competition

On The Everything Store

I recently finished reading The Everything Store – Jeff Bezos and the Age of Amazon – by Brad Stone.

Below are key excerpts from the book that I found particularly insightful:

There is so much stuff that has yet to he invented. There’s so much new that’s going to happen. People don’t have any idea yet how impactful the Internet is going to be and that this is still Day 1 in such a big way.

“If you want to get to the truth about what makes us different, it’s this,” Bezos says, veering into a familiar Jeffism: “We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different. Very few companies have all of those three elements.

So looking back on life’s important junctures was on Bezos’s mind when he came up with what he calls “the regret-minimization framework” to decide the next step to take at this juncture in his career.

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate direct! to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital. Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.

Jeff Bezos embodied the qualities Sam Walton wrote about. He was constitutionally unwilling to watch Amazon succumb to any kind of institutional torpor, and he generated a nonstop flood of ideas on how to improve the experience of the website, make it more compelling for customers, and keep it one step ahead of rivals.

Bezos was obsessed with the customer experience, and anyone who didn’t have the same single-minded focus or who he felt wasn’t demonstrating a capacity for thinking big bore the brunt of his considerable temper.

“My approach has always been that value trumps everything,” Sinegal continued. “The reason people are prepared to come to our strange places to shop is that we have value. We deliver on that value constantly. There are no annuities in this business.” A decade later and finally preparing to retire, Sinegal remembers that conversation well. “I think Jeff looked at it and thought that was something that would apply to his business as well,” he says.

“I understand what you’re saying, but you are completely wrong,’ he said. “Communication is a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other. not more.”

That was a typical interaction with Jeff. He had this unbelievable ability to be incredibly intelligent about things he had nothing to do with, and he was totally ruthless about communicating it.

If Amazon wanted to stimulate creativity among its developers, it shouldn’t try to guess what kind of services they might want; such guesses would be based on patterns of the past. Instead, it should be creating primitives—the building blocks of computing—and then getting out of the way. In other words, it needed to break its infrastructure down into the smallest, simplest atomic components and allow developers to freely access them with as much flexibility as possible.

‘Jeff does a couple of things better than anyone I’ve ever worked for,” Dalzell says. “He embraces the truth. A lot of people talk about the truth, but they don’t engage their decision-making around the best truth at the time. “The second thing is that he is not tethered by conventional thinking. What is amazing to me is that he is bound only by the laws of physics. He can’t change those. Everything else he views as open to discussion.”

On a closing note:

Amazon may be the most beguiling company that ever existed. and it is just getting started. It is both missionary and mercenary. and throughout the history of business and other human affairs, that has always been a potent combination. “We don’t have a single big advantage,” he once told an old adversary, publisher Tim O’Reilly, back when they were arguing over Amazon protecting its patented 1-Click ordering method from rivals like Barnes & Noble. “So we have to weave a rope of many small advantages.” Amazon is still weaving that rope. That is its future, to keep weaving and growing, manifesting the constitutional relentlessness of its founder and his vision. And it will continue to expand until either Jeff Bezos exits the scene or no one is left to stand in his way.

A recommended read in the areas of technology and corporate history.

The House Of Morgan

I recently finished reading the award-winning book The House of Morgan by Ron Chernow. As best summarized by the author: “This book is about the rise, fall, and resurrection of an American banking empire—the House of Morgan. Perhaps no other institution has been so encrusted with legend, so ripe with mystery, or exposed to such bitter polemics. Until 1989, J. P. Morgan and Company solemnly presided over American finance from the “Corner” of Broad and Wall. Flanked by the New York Stock Exchange and Federal Hall, the short building at 23 Wall Street, with its unmarked, catercorner entrance, exhibited a patrician aloofness. Much of our story revolves around this chiseled marble building and the presidents and prime ministers, moguls and millionaires who marched up its steps. With the records now available, we can follow them inside the world’s most secretive bank.”

Below are key excerpts from the book that I found particularly insightful:

The story of the three Morgan banks is nothing less than the history of Anglo-American finance itself. For 150 years, they have stood at the center of every panic, boom, and crash on Wall Street or in the City. They have weathered wars and depressions, scandals and hearings. bomb blasts and attempted assassinations. No other financial dynasty in modern times has so steadily maintained its preeminence. Its chronicle holds up a mirror in which we can study the changes in the style, ethics. and etiquette of high finance. To order this vast panorama, we will divide our saga into three periods. This framework applies principally to the Morgan houses but also has, I think, more general relevance to other banks.

The House of Morgan’s future approach to business was shaped in the gloomy days of 1873. The panic was a disaster for European investors. who lost $600 million in American railroad stocks. Stung by all the railroad bankruptcies, Pierpont decided to limit his future dealings to elite companies. He became the sort of tycoon who hated risk and wanted only sure things. “I have come to the conclusion that neither my firm nor myself will have anything to do, hereafter, directly or indirectly, with the negotiation of securities of any undertaking not entirely completed; and whose status, by experience, would not prove it entitled to a credit in every respect unassailable.” Another time, he said, “The kind of Bonds which I want to be connected with are those which can be recommended without a shadow of doubt, and without the least subsequent anxiety, as to payment of interest, as it matures. ” This encapsulated future Morgan strategy—dealing only with the strongest companies and shying away from speculative ventures.

Pierpont selected partners not by wealth or to fortify the bank’s capital but based on brains and talent. If the Morgan style was royal. its hiring practices were meritocratic. The bank had many first-rate technicians.

The intellectual and political leap most damaging to the House of Morgan was a spreading notion that a Wall Street trust had created the industrial trusts and governed their subsequent destiny.

After Pierpont Morgan’s death, the House of Morgan would become less autocratic, less identified with a single individual. Power would be diffused among several partners, although Jack Morgan would remain as figurehead. In the new Diplomatic Age, the bank’s influence would not diminish. Rather, it would break from its domestic shackles and become a global power, sharing financial leadership with central banks and government! and profiting in unexpected ways from the partnership. What nobody could have foreseen in 1913 was that lack Morgan—shy, awkward, shambling Jack who had cowered in the corners of Pierpont’s life—would preside over an institution of perhaps even larger power than the one ruled by his willful, rambunctious father.

Through Strong’s influence, the Federal Reserve System would prove far more of a boon than a threat to Morgans. The New York Fed and the bank would share a sense of purpose such that the House of Morgan would be known on Wall Street as the Fed bank. So, contrary to expectations, frustrated reformers only watched Morgan power grow after 1913.

The news of war was greeted with melodramatic foreboding by Jack Morgan, who foresaw “the most appalling destruction of values in securities which has ever been seen in this country.” Later reviled as a “merchant of death” by isolationists, his first reaction, in fact, was spotlessly humane.

