Time for a humbler, more focused, wireless wholesale market

The US MVNO market is the greatest missed opportunity I've seen in my wireless career, stretching back almost 20 years. Through carrier resistance and MVNO hubris, a business model that works very well in Europe and Asia has floundered here. Strong, focused MVNOs, which manage their costs and market excellently, improve services and value for wireless users in many places outside the US.

Yet there may be a light flickering in the US market. It's been several years since the meltdowns of Amp'd, Disney Mobile, ESPN and other high-profile players. The iPhone and its imitators have demonstrated the value of a (relatively) open architecture and application environment. And the carriers are still no better at rolling out truly innovative services than they have been.

Plus, nationwide carriers #3 & 4 (Sprint & T-Mobile) trail far behind the leaders in market share. This creates a strategic scenario where a customer acquired by a Sprint or T-Mobile reseller is relatively unlikely to poach the direct business of the wholesaler (and in Sprint's case, they should welcome retaining customers by any means, even if they are transferred to an affiliated wholesaler). Therefore, the perceived opportunity cost of a full-on push into wholesale by these carriers is lower.

Who will be tomorrow's resellers? Those that are laser-focused on markets unserved by the carriers. They will be smaller but profitable, with excellent, low-cost distribution channels. They will be true innovators, bringing high-value applications to their customers. They will have customer bases who purchase phones without subsidies. They will be able to create win-win agreements with the wholesalers.

In a perfect world, a Sprint & T-Mobile push will force AT&T and Verizon to re-enter the wholesale market. Then there will be a strong, vibrant, competitive market where resellers will have some control of their destiny.

And the biggest winner of all will be... the customer. You and I.

Business Book Hall of Fame: "War & Peace"

Heard of it?

Read it? Probably not. It's the dictionary example of a long book. And it is long. Based on some indirect prodding from Dave Snowden and Jochum Stienstra, I finally picked it up, determined to read the whole thing, in November 2008. It is now the end of January 2009, and that'll tell you what a commitment is required to finish it. (The pile of unread books by my desk is now immense.) I can also heartily recommend the new English translation by Pevear and Volokhonsky; the writing was easy to understand and felt modern and fresh.

Was it worth nearly three months of effort? Hell, yes. "War & Peace" is an amazing work for our time (or any time). There are great love stories and domestic dramas in the book as well, but for the purposes of this post I'm going to focus on how the book tackles leadership, strategy, complexity and chance.

Perhaps most amazing is how Tolstoy shoots down the historian's view of the power of individuals to shape history. Here he is explaining Napoleon's rise to power:

Chance, millions of chances, give him power, and all people, as if by arrangement, contribute to the strengthening of that power. Chance makes the characters of the then rulers of France submissive to him; chance makes the character of Paul I, who recognizes his power; chance makes a conspiracy against him which not only does not harm him, but strengthens his power. Chance sends d'Enghien into his hands and accidentally forces him to kill him, thereby convincing the mob more forcefully than by any other means that he has the right, because he has the power. Chance makes it so that he strains all his forces towards an expedition to England, which obviously would have destroyed him, and never carries out his intention, but instead unexpectedly runs into Mack and his Austrians, who surrender without a battle. Chance and genius give him the victory at Austerlitz, and by chance all people, not only the French, but all of Europe as well, with the exception of England, which does not participate in the events about to take place, all people, despite their former horror and loathing for his crimes, now recognize his power, the title he has given himself, and his ideal of greatness and glory, which to all of them seems something beautiful and reasonable. (pp 1134-1135)

Of course, when the chances turn against him, starting with the invasion of Russia, he quickly becomes a fool and a failure. Was he a genius, or an idiot? Neither, of course. He was participant in a sequence of events over which he had little control, according to Tolstoy. This is a humbling lesson for leaders of all types, who operate in the complex domain--whether that be warfare, business or politics. Events will define you far more than you define yourself. Your actions, to a large extent, will be overwhelmed by forces outside of your control.

