The problem with lists and awards – and best practices

We all love awards and lists.  Who doesn't like being rewarded for their accomplishments.  At the same time, we have acquired a strong taste for lists "The best…"  Another verification of success. But both can be harbingers of potential problems – and even destruction.

Ben Bernanke became Time magazine's "Man of the Year" and now he's at some risk of losing his job (see 24/7WallStreet.com "In Not Bernanke, Who?"  Think about the list of Great Companies that appear in books, like Good to Great, only to end up in big trouble – like Circuit City and Fannie Mae.  Why does it seem those who top awards and lists end up shortly struggling?

Too often businesses, and business people, "win" by doing more of the same.  They work hard to optimize their Success Formula.  They get really committed to practicing what they do (remember Outliers by Malcolm Glaldwell and his recommendation to practice, practice, practice?)  They get better and better.  And in fields like sports and music, where the rules are well understood and the approach is clear, this often works. And as long as they keep practicing top athletes and musicians often remain near the top of competitors.

But we have to recognize that most of the time those "at the top" in business have emerged within a given market.  Then they are knocked off by a shift.  Like Ed Zander of Motorola being named #1 CEO in 2004, only to be fired within 2 years as RAZR sales toppled.  Like Sun Microsystems perfecting Unix servers for an emerging client/server technology market that became saturated and shifted to PC servers.  Like Michael Dell (and Dell Corporation) which emerged when lower cost made supply chain efficiencies critical for PCs, before the PC market became saturated and iPhones plus Blackberries started dominating the landscape.  Or WalMart which also used a new supply chain to grow the emerging discount retailing sector, only now it is laying off 10,000 employees as it shuts Sam's stores across the country.  These companies created a Success Formula and honed it quarter after quarter to maximize performance in a high growth environment.  But the market shifted.

In business the rules are not "set".  There is no written music to
perform.  Instead, the market is highly dynamic.  New competitors
emerge, new ways of competing emerge, new technologies emerge and new
solutions emerge.  The market keeps changing. Suddenly, what worked last year isn't successful any more.  When the market shifts, the previous winner becomes the new goat.  That optimized business starts to look like the world's best wrestler, only to be obsolete when a flood occurs making swimming the new, necessary skill.  Being last year's best is impossible to repeat because the market shift makes the old approach less valuable – possibly obsolete.

"Best practices" are usually little more than copying last year's list topper.  In the 1990s everyone wanted to copy product development practices at Sun, and supply chain practices at Dell.  But both led to horrible returns when demand for servers and PCs diminished.  Best practices are almost guaranteed to be a solution developed to late, and applied even later, to solve previous years' problems.  They aren't forward looking, and not designed to meet the needs 2 years into the future.

Business success isn't about topping a list.  And, to a great degree, the Outlier approach (as is a hedgehog concept) is very risky.  If you spend 10,000 hours doing something, only to see the value for that something go away, what good was it?  Remember when Cobol writers were in demand?  Being the world's best at something in business can cause you to be optimized on the past and inflexible to market change.

Business success requires adaptability. And that requires a focus on future markets.  It requires the ability to constantly Disrupt your approach, to build capability in many different areas and markets.  It requires skill at establishing and operating White Space projects to learn about new markets and shifts – the ability to know how to test and then understand the results of those tests.  In business adaptability trumps optimization, because you can be sure that things will change – markets will shift – and the highly optimized find themselves behind the shift and struggling.

Use Disruptions, not Goals, to Succeed – GM

Many people think the best way to grow is by setting big goals – even Big Audacious Hairy Goals (BHAGs).  But increasingly we're learning that goal setting is not correlated with success.  At AmericanPublicRadio.org there's a partial text, and MP3 download, of a recent interview between General Motors leaders and a University of Arizona Professor titled "It's not always good to create goals." 

