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.

 

Reworking Work: Unconventional Business Advice

Jason Fried and David Heinemeier Hansson of Basecamp have not only challenged the software application industry with their leading web-based project management tool Basecamp and other system, tools and frameworks but in their book Rework, they share their guiding and operating principles by which they started and operate this very successful business.

Much of the advice they provide is contrarian to what is commonly shared within the business community, which is what makes this book unique and makes one reflect – regardless of what one thinks about the specific examples provided – about ones’ own practices and whether any modifications and simplifications can be made to become more effective.

I have selected below some of the advice shared that most strongly resonated with me, from the various areas covered: takedowns, go, progress, productivity, competitors, evolution, promotion, hiring, and damage control.

Learning from success is more effective than from failure:

Failure is not a prerequisite for success. A Harvard Business School study found already-successful entrepreneurs are far more likely to succeed again (the success rate for their future companies is 34 percent). But entrepreneurs whose companies failed the first time had almost the same follow-on success rare as people starting a company for the first time: just 23 percent. People who failed before have the same amount of success as people who have never tried at all. Success is the experience that actually counts. That shouldn’t be a surprise: It’s exactly how nature works. Evolution doesn’t linger on past failures, it’s always building upon what worked. So should you.

On the importance of performing meaningful work:

To do great work, you need to feel that you’re making a difference. That you’re putting a meaningful dent in the universe. That you’re part of something important…If you’re going to do something, do something that matters. These little guys came out of nowhere and destroyed old models that had been around for decades. You can do the same in your industry.

On positioning, which applies to us both as individuals as well as organizations:

As you get going, keep in mind why you’re doing what you’re doing. Great businesses have a point of view, not just a product or service. You have to believe in something. You need to have a backbone. You need to know what you’re willing to fight for. And then you need to show the world. A strong stand is how you attract superfans. They point to you and defend you. And they spread the word further, wider, and more passionately than any advertising.

On the importance of thinking about profit from day one when starting up a business:

Anyone who takes a “we’ll figure out how to profit in the future” attitude to business is being ridiculous. That’s like building a rocket ship but starting off by saying, “Let’s pretend gravity doesn’t exist.” A business without a path to profit isn’t a business, it’s a hobby…Actual businesses don’t mask deep problems by saying, “It’s OK, we’re a startup.” Act like an actual business and you’ll have a much better shot at succeeding.

On how constraints can be an advantage:

“I don’t have enough time/money/people/experience.” Stop whining. Less is a good thing. Constraints are advantages in disguise. Limited resources force you to make do with what you’ve got. There’s no room for waste. And that forces you to be creative.

On the importance of making decisions:

Whenever you can, swap “Let’s think about it” for “Let’s decide on it.” Commit to making decisions. Don’t wait for the perfect solution. Decide and move forward. You want to get into the rhythm of making choices. When you get in that flow of making decision after decision, you build momentum and boost morale. Decisions are progress. Each one you make is a brick in your foundation. You can’t build on top of “We’ll decide later,” but you can build on top of “Done.”

On rallying around the core that does not change:

A lot of companies focus on the next big thing. They latch on to what’s hot and new. They follow the latest trends and technology. That’s a fool’s path. You start focusing on fashion instead of substance. You start paying attention to things that are constantly changing instead of things that last. The core of your business should be built around things that won’t change. Things that people are going to want today and ten years from now. Those are the things you should invest in.

On the importance of launching/shipping now:

Don’t mistake this approach for skimping on quality, either. You still want to make something great. This approach just recognizes that the best way to get there is through iterations. Stop imagining what’s going to work. Find out for real.

On the most effective way to get agreement:

If you need to explain something, try getting real with It. Instead of describing what something looks like, draw it. Instead of explaining what something sounds like, hum it. Do everything you can to remove layers of abstraction.

Questions to ask yourself before working on something:

Why are you doing this? What problem are you solving? Are you adding value? Is this actually useful? Are you adding value? Will this change behavior? Is there an easier way? What could you be doing instead?

Meetings can be a big time sink, but if you absolutely must have one, then make sure to follow these rules:

Set a timer. When it rings, meeting’s over. Period. Invite as few people as possible. Always have a clear agenda. Begin with a specific problem.

On not chasing perfection:

When good enough gets the job done, go for it. It’s way better than wasting resources or, even worse, doing nothing because you can’t afford the complex solution. And remember, you can usually turn good enough into great later.

Quitting working on a task is sometimes the right thing to do:

Keep in mind that the obvious solution might very well be quitting. People automatically associate quitting with failure, but sometimes that’s exactly what you should do. If you already spent too much time on something that wasn’t worth it, walk away. You can’t get that time back. The worst thing you can do now is waste even more time.

Break big decisions into many smaller ones:

Big decisions are hard to make and hard to change. And once you make one, the tendency is to continue believing you made the right decision, even if you didn’t. You top being objective…Instead, make choices that are small enough that they’re effectively temporary. W^en you make tiny decisions, you can’t make big mistakes. These small decisions mean you can afford to change. There’s no big penalty if you mess up. You just fix it. Making tiny decisions doesn’t mean you can’t make big plans or think big ideas. It just means you believe the best way to achieve those big things is one tiny decision at a time.

Put more of yourself into your products for differentiation:

Pour yourself into your product and everything around you product too: how you sell it, how you support it, how you explain it, and how you deliver it. Competitors can never copy the you in your product.

Don’t obsess too much about your competition:

It’s a pointless exercise anyway. The competitive landscape changes all the time. Your competitor tomorrow may be completely different from your competitor today. It’s out of your control. What’s the point of worrying about things you can’t control? Focus on yourself instead. What’s going on in here is way more important than what’s going on out there. When you spend time worrying about someone else, you can’t spend that time improving yourself Focus on competitors too much and you wind up diluting your own vision. Your chances of coming up with something fresh go way down when you keep feeding your brain other people’s ideas. You become reactionary instead of visionary. You wind up offering your competitor’s products with a different coat of paint.

Marketing is not a function reserved just for that department:

Do you have a marketing department? If not, good. If you do, don’t think these are the only people responsible for marketing. Accounting is a department. Marketing isn’t. Marketing is something everyone in your company is doing 24/7/365. Just as you cannot not communicate, you cannot not market.