Does this then mean that generalship doesn't matter? Tolstoy would say yes. Throughout the book he writes that the most carefully-created war plans go off the rails immediately after the battle begins, while a single junior officer, deciding on his own to attack the French flank, can have an immense impact on winning or losing. And that the passions of the soldiers have much more effect on the outcome than the best leadership and training.

In my times working at very large companies, this seemed true to me. The accomplishments of the company were the agglomeration of thousands of small efforts on behalf of the rank and file. [You could argue that company failures--Enron, AIG, for example--also work this way.] First-line managers had a big impact. Directors, somewhat. But the plans and strategies of the C-level executives, sitting in the God Pod, at the end of the day, didn't mean much at all.

HBR adds to business failure learning library with "7 Ways to Fail Big"

This article in the September 2008 issue of the Harvard Business Review, by Chunka Mui and Paul Carroll, discusses seven corporate worst practices and relates business stories that demonstrate them. The practices are:

1. The Synergy Mirage - companies justify acquisitions by touting synergies that just aren't there, or aren't there in enough volume to make the price worthwhile. (Quaker buys Snapple, Unum and Provident merge.)

2. Faulty Financial Engineering - companies borrowing from the future to make today's revenue look better. Enron, anyone? How about Green Tree Financial?

3. Stubbornly Staying The Course - Kodak, slow to react to digitization of photography, and Pillowtex, which failed to see the trend in outsourcing textile manufacture.

4. Pseudo-Adjacencies - the authors point to Oglebay, a company that thought it could deploy its expertise in shipping limestone to actually quarrying it. Result? Chapter 11.

5. Bets on the Wrong Technology - for example, FedEx ZapMail.

6. Rushing to Consolidate - too often mergers focus on the top-line increases but neglect "increased complexities [that] may lead to diseconomies of scale."

7. Roll-ups of Almost Any Kind - As with Loewen Group, a funeral-home aggregator, roll-ups can't withstand downturns and usually provide a short-term revenue bump at the expense of the long term (see #2).

Leaders, you have been warned. Avoid these at all costs!

Related Posts:
NASA learns to avoid its worst practices in safety
Worst practice learning means our favorite business bestsellers are all wrong

Tags:
worst practice, strategy, learning, mistakes, Harvard Business Review

"Innovator's Guide to Growth": readable, productive prescriptions for disruptive innovation

I didn't really understand Clayton Christensen's "The Innovator's Dilemma" when I read it many years ago. Perhaps like a lot of people employed by large companies, I suffered "innovator's myopia." But after experiencing disruptive products like Skype, Linux and salesforce.com it started to make more sense to me.

Christensen and his followers are still preaching the disruptive innovation gospel, and now, with "The Innovator's Guide to Growth" I am finally getting the picture.

It's the size and shape of a textbook, and works as one. Written by Mark Johnson, Scott Anthony and Joseph Sinfield, along with Motorola's Elizabeth Altman, "The Innovator's Guide" provides a rigorous introduction and a process for nurturing disruptive innovation. It guides a company through identifying opportunities, developing ideas, devising strategies, and deploying them.

There are no magic bullets presented--the core strategy, to find innovations that fundamentally reshape markets, is still difficult for market leaders to follow. Leaders' instincts are to protect market share and "feature up" their products, precisely the wrong approaches to disrupt a market.

One tenet of disruptive innovation is to target "overshot" customers. These customers have grown disenchanted with the continual upgrades of a product and won't pay more for new features. It occured to me that users of Microsoft Windows Vista--a huge product that just isn't exciting anyone (and annoying many)--are just such overshot customers.

The chapter entitled "Mastering Emergent Strategies" was worth the price of the book alone. Referencing the work of Rita Gunther McGrath and alluding to managerial complexity as elaborated by Boone and Snowden in a recent HBR article, it lays out the case for an iterative approach to planning as opposed to an all-out march to a clearly-defined objective.

The authors define three critical steps for iterative planning: (1) identifying areas of uncertainty, (2) performing "smart experiments" and (3) adjusting and reflecting.

The rest of the book is similarly insightful. If you're an innovator, or need to be one, this book should stay on your bookshelf as a valuable reference for many years.