The story relates how about a decade a go, with market share hovering at 25%, GM set the goal of moving back to 29%.  It became a huge, multi-year campaign.  Lapel pins with "29" were made and all kinds of motivational programs were put in place.  The GM organization had its goal, and it was highly aligned to the goal.  But it didn't happen.  Despite the goal, and all the energy and talent put into focusing on the goal, GM continued to struggle, lose share – and eventually file bankruptcy.  The goal made no difference.

Worse, the interview goes on to discuss how goals often lead to decidedly undesirable, sometimes unethical – even illegal – behavior.  Instances are cited where goal obsession led company employees to falsify documents, even  ship bricks in place of products to meet sales targets.  No executive wants this, but goals and goal obsession – especially when there is a lot of reinforcement socially and monetarily on the goal – can become a serious problem.

Results are exactly that.  Results.  They are an outcome. They are the way we track our behaviors and activities – our decisions.  When we focus on goals – usually some sort of result – we lose track of what is important.  We have to focus on what we do.  And for most organizations a big goal merely leads people to try working harder, faster,better, cheaper.  But when the Success Formula is mis-aligned with the market – even when the whole organization is aligned on maximizing the Success Formula results will still struggle – even falter.  Goals don't help you fix a Success Formula returning poor results.  Just look at GM.

In fact, it can make matters worse.  In "White Bears and Other Unwanted Thoughts" (available on Amazon.com) the authors point out that when you try to turn a negative (a problem) into a positive (a challenge, or goal), you often achieve a rebound effect making people obsess about the problem.  Tell somebody not to think about a white bear – and it's all they think about.  When your company has a problem and you try to tell employees "hey, don't think about the problem.  Go do your job.  Work harder, increase your focus, and all will work out.  Sure share is down, but don't think about lost share, instead think about the goal of higher market share" frequently the employees will start to become obsessive about the problem.  It will reinforce doing more of the same – perhaps manicly Instead of becoming innovative and doing something new, obsessive devotion to trying to make the old methods produce better results becomes the norm.  Goals don't produce innovation – they produce repetition.

So what should you do when facing a problem?  Disruptions.  GM didn't need a big goal.  GM needed to Disrupt its broken Success Formula.  GM needed to attack a Lock-in (or two).  GM leaders needed to admit the market had shifted, and that competitors were changing the game.  GM needed to recognize, admit and encourage employees to engage in attacking old assumptions – and recognize that market share would continue eroding if they didn't do things differently.  Setting a big goal reinforced the old Lock-ins and even an aligned organization – working it's metaphorical tail off – couldn't make the outdated Success Formula produce positive results. 

Only a Disruption would have helped save GM.  After attacking some Lock-ins, like the desire to move all customers to bigger and more expensive cars, or the desire to focus on long production runs, GM should have set up White Space teams to discover new Success Formulas.  Instead of putting all its management energy and money into growing volume at Chevrolet, Cadillac, Buick and GM nameplates, General Motors leadership should have revitalized the innovative Saturn and Saab to do new things – to develop new approaches that would be more competitive.  Instead of pushing Hummer to have 3 identical cars in 3 sizes, GM leadership should have unleashed Hummer to explore the market for truly unique, limited production vehicles. GM should have allowed Pontiac to really take advantage of the design breakthroughs happening at the Australian design studio – to change the nameplate into a performance car segment leader.  By attacking Lock-ins, Disrupting, and using White Space GM really could have turned around.  Instead, by creating a BHAG GM reinforced its focus on its Hedgehog concept – and drove the company into bankruptcy.

You can see a 40 second video about the value and importance of Disruptions on YouTube here.

A 75 second video on White Space effectiveness on YouTube here.

Read free ebook on "The Fall of GM:  What Went Wrong and How To Avoid Its Mistakes"

Innovation killers – Collins in the lead

Jim Collins has decided to start telling people how to manage innovation.  In "How Might We Emphasize Cost Effective Evaluation Tools" at the Good.is Blog Collins lays out his prescription for managing innovation.  And it's pure Collins, because he's a lot more interested in focus than results.  In fact, he is more concerned that before attempting innovation companies put in place a review process to rapidly cut off funds for innovations that go awry than figuring out how to behave differently.