While there is nothing groundbreaking about the advice given in this book, the thought-provoking-ness aspect that it brings out within the reader is very commendable and makes it a very worthwhile read (and a quick one as well). If you are interested to hear more from the authors and their thought philosophy, you can do so by reading/subscribing to their company’s blog Signal vs. Noise.

On Flow

I just finished reading Flow – The Psychology Of Optimal Experience – Steps Toward Enhancing The Quality Of Life by Mihaly Csikszentmihalyi.

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

1- “This book summarizes, for a general audience, decades of research on the positive aspects of human experience—joy, creativity, the process of total involvement with life I call flow…This book tries instead to present general principles. along with concrete examples of how some people have used these principles, to transform boring and meaningless lives into ones fill of enjoyment.”

2- “What I “discovered” was that happiness is not something that happens. It is not the result of good fortune or random chance. It is not something that money can buy or power command. It does not depend on outside events, but, rather, on how we interpret them. Happiness, in fact, is a condition that must be prepared for, cultivated, and defended privately by each person. People who learn to control inner experience will be able to determine the quality of their lives, which is as close as any of us can come to being happy.”

3- “From their accounts of what it felt like to do what they were doing, I developed a theory of optimal experience based on the concept of flow—the state in which people are so involved in an activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it.”

4- “The most important step in emancipating oneself from social controls is the ability to find rewards in the events of each moment. If a person learns to enjoy and find meaning in the ongoing stream of experience, in the process of living itself, the burden of social controls automatically falls from one’s shoulders. Power returns to the person when rewards are no longer relegated to outside forces. It is no longer necessary to struggle for goals that always seem to recede into the future, to end each boring day with the hope that tomorrow, perhaps, something good will happen. Instead of forever straining for the tantalizing prize dangled just out of reach, one begins to harvest the genuine rewards of living. But it is not by abandoning ourselves to instinctual desires that we become free of social controls. We must also become independent from the dictates of the body, and learn to take charge of what happens in the mind. Pain and pleasure occur in consciousness and exist only there. As long as we obey the socially conditioned stimulus-response patterns that exploit our biological inclinations, we are controlled from the outside. To the extent that a glamorous ad makes us salivate for the product sold or that a frown from the boss spoils the day, we are not free to determine the content of experience. Since what we experience is reality, as far as we are concerned, we can transform reality to the extent that we influence what happens in consciousness and thus free ourselves from the threats and blandishments of the outside world.”

5- “Control over consciousness cannot be institutionalized. As soon as it becomes part of a set of social rules and norms, it ceases to be effective in the way it was originally intended to be. Routinization, unfortunately, tends to take place very rapidly. Freud was still alive when his quest for liberating the ego from its oppressors was turned into a Staid ideology and a rigidly regulated profession. Marx was even less fortunate: his attempts to free consciousness from the tyranny of economic exploitation were soon turned into a system of repression that would have boggled the poor founder’s mind.”

6- “Over the endless dark centuries of its evolution, the human nervous stem has become so complex that it is now able to affect its own states, making it to a certain extent functionally independent of its genetic blueprint and of the objective environment. A person can make himself happy, or miserable, regardless of what is actually happy “outside,” just by changing the contents of consciousness. We all kn»now individuals who can transform hopeless situations into challenges to be overcome, just through the force of their personalities. This ability to persevere despite obstacles and setbacks is the quality people most admire in others, and justly so; it is probably the most important trait not only for succeeding in life, but for enjoying it as well.”

7- “Whenever information disrupts consciousness by threatening its goals we have a condition of inner disorder, or psychic entropy, a disorganization of the self that impairs its effectiveness. Prolonged experiences of this kind can weaken the self to the point that it is no longer able to invest attention and pursue its goals.”

8- “Following a flow experience, the organization of the self is more complex than it had been before. It is by becoming increasing complex that the self might be said to grow. Complexity is the result of two broad psychological processes: differentiation and integration. Differentiation implies a movement toward uniqueness, toward separating oneself from others. Integration refers to its opposite: a union with other people. with ideas and entities beyond the self. A complex self is one that succeeds in combining these opposite tendencies. The self becomes more differentiated as a result of flow because overcoming a challenge inevitably leaves a person feeling more capable, more skilled. As the rock climber said, “You look back in awe at the self, at what you’ve done, it just blows your mind.” After each episode of flow a person becomes more of a unique individual, less predictable, possessed of rarer skills. Complexity is often thought to have a negative meaning, synonymous with difficulty and confusion. That may be true, but only if we equate it with differentiation alone. Yet complexity also involves a second dimension—the integration of autonomous parts. A complex engine, for instance, not only has many separate components, each performing a different function, but also demonstrates a high sensitivity because each of the components is in touch with all the others. Without integration, a differentiated system would be a confusing mess. “low helps to integrate the self because in that state of deep concentration consciousness is unusually well ordered. Thoughts, intentions, feelings, and all the senses are focused on the same goal. Experience is in harmony.”

9- “There are two main strategies we can adopt to improve the quality of life. The first is to try making external conditions match our goals. The second is to change how we experience external conditions to make them fit our goals better. For instance, feeling secure is an important component of happiness. The sense of security can be improved by buying a gun, installing strong locks on the front door, moving to a safer neighborhood, exerting political pressure on city hall for more police protection, or helping the community to become more conscious of the importance of civil order. All these different responses are aimed at bringing conditions in the environment more in line with our goals. The other method by which we can feel more secure involves modifying what we mean by security. If one does not expect perfect safety, recognizes hat risks are inevitable, and succeeds in enjoying a less than ideally predictable world, the threat of insecurity will not have as great a chance of marring happiness. Neither of these strategies is effective when used alone. Changing external conditions might seem to work at first, but if a person is not in control of his consciousness, the old fears or desires will soon return, reviving previous anxieties. One cannot create a complete sense of inner security even by buying one’s own Caribbean island and surrounding it with armed bodyguards and attack dogs.”