Related posts:
Use your strategy to drive your acquisitions and vice versa
Rita Gunther McGrath

Tags:
innovation, strategy, complexity, reading list

Good news: The WSJ is back to being a great business paper (for now)

I wasn't alone in complaining about the Wall Street Journal's decline in the quality and quantity of its business news articles. Thankfully, as Slate's Jack Shafer points out, the Journal has improved markedly in this area recently.

I'd point to this article on Dell's embrace of web2.0, this one on new business gurus (but no women) and this on municipal broadband as recent standouts. Each of which has reconfirmed why I like the paper. I've also noticed that the wonderfully silly page-1 articles (I still remember the 30-year-old one on Meat Loaf) have returned.

Related post:
Wall Street Journal is discarding its identity as a business newspaper

Tags:
management, strategy, newspapers, media, Wall Street Journal

Must we give away digital creative works?

I've been thinking about this a lot recently, spurred on by the recent Fran Ten podcast, this David Pogue post, and most recently a thoughtful post by Scott Goodson based on this column by economist Paul Krugman.

The upshot of Krugman's argument, referencing Esther Dyson's prediction from the early '90's, is that digital creative works will become free, and creative artists will have to make their money from "ancillary" projects, such as touring, personal appearances, licensing, etc.

If this turns out to be true (and the music industry is approaching this state right now), then it has a lot of negative ramifications for the future of creativity.

First off is the fairness question. Here is a simplified digital media value chain:

• Digital distributors (i.e., ISPs like Comcast) make money through subscriptions
• Directories and aggregators (like Google) make money through advertising
• Creators make... nothing?

While the structure of technology allows this to happen, it's hard to look at this picture and see it as fair. I agree that DRM sucks, but is the solution "pay what you want"--a virtual tip jar?

Furthermore, if creating a work of art cannot in itself make money, it will then be difficult to invest much in that creation. While that may allow bloggers to continue (though I wouldn't turn down a few bucks for my work if that were possible), it doesn't bode well for musicians or moviemakers, and, soon, book authors.

If I can make money in personal appearances but not by writing, I will have to limit my writing time in order to, you know, pay the mortgage.

If a band can make money touring but not through selling CDs, they will be unlikely to spend much time in the recording studio, or to spend money on studio effects or gear. Perhaps they will instead simply tape their concerts and compile albums from the live sessions.

If a moviemaker cannot make money from her films because they are freely available on the web, she will have difficulty using any approach other than Dogme 95 in order to reduce costs. And do we want to see Dogme 95-style movies all the time?

The irony is that time put into making money takes away from time to create. Therefore, the output from our best artists is less. Is that progress?

Perhaps this is offset somewhat by the "long tail" of creators enabled by new technology. But I would trade 1000 bad "Nude" remixes for one new album by an artist I really like.

(Photo: pro-copying logo from piratbyran.org)

Related Posts:
Shop Talk Podcast #9 - Fran Ten of West Indian Girl on today's music business
How will musicians get paid in the 21st century?

Tags:
creativity, compensation, music, movies, books, content, strategy

An important definition of sensemaking

In trying to talk to companies about using narrative techniques and other ways to mine the non-quantitative data they have but never make use of, especially for strategy and innovation, this post from Dave Snowden will be a significant asset.

Sensemaking is the alchemical step where the mess is sorted through and the themes, threads and weak signals are detected and clarified. From there, people can make decisions and act.

In other words, it's the most important step.

Related post:
HBR article demonstrates that leaders need to manage complexity

Tags:
complexity, decisionmaking, leadership, narrative, innovation, strategy, sensemaking

Confused by "open wireless"? Read this

When it comes to making sense of the fragmented, messy world that is the US wireless marketplace, Hamilton Sekino of Diamond Consulting (someone I've worked with for years) is as good as it gets.

He and co-author David Gates have just written a white paper entitled "Wireless Open Models" (link - free with registration) that helps sort out just what "open" means in all the different contexts of the wireless world (networks, services, platforms, devices) and how names like Verizon, Android, iPhone, Nokia, Kindle, and others are involved. Like all Hamilton's work, "Wireless Open Models" is rigorous, well-written, and comes with a strong viewpoint.