So the early New Deal threatened the House of Morgan in two ways: the Pecora hearings were exposing practices that could bring fresh regulation to Wall Street. And the White House attitude toward European finance augured an end to the House of Morgan’s special diplomatic role of the 1920s. After an incestuous relationship with Washington in the twenties, the bank would suffer the curse of eternal banishment.

The Glass-Steagall Act took dead aim at the House of Morgan. After all, it was the bank that had most spectacularly fused the two forms of banking. It had, ironically, proved that the two types of services could be successfully combined; Kuhn, Loeb and Lehman Brothers did less deposit business, while National City and Chase had scandal-ridden securities affiliates. The House of Morgan was the active double threat. with its million-dollar corporate balances and blue-ribbon underwriting business.

As it turned out, the House of Morgan didn’t suffer as much from Willkie’s defeat as might have been expected. Bolstered by his election victory, Roosevelt moved more vigorously to support Britain, and in this effort he needed the Morgan bank. With marvelous suddenness, the chill in Morgan-Roosevelt relations thawed and was replaced by cordiality from the White House of a sort that 23 Wall hadn’t known since the twenties. As America’s attention shifted from blistering debates over domestic policy to ways in which to deal with Europe’s dictators, the power of the House of Morgan surged accordingly.

On a closing note:

The old House of Morgan’s power stemmed from the immature state of government treasuries, companies, and capital markets. It stood sentinel over capital markets that were relatively small and primitive. Today, money has become a commonplace commodity. A company in need of capital can turn to investment banks, commercial banks, or insurance companies; it can raise it through bank loans, bond issues, private placements, or commercial paper; it can draw upon many) currencies, many countries, many markets. Money has lost its mystique, and banking. therefore, has lost a bit of its magic. The Morgan story is the story of modern finance itself. A Pierpont Morgan exercised powers that today are dispersed among vast global banking conglomerates. The activities once performed by a knot of side-whiskered men in mahogany parlors are now spread across trading rooms around the world. We live in a larger, faster, more anonymous age. There will be more deals done and more fortunes made, but there will never be another barony like the House of Morgan.

A recommended read in the areas of Finance, Banking and History.

On Now, Discover Your Strengths

I just finished reading the book Now, Discover Your Strengths by Marcus Buckingham and the late Donald O. Clifton, Ph.D.

The main premise of this book:

We wrote this book to start a revolution, the strengths revolution. At the heart of this revolution is a simple decree: The great organization must not only accommodate the fact that each employee is different, it must capitalize on these differences. It must watch for clues to each employee’s natural talents and then position and develops each employee so that his or her talents are transformed into bona fide strengths. By changing the way it selects, measures, develops, and channels the careers of its people, this revolutionary organization must build its entire enterprise around the strengths of each person. And as it does, this revolutionary organization will be positioned to dramatically outperform its peers…To break out of this weakness spiral and to launch the strengths revolution in your own organization, you must change your assumptions about people. Start with the right assumptions, and everything else that follows from them—how you select, measure, train, and develop your people—will be right. These are the two assumptions that guide the world’s best managers: 1. Each person’s talents are enduring and unique. 2. Each person’s greatest room for growth is in the areas of his or her greatest strength.

The foundational assumptions that this book, and strength-based management is based on:

These two assumptions are the foundation for everything they do with and for their people. These two assumptions explain why great managers are careful to look for talent in every role, why they focus people’s performances on outcomes rather than forcing them into a stylistic mold, why they disobey the Golden Rule and treat each employee differently, and why they spend the most time with their best people. In short, these two assumptions explain why the world’s best managers break all the rules of conventional management wisdom. Now, following the great managers’ lead, it is time to change the rules. These two revolutionary assumptions must serve as the central tenets for a new way of working. They are the tenets for a new organization, a stronger organization, an organization designed to reveal and stretch the strengths of each employee.

On Strengths:

For the sake of clarity let’s be more precise about what we mean by a “strength.” The definition of a strength that we will use throughout this book is quite specific: consistent near perfect performance in an activity. By this definition Pam’s accurate decision-making and ability to rally people around her organization’s common purpose are strengths. Sherie’s love of diagnosing and treating skin diseases is a strength. Paula’s ability to generate and then refine article ideas that fit her magazine’s identity is a strength.

On Skills:

Skills bring structure to experiential knowledge. What does this mean? It means that, whatever the activity, at some point a smart person will sit back and formalize all the accumulated knowledge into a sequence of steps that, if followed, will lead to performance—not necessarily great performance but acceptable performance nonetheless…The bottom fine on skills is this: A skill is designed to make the secrets of the best easily transferable. If you learn a skill, it will help you get a little better, but it will not cover for a lack of talent. Instead, as you build your strengths, skills will actually prove most valuable when they are combined with genuine talent.

On Talent:

What is talent? Talent is often described as “a special natural ability or aptitude,” but for the purposes of strength building we suggest a more precise and comprehensive definition, which is derived from our studies of great managers. Talent is any recurring pattern of thought, feeling, or behavior that can be productively applied. Thus, if you are instinctively inquisitive, this is a talent. If you are competitive, this is a talent. If you are charming, this is a talent. If you are persistent, this is a talent. If you are responsible, this is a talent. Any recurring pattern of thought, feeling, or behavior is a talent if this pattern can be productively applied…Spontaneous reactions, yearnings, rapid learning, and satisfactions will all help you detect the traces of your talents. As you rush through your busy life, try to step back, quiet the wind whipping past your ears, and listen for these clues. They will help you zero in on your talents.

To recap:

Talents are your naturally recurring patterns of thought, feeling, or behavior. Your various themes of talent are what the StrengthsFinder Profile actually measures. Knowledge consists of the facts and lessons learned. Skills are the steps of an activity.

On obstacles to building strengths:

 

However, despite the range, this general conclusion holds true: The majority of the world’s population doesn’t think that the secret to improvement lies in a deep understanding of their strengths. (Interestingly, in every culture the group least fixated on their weaknesses was the oldest group, those fifty-five years old and above. A little older, a little wiser, this group has probably acquired a measure of self-acceptance and realized the futility of trying to paper over the persistent cracks in their personality.)

On whether you can develop new themes if you don’t like the ones revealed?

You may not be able to rewire your brain, but by acquiring new knowledge and skills you can redirect your life. You can’t develop new themes, but you can develop new strengths.

On what to do about weaknesses?

To begin with, you need to know what a weakness is. Our definition of a weakness is anything that gets in the way of excellent performance. To some this may seem to be an obvious definition, but before skipping past it, bear in mind that it is not the definition of weakness that most of us would use. Most of us would probably side with Webster’s and the Oxford English Dictionary and define a weakness as “an area where we lack proficiency.” As you strive to build your life around your strengths, we advise you to steer clear of this definition for one very practical reason: Like all of us, you have countless areas where you lack proficiency, but most of them are simply not worth bothering about. Why? Because they don’t get in the way of excellent performance. They are irrelevant. They don’t need to be managed at all, just ignored…So once you know you have a genuine weakness on your hands, a deficiency that actually gets in the way of excellent performance, how can you best deal with it? The first thing you have to do is identify whether the weakness is a skills weakness, a knowledge weakness, or a talent weakness.