10- “As our studies have suggested, the phenomenology of enjoyment has eight major components. When people reflect on how it feels when their experience is most positive, they mention at least one, and often all, of the following. First, the experience usually occurs when we confront tasks we have a chance of completing. Second, we must be able to concentrate on what we are doing. Third and fourth, the concentration is usually possible because the task undertaken has clear goals and provides immediate feedback. Fifth, one acts with a deep but effortless involvement that removes from awareness the worries and frustrations of everyday life. Sixth, enjoyable experiences allow people to exercise a sense of control over their actions. Seventh, concern for the self disappears, yet paradoxically the sense of self emerges stronger after the flow experience is over. Finally, the sense of the duration of time is altered; hours pass by in minutes, and minutes can stretch out to seem like hours. The combination of all these elements causes a sense of deep enjoyment that is so rewarding people feel that expending a great deal of energy is worthwhile simply to be able to feel it.”

11- “The same situation holds true for the artist painting a picture, and for all activities that are creative or open-ended in nature. But these are all activities that are creative or open-ended in nature. But these are all recognize and gauge feedback in such activities, she will not enjoy them. In some creative activities, where goals are not clearly set in advance, a person must develop a strong personal sense of what she intends to do. The artist might not have a visual image of what the finished painting should look like, but when the picture has progressed to a certain point, she should know whether this is what she wanted to achieve or not.”

12- “As this example illustrates, what people enjoy is not the sense of being in control, but the sense of exercising? control in difficult situations. It is not possible to experience a feeling of control unless one is willing to give up the safety of protective routines. Only when a doubtful outcome is at stake, and one is able to influence that outcome, can a person really know whether she is in control.”

13- “In our studies, we found that every flow activity, whether it involved competition, chance, or dimension of experience, had this in common: It provided a sense of discovery, a creative feeling of transporting the person into a new reality. It pushed the person to higher levels of performance, and led to previously undreamed-of states of consciousness. In short, it transformed the self by making it more complex. In this growth of the self lies the key to flow activities.”

14- “There is ample evidence to suggest that how parents interact with a child will have a lasting effect on the kind of person that child grow up to be. In one of our studies conducted at the University of Chicago, for example, Kevin Rathunde observed that teenagers who had certain types of relationship with their parents were significantly more happy, satisfied, and strong in most life situations than their peers who did not have such a relationship. The family context promoting optimal d experience could be described as having five characteristics. The first one is clarity: the teenagers feel that they know what their parents expect from them—goals and feedback in the family interaction are unambiguous. he second is centering, or the children’s perception that their of parents are interested in what they are doing in the present, concrete feelings and experiences, rather than being preoccupied with whether they will be getting into a good college or obtaining a well-paying job. Next is the issue of choice: children feel that the variety of possibilities from which to choose, including that of breaking parental rules—as long as they are prepared to face the consequences. The fourth differentiating characteristic is commitment, or the trust that allows the child to feel comfortable enough to set aside the shield of his defenses. and become unselfconsciously involved in whatever he is interested in. And finally there is challenge, or the parents’ dedication to provide increasingly complex opportunities for action to their children.”

15- “Without interest in the world, a desire to be actively related to it. a person becomes isolated into himself. Bertrand Russell, one of the greatest philosophers of our century, described how he achieved personal happiness: “Gradually 1 learned to be indifferent to myself and my deficiencies; I came to center my attention increasingly upon external objects: the state of the world, various branches of knowledge, individuals for whom I felt affection.” There could be no better short description of how to build for oneself an autotelic personality. In part such a personality is a gift of biological inheritance and early upbringing. Some people are born with a more focused and flexible neurological endowment, or are fortunate to have had parents who promoted unselfconscious individuality. But it is an ability open to cultivation, a skill one can perfect through training and discipline. It is now time to explore further the ways this can be done.”

16- “Even the simplest physical act becomes enjoyable when it is transformed so as to produce flow. The essential steps in this process are: (a) to set an overall goal, and as many subgoals as are realistically feasible; (b) to find ways of measuring progress in terms of the goals chosen; (c) to keep concentrating on what one is doing, and to keep making finer and finer distinctions in the challenges involved in the activity; (d) to develop the skills necessary to interact with the opportunities available; and (e) to keep raising the stakes if the activity becomes boring.”

17- “To realize the body’s potential for flow is relatively easy. It does not require special talents or great expenditures of money. Everyone can greatly improve the quality of life by exploring one or more previously ignored dimensions of physical abilities. Of course, it is difficult for any one person to reach high levels of complexity in more than one physical domain. The skills necessary to become good athletes, dancers, or connoisseurs of sights, sounds, or tastes are so demanding that one individual not have enough psychic energy in his waking lifetime to master more than a few. But it is certainly possible to become a dilettante—in finest sense of that word—in all these areas, in other words, to develop sufficient skills so as to find delight in what the body can do.”

18- “But for a person who has nothing to remember, life can become severely impoverished. This possibility was completely overlooked by educational reformers early in this century, who, armed with research results, proved that “rote learning” was not an efficient way to store and acquire information. As a result of their efforts, rote learning was phased out of the schools. The reformers would have had justification, if the point of remembering was simply to solve practical problems. But if control of consciousness is judged to be at least as important as the ability to get things done, then learning complex patterns of information by heart is by no means a waste of effort. A mind with some stable content to it is much richer than one without. It is a mistake to assume that creativity and rote learning are incompatible. Some of the most original scientists, for instance, have been known to have memorized music, poetry, or historical information extensively.”

19- “External forces are very important in determining which new ideas will be selected from among the many available; but they cannot explain their production. It is perfectly true, for instance, that the development and application of the knowledge of atomic energy were expedited enormously by the life-and-death struggle over the bomb between dited enormously by the life-and-death struggle over the bomb between Germany on the one hand, and England and the United States on the little to the war; it was made possible through knowledge laid down in more peaceful circumstances—for example, in the friendly exchange of more peaceful circumstances—tor example, in the friendly exchange of over to Niels Bohr and his scientific colleagues by a brewery in Copenhagen.”

20- “The bad connotations that the terms amateur and dilettante have earned for themselves over the years are due largely to the blurring of the distinction between intrinsic and extrinsic goals. An amateur who pretends to know as much as a professional is probably wrong, and up to some mischief. The point of becoming an amateur scientist is not to compete with professionals on their own turf, but to use a symbolic discipline to extend mental skills, and to create order in consciousness.”