It's a useful resource to have handy the next time you read about "open wireless." Which could be as early as today.

Tags:
mobile, wireless, open wireless, strategy

Champy's "Outsmart"--less than meets the eye

We talked some about business gurus last week, and while the name Jim Champy wasn't on the WSJ list, he would have been in the past. So when I was sent his new book, "Outsmart," I put down the other books I was reading to take this one up.

The good news was, at 165 pages with ample white space, it didn't take long to read. The bad news was that it fell far below my expectations. "Outsmart" is the business-literature equivalent of those new paper-like mint strips you lay on your tongue. The ideas dissolve in an instant.

Why? The book lacks the rigor of other recent books in the strategy literature, "The Opposable Mind" and "Big Think Strategy." It fails to paint the far-reaching vision of "The Future of Management." It is a collection of inspiring stories, and that has value. After reading it, however, I had difficulty taking away any lesson other than to be an extraordinary success, you had to be an extraordinary person with a strong vision and have excellent timing--not a very useful blueprint for most leaders.

At the end of each chapter is a summary of learnings. In "Compete By Doing Everything Yourself," Champy offers this lesson:

Control what matters. Doing everything yourself speaks to a very human impulse. When Cappello [the CEO of S.A. Robotics, the company that competed by doing everything itself] talked to me about his need to control his company's processes, I immediately understood that he was really talking about his distaste for losing control, especially for the kind of product he makes.

If you manufacture a complex, customized product, the need for control is clear. If you are providing a more commoditized product or service, however, outsourcing part of your work might be a legitimate option or, in some cases, a competitive necessity.

In other words, you can succeed by doing everything yourself, or by having others do work for you. It depends.

And in another chapter he writes, "I'm a strong believer that a company must be a low-cost producer to compete." Really? Is S.A. Robotics, which builds everything internally, a low-cost provider?

To me, these are indications of a book without a center. Compared to "The Opposable Mind" or "Big Think Strategy," "Outsmart" is lightweight. There's no science behind the theories other than a Darwinian metaphor in Chapter 1. The explanations are anecdotal (most times, a single anecdote). And no unifying theme.

"The Opposable Mind" described founders or CEOs who could reconcile contradictory ideas and thereby create new markets. Each example (and there were many) reinforced that idea. So did the cognitive research cited. "Big Think Strategy" supplemented its case studies with a strategic method.

By contrast, "Outsmart" is a brief, easy to read, set of success stories, that together don't add up to an important book, sad to say.

Related Posts:
"Big Think Strategy" is a fun, inspiring read
The first great business book of 2008 ("The Opposable Mind")
On Gary Hamel's "The Future of Management"

Tags:
innovation, strategy, reading list

Move to Intel chips helped Mac hit the jackpot

When the Mac's move to Intel chips was announced almost three years ago, it seemed like a good, practical move. The PowerPC chip was falling behind Intel, performance-wise, and Apple wanted to leverage Intel's much larger investment in performance and capability. Intel, for its part, wanted the sexiness of being associated with a cooler brand than Dell, Lenovo, etc.

But the full impact of the processor swap is only now becoming apparent. Yesterday Apple stated that its latest quarterly earnings rose 36% over the same period last year, powered by a 51% increase in Mac sales. The Wall Street Journal buried this telling passage into its article on Apple's earnings release:

Apple's computers now also easily run Microsoft Corp.'s Windows operating system, which has helped Apple in a long-running campaign to persuade Windows users to switch to Macs.

Precisely. The Intel processor was a Trojan Horse hiding Windows compatibility--the real value of the switch from PowerPC. Eons ago, people in companies used Macs all the time (it was on my desktop in 1989). Then Windows 3.1 swept through the business world, and Macs retreated to schools, graphic designers and filmmakers.

Now, people who require some Windows programs (because of work or other reasons) can retain that compatibility and get the benefits of OS X and all the interesting applications that run on it.

One of those people is me. The Mac returned to my desktop in August 2007 after a 12-year hiatus. It's good to be back.

technology, personal computers, Apple, strategy, Wall Street Journal

Yoda as a business role model

I've written before about my young kids' obsession with "Star Wars." But now that I've watched all six episodes multiple times, I'm finally getting a grip on the story and how it fits together.

