We live in the information age, which according to Wikipedia is a period in human history characterized by the shift from industrial production to one based on information and computerization.
Nothing surprising there, except for the idea that this is “a period in human history” – which tends to suggest it will come to an end at some point. The industrial revolution in the late nineteenth century ushered in the industrial age, and the digital revolution in the mid twentieth century spurred the emergence of the information age. So it is not entirely crazy to speculate about what might lie beyond the information age.
Of course, I am not arguing that information will become obsolete. Firms will always need to harness information in effective ways, just as most of them still need industrial techniques to make their products cheaply and efficiently. My point, instead, is that information will become necessary but not sufficient for firms to be successful. All this talk of “big data,” for example, feels like an attempt to strain a few more drops of juice out of an already-squeezed orange, just as Six Sigma was a way of squeezing more value out of the quality revolution. Both are valuable concepts, but their benefits are incremental, not revolutionary.
So just as night follows day, the information age will eventually be superseded by another age; and it behoves those with senior executive responsibility to develop a point of view on what that age might look like.
So here is a specific question that helps us develop this point of view: What would a world with too much information look like? And what problems would it create? I think there are at least four answers:
1. Paralysis through Analysis. In a world of ubiquitous information, there is always more out there. Information gathering is easy, and often quite enjoyable as well. My students frequently complain that they need more information before coming to a view on a difficult case-study decision. Many corporate decisions are delayed because of the need for further analysis. Whether due to the complexity of the decision in front of them, or because of[…]
Why are corporate executives obsessed with growing their companies?
Growth is innately appealing. We all feel better when we are making and selling more than we used to. Growth provides opportunities for people to develop new skills and gain promotions. And growing is a lot more fun than downsizing – no-one likes making people redundant, or killing off money-losing projects.
But the trouble is, most executives seek to grow their companies faster than the natural rate of growth in their markets – often many times faster. “Double digit growth” is a commonly-heard goal. And this is where things become interesting, because faster-than-market growth means you are either taking share away from competitors, or you are moving into new market areas – both of which are pretty risky things to do. So why do corporate executives do this?
Consider a well-known example. McDonalds was a growth company for about fifty years, from its origins in post-war America through to its position as the global leader in fast-food restaurants in the late 1990s. But things started to go wrong – the company was feeling the heat from the healthy-food lobby, and had over-extended itself with too many new stores. There was no natural growth left in McDonald’s part of the fast-food market. In 1999 it made its first ever job cuts and closed some money-losing restaurants. It then embarked on a series of acquisitions into adjacent areas: Chipotle, Aroma Café, Donotas Pizza, and Boston Market, as well as a 33% stake in Pret a Manger.
But none of these new businesses helped at all. The company reported its first-ever quarterly loss in 2002. A new team was brought in, and the “I’m Loving it” campaign, launched in 2003, helped to refocus on the core business, and this business returned to profitability. The non-core businesses were gradually sold off, but a lot of money and executive attention was wasted in the process of experimenting with them.
Why did McDonalds’ executives pursue this ill-advised foray into other fast-food areas? Essentially, they were incentivised to do it. The stock market puts a high premium[…]
Which company will win the battle for smartphone dominance in 2014? The latest data, released last week, showed Apple leading in the US (42% share), with Samsung ahead in the UK (58% share) and indeed most other markets. Others (notably Microsoft and Blackberry) are struggling to get a look-in.
Why do we talk about the battle for “dominance” in smartphones? In most industries – cars, financial services, soap powders — we expect to see large numbers of competing companies, often with quite similar market shares. But in the high-tech world, it is quite normal for one company to completely dominate – think of Intel in microprocessors, Cisco in routers, or Microsoft in personal computing software.
These high-tech markets have three distinctive features that allow the strong to get stronger. First, they are characterised by what economists call network effects - the idea that something becomes more valuable when more people use it. Think for example of the exponential growth of Facebook, which became more attractive the more people signed up. It’s the same with game developers – they all want to put their apps on the iStore because it has the most users, which in turn helps it to attract more users.