21- “At the same time, it would be erroneous to expect that if all ill jobs were constructed like games, everyone would enjoy them. Even the mos favorable external conditions do not guarantee that a person will 1 be in flow. Because optimal experience depends on a subjective evaluation of what the possibilities for action are, and of one’s own capacities, it happens quite often that an individual will be discontented even with a potentially great job.”

22- “A community should be judged good not because it is technologically advanced, or swimming in material riches; it is good if it offers people a chance to enjoy as many aspects of their lives as possible, while allowing them to develop their potential in the pursuit of ever greater challenges. Similarly the value of a school does not depend on its prestige, or its ability to train students to face up to the necessities of life, but rather on the degree of the enjoyment of lifelong learning it can transmit. A good factory is not necessarily the one that makes the most money, but the one that is most responsible for improving the quality of life for its workers and its customers. And the true function of politics is not to make people more affluent, safe, or powerful, but to let as many as possible enjoy an increasingly complex existence.”

23- “Why are some people weakened by stress, while others gain strength from it? Basically the answer is simple: those who know how to transform a hopeless situation into a new flow activity that can be controlled will be able to enjoy themselves, and emerge stronger from the ordeal. There are three main steps that seem to be involved in such transformations: 1. Unselfconscious self-assurance…2. Focusing attention on the world…3. The discovery of new solutions.”

24- “THE AUTOTELIC SELF: A SUMMARY – 1. Setting goals…2. Becoming immersed in the activity…3.Paying attention to what is happening…4. Learning to enjoy immediate experience.”

25- “But complexity consists of integration as well as differentiation. The task of the next decades and centuries is to realize this underdeveloped component of the mind. Just as we have learned to separate ourselves from each other and from the environment, we now need to learn how to reunite ourselves with other entities around us without losing our hard-won individuality. The most promising faith for the future might be based on the realization that the entire universe is a system related by common laws and that it makes no sense to impose our dreams and desires on nature without taking them into account. Recognizing the limitations of human will, accepting a cooperative rather than a ruling role in the universe, we should feel the relief of the exile who is finally returning home. The problem of meaning will then be resolved as the individual’s purpose merges with the universal flow.”

Regards,

Omar Halabieh

Flow

On Who Says Elephants Can’t Dance

I recently read Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround by Louis V. Gerstner, Jr.

Below are key excerpts that I found particularly insightful in this book, detailing the turnaround that Louis Gerstner engineered at IBM in the 1990s:

1- “Thus began a lifelong process of trying to build organizations that allows for hierarchy but at he same time bring people together for problem solving, regardless of where they are positioned within the organization.”

2- “I went on to summarize my management philosophy and practice: I manage by principle, not procedure. The marketplace dictates everything we should do. I’m a big believer in quality, strong competitive strategies and plans, teamwork, payoff for performance, and ethical responsibility. I look for people who work to solve problems and help colleagues. I sack politicians. I am heavily involved in strategy; the rest is yours to implement. Just keep me informed in an informal way. Don’t hide bad information—1 hate surprises. Don’t try to blow things by me. Solve problems laterally; don’t keep bringing them up the line. Move fast. If we make mistakes, let them be because we are too fast rather than too slow. Hierarchy means very little to me. Let’s put together in meetings the people who can help solve a problem, regardless of position. Reduce committees and meetings to a minimum. No committee decision making. Let’s have lots of candid, straightforward communications. I don’t completely understand the technology. I’ll need to learn it. but don’t expect me to master it. The unit leaders must be the translators into business terms for me.”

3- “After all the customer and employee and industry meetings, as well as weekend and air travel reflection, I was indeed ready to make four critical decisions: Keep the company together. Change our fundamental economic model. Reengineer how we did business. Sell underproductive assets in order to raise cash.”

4- “I’ve had a lot of experience turning around troubled companies, and one of the first things I learned was that whatever hard or painful things you have to do, do them quickly and make sure everyone knows what you are doing and why.”

5- “The sine qua non of any successful corporate transformation is public acknowledgment of the existence of a crisis. If e So there must be a crisis, and it is the job of the CEO to define and communicate that crisis, its magnitude, its severity, and its impact. Just as important, the CEO must also be able to communicate how to end the crisis—the new strategy, the new company model, the new culture. All of this takes enormous commitment from the CEO to communicate, communicate, and communicate some more.”

6- “What drives IBM’s unique complexity is twofold. First, every institution and almost every individual is an actual or potential customer of IBM. In The second complexity factor is the rate and pace of the underlying technology.”

7- “All of our efforts to save IBM—through right-sizing i and reengineering and creating strategy and boosting morale and all the rest—would have been for naught if, while we were hard at work on the other things, the IBM brand fell apart. I have always believed a successful company must have a customer/market•lace orientation and a strong marketing organization. That’s why my second step in creating a global enterprise had to be to fix and focus IBM’s marketing efforts.”

8- “We made four major changes to our compensation system…This was all about pay for performance, not loyalty or tenure. It was all about differentiation: Differentiate our overall pay based on the marketplace; differentiate our increases based on individual performance and pay in the marketplace; differentiate our bonuses based business performance and individual contributions; and differentiate our stock-option awards based on the critical skills of the individual and our risk of loss to competition.”

9- “I wanted IBMers to think and act like long-term shareholders to feel the pressure from the marketplace to deploy assets and forge strategies that create competitive advantage. The market, over time, represents a brutally honest evaluator of relative performance, and what I needed was a strong incentive for IBMers to look at their company from the outside in.”

10- “The skills required in managing services processes are very different from those that drive successful product companies. We had no experience building a labor-based business inside an asset-intensive company. We were expert at managing factories and developing technologies. We understood cost of goods and inventory turns and manufacturing. But a human-intensive services business is entirely different. In services you don’t make a product and then sell it. You sell a capability. You sell knowledge. You create it at the same time you deliver it. The business model is different. The economics are entirely different.”