The most interesting character to me is Yoda. Through nearly all the episodes he sits placidly, strokes his chin, and speaks wisdom in his inverted grammar. He thinks, he meditates, he guides. He is the Jedi-est of the Jedis, winning through not fighting.

But at the end of Episode Two: Attack of the Clones, Yoda gets moving. He flies to Geonosis and commands the Clone Army in its battle against Count Dooku's troops. And, finally, with Obi-Wan and Anakin injured and at risk of dying at Dooku's hands, he uses the Force to prevent them being crushed by falling debris and whips out the light saber to battle Dooku, eventually forcing his retreat.

A Jedi needs to think, to prepare. But eventually he has to fight. So it is with leaders of businesses here on Earth. Strategizing, planning, directing are all important. But eventually you've got to roll up the sleeves and get to work side-by-side with your team, whether that's making an important sale, managing a crisis or closing that round of funding.

leadership, strategy, management

Companies stall because they don't listen to customers

The Stall Points Initiative is an effort by the Corporate Executive Board, a business research group, to pinpoint why companies suddenly stop growing, then stagnate or decline for years thereafter. If you think that's a rare trend, think again: according to CEB, 87% of the companies they studied (all at one time members of the Fortune 100 or similarly sized non-US companies) had stalled once or more.

Matthew Olson, Seth Verry and Derek van Bever of the CEB describe their work in the March issue of the Harvard Business Review ("When Growth Stalls" - free link). The authors contend that most of the reasons for stalls are within the company's control (factors such as regulatory actions, macroeconomic issues, political shifts are responsible for only 13% of the stalls).

CEOs are advised to watch for "red flags" to see if their companies are headed for a stall. Here's the list:

• Core assumptions about the marketplace and company capabilities to exploit it are undocumented
• Market definition boundaries are out of date
• Definition of core market is out of date
• Infrequent testing of customers' valuation of product attributes
• Ineffective translation of customer insights into products
• Core customers no longer are willing to pay a premium for the product

Five out of the six reasons directly point to an inability to listen carefully to the market and compose a realistic picture of the strengths and weaknesses of the company's products.

So why do stalls happen? Companies point inward and lose contact with customers. Their internal focus leads them to overestimate their strengths and show overconfidence in their offerings.

Companies need to constantly question their value propositions to customers (this strategy approach can help) and guard against falling in love with their products. A little humility, a lot of listening, and never being satisfied.

strategy, growth, Harvard Business Review

"Big Think Strategy" is a fun, inspiring read on reinventing business

Every CEO these days wants to reinvent her business. One problem is thinking big enough. Being part of an industry, a market, a sector tends to limit a company's peripheral vision. How do companies break out of their comfort zone and find strategies that take advantage of their unique strengths while opening up new markets?

That is the question "Big Think Strategy" by Bernd Schmitt, professor at Columbia Business School, tries to answer. And the book does a good job of showing what is needed to "kill the sacred cows" of a business and imagine and invent a prosperous, growing future. Schmitt's focus is on nurturing creativity in the executive suite and in among the rank and file. And it's written in a fun style that complements the subject matter and inspires the readership to give the ideas a try.

The best parts of the book are around generating new ideas--from staff, customers or seemingly unrelated industries--creating a strategy from those ideas. In Chapter Four, Schmitt describes four "big think strategy" types--opposition, integration, essence and transcendence--and what competitive reaction each type is likely to spur.

Like more and more business books these days, Schmitt lets his personal story seep into the pages, whether it's his love of steak or a nice suit, or the opera. (I have to say my enjoyment of these anecdotes was offset somewhat by twinges of envy--Schmitt's life seems pretty posh for a consultant... perhaps he is hiring?)

"Big Think Strategy" is a companion piece to a couple of other recent books of importance: "The Opposable Mind" and "The Future of Management" (see posts on these books here and here). And it suffers a bit by comparison to each. Due to its brevity and fewer examples, and to some extent its breezy writing style, it feels less substantial than either book. Nonetheless, it's a good book on a crucial subject for today's leaders.