On whether the themes revealed will indicate whether you are in the right career?

Our research into human strengths does not support the extreme, and extremely misleading, assertion that “you can play any role you set your mind to,” but it does lead us to this truth: Whatever you set your mind to, you will he most successful when you craft your role to play to your signature talents most of the time. We hope that by highlighting your signature themes we can help you craft such a role.

Practical implications of strengths-based management:

Since each person’s talents are enduring, you should spend a great deal of time and money selecting people properly in the first place…Since each person’s talents are unique, you should focus performance by legislating outcomes rather than forcing each person into a stylistic mold…Since the greatest room for each person’s growth is in the areas of his greatest strength, you should focus your training time and money on educating him about his strengths and figuring out ways to build on these strengths rather than on remedially trying to plug his “skill gaps.”…Lastly, since the greatest room for each person’s growth lies in his areas of greatest strength, you should devise ways to help each person grow his career without necessarily promoting him up the corporate ladder and out of his areas of strength.

Managers will continue to play a key role in the development of employees within a strengths-based organization:

Needless to say the individual manager will always be a critical catalyst in transforming each employee’s talents into bona fide strengths; consequently, much of the responsibility will lie with the manager to develop each employee’s career.

A reminder on how to keep high potential employees engaged:

If you want to keep a talented employee, show him not just that you care about him, not just that you will help him grow, but, more important, that you know him, that in the truest sense of the word you recognize him (or, at the very least, that you are trying to). In today’s increasingly anonymous and transient working world, your organization’s inquisitiveness about the strengths of its employees will set your organization apart.

On a concluding note:

With the knowledge economy gathering pace, global competition increasing, new technologies quickly commoditized, and the workforce aging, the right employees are becoming more precious with each passing year. Those of us who lead great organizations must become more sophisticated and more efficient when it comes to capitalizing on our people. We must find the best fit possible of people’s strengths and the roles we are asking them to play at work. Only then will we be as strong as we should be. Only then will we win.

This book includes access for you to take the online StrengthsFinder assessment and discover your top five themes. The material in the book will help you further develop your talents and strengths as well as how to best enable others on your team based on their strengths.

A recommended read, development and engagement tool both from a personal and management perspective.

 

The Innovator’s Solution

It is hard to read any business article, blog, journal or magazine without coming across the word innovation. And while the profile of this topic has risen to prominence in the last few years, it is one that has been thoroughly studied particularly by professor Clayton M. Christensen. He is considered by many as “the architect of and the world’s foremost authority on disruptive innovation.” A few years ago, I read his seminal book in that area – The Innovator’s Dilemma, and recently I finished reading his second – The Innovator’s Solution which he co-authored with Michael E. Raynor.

Below are the key lessons from it that I wanted to share with you.

On the premise of the book:

If I wanted to start a company that could become significant and successful and ultimately topple the firms that now lead an industry, how could I do it? If indeed there are predictable reasons why businesses stumble, we might then help managers avoid those causes of failure and help them make decisions that predictably lead to successful growth. This is The Innovator’s Solution.

This is a book about how to create new growth in business. Growth is important because companies create shareholder value through profitable growth. Yet there is powerful evidence that once a company’s core business has matured, the pursuit of new platforms for growth entails daunting risk. Roughly one company in ten is able to sustain the kind of growth that translates into an above-average increase in shareholder returns over more than a few years. Too often the very attempt to grow causes the entire corporation to crash. Consequently, most executives are in a no-win situation: equity markets demand that they grow, but it’s hard to know how to grow. Pursuing growth the wrong way can be worse than no growth at all.

Can innovation be made predictable? Can it be turned into a process?

What can make the process of innovation more predictable? It does not entail learning to predict what individuals might do. Rather, it comes from understanding the forces that act upon the individuals involved in building businesses—forces that powerfully influence what managers choose and cannot choose to do. Rarely does an idea for a new-growth business emerge fully formed from an innovative employee’s head. No matter how well articulated a concept or insight might be, it must be shaped and modified, often significantly, as it gets fleshed out into a business plan that can win funding from the corporation. Along the way, it encounters a number of highly predictable forces. Managers as individuals might indeed be idiosyncratic and unpredictable, but they all face forces that are similar in their mechanism of action, their timing, and their impact on the character of the product and business plan that the company ultimately attempts to implement. Understanding and managing these forces can make innovation more predictable.

We often admire the intuition that successful entrepreneurs seem to have for building growth businesses. When they exercise their intuition about what actions will lead to the desired results, they really are employing theories that give them a sense of the right thing to do in various circumstances. These theories were not there at birth; They were learned through a set of experiences and mentors earlier in life. If some people have learned the theories that we call intuition, then it is our hope that these theories also can be taught to others. This is our aspiration for this book. We hope to help managers who are trying to create new-growth businesses use the best research we have been able to assemble to learn how to match their actions to the circumstances in order to get the results they need. As our readers use these ways of thinking over and over, we hope that the thought processes inherent in these theories can become part of their intuition as well.

On the difference between sustaining innovation and disruptive innovation and the associate strategies associated with each:

We must emphasize that we do not argue against the aggressive pursuit of sustaining innovation…Almost always a host of similar companies enters an industry in its early years, and getting ahead of that crowd—moving up the sustaining-innovation trajectory more decisively than the others—is critical to the successful exploitation of the disruptive opportunity. But this is the source of the dilemma: Sustaining innovations are so important and attractive, relative to disruptive ones, that the very best sustaining companies systematically ignore disruptive threats and opportunities until the game is over. Sustaining innovation essentially entails making a better mousetrap. Starting a new company with a sustaining innovation isn’t necessarily a bad idea: Focused companies sometimes can develop new products more rapidly than larger firms because of the conflicts and distractions that broad scope often creates. The theory of disruption suggests, however, that once they have developed and established the viability of their superior product, entrepreneurs who have entered on a sustaining trajectory should turn around and sell out to one of the industry leaders behind them. If executed successfully, getting ahead of the leaders on the sustaining curve and then selling out quickly can be a straightforward way to make an attractive financial return…A sustaining-technology strategy is not a viable way to build new-growth businesses, however. If you create and attempt to sell a better product into an established market to capture established competitors’ best customers, the competitors will be motivated to fight rather than to flee. This advice holds even when the entrant is a huge corporation with ostensibly deeper pockets than the incumbent.

On where disruptive innovation occurs:

Because new-market disruptions compete against nonconsumption, the incumbent leaders feel no pain and little threat until the disruption is in its final stages. In fact, when the disruptors begin pulling customers out of the low-end of the original value network, it actually feels good to the leading firms, because as they move up-market in their own world, for a time they are replacing the low-margin revenues that disruptors steal, with higher-margin revenues from sustaining innovations.