Jim Collins has decided to tell people how to innovate.  Only his first recommendations don't sound anything like the road to innovation.  His five rules are timely, efficient, focused, sharable and actionable.  There's no mention of getting market input, or figuring out how to behave differently.  In Collins' world if you are efficient, mindful of the clock, focused and committed to extending your past Success Formula he's sure profits will evolve.

His passion for evaluation is paramount.  He loves to talk about being efficient in innovation, prototyping toward some goal that is pre-set.  Being "efficient" about the exercise drives his discussion – as if markets are efficient, or understanding how to make money in a shifted future marketplace is an efficient process.  And he is obsessed with being vigilant.  Collins is fearful that people will waste money on their innovation exercises.  Efficiency, ala Taylor and scientific management, is a dogma Collins cannot escape.  He wants his followers to be efficient, pre-planned, and obsessed about making sure money is not wasted from this escapade into innovation.

Jim Collins' prescription for success is one of the biggest snake oil
sales in business history.
  His book sales, and speaker fees,
demonstrate what a big PR budget from an aggressive publisher can
accomplish with content that sounds like "common sense."  Jim Collins'
"great" companies are anything but.
  Just run the list and you'll find
he loved companies like Circuit City, Fannie Mae, Wells Fargo and
Phillip Morris.  Companies that failed at innovation and ended up
smaller and less profitable (or gone completely.)

Today's economy has shifted. While Collins and Hamel spent years looking backward to see what worked in the 1970s, 80s and 90s those analyses are of no value today.  We aren't in an industrial economy any longer where building economies of scale or entry barriers works.  Being good at something is the mantra Collins lives upon, but when the market can shift in months, weeks or days to something entirely different being good at something that's obsolete does not create high rates of return. 

Collins is so afraid that companies will over-invest in something new he would rather kill an innovation than possibly spend too much.  His obsession with efficiency indicates an approach that is bankrupt intellectually, and has demonstrated it cannot produce better returns.  It sounds so good to be very focused, to be fearful of pouring good money after bad.  But reality is that businesses regularly accomplish just that – making bad investmentsby trying to defend & extend a business that is no longer competitive.

Only participating in changing markets creates high returns.  No business, not even huge companies like GM, Chrysler or Sun Microsystems, can "direct" a market.  There are no entry barriers in a globally connected digital economy.  If companies aren't willing to abandon their BHAGs (Big Hairy Audacious Goals) in favor of creating new solutions they simply are made obsolete.  Nobody's "hedgehog concept" will save them when the market shifts and previous sources of value are simply no longer valuable (just ask newspaper publishers, who never imagined that customers would move so fast to the web instead of waiting for their daily paper.) 

Almost 100 years ago a little known economist named Schumpeter said that value was created by introducing new solutions.  His work demonstrated that pursuing optimization led to lower rates of return, not higher.  As a result, he concluded that those who are flexible to market shifts – bringing new solutions to market rapidly – end up the big winners.  As we look at companies today, comparing Google, Apple, Cisco and Nike to GM, Kraft, Sara Lee and AT&T we can see that Schumpeter had it right. 

The gurus of business management helped us all realize how you could make improvements via optimization.  Peters told us to seek out excellence,  Hamel and Prahalad encouraged us to understand our core capabilities and leverage them.  Collins drummed into us that we should focus.  And most recently, a New Yorker editor with no business training or experience at all, Malcolm Gladwell, has admonished us to practice, practice, practice.  Yet, when we really look at performance we see that these practices make organizations more brittle, and subject to competitive attacks from those who would change the markets.

We know today that innovation leads to higher rates of return than optimization of old strategies.  But few recognize that innovation must be tied to market inputs.  We build organizations that are designed to execute what we did last year – not move toward what is needed next year.  This can be changed.  But first, we have to eliminate the innovation killers — and that includes Jim Collins.