If you can only buy two books on reinventing your business this year, I'm afraid you'll have to skip "Big Think Strategy." Otherwise, it's a worthy addition to your bookshelf.

creativity, strategy, business development, reading list

Executing your strategy is a good idea

The new book “Executing Your Strategy: How To Break It Down And Get It Done,” by Mark Morgan, William Malek and Raymond Levitt, is an invaluable resource for leaders seeking to plot a course for the future.

The authors accurately accuse most leaders of vision by default—setting management priorities based solely on the issues confronting them rather than looking ahead, and deciding what to do next. At the same time, Morgan, Malek and Levitt put forth a systematic approach for companies to decide “who they are, where they want to go and how to get there” and illustrate the means to implement those ideas. They also cover the key elements linking vision, strategy and operations--and how to connect them together into a coherent operating model for a company.

“Executing Your Strategy” is not a breezy read, and probably works best digested a bit at a time, and thereafter as a reference. Yet its density is welcome when the issue at hand—as the authors state, “The global business landscape is littered with expensive, well-intentioned strategies that failed in the execution phase”—is so important.

By contrast, “The New Leader’s Guide to Diagnosing the Business” (link - $$) in the February Harvard Business Review sets out a complete menu of activities for the new CEO in ten pages. While the tools to diagnose the current state of the business are fine and useful, “The New Leader’s Guide” goes awry when it tries to convert those findings to a working strategy (perhaps suffering from the consultant’s detachment from the complexities of actual business management). Here is a sample strategy they propose for a new CEO:

• Reduce costs by $200 million to move relative cost position from 110% of best competitor to 90%.
• Increase relative market share from 0.9 to 1.2 [i.e., from second in market share to first]….
• Increase share of profit pool from 40% of $2 billion to 70% of $2.8 billion
• Cut SKUs from 100,000 to 2,000; reduce organizational layers in SG&A from five to three; outsource 20% of all SG&A costs.

These consultants will remain nameless (their firm’s name rhymes with main), but they are in effect proposing a strategy to become a cost leader, a market share leader, and a profitability leader--all at the same time.

The authors of “Executing Your Strategy” say this:

We have worked with many companies whose strategies seem to ask them to do it all…. This type of multifront strategy is almost always a nonstarter…. What differentiates one organization from another in terms of strategic execution is the discipline of engaging the strategy with the tailored portfolio of projects and programs that will bring it to life. In a world of limited resources, it is as much about choosing what not to do as about deciding which strategic projects and programs to invest in. (p. 141)

Makes sense to me. If I needed strategy consulting help, I think I’d bypass the …ain guys and talk to Morgan, Levitt and Malek.

strategy, execution, reading list, Harvard Business Review

Yahoo having trouble with the vision thing

Something in this NY Times Bits post about Yahoo's downbeat earnings call and resulting stock swoon reminded me of a book I'm reading now. Here's the bit that triggered the connection:

...Mr. Yang and Ms. Decker’s strategy is essentially “vision goes here.” They want to be the “starting point” for users on the Web. They want to be the “must buy” for advertisers. And Mr. Yang said he would assume an “aggressive investment posture.”

The only thing missing from that is the substance. Why would users start at Yahoo? How are advertisers going to find Yahoo superior? And what will the company invest in?

...Maybe Yahoo simply has a communication problem. Perhaps it will emerge with great products for users and advertisers. But my take is that it will be much harder if its customers, employees and stockholders don’t understand what it is doing and why they should care.

The book is "Executing Your Strategy" (I'm going to have to post on clunky titles affixed to good business books) by Mark Morgan, Raymond Levitt and William Malek. The book says that to create a vision, a company must answer three critical questions. These questions drive and prioritize the handful/dozens/hundreds of projects that will help the company achieve its strategies. They are:

1. Who are you?
2. Why are you here?
3. Where are you going?

From the earnings announcement and conference call, if Yahoo has deeply considered and answered these questions, they're not saying.

strategy, reading list

Top 5 Harvard Business Review breakthrough ideas

In which we select the best of the annual Harvard Business Review list of twenty breakthrough ideas (free link) for the benefit of time-constrained executives everywhere. This service is provided at no extra charge.

