impossible to question it."

Way to Thrive is Love Your Dogs
Quarls, Pernsteine, and Rangan write:

"There is, in fact, reason to believe that the conventional wisdom is wrong. Corporate managers often rely on accounting metrics to make business decisions. However, these metrics are based on past performance; the market is interested only in the future. And past performance is generally a poor predictor of the future. Thus, when performance is assessed over time, greater shareholder value can be created by improving the operations of the company's worst-performing business. The way to thrive is to love your dogs.

Just as some fund managers earn superior returns by identifying and buying undervalued 'market dogs' - better known as value stocks - corporate leadership can learn to identify 'value assets,' hold and nurture them, and produce superior performance. This in turn will ultimately lead to an increase in shareholder value."

3 Messages for Corporate Leaders
Quarls, Pernsteine, and Rangan have three messages for corporate leaders:

• Fixing your dogs can yield unexpected levels of shareholder value.
• Improving operations is an important management lever for adding shareholder value.
• Buying and fixing someone else's dogs will produce more shareholder value than buying stars.

Key Take Aways
I think there's several interesting points.

• Intrinsic value vs. market value. The intrinsic value of a bottle of water might not be much, but what's the market value out in the middle of the desert? This is why markets boom or burst. What's the intrinsic value vs. market value of your dogs?
• Innovation cycle. One type of mistake with R&D projects is over-investing in the beginning, then under-funding them later when it counts. The market isn't always ready, and buy-in takes time. What if your R&D dogs are starving before they become stars?
• Growth opportunity. Where's the most growth? Squeezing more out of your star, or helping one of your dogs to the top?   It's always tempting to squeeze some more golden eggs from the goose. 
• What's the market demand. If the market is interested in the future? Is the star the best fit, or one of your dogs?

Personal Development
To sanity check ideas, I like to test them against personal development concepts.  It can help quickly put things in perspective.  For example, should you invest more in your star skills or improve your dogs? Conventional wisdom to go from good to great is work on your star skills. However, a liability can hold you back (think in terms of Kano -- a dissatisfier can really undermine all your satisfiers.) But, what if you have a few skills that are diamonds in the rough, or what if there's a good chance of downstream market demand?

Project Management
I manage a portfolio of results, so I also like to test ideas against project management practices.  For me, I tend to use a few key factors around deciding where to spend energy and time:

• Intrinsic value.  Is a dog's intrinsic value hidden in the shadow of a star's limelight? Is there a dog with latent value, suffering from a lack of customer demand generation?
• Capabilities / Liabilities.   Is a dog capping the impact of a star?  Is there a dog that would reduce operational liabilities or improve operational capabilities?
• Impact.  Sometimes a dog is a long shot.  It's also a potential game changer. 
• Trends.  I try to bet on trends over fads.  For example, I think in our software industry, there's key trends around social software, personalization and specialization.  It's a reflection of market maturity and customer demand.  In other words, narrowing the focus is one way to win in a market niche.  For example, if My Space is an optimized blog experience for a certain audience, what would an optimized blog experience be for a developer audience?  Would it optimize around sharing code snippets and patterns?   Would there be virtualized experiences and integration with Visual Studio?  Personally, I'd like to see federated "guidance spaces" for personal prescriptive guidance blogs. 
• Windows of opportunity.   Is a star past its prime?  Is there a new dog in town?  Can a new dog reinvent or help rehydrate a star? 

From a dog and star standpoint, I like to count on my stars, but I experiment with a lot of dogs, since the rate of failure is pretty high, but it's the future of the dogs that help me stay adaptable over getting overly adapted.  Put it another way, what got me here today, won't get me there tomorrow.