by Adam Hartung | Sep 4, 2010 | Books, Defend & Extend, In the Swamp, Leadership, Lock-in, Religion
Summary:
- When we don’t know what works, we create myths to describe what might work
- Much of business theory is little more than myth
- “Good to Great” has been a best seller, but it is not helpful for good management
- To grow business today requires abandoning management myths and aligning with changing market needs
Good to Great by Jim Collins has been a phenomenal business best seller. Almost 10 years old, it has sold millions of copies. It continues to be featured on end caps in book stores. That it has sold so well, and continues selling, is a testament to a much better book by the legendary newsperson Bill Moyers with Joseph Campbell, “The Power of Myth.” (Original PBS 2001 TV show available on DVD, or get the new release this month.)
When we don’t understand something we develop theories as to how it might work. These theories are based upon what we know, our assumptions, and our biases. They could be right, or they might not. Only testing determines the answer. However, sometimes the theory is so powerfully connected to our beliefs that we don’t want to test it – don’t feel the need to test it. And if the theory hangs around long enough, people forget it wasn’t tested. What easily happens is that “logical” theories (based upon assumptions and beliefs) that don’t explain reality become myth. And the myth becomes very comforting. Over time, the myth becomes part of the assumption set – unchallenged, and actually used as a basis for building new theories.
For example, the founder of modern medicine – Galen – didn’t understand the circulatory system. So he thought blood was oxygenated by invisible pores. As time passed it became impossible to challenge, or even test, this theory. Eventually, blood letting was developed as a medical practice because people thought the blood stored in the affected area had gone bad. It was several hundred years before Harvey, through careful testing, proved there were no invisible pores – and instead blood circulated throughout the body. Millions had perished from blood letting because of a myth. Bad theory allowed to go unchallenged and untested. It just sounded so good, so acceptable, that people followed it. Dangerous practice.
Thomas Thurston now gives us great insight to the popular myth developed by Jim Collins in Good to Great. Published by Growth Science International (http//growthsci.com) “Good to Great: Good, But Not Great” Mr. Thurston puts Mr. Collins thesis to the test. Is it a usable framework for predicting performance, and do followers actually achieve superior performance? In other words, does the advice in Good to Great work?
Mr. Thurston’s conclusions, quoted below, are quite clear, and mirror those of academics and lay people who have studied the storied Mr. Collins’ work:
- Even with the copious guidelines set forth by Collins, sorting CEOs into each category proved a highly subjective process. The classification scheme was ambiguous
- Level 5 leadership was difficult to categorize with reliability and consistency
- Our sample [100 well known firms] did not reveal any statistically significant difference in the performance of firms led by Level 5 and Not-Level 5 leaders. Performance in each category was approximately the same.
- Level 5 leadership classifications were, in practice, highly subjective and not predictive of superior firm performance.
- In other words, our results concluded that one can not predict whether a firm will perform good, great or bad based on its having a Level 5 Leader.
We like myth. It helps us explain what we previously could not explain. Like early Greek gods helped people explain the complex world around them. But, when we build our behaviors on myth it becomes extremely dangerous. We depend upon things that don’t work, and it can have serious repercussions. Mr. Collins glorified Circuit City and Fannie Mae in his book – yet now one is gone and the other in disrepute. Meanwhile his list of “great” companies have been proven to perform no better than average since his publication.
In Good to Great Mr. Collins offers a theory for business success that is very appealing. Be focused on your strengths. Get everybody on the bus to doing the same thing. Make sure you know your core, and protect it like a hedgehog protects its home. And make sure all leaders follow a Christ-like approach of humbleness, and leader servitude. It sounds very appealing – in an Horatio Alger sort of way. Work hard, be humble and good things will happen. We want to believe.
But it just doesn’t produce superior performance. There are no theories that have identified “great” leaders. Success has come from all kinds of personalities. And, despite our love for being “passionate” and “focused” on doing something really “great” there is no correlation between long-term success and the ability to understand your core and focus the organization upon it. Thousands of businesses have been focused on their core, yet failed.
What we need is a new theory of management. As the Assistant Managing Editor of the Wall Street Journal, Alan Murray, wrote in “The End of Management,” industrial era management theories about optimization and increased production do not help companies deal with an information era competitiveness fraught with rapid change and keen demands for flexibility.