1. "Here Comes the P2P Economy," by Stan Stalnaker. Web 2.0 is accelerating a shift to an economy with many, many small sellers.

2. "Task, not time: Profile of a Gen Y Job," by Tamara Erickson. Young workers are not tied to the clock, or the office. Give them specific tasks and let them do them when, and where, they see fit.

3. "A Doctor's Rx for CEO Decision Makers," by Jerome Groopman. A relatively new technique--intensive peer review of failures--allows physicians to detect and understand decision biases that contribute to misdiagnoses. Such a process can help business decisionmakers as well.

4. "The Gamer Disposition," by John Seely Brown and Douglas Thomas. People adept at multiplayer computer games have qualities (such as desire to improve, appreciation of diversity, and results-orientation) that businesses should be seeking in their employees.

5. "What Good Are Experts?" by Michael Mauboussin. Research and experience with decisionmaking tools such as prediction markets is showing that expertise has a more narrow application than previously thought. Good businesses will assess which tool works better for the problem at hand--prediction markets for probabilistic problems, computers for rules-based problems, and experts for the remainder--and act accordingly.

Bonus "I really didn't know that" item: "Islamic Finance: the New Global Player," by Aamir Rehman and Nazim Ali. Despite the seemingly-restrictive rules of Sharia, Muslim law, on investing and charging interest, a vibrant and growing Sharia-compliant financial marketplace has emerged in the Islamic world.

strategy, decisionmaking, finance, learning, mistakes, organizational behavior, Harvard Business Review

Collaboration or individual leadership? Which is it?

Collaboration is in. The WSJ Business Insight article "Leading From Below" states, "at most companies, senior managers are increasingly hamstrung by the demand from investors and analysts for immediate results"--requiring middle managers to provide leadership at the company level. Other scholars say dissent in the workplace is to be encouraged. The democratic organization is gaining traction.

You would think that we've passed into a new phase of corporate management--leadership by collective. Yet a couple of authors have recently reasserted the importance of individual vision and leadership in business.
In "The Opposable Mind," Roger Martin celebrates the unique capability of individual innovators. Martin writes, "the most common failing of conventional thinking is the tendency to lose sight of the whole decision. It may be easier to dole out pieces of a decision to various corporate functions, but that ensures that no one will take a holistic view of a particular problem." (p.46)

And, in the January Harvard Business Review, Cynthia Montgomery of Harvard Business School states that we should be "Putting Leadership Back Into Strategy" (link - $$). Writes Montgomery:

The need to create and recreate reasons for a company's continued existence sets the strategist apart from every other individual in the company.

Throughout her paper, Montgomery underlines the need not to delegate strategy, but to make it the most important task of the CEO. Strategy-making by committee? Not in Montgomery's view.

So which approach is correct? I'm stumped. Perhaps the artful company balances a strong, visionary leader with the tools and techniques of collaboration, somehow combining the coherence of a single vision and the power of the masses and the "wisdom of crowds."

No wonder there are so few brilliant companies out there.

organizational behavior, strategy, leadership, Harvard Business Review

Describe your strategy in a simple picture

Remember Venn diagrams? Those intersecting circles we learned about in elementary-school mathematics? (It was interesting that I didn't see those again until advanced college math--what a surprise that was!)

In the November Harvard Business Review ("Strategic Insight In Three Circles" - free link), Joel Urbany and James Davis of the University of Notre Dame use three intersecting circles (illustrated below) to simply describe a company's strategy. One circle identifies what value your company provides through its products and services. The second is what customers perceive about your company's value, and the third represents what customers perceive about your competitors' value.



The strategic goal, of course, would be to increase competitive advantage, decrease disadvantage, eliminate non-value and capture much of the white space. (Easier said than done!) Identifying and scrutinizing the attributes in each of those areas is a very useful exercise.

But be careful. It's important to be brutally candid with yourself when doing this type of evaluation. And you must truly look at things through the eyes of the customer, instead of how you'd wish them to see you and your competitor.