11- “My point is that all of the assets that the company needed to succeed were in place. But in every case—hardware, technology, software, even services—all of these capabilities were part of a business model that had fallen wildly out of step with marketplace realities…The implications of this kind of leap to a company’s economic model can be devastating. In IBM’s case it meant the collapse of gross profit margins and the attendant changes we had to engineer to lower our cost structure without compromising our effectiveness. Yet the hardest part of these decisions was neither the technological nor economic transformations required. It was changing the culture—the mindset and instincts of hundreds of thousands of people who had grown up in an undeniably successful company, but one that had tor decades been immune to normal competitive and economic forces. The challenge was making that workforce live, compete, and win in the real world. It was like taking a lion raised for all of its life in captivity and suddenly teaching it to survive in the jungle.”

12- “You’ve probably found, as I have, that most companies say their cultures are about the same things—outstanding customer service. excellence, teamwork, shareholder value, responsible corporate behavior, and integrity. But, of course, these kinds of values don’t necessarily translate into the same kind of behavior in all companies—how people actually go about their work, how they interact with one another, what motivates them. That’s because, as with national cultures. most of the really important rules aren’t written down anywhere.”

13- “In comparison, changing the attitude and behavior of hundreds of thousands of people is very, very hard to accomplish. Business schools don’t teach you how to do it. You can’t lead the revolution from the splendid isolation of corporate headquarters. You can’t simply give a couple of speeches or write a new credo for the company and declare that the new culture has taken hold. You can’t mandate it, :an’t engineer it. What you can do is create the conditions for transformation. You can provide incentives. You can define the marketplace realities and goals. But then you have to trust. In fact, in the end, management doesn’t change culture. Management invites the workforce itself to change the culture.”

14- “Thee work-a-day world of business isn’t about fads or miracles. There are fundamentals that characterize successful enterprises anc successful executives. They are focused. They are superb at execution. They abound with personal leadership.”

15- “At the end of the day a successful, focused enterprise is one that has developed a deep understanding of its customers’ needs, its competitive environment, and its economic realities. This comprehensive analysis must then form the basis for specific strategies :hat are translated into day-to-day execution.”

16- “Earlier in this section I mentioned that in every industry it is possible to identify the five or six key success factors that drive leadership performance. The best companies in an industry build processes that allow them to outperform their competitors vis-a-vis these success factors.”

17- “This next generation of leaders—in both the public and private sectors—will have to expand its thinking around a set of economic, political, and social considerations. These leaders will be: Much more able to deal with the relentless, discontinuous change that this technology is creating. Much more global in outlook and practice. Much more able to strike an appropriate balance between the instinct for cultural preservation and the promise of regional or global cooperation. Much more able to embrace the fact that the world is moving to a model in which the “default” in every endeavor will be openness and integration, not isolation.”

Regards,

Omar Halabieh

Who Says Elephants Can’t Dance?

On The Halo Effect

I recently finished reading The Halo Effect…and the Eight Other Business Delusions That Deceive Managers by Phil Rosenzweig.

As best summarized by the author: “The central idea in this book is that our thinking about business is shaped by a number of delusions…More recently, cognitive psychologists have identified biases that affect the way individuals make decisions under uncertainty. this book is about a different set of delusions, the ones that distort our understanding of company performance, that make it difficult to know why one company succeeds and another fails. These errors of thinking pervade much that we read about business, whether in leading magazines or scholarly journals or management bestsellers. They cloud our ability to think clearly and critically about the nature of success in business.”

The book then goes on to present the nine delusions excerpted below:

“Delusion One: The Halo Effect – The tendency to look at a company’s overall performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive performance are simply attributions based on prior performance.

Delusion Two: The Delusion of Correlation and Causality – Two things may be correlated, but we may not know which one causes which. Does employee satisfaction lead to high performance? The evidence suggests it’s mainly the other way around – company success has a stronger impact on employee satisfaction.

Delusion Three: The Delusion of Single Explanation – Many studies show that a particular factor  – strong company culture of customer focus or great leadership – leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.

Delusion Four: The Delusion of Connecting the Winning Dots – If we pick a number of successful companies and search for what they have in common, we’ll never isolate the reasons for their success, because we have no way of comparing them with less successful companies.

Delusion Five: The Delusion of Rigorous Research – If the data aren’t good quality, it doesn’t matter how much we have gathered or how sophisticated our research methods appears to be.

Delusion Six: The Delusion of Lasting Success – Almost all high performing companies regress over time. The promise of a blueprint for lasting success is attractive but not realistic.

Delusion Seven: The Delusion of Absolute Performance – Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.

Delusion Eight: The Delusion of the Wrong End of the Stick – It may be true that successful companies often pursued a highly focused strategy, but that doesn’t mean highly focused strategies often lead to success.

Delusion Nine: The Delusion of Organizational Physics – Company performance doesn’t obey immutable laws of nature and can’t be predicted with the accuracy of science – despite our desire for certainty and order.”

Every now and then one comes across a book, that makes its reader take a step back and re-assess his views, experiences and readings. The Halo Effect is one of these books. It delivers both on account of the content and also of the numerous corporate examples and references to leading work in the leadership/management space to illustrate the concepts presented. A very refreshing and highly recommended read!

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

1- “In fact, for all the secrets and formulas, for all the self-proclaimed thought leadership, success in business is as elusive as ever.”

2- “…There was talk, over and over, about customer orientation and leadership and organizational efficiency, but these things are hard to measure objectively, so we tend to make attributions about them based on things we do feel certain about – revenues and profits and share price. We may not really know what leads to high performance, so we reach for simple phrases to make sense of what happened.”

3- “If we start with the full data set and look objectively at many years of company performance, we find the dominant pattern is not one of enduring performance at all, but one of rise and fall, of growth and decline. Foster and Kaplan conclude: “…Managing for survival, even among the best and most revered corporations does not guarantee strong long term performance for shareholders. In fact, just the opposite is true. In the long run, the markets always win”.”

4- “March and Sutton explain: “In its efforts to satisfy these often conflicting demands, the organizational research community sometimes responds by saying that inferences about the causes of performance cannot be made from the data available, and simultaneously goes ahead to make such inference.””

5- “We can’t turn back the clock, change one variable, and then run the experiment again…It’s easy to blame one man for a company woe’s, but these sorts of attributions, while appealing for their simplicity, may not provide the best basis on which to manage a company.”