Increased flexibility and success can be assured. If companies make some critical changes
- Plan for the future, not from the past. Do more scenario planning and less “core” planning
- Obsess about competition – and listen less to customers
- Be disruptive. Don’t focus on optimization and continuous improvement
- Embrace White Space to develop new solutions linked to changing market needs
This does work. Every time.
update links on Thomas Thurston 5/2014:
http://startupreport.com/thomas-thurston-on-innovation-malpractice-and-the-dangers-of-theory-via-startupreport-com/
http://newsle.com/person/thomasthurston/2870934#reloaded
http://thomasthurston.com/
by Adam Hartung | Aug 25, 2010 | Books, In the Rapids, Leadership, Lock-in
Summary:
- We are biased toward doing what we know how to do, rather than something new
- We like to think we can forever grow by keeping close to what we know – that’s a myth
- Growth only comes from entering growth markets – whether we know much about them or not
- To grow you have to keep yourself in growth markets, and it is dangerous to limit your prospects to projects/markets that are “core” or “adjacent to core”
Recently a popular business book has been Profit from the Core. This book proposes the theory that if you want to succeed in business you should do projects that are either in your “core,” or “adjacent to your core.” Don’t go off trying to do something new. The further you move from your “core” the less likely you will succeed. Talk about an innovation killer! CEOs that like this book are folks who don’t want much new from their employees.
I was greatly heartened by a well written blog article at Growth Science International (www.GrowthSci.com) “Profit from Your Core, or Not.. The Myth of Adjacencies.” Author Thomas Thurston does a masterful job of pointing out that the book authors fall into the same deadly trap as Jim Collins and Tom Peters. They use hindsight primarily as the tool to claim success. Their analysis looks backward – trying to explain only past events. In doing so they cleverly defined terms so their stories seemed to prove their points. But they are wholly unable to be predictive. And, if their theory isn’t predictive, then what good is it? If you can’t use their approach to give a 98% or 99% likelihood of success, then why bother? According to Mr. Thurston, when he tested the theory with some academic rigor he was unable to find a correlation between success and keeping all projects at, or adjacent to, core.
Same conclusion we came to when looking at the theories proposed by Jim Collins and Tom Peters. It sounds good to be focused on your core, but when we look hard at many companies it’s easy to find large numbers that simply do not succeed even though they put a lot of effort into understanding their core, and pouring resources into protecting that core with new core projects and adjacency projects. Markets don’t care about whatever you define as core or adjacent.
It feels good, feels right, to think that “core” or “adjacent to core” projects are the ones to do. But that feeling is really a bias. We perceive things we don’t know as more risky than thing we know. Whether that’s true or not. We perceive bottled water to be more pure than tap water, but all studies have shown that in most cities tap water is actually lower in free particles and bacteria than bottled – especially if the bottle has sat around a while.
What we perceive as risk is based upon our background and experience, not what the real, actual risk may be. Many people still think flying is riskier than driving, but every piece of transportation analysis has shown that commercial flying is about the safest of all transportation methods – certainly much safer than anything on the roadway. We also now know that computer flown aircraft are much safer than pilot flown aircraft – yet few people like the idea of a commercial drone which has no pilot as their transportation. Even though almost all commercial flight accidents turn out to be pilot error – and something a computer would most likely have overcome. We just perceive autos as less risky, because they are under our control, and we perceive pilots as less risky because we understand a pilot much better than we understand a computer.
We are biased to do what we’ve always done – to perpetuate our past. And our businesses are like that as well. So we LOVE to read a book that says “stick close to your known technology, known customers, known distribution system – stick close to what you know.” It reinforces our bias. It justifies us not doing what we perceive as being risky. Even though it is really, really, really lousy advice. It just feels so good – like sugary cereal for breakfast – that we justify it in our minds – like saying “breakfast is the most important meal of the day” as we consume food that’s probably less healthy than the box it came in!
There is no correlation between investing in your core, or close to core, projects and high rates of return. Mr. Thurston again points this out. High rates of return come from investing in projects in growth markets. Businesses in growth markets do better, even when poorly managed, than businesses in flat or declining markets. Where there are lots of customers wanting to buy a solution you simply do better than when there are lots of competitors fighting over dwindling customer revenues. Regardless of how well you don’t know the former or do know the latter. Market growth is a much better predictor of success than understanding your “core” and whatever you consider “adjacent.”
Virgin didn’t know anything about airlines before opening one – but international travel from London was set to boom and Virgin did well (as it has done in many new markets.) Apple didn’t know anything about retail music before launching the iPhone and iTunes, but digital music had started booming at Napster and Apple cleaned up. Nike was a shoe company that didn’t know anything about golf merchandise, but it entered the market for all things golf (first with just one club – the driver – followed by other things) by hooking up with Tiger Woods just as he helped promote the sport into dramatic growth.
Success comes from entering new markets where there is growth. Growth can overcome a world of bad management choices. When there are lots of customers with needs to fill, you can make a lot of mistakes and still succeed. To restrict yourself to “core” and “adjacent” invites failure, because your “core” and the “adjacent” markets that you know well simply may not grow. Leaving you in a tough spot seeking higher profits in the face of stiff competition — like Dell today in PCs. Or GM in autos. Sears in retailing. They may know their “core” but that isn’t giving them the growth they want, and need, to succeed in 2010.