It's very easy to self-delude. In many cases, companies will come up with a self-congratulatory diagram like this:




When perhaps their true strategic situation is this (write Urbany and Davis, "The biggest surprise is often that [the advantage area], envisioned to be huge by the company, turns out to be minuscule in the eyes of the customer"):




So, it's important that this tool be used for genuine inquiry and candid appraisal, not to justify the current thinking or to make people feel good about themselves. If your company can use it properly, the three circles can clearly and vibrantly tell you where you are and where you should head.

(Illustrations adapted from Urbany and Davis, "Strategic Insight In Three Circles.")

strategy, strategic planning, competition, Harvard Business Review

On Gary Hamel's "The Future of Management" part 1 - Management Innovation

When we think of innovation, we think of products. The Segway, the iPod, the Roomba, the hot cellphone of the quarter. It's not surprising: they make good copy, and they can be photographed.

But, according to Gary Hamel, in his new book "The Future of Management," product innovations are a short-lived form of competitive advantage. A highly-successful new product gives you only a few years of excess profits before imitators and, yes, more innovative products commoditize it. (Doesn't it seem that the RAZR's heyday was a thousand years ago?)

What about business model innovations? Examples cited by Hamel include Zara ("chic but cheap couture") and Southwest's low-fare airline model. While more sustainable than product innovations, global consulting firms and the ever-growing practice of outsourcing allow new business models to spread rapidly across industries.

Finally, for companies desiring long-term advantage, Hamel points to management innovation. These are entire new ways of organizing, orienting, incenting and acculturating staff and leadership. Significant management innovations are rare, but they can provide decades of value. Hamel cites historical examples such as DuPont's development and utilization of return on investment, Procter & Gamble's brand-management approach, and Toyota's use of each employee's ability (see how Toyota describes its approach here). In each case, the companies achieved advantages that lasted decades.

Why are management innovations so sustainable? Here's Hamel's explanation:

Amazingly, it took nearly 20 years for America's carmakers to decipher Toyota's advantage. Unlike its Western rivals, Toyota believed that first-line employees could be more than cogs in a soulless manufacturing machine [JC note: ironically, the result of a much earlier management innovation--Frederick Taylor's division-of-labor model]. If given the right tools and training, they could be problem-solvers, innovators, and change agents. Toyota saw within its workforce the necessary genius for never-ending, fast-paced operational improvement. In contrast, US car companies tended to discount the contributions that could be made by first-line employees, and relied instead on staff experts for improvements in quality and efficiency. (p. 29)

In other words, management innovation is hard to imitate because it goes against the training, experience and culture that a company has developed over its recent history. It means rewriting tacit rules that have gone unquestioned and that in most cases have led to the company's success in the past.

This, of course, means that establishing management innovation is terribly hard work, full of complexity and requiring learning and development on the part of all staff. But most importantly it requires unflagging commitment of the leadership, since they have the most invested in the status quo.

More tomorrow on "The Future of Management."

Note: you can find excerpts of the book here.

Other posts on this topic:

Part 2
Part 3
Part 4
Part 5

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Next week preview: Gary Hamel's "The Future of Management"--a must read

Gary Hamel's new book "The Future of Management" changed the direction of my career--eleven months before it was even published.

Let me explain. Last November I saw Hamel speak at the now-defunct Fortune Innovation Forum and was struck by the power of his words and performance. (Here's my post from that week.) Hamel was saying that the last one hundred years had not brought us far in the maturity of management. And that companies remain woefully inadequate in engaging their employees and fueling their passion. To paraphrase Hamel as he finished his speech, "Try to figure out how to get all employees to give 100% of their capabilities to their work. That is an interesting management problem for the 21st century."

I was hooked. I started to examine my own work, and what I wanted out of it. I made changes--due to a lot of factors, but not least because of what Gary Hamel said.

At long last, then, his book is out. And it's a must-read. It's full of inspiration, a bit of scolding, and lots of ideas for making companies far better than they are today. So we'll devote next week to breaking down "The Future of Management." See you then.

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