Second, there are significant switching costs between products, and customer get locked-in. If I want to trade in my Dell laptop for an Apple machine, I can expect many days of grief as I get used to the subtle differences between the two operating systems. If I want to change my soap powder, or even buy a different brand of car, the costs of switching are much lower.
Third, the value in high-tech products is mostly in the software, and the neat thing about software is that the variable cost of making it is zero. So once Apple has developed its new operating system, it has an incentive to get it into as many people’s hands as possible: whatever they pay goes straight to the bottom line.
Put these three points together, and it’s easy to see how some markets end up being completely dominated by one company, with the strong getting stronger and the marginal players being elbowed aside. And of[…]
In November 2013, Zappos, the online retailer (and subsidiary of Amazon.com) launched a bold management experiment. Its CEO, Tony Hsieh, announced that the reporting hierarchy and job titles would be abolished, and replaced with a self-organizing model called a “Holacracy”. While the details are a bit fuzzy, the essence of Holacracy is that employees are grouped into circles who take responsibility for defining how their work will be divided up and who is accountable for what. Another important feature is that the professional development side of the business (coaching, reviewing performance, career development) is decoupled from the getting-things-done side of the business, as these two activities often require different skill-sets. This new model, Hsieh argued, will help Zappos become more adaptive to change, and it will enable employees to become more fulfilled as they take on more responsibility for their own work and personal development.
It is too soon to know how successful Zappos will be with its new “managerless” model, though I will offer some views on this below. The primary question I want to address here is whether this announcement is symbolic of a broader shift away from traditional hierarchical ways of working? I think there are several fundamental changes underway in the business world that are causing us to question the basic principles of management (defined as “getting work done through others”). I will touch on three here.
First, the emergence of Generation Y, those people born after 1980, is bringing a change in expectations and skill-sets to the workplace. Gen Y, it is said, want freedom in everything they do: they love to customize and personalize; they are the collaboration and relationship generation; they have a need for speed; and they are very tech-savvy.
Gen Y employees have different expectations of their managers than previous generations. They want to be engaged and involved in their work, but they are highly tolerant of uncertainty so are less likely to put up with a dull job or a bad boss because they believe they have other options. The net effect of this trend is that your qualities[…]
The business news continues to be full of stories of large companies getting into trouble in part because of their complexity. JP Morgan has been getting most of the headlines, but many other banks are also investigation, and companies from other sectors, from Siemens to GSK to Sony, are all under fire.
It goes without saying that big companies are complex. And it is also pretty obvious that their complexity is a double-edged sword. Companies are complex by design because it allows them to do difficult things. IBM has a multi-dimensions matrix structure so that it can provide coordinated services to its clients. Airbus has a complex process for managing the thousands of suppliers who contribute to the manufacturing of the A380.
But complexity has a dark side as well, and companies like JP Morgan, IBM and Airbus often find themselves struggling to avoid the negative side-effects of their complex structures. These forms of “unintended” complexity manifest themselves in many ways – from inefficient systems and unclear accountabilities, to alienated and confused employees.
So what is a leader to do when faced with a highly complex organisation and a nagging concern that the creeping costs of complexity are starting to outweigh the benefits?
Much of the advice out there is about simplifying things – delayering, decentralising, streamlining product lines, creating stronger processes for ensuring alignment, and so on.
But this advice has a couple of problems. One is that simplification often ends up reducing the costs and benefits of complexity, so it has to be done judiciously.
But perhaps the bigger problem is this advice is all offered with the mentality of an architect or engineer. It assumes that Jamie Dimon was the architect of JP Morgan’s complexity, and that he, by the same token, can undo that complexity through some sort of re-engineering process.
Unfortunately, organisational complexity is, in fact, more complex than that. To some extent, organisations are indeed engineered systems –we have boxes and arrows, and accountabilities and KPIs. But organisations are also social systems[…]
Interim executive roles seem to be proliferating. In the last two weeksBlackberry appointed John Chen as its interim CEO, and Northern Ireland Water announced that its interim CEO would stay in post while the board tried, for a second time, to find a permanent replacement. Other large companies, including AstraZeneca, have had interim CEOs in recent years. And of course these public announcements just scratch the surface of a booming market for interim work at all levels, and in all sectors of the economy.
