Author Archives: Greg Satell

About Greg Satell

Greg Satell is a popular speaker and consultant. His latest book, Cascades: How to Create a Movement That Drives Transformational Change, is available now. Follow his blog at Digital Tonto or on Twitter @Digital Tonto.

Putting Human Agency at the Center of Decision-Making

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Putting Human Agency at the Center of Decision-Making

GUEST POST from Greg Satell

We live in an automated age. From the news we read and the items we shop for, to who we date and what companies we choose to work for, algorithms help drive every facet of modern life. Such rapid technological advancement has led some to predict that we’re headed for a jobless future, where there is no more need for humans.

Yet in their recent book Radically Human, Accenture’s Paul Daugherty and H. James Wilson argue exactly the opposite. In their work guiding technology strategy for many of the world’s top corporations, they have found that, in many cases, the robots need us more than we need them. Automation is no panacea.

For over a century, pundits have been trying to apply an engineering mindset to human affairs with the hope of taking a more “scientific approach.” So far, those efforts have failed. In reality, these ideas have less to do with science than denying the value of human agency and limiting the impact of human judgment. We need to stop making the same mistake.

The Myth Of Shareholder Value

In 1970, the economist Milton Friedman proposed a radical idea. He argued that corporate CEOs should not take into account the interests of the communities they serve, but that their only social responsibility was to increase shareholder value. While ridiculed by many at the time, by the 1980s Friedman’s idea became accepted doctrine.

In particular, what irked Friedman was that managers would exercise judgment with respect to the objectives of the organization. “the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation … and his primary responsibility is to them,” he wrote.

The problem is that boiling down the success of an enterprise to the single variable of shareholder value avoids important questions. What do we mean by “value?” Is short term value more important than long-term value? Do owners value only share price or do they also value other things, like technological progress and a healthy environment?

Avoiding tough questions leaves significant problems unsolved, which may be one reason that, since Friedman’s essay, our well-being has declined significantly. Our economy has become markedly less productive, less competitive and less dynamic. Purchasing power for most people has stagnated. By just about every metric, we’re worse off.

How The Consumer Welfare Standard Undermines Consumer Welfare

In 1978, the legal scholar Robert Bork published the Antitrust Paradox in which he argued against the rule of reason standard for antitrust cases that required judges to use their discretion when deciding what constitutes a practice that “unreasonably” restricts trade. In its place, he suggested a consumer welfare standard, which would only take into account whether the consumer was harmed by higher prices.

Much like Friedman, Bork didn’t like the idea of depending on subjective human judgment. How could we trust judges to decide what is “reasonable” without a clear and objective standard? If the government is going to block business activity, he argued, it should have to prove, through stringent economic analysis, that harm is being done.

Yet as Lina Kahn pointed out in a now-famous paper titled Amazon’s Antitrust Paradox, consumers can be harmed even as prices are lowered. If Amazon is allowed to control the online retail infrastructure, including logistics, hosting, marketing, etc., then trade is restricted, free markets are undermined and the consumer will be harmed.

To understand why, you only need to look at the recent baby formula shortage, in which only three firms dominate the market and, the leader, Abbott, is the exclusive supplier in many markets. Not only is it highly likely that the lack of competition contributed to lax quality standards at Abbott’s plant in Sturgis, Michigan, but once it went offline because of contamination, there weren’t enough suppliers to fill the gap.

These aren’t isolated examples, but indicative of a much larger and growing crisis. An article in Harvard Business Review details how the vast majority of industries are concentrated in just a few dominant players. A more extensive analysis by the Federal Reserve bank shows how the lack of competition leads to lower business dynamism and less productivity.

“Great Power” Politics

In early March, the prominent political scientist John Mearsheimer gave an interview to The New Yorker in which he argued that the United States had erred greatly in its support of Ukraine. According to his theory, we should recognize Russia’s role as a great power and its right to dictate certain things to its smaller and weaker neighbor.