We call disruptions that take root at the low-end of the original or mainstream value network low-end disruptions…New-market disruptions induce incumbents to ignore the attackers, and low-end disruptions motivate the incumbents to flee the attack.

And why do executives of existing companies segment markets counterproductively?

There are at least four reasons or countervailing forces in established companies that cause managers to target innovations at attribute-based market segments that are not aligned with the way that customers live their lives. The first two reasons—the fear of focus and the demand for crisp quantification—reside in companies’ resource allocation processes. The third reason is that the structure of many retail channels is attribute focused, and the fourth is that advertising economics influence companies to target products at customers rather than circumstances.

How can this be resolved?

Identifying disruptive footholds means connecting with specific jobs that people—your future customers—are trying to get done in their lives. The problem is that in an attempt to build convincing business cases for new products, managers are compelled to quantify the opportunities they perceive, and the data available to do this are typically cast in terms of product attributes or the demographic and psychographic profiles of a given population of potential consumers. This mismatch between the true needs of consumers and the data that shape most product development efforts leads most companies to aim their innovations at nonexistent targets. The importance of identifying these jobs to be done goes beyond simply finding a foothold. Only by staying connected with a given job as improvements are made, and by creating a purpose brand so that customers know what to hire, can a disruptive product stay on its growth trajectory.

On extracting growth from nonconsumption (new-market disruption pattern):

1. The target customers are trying to get a job done, but because they lack the money or skill, a simple, inexpensive solution has been beyond reach.

2. These customers will compare the disruptive product to having nothing at all. As a result, they are delighted to buy it even though it may not be as good as other products available at high prices to current users with deeper expertise in the original value network. The performance hurdle required to delight such new-market customers is quite modest.

3. The technology that enables the disruption might be quite sophisticated, but disruptors deploy it to make the purchase and use of the product simple, convenient, and foolproof. It is the “foolproofedness” that creates new growth by enabling people with less money and training to begin consuming.

4. The disruptive innovation creates a whole new value network. The new consumers typically purchase the product through new channels and use the product in new venues.

On what makes competing against nonconsumption so hard for existing companies?

In a very insightful stream of research, Harvard Business School Professor Clark Gilbert has helped us understand the fundamental mechanism that causes the established competitors in an industry to consistently cram the disruptive technology into the mainstream market. With that understanding, Gilbert also provides guidance to established company executives on how to avoid this trap, and capture the growth created by disruption instead. Gilbert’s work, fortunately, not only defines an innovator’s dilemma but suggests a way out. The solution is twofold: First, get top-level commitment by framing an innovation as a threat during the resource allocation process. Later, shift responsibility for the project to an autonomous organization that can frame it as an opportunity.

On determining the right scope for the business:

When the functionality and reliability of a product are not good enough to meet customers’ needs, then the companies that will enjoy significant competitive advantage are those whose product architectures are proprietary and that are integrated across the performance-limiting interfaces in the value chain. When functionality and reliability become more than adequate, so that speed and responsiveness are the dimensions of competition that are not now good enough, then the opposite is true. A population of non-integrated, specialized companies whose rules of interaction are defined by modular architectures and industry standards holds the upper hand. At the beginning of a wave of new-market disruption, the companies that initially will be the most successful will be integrated firms whose architectures are proprietary because the product isn’t yet good enough. After a few years of success in performance improvement, those disruptive pioneers themselves become susceptible to hybrid disruption by a faster and more flexible population of non-integrated companies whose focus gives them lower overhead costs.

On how to avoid commoditization:

1. The low-cost strategy of modular product assemblers is only viable as long as they are competing against higher-cost opponents. This means that as soon as they drive the high-cost suppliers of proprietary products out of a tier of the market, they must move up-market to take them on again in order to continue to earn attractive profits.

2. Because the mechanisms that constrain or determine how rapidly they can move up-market are the performance-defining subsystems, these elements become not good enough and are flipped to the left side of the disruption diagram.

3. Competition among subsystem suppliers causes their engineers to devise designs that are increasingly proprietary and interdependent. They must do this as they strive to enable their customers to deliver better performance in their end-use products than the customers could if they used competitors’ subsystems.

4. The leading providers of these subsystems therefore find themselves selling differentiated, proprietary products with attractive profitability.

5. This creation of a profitable, proprietary product is the beginning, of course, of the next cycle of commoditization and de-commoditization.

A reminder that integrated companies possess a strategic advantage in their ability to respond to changes of value across the value chain:

To the extent that an integrated company such as IBM can flexibly couple and decouple its operations, rather than irrevocably sell off operations, it has greater potential to thrive profitably for an extended period than does a nonintegrated firm such as Compaq. This is because the processes of commoditization and de-commoditization are continuously at work, causing the place where the money will be to shift across the value chain over time.

The concept of core competency, which is often used to determine which part of the value chain to keep in-house, is misguiding:

Core competence, as it is used by many managers, is a dangerously inward-looking notion. Competitiveness is far more about doing what customers value than doing what you think you’re good at. And staying competitive as the basis of competition shifts necessarily requires a willingness and ability to learn new things rather than clinging hopefully to the sources of past glory. The challenge for incumbent companies is to rebuild their ships while at sea, rather than dismantling themselves plank by plank while someone else builds a new. faster boat with what they cast overboard as detritus.

To successfully build and manage growth businesses you need the right people, processes and values:

Executives who are building new-growth businesses therefore need to do more than assign managers who have been to the right schools of experience to the problem. They must ensure that responsibility for making the venture successful is given to an organization whose processes will facilitate what needs to be done and whose values can prioritize those activities. The theory is that the requirements of an innovation need to fit with the host organization’s processes and values, or the innovation will not succeed.

On managing the strategy development process:

In every company there are two simultaneous processes through which strategy comes to be defined. Figure 8-1 suggests that both of these strategy-making processes—deliberate and emergent—are always operating in every company. The deliberate strategy-making process is conscious and analytical. It is often based on rigorous analysis of data on market growth, segment size, customer needs, competitors’ strengths and weaknesses, and technology trajectories. Strategy in this process typically is formulated in a project with a discrete beginning and end, and then implemented “top down.”…Emergent strategy, which as depicted in figure 8-1 bubbles up from within the organization, is the cumulative effect of day-to-day prioritization and investment decisions made by middle managers, engineers, salespeople, and financial staff. These tend to be tactical, day-to-day operating decisions that are made by people who are not in a visionary, futuristic, or strategic state of mind…When the efficacy of a strategy that was developed through an emergent process is recognized, it is possible to formalize it, improve it, and exploit it, thus transforming an emergent strategy into a deliberate one. Emergent processes should dominate in circumstances in which the future is hard to read and in which it is not clear what the right strategy should be. This is almost always the case during the early phases of a company’s life. However, the need for emergent strategy arises whenever a change in circumstances portends that the formula that worked in the past may not be as effective in the future. On the other hand, the deliberate strategy process should be dominant once a winning strategy has become clear, because in those circumstances effective execution often spells the difference between success and failure.