There are many types of interim executive – some are hired to do a very specific job, perhaps a turnaround or sale, some are provisional appointments that may lead to a full-time position, others are simply filling a hole. My particular interest in this column is with the latter type– the interim executive who is brought in to do a particular job, but without any specific mandate, until a permanent appointee can be found. And these ideas apply as much to the mid-level interim as they do to the CEO-level appointee.
What sort of person do you want as an interim executive? It is often said that good interims are flexible and responsive; they are fast-learners with a broad range of skills; and they are high-energy people, able to put in long hours when needed.
All these points are probably true. But my focus here is on some of the softer features of what makes a successful interim executive, features that often get overlooked when drawing up the profile for the type of person you are looking for. These observations are based partly on my research, but also partly on personal experience: twice in the last decade I have seen interim Deans come in as heads of business schools I have been working at, and do a better job than the formally-appointed Deans that came before or after them. What made these interim executives successful? Three things stood out.
First, they were focused on getting things done; on making the trains run on time. One arrived when an important initiative was stalled, so he worked to remove roadblocks and to bring stakeholders in line to support it. The other spent a lot of time finding the resources[…]
We frequently accuse large and complex companies of being bureaucratic, but what do we really mean?
The dictionary says bureaucracy is a means of coordinating activities through standardised rules and procedures. It was originally seen as a good thing – a way of freeing up organisations from the tyranny of powerful individual leaders with vested interests. We may not like the idea of Italian bureaucracy very much, but it beats having Silvio Berlusconi in charge. But over the decades, the term has gradually taken on negative overtones, a shorthand for the complexity that makes large organisations slow-moving and uninspiring to work in.
I spend a lot of time working with executives on how they might declutter, simplify or speed up the inner workings of their organisation. And I always push back when they say bureaucracy is the problem. What exactly do they mean, I ask them? Bureaucracy is a convenient bogeyman, as it represents all that is bad about big companies. But if these executives are going to make their company less bureaucratic, they had better figure out exactly what problem they are trying to solve. And to do this, a simple anecdote is far more powerful than a faceless monster. Here is an example of what I am talking about.
Last week my small consultancy business received a payment of £3,000 for some consulting work I had done for one of the top 20 companies in the UK, let’s call it Megafirm. I did the work in March 2012. Yes, 2012. It took 20 months for them to pay me.
I guess I should have been angry or frustrated at this delay, but in fact the longer it went on the more I became intrigued by what was happening (or, in fact, not happening). At no point in this 20 month period was there any dispute about whether my small business (my wife and I) was owed the money. Everyone we spoke to in the company was polite, helpful and increasingly apologetic. And yet somehow they couldn’t pay us. Some sort of glitch in the payments system meant that the initial invoice wasn’t paid on schedule, at which point the problem disappeared into a big black hole.
As the delay in payment entered its second year,[…]
If you are a fan of disruptive innovation, here is a great story for you.
It’s about a crime committed in Ystad in Southern Sweden, which anyone who is a fan of Scandi-noir will know is the home town of Kurt Wallander, a fictional detective created by Henning Mankell.
The perpetrator is a 35-year old resident of Ystad, Markus Persson. The victim is the sprawling multinational, Lego Corporation. And the crime Persson committed was theft – he stole an entire market from under Lego’s nose.
Markus “notch” Persson is the creator of Minecraft, already the fifth-best selling online game ever. It is a giant digital sandbox, a virtual world for building stuff – houses, temples, cities, SS Enterprise replicas. There are no instructions – you just figure it out for yourself. And there are no pre-existing structures – you start with an empty space, and you create your own world.
I leave to you to check out the game, and you will quickly realise that it is extremely easy to use and very addictive. But it also looks really cheap. When my 8-year old daughter first showed it to me, it felt like a throwback to the early days when you couldn’t create proper graphics. It is made up of pixelated blocks, and you move around using very basic up/down arrow commands.