Today, the idea that America should have left Ukraine at the mercy of Russia seems not only morally questionable, but patently absurd. Not only has the brutality of the Russian forces horrified the world, their incompetence has laid bare the fecklessness of the the Putin regime. How could such a respected expert of foreign affairs get things so wrong?

Once again, the failure to recognize human agency is a key culprit. In Mearsheimer’s view, which he calls, “realism,” only “great powers” have a say in world affairs and they will work to further their interests. He believes that by not recognizing Russia’s desire to subjugate other nations in its orbit, America and its allies are being silly and impractical.

Hopefully, we can learn some lessons from the war in Ukraine. Strategy is not a game of chess, in which we move inert pieces around a board. People have the power to make choices. Ukraine chose to undertake tough reforms and arm itself. Russia chose an autocracy which rewarded loyalty over competence. That, more than anything else, has driven events.
The Real World Isn’t An Algorithm

A joke began circulating in the late 1970s, often attributed to management consultant Warren Bennis, that the factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment. Today, even with offshoring, about 10% of Americans work in factories.

When you scratch below the surface, the joke has less to do with technological advancement than it does with derision and control. Bennis wasn’t just any business consultant, but a renowned expert on leadership, who wrote books, published articles in top journals and even advised presidents. That he would promote the view, even as a joke, that leaders should deny agency to employees is as troubling as it is telling.

If you believe that human judgment is a liability rather than an asset, you manage accordingly. You treat employees as cogs in a machine rather than partners in a shared enterprise. You invest in offshoring rather than up-skilling, schedule shifts without regard to people’s lives, deny benefits such as parental leave. We’ve seen where that’s gotten us—lower productivity, worsening mental health and a society that is more unequal and less just.

We need to get back to the business of being human. Our economy should serve our people, not the other way around. The success of a society needs to be measured by the well-being of those who live in it. If we increase GDP, but our air and water are more polluted, our children less educated, we live unhappy lives and die deaths of despair, what have we really gained?

— Article courtesy of the Digital Tonto blog
— Image credits: Pixabay

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Effective Change Tactic Design Starts with Viable Targets

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Effective Change Tactic Design Starts with Viable Targets

GUEST POST from Greg Satell

When we’re passionate about something, we want to take action. We want to launch an initiative, start a business, hit the streets, get stuff done. Yet our bias for action can be a trap that undermines—or even completely derail—our efforts. No matter what our intentions, actions without a sound strategy are doomed to fail.

Corporate change initiatives often start with a big kick-off campaign. These rarely convince anybody of anything, but can trigger opposition and kill the effort before it ever really gets started. People who feel strongly about social change often start by organizing a march. Yet marches are a very flawed tactic, vulnerable to sabotage and rarely achieve anything substantial.

Effective transformation strategy always involves mobilizing people to influence institutions. That’s where you start. Once you’ve determined what your strategy needs to be targeted at, you can begin to design potent tactics. There are time-tested tools that have proven out over decades that can help you do this. If you’re serious about change, you should learn them.

Mobilizing Constituencies

Much like a General maps the terrain upon which a military battle will be fought, the first step in designing effective tactics for a transformation initiative is to map the terrain upon which the battle for change will be fought. The tool that will help you do this is called the Spectrum of Allies, which provides a framework for classifying support and opposition.

Mobilizing Constituencies

In concept, mapping the Spectrum of Allies is a simple exercise. You merely classify who is most likely to be your most active allies, who will be supportive but more passive, who will be neutral, passively opposed and actively opposed. However, there are some nuances that take a little bit of effort to master.

First, it’s important to remember that these are targets for mobilization. In other words, they are groups of people that you want to get on board to actively work to influence institutions. Second, these are not individuals, but more like marketing personas. For example, in an educational initiative, parents, teachers and students are all groups you’ll want to mobilize.

There are a number of ways you can go about recruiting supporters. Many initiatives start simply by feeling people out in private conversations. An announcement in social media can sometimes be helpful as well. One strategy that we’ve seen be enormously effective in organizational initiatives is to hold workshops and see who stays behind after the session.