6- “…An organization isn’t a system of mechanical parts, interchangeable and replaceable. It’s better understood as a sociotechnical system, a combination of mean and machines, of people and things, of hardware and software, but also of ideas and attitudes. Some technical elements can often be copied and applied with predictable results…but when we begin to examine how those technical systems interact with social systems, with people and values and attitudes and expectations, the results are harder to predict.”

7- “Managers quite naturally find it easier to keep the attention on execution, which everyone will always agree can be done better.”

8- “What leads to high performance?…we’re left with two broad categories: strategic choice and execution…In spite of our desire for simple steps, the reality of management is much more uncertain that we would often like to admit – and much more so that our comforting stories would have us believe.”

9- “As Tom Peters observed: “To be excellent, you have to be consistent. When you’re consistent, you’re vulnerable to attach. Yes, it’s a paradox. Now deal with it.””

Regards,

Omar Halabieh

The Halo Effect

On McDonald’s – Behind The Arches

I recently finished reading McDonald’s – Behind The Arches by John F. Love.

As best summarized on the back cover of the book – “McDonald’s is the story of an American business success, a company that proved the value of hard work, ingenuity, trial and error, and gut instincts. In McDonald’s: Behind the Arches, business writer John F. Love tells the astonishing story of the people, and the strategies, the innovation and the brilliance that turned a single hamburger stand into a multibillion-dollar corporation that has influenced the very culture of America – and now the world.”

An exceptional business read, with countless lessons in business, management, leadership and sourcing. These lessons are inter-weaved within a great story about the start and growth of one of the most recognizable brands in the world. A must read!

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

1- “Few outside McDonald’s understand that Ray Kroc’s brilliance is found in the way he selected and motivated his managers, his franchisees, and his suppliers. He had a knack for bringing out the best in people who worked with him. To be sure, Kroc’s success with McDonald’s is a story of his own entrepreneurship. But it is more. He succeeded on a grand scale because he had the wisdom and the courage to rely on hundreds of other entrepreneurs.”

2- “The fundamental secret to McDonald’s success is the way it achieves uniformity and allegiance to an operating regimen without sacrificing the strengths of American individualism and diversity. McDonald’s manages to mix conformity with creativity.”

3- “Essentially, the approach Kroc took in franchising was the same as he took in selling food service supplies: his success was based on finding a way to make his customers successful with his product. As simple as it sounds, it was a revolutionary idea in the rapidly expanding food franchising business, and Kroc’s notion of a fair and balanced franchise partnership is without question his greatest legacy.”

4- “In short, Kroc assembled and tolerated one of the most diverse collections of individuals ever to occupy the top management of an american corporation. And even today, the practice of recruiting extremely individual managers is a McDonald;s trademark, one almost completely hidden by the chain’s legendary operational uniformity.”

5- “In fact, McDonald’s greatest impact on American business is in the areas that consumers do not see. In their search for improvements, McDonald’s operations specialist moved back down the food and equipment supply changed…They changed the way farmers grow potatoes…they altered the way ranchers raised beef…Indeed, no one has had more impact than McDonald’s in modernizing food processing and distribution in the past four decades.”

6- “McDonald’s also encouraged closeness with vendors by giving them enormous incentives to upgrade their operations. It did so by demonstrating early on that it could be just as loyal to suppliers that met its standards as it was tough on those that did not.”

7- “What converted McDonald’s into a money machines had nothing to do with Ray Kroc or the McDonald brothers…Rather, McDonald’s made its money on real estate and on a little-known formula developed by Harry J. Sonneborn.”

8- “The free exchange of Zien’s promotional ideas set a precedent that remains a key principle in McDonald’s marketing today: that all franchisees are partners, and what one develops to improve his or her local operation is provided freely to all operators to improve the system’s performance, with no royalty going to the franchisee, who discovered the concept.”

9- “…for most of its history, dedication to new products resided with certain product-oriented franchisees who stubbornly pushed their inventions on company managers who were not easily sold on them.”

10- “He (Kroc) had built not a company but a system of independent companies all pursuing the same goal, each dependent on the other. Indeed, the synergy that was developing between all the parts of McDonald’s was so different and unexpected that Kroc himself was only beginning to grasp the significance of it.”

11- “The packaged foods companies belatedly discovered that there was an enormous difference between the management of manufactured foods sold to grocers and foods prepared and sold directly to customers at a fast-food outlet. In the former, manufacturing is centralized and more easily controlled, and the sale to the consumer is indirect and depends highly on branded advertising. In the latter, production is decentralized and difficult to control, since each store is a self-sustaining production unit. Furthermore, the sale to the consumer is direct and depends highly on local service.”

12- “But McDonald’s reliance on nearly captive suppliers for technological breakthroughs goes beyond new products. Indeed, it was suppliers – driven by the prospect of increased McDonald’s business – who played the key role in organizing McDonald’s supply lines and making its distribution system one of the most advanced in all of retailing.”

13- “…McDonald’s Americanization of the global food service industry is one of the most promising developments in U.S. trade relations. McDonald’s, after all, is exporting what has become the centerpiece of American industry – the service sector.”

14- “More important, however, Fujita’s success made it clear to McDonald’s that to succeed in retailing abroad it needed a partnership that could give McDonald’s a home grown flavor in each foreign market without deviating from the fundamentals that made McDonald’s work in the United States.”

15- “The company was not only a good target for environmental activists because it was large, but the fact that it had outlets in virtually every U.S. community of any size made McDonald’s accessible to picketers and protesters everywhere, in some cases for issues that the company was not remotely involved in.”

Regards,

Omar Halabieh

McDonald’s – Behind The Arches

On Car Guys vs Bean Counters

I recently finished reading Cary Guys vs Bean Counters – The Battle for the Soul of American Business – by Former Vice Chairman of General Motors Bob Lutz.

This book is an account of Bob Lutz’s stint at General Motors from 2001 t0 2010. When he joined GM, he did so with the following intent and strategy: “Phase I. Exert my influence to improve products already in the pipeline and use my communication skills and reputation with the media to have them seen in the best possible light. Phase Two. Lead the creation of the future portfolio: cars and trucks of unsurpassed design excellence and characteristics. Cars and trucks so good, so desirable, that customers would pay full price and wait for delivery if necessary. Phase Three. Permanently change the culture of the company, especially around design, planning, and engineering, in such a way that mediocrity (or the dreaded adjective “lackluster,” so frequently applied to new GM cars) would be permanently banished.”