On the execution of the strategy, three points of leverage:

1. Carefully control the initial cost structure of a new-growth business, because this quickly will determine the values that will drive the critical resource allocation decisions in that business.

2. Actively accelerate the process by which a viable strategy emerges by ensuring that business plans are designed to test and confirm critical assumptions using tools such as discovery-driven planning.

3. Personally and repeatedly intervene, business by business, exercising judgment about whether the circumstance is such that the business needs to follow an emergent or deliberate strategy-making process. CEOs must not leave the choice about strategy process to policy, habit, or culture.

General rules of thumbs relating to the financial management of growth businesses:

  • Launch new-growth businesses regularly when the core is still healthy —when it can still be patient for growth—not when financial results signal the need.
  • Keep dividing business units so that as the corporation becomes increasingly large, decisions to launch growth ventures continue to be made within organizational units that can be patient for growth because they are small enough to benefit from investing in small opportunities.
  • Minimize the use of profit from established businesses to subsidize losses in new-growth businesses. Be impatient for profit: There is nothing like profitability to ensure that a high-potential business can continue to garner the funding it needs, even when the corporation’s core businesses turn sour.

On a concluding note:

Many successful companies have disrupted once. A few, including IBM, Intel, Microsoft, Hewlett-Packard, Johnson & Johnson, Kodak, Cisco, and Intuit, have disrupted several times. Sony did it repeatedly between 1955 and 1982, before its engine of disruption got shut down. To our knowledge, no company has been able to build an engine of disruptive growth and keep it running and running. That reality has made this a risky book for us to write: Few business books say “Do this; no one’s ever done it before.” But there is little choice. Creating and sustaining successful growth has, historically speaking, vexed some great managers. Given the existence of principles but no precedent, we have simply done our best to suggest how successful growth can be created and sustained. We have offered an integrated body of theory derived from the successes and the failures of hundreds of different companies, each of which has illuminated a different aspect of the innovator’s dilemma. And so we now pass the baton to you, in the hope that you will find our efforts to be a valuable foundation upon which to build your own innovator’s solution.

I highly recommend this book, as a follow-on to Clayton’s earlier work.

 

Competitive Advantage

I have just finished reading Competitive Advantage – Creating And Sustaining Superior Performance – by Michael E. Porter.

Below are key excerpts from the book that I found particularly insightful:

1- “Both industry attractiveness and competitive position can be shaped by a firm, and this is what makes the choice of competitive strategy both challenging and exciting. While industry attractiveness is partly a reflection of factors over which a firm has little influence, competitive strategy has considerable power to make an industry more competitive strategy has considerable power to make an industry m( or less attractive. At the same time, a firm can clearly improve or erode its position within an industry through its choice of strategy. Competitive strategy, then, not only responds to the environment but also attempts to shape that environment in a firm’s favor. These two central questions in competitive strategy have been at the core of my research.”

2- “The ability of firms to shape industry structure places a particular burden on industry leaders. Leaders’ actions can have a disproportionate impact on structure, because of their size and influence over buyers, suppliers, and other competitors. At the same time, leaders’ large market shares guarantee that anything that changes overall industry structure will affect them as well. A leader, then, must constantly balance its own competitive position against the health of the industry as a whole. Often leaders are better off” taking actions to improve or protect industry structure rather than seeking greater competitive advantage for themselves.”

3- “The second central question in competitive strategy is a firm’s relative position within its industry. Positioning determines whether a firm’s profitabihty is above or below the industry average. A firm that can position itself well may earn high rates of return even though industry structure is unfavorable and the average profitability of the industry is therefore modest. The fundamental basis of above-average performance in the long run is sustainable competitive advantage. ^ Though a firm can have a myriad of strengths and weaknesses vis-a-vis its competitors, there are two basic types of competitive advantage a firm can possess: low cost or diff’erentiation. The significance of any strength or weakness a firm possesses is ultimately a function of its impact on relative cost or diff’erentiation. Cost advantage and differentiation in turn stem from industry structure. They result from a firm’s ability to cope with the five forces better than its rivals. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them lead to three generic strategies for achieving above-average performance in an industry: cost leadership, diff’erentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.”

4- “The ability to be both low cost and differentiated is a function of being the only firm with the new innovation, however. Once competitors also introduce the innovation, the firm is again in the position of having to make a tradeoff.”

5- “Linkages among value activities arise from a number of generic causes, among them the following: The same function can be performed in different ways…The cost or performance of direct activities is improved by greater efforts in indirect activities…Activities performed inside a firm reduce the need to demonstrate, explain, or service a product in the field…Quality assurance functions can be performed in different ways.”

6- “Exploiting linkages usually requires information or information flows that allow optimization or coordination to take place. Thus, information systems are often vital to gaining competitive advantages from linkages.”

7- “Cost dynamics occur because of the interplay of cost drivers over time, as a firm grows or as industry conditions change. The most common sources of cost dynamics include: Industry Real Growth…Differential Scale Sensitivity…Different Learning Rates…Differential Technological Change…Relative Inflation of Costs…Aging…Market Adjustment.”

8- “Steps in Strategic Cost Analysis…1. Identify the appropriate value chain and assign costs and assets to it. 2. Diagnose the cost drivers of each value activity and how they interact. 3 Identify competitor value chains, and determine the relative cost of competitors and the sources of cost differences. 4. Develop a strategy to lower relative cost position through controlling cost drivers or re-configuring the value chain and/ or downstream value. 5. Ensure that cost reduction efforts do not erode differentiation, or make a conscious choice to do so. 6. Test the cost reduction strategy for sustainability.”

9- “Steps in Differentiation…I. Determine who the real buyer is…2. Identify the buyer’s value chain and the firm’s impact on it…3. Determine ranked buyer purchasing criteria…4. Assess the existing and potential sources of uniqueness in a firm’s value chain…5.Identify the cost of existing and potential sources of differentiation…6.Choose the configuration of value activities that creates the most valuable differentiation for the buyer relative to cost of differentiating…7.Test the chosen differentiation strategy for sustainability…8.Reduce cost in activities that do not affect the chosen forms of differentiation.”

10- “Technological change is not important for its own sake, but is important if it affects competitive advantage and industry structure. Not all technological change is strategically beneficial; it may worsen a firm’s competitive position and industry attractiveness. High technology does not guarantee profitability. Indeed, many high-technology industries are much less profitable than some “low-technology” industries due to their unfavorable structures.”