So many good die young – SGI, Sun Micro, DEC, Wang, Univac, etc.

How many of these company names do you remember — Sperry Rand? Burroughs? Univac? NCR? Control Data? Wang? Lanier?  DataPoint?  Data General? Digital Equipment/DEC? Gateway? Cray? Novell?  Banyan? Netscape?

I'm only 50, yet most of these companies were originated, became major successes, and failed within my lifetime.  Now, prepare to add a couple more.  In the 1980s Silicon Graphics set the standard for high-speed computing, using their breakthrough technology to open the door on graphics.  There never would have been a PS3 or Wii were it not for the pioneering work at SGI. The company invented high speed graphics calculating methods that allowed for "real-time" animation on a computer, as well as "color fill" and "texture mapping" – all capabilities we take for granted on our computer screen today but that were merely dreams to early GUI users.  But now SGI has disappeared according to the Cnet.com article "First GM, Now Silicon Graphics.  Lessons Learned?"  The company that expanded the high-speed computing market most on SGI's early lead was Sun Microsystems, building the boxes upon which the first all-computer animated movie was made – Toy Story.  But 2 weeks ago we learned Sun will most likely soon disappear into the bowels of IBM ("Final Chapter for Sun Micro Could be Written by IBM" at WSJ.com)

When Clayton Christensen wrote The Innovator's Dilemma he said academics like to talk about the tech industry because the product life cycles are so short.  Actually, he would have been equally accurate to say their company life cycles were so short.  For business academics, looking at tech companies is like cancer researchers looking at white lab mice.  Their lifespan is so short you can rapidly see the impact of business decisions – almost like having a business lab.

What we see at these companies was an inability to shift with changes in their markets.  They all Locked-in on some assumptions, and when the market shifted these companies stayed with their old assumptions – not shifting with market needsLike Jim Collins' proverbial "hedgehog" they claimed to be the world's best at something, only to learn that the world put less and less value in what they claimed as #1.  Either the technology shifted, or the application, or the user requirements.  In the end, we can look back and their lives are like a short roller coaster – up and then crashing down.  Lots of money put in, lots spent, not much left for investors, vendors or employees at the end.  They were #1, very good (in fact, exceptional), and met a market need.  Yet they were unable to thrive and even survive – because a market shift emerged which they did not follow, did not meet and eventually made them obsolete.

Today we can see the same problem emerging in some of the even larger tech companies we've grown to admireDell taught everyone how to operate the world's best supply chain.  Yet, they've been copied and are seeing their market weaken to new products supplied by different channels.  Microsoft monopolized the "desktop", but today less and less computing is done on desktops.  Computing today is moving from the extremes of your hand (in your telephone) to "clouds" accessed so serrendipituously that you aren't even sure where the computing cycles are, much less how they are supplied.  And software is provided in distributed ways between devices and servers such that an internet search engine provider (Google) is beginning to provide operating systems (Android) for new platforms where there is no "desktop."  As behemoth as these two companies became, as invincible as they looked, they are equally vulnerable to the fate of those mentioned at the beginning of this blog

Of course, their fate is not sealedApple and IBM both are tech companies that came perilously close to the Whirlpool before finding their way back into the RapidsWhen businesses decide their best future is to Defend & Extend past strengths they get themselves into trouble.  To break out of this rut they have to spend less time thinking about their strengths, and more about market needs.  Instead of looking at similar competitors and figuring out how to be better, they have to look at fringe competitors and figure out how to change with emerging market requirements.  And just like they disrupted the marketplace once with their excellence, they must be willing to disrupt their internal processes in order to find White Space where they can create new market disruptions

Today, with change affecting all companies, it is important that leaders look at the "lab results" from tech.  It's important to recognize past Lock-ins, and assumptions about continuation (or return to) past markets.  Markets are changing, and only those that take the lead with customers will quickly return to profitability and emerge market leaders.  It's those new leading companies that will get the economy growing again, so waiting is really not an option.