It feels as if Markus Persson created Minecraft on a shoestring budget, and without really thinking of it as a money-making venture, and indeed that is exactly what happened. He first made Minecraft available through a gaming website to some friends in 2009, as a bit of fun. But it was sufficiently well received that in 2011 he quit his job, created a company, Mojang, and hired a couple of people to help him commercialise it. Growth has been entirely word-of-mouth, and Persson is now reportedly worth about £40m. At last count, 11million had paid for subscriptions to Minecraft.
So what’s the bigger story here? If you think about it, Minecraft is basically an online version of Lego. It is about giving kids the bricks, the tools, and then a giant sandbox to construct their own fantasy world. Which makes me wonder, why on earth didn’t Lego create Minecraft? How[…]
If you have ever done a B-School executive programme, this story will look very familiar. But there is a twist in the tail.
Last week, I was observing a session with 30 participants and one trainer. Six teams were created to compete in manufacturing water-carrying vessels. Each team was given 500 units of currency. The trainer auctioned off a bunch of equipment for making these vessels – paper, scissors, tape, and so forth – to the highest bidders. The groups were allowed to trade among themselves, to get hold of the equipment they needed. Then they set about constructing the largest vessel they could – measured in cubic centimetre – using their equipment and any additional equipment they could buy or rent from competitors. After 10 minutes the construction was completed, and prizes were awarded – 500 units to the team with the largest vessel, 400 units to the second largest, and so on. Each team then totted up how much they had spent, how much they had won in the construction competition, and the winner was announced. Lots of cheering, clapping and high-fiving ensued.
The trainer then debriefed the session: what did we learn? The power of teamwork and clear objectives, said one participant; money has no intrinsic value –it is what you do with it that counts, said another; some resources –tape in particular- became very expensive because there wasn’t enough to go round said a third. And on it went – lots of practical lessons about business and management, all derived from a 45-minute experiential learning session.
As I say, this will be very familiar to anyone who has worked or studies at a business school. But here’s the point: this exercise wasn’t done at a business school, it was done at a primary school in Shenzhen, China, and the participants were 10-year-old Chinese kids.
The school was the Adream charitable foundation, set up to help Chinese children increase their self-awareness and explore the broader world. Most education in China is traditional rote-learning, but the Adream foundation has gained permission from the authorities[…]
Here is an unusual blog – it is about something that is not happening; the absence of a phenomenon, rather than its presence. So please bear with me.
One of my pet fascinations is management fads – those ideas about how to rethink or improve companies that become brands and movements in their own right. Over the last 20 years, and probably longer, we have seen wave after wave of management fad. In the late 1980s we had Total Quality Management and Benchmarking; in the early 1990s it was Business Process Reengineering and the Balanced Scorecard; in the late 1990s fads included Six Sigma, Economic Value Added, Knowledge Management, and E-Business. These fads were accompanied by lots of buzz in the business press and specialist conferences, they often became branded practice areas for consultancies, and they became things for companies to invest in because everyone else was doing them. Needless to say, these fads also flamed out – some companies saw benefits from their efforts, many did not, and in some cases (Reengineering for example) the concept became almost entirely discredited.
Interestingly, this obsession with management fads also spawned a whole genre of business books – Beyond the Quick Fix, Fad Surfing in the Boardroom, What’s the Big Idea – to help managers keep track of all these fads and hopefully make better decisions about how and when to use them.
So what has happened over the last decade? Well, I have been watching out for the next big management fad for a while now, and I am baffled because it doesn’t seem to have come along. Of course there have been plenty of ideas and issues kicked around in the management press – I am not suggesting for an instant that we have reached “the end of history” when it comes to management thought. Trendy ideas today include Web 2.0/Management 2.0, Big Data, Corporate Sustainability, Authentic Leadership, and Crowdsourcing/Crowdfunding. But these don’t qualify as management fads in my book, at least not yet – they just haven’t attracted the same level of hype or mass-market adoption that we saw back in the 1990s with Six Sigma, EVA or BPR.