11- “Formulating Technological Strategy…1. Identify all the distinct technologies and subtechnologies in the value chain… 2.Identify potentially relevant technologies in other industries or under scientific development…3.Determine the likely path of change of key technologies…4.Determine which technologies and potential technological changes are most significant for competitive advantage and industry structure…5.Assess a firm’s relative capabilities in important technologies and the cost of making improvements.6.Select a technology strategy, encompassing all important technologies, that reinforces the firm’s overall competitive strategy.”

12- “Competitors are not all equally attractive or unattractive. A good competitor is one that can perform the beneficial functions described above without representing too severe a long-term threat. A good competitor is one that challenges the firm not to be complacent but is a competitor with which the firm can achieve a stable and profitable industry equilibrium without protracted warfare. Bad competitors, by and large, have the opposite characteristics. No competitor ever meets all of the tests of a good competitor. Competitors usually have some characteristics of a good competitor and some characteristics of a bad competitor. Some managers, as result, will assert that there is no such thing as a good competitor. This view ignores the essential point that some competitors are a lot better than others, and can have very different effects on a firm’s competitive position. In practice, a firm must understand where each of its competitors falls on the spectrum from good to bad and behave accordingly.”

13- “To segment an industry, then, four observable classes of segmentation variables are used either individually or in combination to capture differences among producers and buyers. In any given industry, a, any or all of these variables can define strategically relevant segments: Product variety. The discrete product varieties that are, or could be, produced. Buyer type. The types of end buyers that purchase, or could purchase, the industry’s products. Channel (immediate buyer). The alternative distribution channels employed or potentially employed to reach end buyers. Geographic buyer location. The geographic location of buyers defined by locality, region, country, or group of countries.”

14- “Industry Segmentation: 1) Identify the discrete product varieties, buyer types, channels, and geographic areas in the industry that have implications for structure or competitive advantage 2) Reduce the number of segmentation variables by applying the significance test 3) Identify the most meaningful discrete categories for each variable 4) Reduce the number of segmentation variables further collapsing correlated variables together 5) Plot two-dimensional segmentation matrices for pairs of variables and eliminate correlated variables and null segments 6) Combine these segmentation matrices into one or two industry segmentation matrices.”

15- “Sharing activities among business units is, then, a potential substitute for market share in any one business unit. A firm that can i share scale- or learning-sensitive activities among a number of business units may neutralize the cost advantage of a high market share firm competing with one business unit. Sharing is not exactly equivalent to increasing market share in one business unit, however, because a shared activity often involves greater complexity than an equivalent scale activity  serving one business unit. The complexity of a shared logistical system involving ten product varieties may increase geometrically cc compared to one that must handle only five. The added complexity becomes a cost of sharing.”

16- “Formulating Horizontal Strategy: 1. Identify all tangible interrelationships…2. Trace tangible interrelationships outside the boundaries of the firm… 3. Identify possible intangible interrelationships…4. Identify competitor interrelationships…5. Assess the importance of interrelationships to competitive advantage…6. Develop a coordinated horizontal strategy to achieve and enhance the most important interrelationships…7.Create horizontal organizational mechanisms to assure implementation.”

17- “While there are many non-Japanese firms that have achieved interrelationships, a number of characteristics of many, though not all, Japanese firms make them well positioned for exploiting interrelationships: -strong belief in overarching corporate themes -internal development of new businesses -a less rigid tradition of autonomy -more flexible incentives, less based on business unit results -willingness to centralize activities -greater tradition of committees and frequent personal contact among executives -intensive and continuing in-house training -corporatewide hiring and training”

18- “Complements are pervasive in industries. A firm must know what complementary products it depends on, and how they affect its competitive advantage and the structure of the industry as a whole. A firm must decide which complements it should produce itself, and how to package and price them. Bundling and unbundling of complements to package and price them. bundling and unbundling of complements is one of the ways in which fundamental industry restructuring takes place. The challenge is to make strategy towards complements an opportunity rather than a source of competitive advantage for competitors.”

19- “An industry scenario is an internally consistent view of an industry’s future structure. It is based on a set of plausible assumptions about the important uncertainties that might influence industry structure, carried through to the implications for creating and sustaining competitive advantage. An industry scenario is not a forecast but one possible future structure. A set of industry scenarios is carefully chosen to reflect the range of possible (and credible) future industry structures with important implications for competition. The entire set of scenarios, rather than the most likely one, is then used to design a competitive Strategy. The time period used in industry scenarios should reflect  the time horizon of the most important investment decisions.”

20- “The best way to deal with uncertainty is to make a conscious choice to follow one or more approaches, rather than a choice based on inertia or an implicit scenario. Weighing the factors involved in choosing 5 an approach described above requires a logic for each scenario that portrays the interdependencies between various aspects of industry structure. The most challenging part of dealing with uncertainty is to find creative ways to minimize the cost of preserving flexibility or hedging, and to maximize the advantages of betting correctly. Understanding the way in which each activity in the value chain can contribute to competitive advantage under the various scenarios may allow the firm to do so.”

21- “Conditions for Attacking a Leader: Successfully attacking a leader requires that a challenger meet threes basic conditions: 1. A sustainable competitive advantage…2. Proximity in other activities…3. Some impediment to leader retaliation.”

22- “Some important industry signals of leader vulnerability include: -discontinuous technological change -buyer changes -changing channels -shifting input costs or quality -gentlemen’s game…The following traits of industry leaders are signs of possible vulnerability: -struck in the middle -unhappy buyer -pioneer of current industry technology -very high profitability -history of regulatory problems -weak performer in the parent company portfolio.”

Regards,

Omar Halabieh

Competitive Advantage

On Made In Japan

I recently finished reading Made In Japan – Akio Morita and SONY – by Akio Morito with Edwin M. Reingold and Mitsuko Shumomura.

Below are key excerpts from the book that I found particularly insightful:

1- “I have always believed that a trademark is the life of an enterprise and that it must be protected boldly. A trademark and a company name are not just clever gimmicks—they carry responsibility and guarantee the quality of the product. If someone tries to get a free ride on the reputation and i the ability of another who has worked to build up public trust.”

2- “In the beginning, when our track record for success was not established, our competitors would take a very cautious wait-and-see attitude while we marketed and developed a new product. In the early days, we would often have the market to ourselves for a year or more before the other companies would be convinced that the product would be a success. And we made a lot of money, having the market all to ourselves. But as we became more successful and our track record became clearer, the others waited a shorter and shorter time before jumping in. Now we barely get a three-month head start on some products before the others enter the market to compete with us with their own version of the product we innovated. It is flattering in a way, but it is expensive. We have to keep a premium on innovation.”

3- “My point in digressing to tell this story is simple: I do not believe that any amount of market research could have told us that the Sony Walkman sensational hit that would spawn many imitators. And yet this small item has literally changed the music-listening habits of millions of people all around the world.”