A common theme in the book – and as eluded to in the title – is the role of the over-analytical wave of thinking (primarily driven by MBA’s) which was a contributing factor to the demise of GM. Bob also covers the other factors, that led to the eventual Chapter-11 filing, including rising fuel prices, staggering health insurance costs etc.

A very insightful book on the dynamics of the automobile industry both in the US and globally, as well as on leadership, management and execution. The lessons learned can be easily extended to various other industries – which to varying degrees have or are experiencing similar challenges in their respective domains. A recommended read!

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

1- “It’s time to stop the dominance of the number crunchers, living in their perfect, predictable, financially projected world (who fail, time and again), and give the reins to the “product guys” (of either gender), those with vision and passion for the customers and their product or service…With the advice and support of their bean counters, absolutely, but with the final word going to those who live and breathe the customer experience. Passion and drive for excellence will win over the computer-like, dispassionate, analysis-driven philosophy every time.”

2- “When a major competitot has a systemic cost advantage of that magnitude, he can use it in various ways: – increase marketing spending, -underprice his competitor, -add more features, quality, and luxury to his product, -increase profitability, enabling a faster product renewal cycle. The Japanese did it all!”

3- “Health care costs grew and grew, accelerated, as always,by America’s unique “contingent fee” legal system, whereby the penniless victim can see justice done by hiring a lawyer who is willing to help “for free” in exchange for a percentage of a possible settlement. Noble intent, but that’s not how it turned out…These wasteful procedures and their attendant costs are all due to our (unique to America) “contingent fee” legal system, which results in our health care being the most expensive in the world while at the same time not necessarily the best.”

4- “By no means am I suggesting that the media’s reverse chauvinism (loving “foreign” more than “domestic”) was the leading cause of GM’s decline, but together with worker wages and benefits at unaffordable levels, crippling health care costs, and government regulation that caused seismic upheaval in manufacturing and engineering, it created an environment with no margin for error, where only the most astute leadership could prevail. As we have seen, and as the following will abundantly demonstrate, GM’s leaders were not up to this admittedly monumental task.”

5- “The company cared about…minimizing cost and maximizing revenue – but assumed that the customer desire for the product was a given…I maintain that without a passionate focus on great products from the top of the company on down, the “low cost” part will be assured but the “high revenue” part won’t happen, just as it didn’t at GM for so many years.”

6- “Meanwhile, Ford and Chrysler, the poorer cousins, focused on the Japanese model: don’t create new plats unless necessary, automate only where absolutely needed for quality or worker fatigue, seek the optimum blend of humans and machines. It worked, just as decades later it’s working for GM as well as it ever worked for Toyota.”

7- “Without question, the brand management approach works in the world of soap, toothpaste, and cleaning supplies. The error lies in transposing it to cards, which every one of the former consumer products CEOs tried to do. Here’s where it goes awry: a brand manager in the car business can’t do a small test batch. Changing the design or engineering of a car consumes hundred of millions of dollars and three years. And the federal government doesn’t care whether it’s a test batch or not; every car model, regardless of production volume, must be fully certified from an emissions and safety standpoint. Unlike a Crest toothpaste tube, these cars, assuming a negative test outcome, will hang around as worthless orphans for years.”

8- “Strongly held beliefs:

1) The best corporate culture is the one that produces, over time, the best results for shareholders.

2) Product portfolio creation is partly disciplined planning, but partly spontaneous, inspired, all-new thinking.

3) There are no significant, unfilled “Consumer Needs” in the U.S. car and truck market (except in the commercial arena).

4) The VLEs must be the tough gatekeepers on program cost, content, and investment levels.

5) Much of today’s content is useless in terms of triggering purchase decisions.

6) Design’s role needs to be greater.

7) Complexity-reduction is a noble goal, but it is not an overriding corporate goal.

8) We all need to question things that inhibit our drive for exceptional “turn-on” products.

9) It’s better to have Manufacturing lose ground in the Harbour Report, building high net-margin vehicles with many more hours, than bieng best in the world building low-hour vehicles that we take a loss on.

10) Remember the Bob Lutz motto: “Often wrong, but seldom in doubt.”

9- “Product Planning was another area mirrored in a morass of data, attempting to find a quantitative, reliable, repeatable way to come up with hit products. As with everything else at GM, the approach had sterling intellectual credentials, but in a world driven by a whim, fashion, and fluctuating fuel prices, it just didn’t work.”

10- “The company struggled with the concept of global budgets cutting through regional lines…Running a company by region is fine for many industries but no longer optimal for car companies. You have to go global, with the regions reduced to marketing and PR entities, as is the case with the Japanese, Koreans, and Germans in the United States.”

11- “…Of Course, my recipe had called for a gradual rise over time, not an overnight doubling. The gasoline sticker shock (due to the only partially explicable sudden rise in the price of a barrel of crude) had an even more profound effect on our fortunes than the financial crisis, because GM’s buyer group was hit the hardest. With Chevrolet and GMC, we were the nation’s leading producers of full-size pickup trucks…, and the market was imploding. Pickups are the preferred vehicles of tradesmen such as carpenters, plumbers, and electricians, and their work had evaporated along with new housing starts.”

12- “Making GM more open, more human, more accessible, and thus more likeable is the last, great unfinished task.”

13- “…Why did Sir Richard Branson (and others), with no higher education at all, succeed so brilliantly in both the airline and music businesses? The simple answer is: they have a blissful lack of awareness of the analytical science of business. Uninfected by the MBA virus, they simply strive to offer a better product, one that delights the customer. They control costs, of course. And they tolerate a necessary level of bureaucracy. It’s essential. But the focus is on the product or service…thus, the customer. American business needs to throw the intellectuals out and get back to business!”

14- “Astonishingly, in this critical product creation area, where the future of the car company hands in the balance, the much-scorned autocratic style of management works well, and numerous success stories confirm it.The big proviso, of course, is that the autocrat must be so steeped in the car business, and have so much taste, skill, intuition, and sense for the customer, as to be nearly infallible.”