4- “It was this kind of innovation that Ibuka had in mind when we wrote a kind of prospectus and philosophical statement for our company in the very beginning: “If it were possible to establish conditions where persons could become united with a firm spirit of teamwork and exercise to their hearts’ desire their technological capacity,” he wrote, “then such an organization could bring untold pleasure and untold benefits.” He was thinking about industrial creativity, something that is done with teamwork to create new and worthwhile products. Machines and computers cannot be creative in themselves, because creativity requires something more than the processing of existing information. It requires human thought, spontaneous intuition, and a lot of courage, and we had plenty of that in our early days and still do.”

5- “My view was that you must first learn the market.. learn how to sell to it, and build up your corporate confidence before you commit yourself. And when you have confidence, you should commit yourself wholeheartedly.”

6- “…no matter how good or successful you are or how clever or crafty, your business and its future are in the hands of the people you hire. To put it a bit more dramatically, the fate of your business is actually in the hands of the youngest recruit on the staff.”

7- “When most Japanese companies talk about cooperation or consensus, it usually means the elimination of individuality. At our company we are challenged to bring our ideas out into the open. If they clash with others, so much the better, because out of it may come something good at a higher level. Many Japanese companies like to use the words cooperation and consensus because they dislike individualistic employees. When I am asked, and sometimes when I am not, I say that a manager who talks too much about cooperation is one who is saying he doesn’t have the ability to utilize excellent individuals and their ideas and put their ideas in harmony. If my company is successful, it is largely because our managers do have that ability.”

8- “Management officers, knowing that the company’s ordinary business is being done by energetic and enthusiastic younger employees, can devote their energy and effort to planning the future of the company. With is in mind, we think it is unwise and unnecessary to define individual responsibility too clearly, because everyone is taught to act like a family member ready to do what is necessary. If something goes wrong it is considered bad taste for management to inquire who made the mistake. That may seem dangerous, if not silly, but it makes sense to us.”

9- “I cannot understand why there is anything good in laying off people. If management takes the risk and responsibility of hiring personnel, then it is management’s ongoing responsibility to keep them employed. The employee does not have the prime responsibility in this decision, so when a recession comes. why should the employee have to suffer for the management decision to hire him? Therefore, in times of boom we are very careful about increasing our personnel. Once we have hired people, we try to make them understand our concept of a fate-sharing body and how if a recession comes the company is willing to sacrifice profit to keep them in the company.”

10- “What you are showing to your employees is not that you are an artist who performs by himself on the high wire, but you are showing them how you are attempting to attract a large number of people to follow you willingly and with enthusiasm to contribute to the success of the company. If you can do that, the bottom line will take  care of itself.”

11- “It may sound curious, but I learned that an enemy of this innovation could be your own sales organization if it has too much power, because very often these organizations discourage innovation. When you make innovative new products, you must re-educate the sales force about them so the salesmen can educate and sell the public. This is expensive; it means investing sufficient money in R&D and new facilities and advertising and promotion. And it also means making some popular and profitable items obsolete, often the items you can make the most profit on because your development costs are paid for and these products have become easy for your salesmen to sell.”

12- “The primary function of management is decision-making and that means professional knowledge of technology and the ability to foresee the future direction or trends of technology. I believe a manager must have a wide range of general knowledge covering his own business field. It also helps to have a special sense, generated by knowledge and experience—a feel for the business that goes beyond the facts and figures—and this intuitiveness is a gift only human beings can have.”

13- “Next to lawyers, I think these people are the most overused and misused businessmen on the scene in the United States and Japan. I use consultants selectively and have found the best ones can do valuable information gathering and market analysis. But their use can be brought to ridiculous extremes, and it has been.”

14- “I think one of the main advantages of the Japanese system of management over the American or the Western system in general is this sense of corporate philosophy. Even if a new executive takes over he cannot change that. In Japan the long-range planning system and the junior management proposal system guarantee that the relationship between top management and junior management remains very close and that over the years they can formulate a specific program of action that the years they can formulate a specific program of action that will maintain the philosophy of the company. It also may explain why in the initial stages progress is very slow in a Japanese company. But once the company communicates its philosophy to all employees, the company has great strength and flexibility.”

15- “My point is that it is unwise merely to do something different and then rest on your laurels. You have to do something to make a business out of a new development, and that requires that you keep updating the product and staying ahead of the market.”

16- “My prediction is that we can enjoy our lives with less energy, less of the old materials, fewer resources, more recycling, and have more of the essentials for a happy and productive life than ever. Some people in the world, especially the Americans, will have  to learn something of the meaning and spirit of mottainai and conserve more. Step by step, year by year, we must all learn how to be more skillful and efficient in using our resources economically. We must recycle more. As to the expanding populations, that will be a challenge to everyone, for they will have to be fed. clothed, and educated. But as the standard of living of a people increases, the population tends to level off, people live a different way, acquire different tastes and preferences, and develop their own technologies for survival.”

17- “I believe there is a bright future ahead for mankind, and that future holds exciting technological advances that will enrich the lives of everybody on the planet. Only by expanding world trade and stimulating more production can we take advantage of the possibilities that lie before us. We in the free world can do great things. We proved it in Japan by changing the image of the words “Made in Japan” from something shoddy to something fine. But for a single nation or a few nations to have accomplished this is not enough. My vision of the future is of an exciting world of superior goods and services, where every nation’s stamp of origin is a symbol of quality, and where all are competing for the consumers’ hard-earned money at fair prices that reflect appropriate rates of exchange. I believe such a world is within our grasp. The challenge is great; success depends only on the strength of our will.”

Regards,

Omar Halabieh

Made In Japan

On Blue Ocean Strategy

I recently finished reading Blue Ocean Strategy – How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renee Mauborgne.

Below are key excerpts that I found particularly insightful:

1- “Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries, as Cirque du Soleil did. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.”

2- “However, there is little practical guidance on how to create them. Without analytic frameworks to create blue oceans and principles to effectively manage risk, creating blue oceans has remained wishful thinking that is seen as too risky for managers to pursue as strategy. This book provides practical frameworks and analytics for the systematic pursuit and capture of blue oceans.”

3- “Consistent with this observation, our study shows that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market-creating business offering.”

4- “The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation. Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.”

5- “To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry.^ To pursue both value and cost, you should resist the old logic of benchmarking competitors in the existing field and choosing between differentiation and cost leadership.”

6- “To reconstruct buyer value elements in crafting a new value curve, we have developed the four actions framework…Which of the factors that the industry takes for granted should be eliminated! Which factors should be reduced well below the industry’s standard? Which factors should be raised well above the industry’s standard? Which factors should be created that the industry has never offered?”