15- “The job of the CEO is, in large part, making sure the company is seen in favorable light. False beliefs and unjust accusations need to be tackled, not left to fester in the files of the media, to be pulled out when another negative story is due. I do not see the media, or media exposure, as a negative. A frank, open, and candid approach, with lots of easy access to the CEO, is a winning strategy.”

16- “In a sense, the decline, failure, and rebirth of General Motors is simply a metaphor for what is happening to the whole United States. The days of absolute industrial and economic dominance that we took for granted and assumed would go on forever are over. They have been over for some time; we just didn’t notice it…As a country, we need to go through this painful collective Chapter 11-like experience. For a time, we need to put the “American Dream” of ever-more, ever-bigger, ever-richer on hold as we grapple with the reality that we are, on balance, far less competitive than we need to be.”

Regards,

Omar Halabieh

Car Guys vs Bean Counters

On The Closing of The American Mind

I just finished reading The Closing of The American Mind by Allan Bloom. As the author best puts it this is a book on “how higher education has failed democracy and impoverished the souls of today’s students”. This book offers a thorough historical lesson of our education echo-system and how it came to where it currently is.

Allan structure the book into three main sections. Students, where he describes the current state of students – particularly those getting ready to enroll in university – the books they read, the music they listen to and the relationships they engage in. The second section is “Nihilism, American Style” where the author discusses current culture (or lack there of), values and creativity to name a few themes. There is a strong focus in that section on Continental Europe and its thinkers –  and their influence on America. The last and final section “The University”  discusses the current role of this education centerpiece, and the back-warding it has gone through in terms of achieving its mission. Allan calls for a “revolution” of its role and a reversion to the roots of embracing classical liberal art and the early work of the Greek Philosophers.

A unique piece of literary work – based on years of research and experience from an educator. If one was to read one book on the evolution of education, this would definitely be a top contender. One that would make you think, and reconsider your views. The only criticism I have is with regards to the structure of the book which is sometimes hard to follow. That being said, the author does a good job of recapping the main point towards the end. To that effect it may be wise to re-read the book at a later point again, given the global understanding acquired from the first reading.

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

1- “The gradual stilling of the old political and religious echoes in the souls of the young accounts for the difference between the students I knew at the beginning of my teaching career and those I face now. The loss of the books has made them narrower and flatter. Narrower because they lack what is most necessary, a real basis for discontent with the present and awareness that there are alternatives to it. They are both more contented with what is and despairing of ever escaping from it. The longing for the beyond has been attenuated. The very models of admiration and contempt have vanished. Flatter, because without interpretations are like mirrors, not of nature, but of what is around. The refinement of the mind’s eye that permits it to see the delicate distinctions among men, among their deeds and their motives, and constitutes real taste, is impossible without the assistance of literature in the grand style.”

2- “Thus, the failure to read good books both enfeebles the vision and strengthens our most fatal tendency – the belief that the here and now is all there is.”

3- “Values are not discovered by reason, and it is fruitless to seek them, to find the truth or the good life.”

4- “Good and evil are what made it possible for men to live and act. The character of their judgments of good and evil shows what they are.”

5- “Since values are not rational and not grounded in the natures of those subject to them, they must be imposed. They must defeat opposing values. Rational persuasion cannot make them believed, so struggle is necessary. Producing values and believing in them are acts of the will. Lack of will, not lack of understanding, becomes the crucial defect. Commitment is the moral virtue because it indicates the seriousness of the agent. Commitment is the equivalent of faith when the living God has been supplanted by self-provided values. .. Commitment values the values and makes them valuable. Not love of truth but intellectual honesty characterizes the proper state of mind. Since there is no truth in the values, and what truth there is about life is not lovable, the hallmark of the authentic self is consulting one’s oracle while facing up to what one is and what one experiences. Decisions, not deliberations, are the movers of deed. One cannot know or plan the future. One must will it.”

6- “A serious life means being fully aware of the alternatives, thinking about them with all the intensity one brings to bear on life-and-death questions, in full recognition that every choice is a great risk with necessary consequences that are hard to bear. That is what tragic literature is about. It articulates all the noble things men want and perhaps need and shows how unbearable it is when it appears that they cannot coexist harmoniously. ”

7- “Many will say that my reports of the decisive influence of Continental, particularly German, philosophy on us are false or exaggerated and that, even if it were true that all this language comes from the source to which I attribute it, language does not have such effects. But the language is all around us. Its sources are also undeniable, as is the thought that produced the language.  We know how the language was popularized.”

8- “Men (in democracies) are actually on their own in comparison to what they were in other regimes and with respect to the usual sources of opinion. This promotes a measure of reason. However, since very few people school themselves in the use of reason beyond the calculation of self-interest encouraged by the regime, they need help on a vast number of issues – in fact, all issues, inasmuch as everything is opened up to fresh and independent judgement – for the consideration of which they have neither time nor capacity. Even the self-interest about which they calculate- the end – may become doubtful. Some kind of authority is often necessary for most men and is necessary, at least sometimes, for all men. In the absence of anything else to which to turn, the common beliefs of most men are almost always what will determine judgement. This is just where tradition used to be most valuable. ..tradition does provide a counterpoise to and a repair from the merely current, and contains the petrified remains of old wisdom.”

9- “To sum up, there is one simple rule for the university’s activity: it need not concern itself with providing its students with experiences tahat are available in democratic society. They will have them in any events.”

10- “It turned out that natural science had nothing to say about human things, about the uses of science for life or about the scientist. When a poet writes about a poet, he does so as a poet. When a scientist talks about scientists, he does not do so as a scientist. It he does so, he uses none of the tools he uses in his scientific activity, and his conclusions have none of the demonstrative character he demands in his science. Science has broken off from the self-consciousness about science that was the core of ancient science.”

11- “What happened to the universities in Germany in the thirties is what has happened and is happening everywhere. The essence of it all is not social, political, psychological or economic, but philosophic. And, for those who wish to see, contemplation of Socrates is our most urgent task. This is properly an academic task.”

12- “And one cannot jump on and off the tradition like a train. Once broken, our link with it is hard to renew. The instinctive heads of scholars, are list.”

Regards,

Omar Halabieh

The Closing of the American Mind