7- “The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans…Path 1: Look Across Alternative Industries…Path 2: Look Across Strategic Groups Within Industries…Path 3: Look Across the Chain of Buyers…Path 4: Look Across Complementary Product and Service Offerings…Path 5: Look Across Functional or Emotional Appeal to Buyers…Path 6: Look Across Time.”

8- “To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.”

9- “Companies need to build their blue ocean strategy in the sequence of buyer utility, price, cost, and adoption.”

10- “Companies, like individuals, often have a tough time translating thought into action whether in red or blue oceans. But compared with red ocean strategy, blue ocean strategy represents a significant departure from the status quo. It hinges on a shift from convergence to divergence in value curves at lower costs. That raises the execution bar. Managers have assured us that the challenge is steep. They face four hurdles. One is cognitive: waking employees up to the need for a strategic shift. Red oceans may not be the paths to future profitable growth, but they feel comfortable to people and may have even served an organization well until now, so why rock the boat? The second hurdle is limited resources. The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But resources were being cut, and not raised, in many of the organizations we studied. Third is motivation. How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? That will take years, and managers don’t have that kind of time. The final hurdle is politics. As one manager put it, “In our organization you get shot down before you stand up.””

11- “Key to winning over your detractors or devils is knowing all their likely angles of attack and building up counterarguments backed by irrefutable facts and reason.”

12- “To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy.”

13- “Because blue and red oceans have always coexisted however, practical reality demands that companies succeed in both oceans and master the strategies for both. But because companies already understand how to compete in red oceans, what they need to 1 learn is how to make the competition irrelevant. This book aims too help balance the scales so that formulating and executing blue ocean strategy can become as systematic and actionable as competing in the red oceans of known market space.”

Regards,

Omar Halabieh

Blue Ocean Strategy

On The Knowing-Doing Gap

I recently finished reading the book The Knowing-Doing Gap – How Smart Companies Turn Knowledge into Action by Jeffrey Pfeffer and Robert I. Sutton.

The main premise of this book as the authors best summarize it is: “Why knowledge of what needs to be done frequently fails to result in action or behavior consistent with that knowledge. We came to call this the knowing-doing problem – the challenge of turning knowledge about how to enhance organizational performance into actions consistent with that knowledge. This book presents what we learned about the factors that contribute to the knowledge doing gap and why and how some organizations are more successful than others in implementing their knowledge.”

The book then analyzes the reasons and causes of this gap through numerous examples and presents eight main recommendations: “Eight Guidelines for Action: 1) Why before How: Philosophy Is Important 2) Knowing Comes from Doing and Teaching Others How. 3) Action Counts More Than Elegant Plans and Concepts. 4) There Is No Doing without Mistakes. What Is the Company’s Response? 5) Fear Fosters Knowing-Doing Gaps, So Drive Out Fear. 6) Beware of False Analogies: Fight the Competition, Not Each Other. 7) Measure What Matters and What Can Help Turn Knowledge into Action. 8) What Leaders Do, How They Spend Their Time and How They Allocate Resources, Matters.”

A very applicable, educational and action oriented book. One that echoes the fundamentals of execution and its importance as the ultimate benchmark of success. A must read in the area of management!

Below are key excerpts from the book:

1- “…although knowledge creation, benchmarking, and knowledge management may be important, transforming knowledge into organization action is at least as important to organizational success.”

2- “Attempting to copy just what is done – the explicit practices and policies – without holding the underlying philosophies at once a more difficult task and an approach that is less likely to be successful.”

3- “Talk is also valued because, as noted earlier, the quantity and “quality” of talk can be assessed immediately, but the quality of leadership or management capability, the ability to get things done, can be assessed only with  greater time lag.”

4- “It is possible, albeit difficult, to build strong cultures founded on principles and philosophy that can also innovate and change. But doing so requires much thought and attention. Otherwise, firms are readily trapped by their history, even if, or particularly if, that history has many positive elements in it, as Saturn’s does.”

5- “Conversely, fear is an enemy of the abilitiy to question the past or break free from precedent.”

6- “It is clear to us that merely knowing what measurement practices should be used does not, by itself, cause leaders to implement measures that produce intelligent, mindful, learning behavior rather than the reverse.”

7- “In each of the instances in which effective measurement practices were used, knowing what to do, why it needed to be done, and having the persistence and courage to do it helped leaders turn knowledge about how to enhance performance into organizational action.”

8- “As Dean Tjosvold, a researcher and writer on the subject of competition and cooperation, noted, “Competition stimulates, excites, and is useful in some circumstance, but those situations do not occur frequently in organizations, and the widespread use of competition cannot be justified.””

9- “Harlow Cohen, the president of a Cleveland, Ohio, consulting firm, has called this gap between knowing and doing the performance paradox: “Managers know what to do to improve performance, but actually ignore or act in contradiction to either their strongest instincts or to the data available to them.””

10- “Knowing about the knowing-doing gap is different from doing something about it. Understanding causes is helpful because such understanding can guide action. But by itself, this knowing is insufficient – action must occur.”

Regards,

Omar Halabieh

The Knowing-Doing Gap

The Knowing-Doing Gap

On Winning

I have just finished reading Winning by Jack Welch. This book summarizes the key learnings of one of the greatest CEOs of all time in Jack Welch. As the book title indicates, it is about winning in the corporate world and getting ahead. It is divided into four main parts: the first called “Underneath it All” in which the foundational elements of a successful company are laid out – mission and values, candor, differentiation, and voice and dignity. The second, “Your Company” discusses the mechanics of an organization – leadership, hiring, people management, parting ways, change and crisis management. The third part of this book is “Your Competition”, with topics discussed such as strategy, budgeting, organic growth, mergers and acquisitions, and Six Sigma. Finally the last section of the book “your career” focused on one professional life with topics such as – the right job, getting promoted, hard spots, work-life balance.

What makes this book unique is the breadth of topics discussed. It really serves as a primer for anyone looking to navigate his way through the corporate world. While it is hard to summarize the many learnings contained within this book, below are some excerpts which I found particularly profound:

-“When you are an individual contributor, you try to have all the answers. That’s your job…When you are a leader, your job is to have all the questions.”

-On Change ” 1- Attach very change initiative to a clear purpose or goal. Change for change’s sake is stupid and enervating. 2- Hire and promote only true believers and get-on-with-it types. 3- Ferret out and get rid of resisters, even if their performance is satisfactory. 4- Look at car wrecks.”

-” The 4-E (And 1-P) Framework – The first E is positive energy. -The second E is the ability to energize others. – The third E is edge, the courage to make tough yes-or-no decisions. – Which leads us to the fourth E – execute – the ability to get the job done. – If a candidate has the four Es, then you look for that final P – passion.

Given the scope of the book, one can’t expect that it covers each of the topics in depth. What it does though, is server as an eye openers on areas/aspects of one’s career that were perhaps missed/over-looked.

If you had to read one book this year, I would recommend Winning!

Regards,

Omar Halabieh