Every change effort is unique. We have found that even in similar initiatives in similar organizations that there were vast differences in the Spectrum of Allies. Here’s an example from a digital transformation initiative:

Spectrum of Allies

Once you’ve mapped the Spectrum of Allies and understand who are your targets for mobilization, you’re ready to move on to identifying your targets for influence.

Identifying Institutional Targets

While mobilizing people to your cause is important and necessary, it is far from sufficient. Just because an idea is popular, doesn’t mean that it will be implemented. In fact, it’s not uncommon for popular ideas to languish for years or even decades. To bring real change about you need to influence institutions that actually have power to enact change.

Think about an all powerful dictator, like Vladimir Putin or Kim Jong-un. They don’t need to pay much attention to popular opinion because they control all of the institutional power. If they were to lose control of those institutions, however, we could expect a huge change in the status quo! The tool we use to identify institutional targets is called the Pillars of Support.

Pillars of Support

In the pillar charts above, we can see three very different examples. Notice how the first, taken from our digital transformation initiative, could really apply to any type of organizational change. It is very context specific. The other two, focused on education and political change, are more generic, but would still vary slightly from case to case.

But look at each one for a minute. Think about how much change you could bring about in education if you could influence all of those institutions? Or how you could change a society if you could impact each one of those political pillars. Even in the organizational example, which is very specific, would be somewhat effective in many cases.

Evaluating Institutional Support

Once you’ve identified the institutional pillars that are relevant for your change effort, you will need to analyze each of them in terms of approachability and influence. Below is an example related to the same digital transformation initiative described above, where approachability and influence are rated on a five-point scale.

Evaluating Institutional Support

Once you begin to analyze the institutional pillars it becomes very clear that there are vast differences. HR leadership, for example, is very enthusiastic about digital transformation, while technology and product leadership are much more skeptical. Industry associations and media are enthusiastic, but not very influential. Customers and partners are fairly neutral.

These differences become even more clear once we chart them on a matrix.

Change Targets

Now that we have a good understanding of our targets, we are much better equipped to design tactics that are specifically designed for the people we need to mobilize and the institutions we need to influence.

Designing Tactics

When designing tactics, context is always key. That’s why we analyze the Spectrum of Allies and the Pillars of Support, so that we can understand the people involved and the forces at play. The annotated version of the Pillar Analysis Matrix below shows how we can use that understanding to guide our actions.

Pillar Analysis Matrix

In the upper right, “Leaders” quadrant, there are institutions that are both influential and approachable. We’ll want to design tactics that leverage their influence. The “Collaborators” in the lower-right quadrant don’t have as much influence as the “Leaders,” but may have resources we can leverage

On the left side of the matrix the institutions are less approachable. We’ll want to leverage shared values to help bring the influential “Blockers” into a more neutral position. We won’t really need to focus too much on the less influential “Holdouts,” but it may be worthwhile to address their fears in the hope that they will be less disruptive.

To see how this all works out, let’s return to our digital transformation example:

Digital Transformation Example

The first action is a hackathon, which is designed to mobilize the Yammer Group members to influence HR and product leadership. Because HR leadership is already supportive, we may want to work with that team exclusively until we can show some success and then leverage those results to win support (or at least neutrality) from product leadership.

The industry associations in our example aren’t super influential, but they are supportive, so it shouldn’t be too difficult to arrange a speaking slot for an executive sponsor which, if successful, could influence all stakeholders. Some best practice exchanges with customers and partners could help move the needle as well.

In practice, this analysis should be updated on a regular cadence (e.g. monthly or quarterly) and combined with OKR’s or KPI’s to track progress. Successful initiatives will often shift the terrain and open up new possibilities even as they render certain tactics less effective. We need to continually adapt to changing contexts.

One thing that I hope is clear by now is how much more effective it is to start with targets rather than tactics. We also find that the process goes much more smoothly when everyone involved has a common language and understanding of the terrain upon which the battle for change will be fought.

— Article courtesy of the Digital Tonto blog
— Image credits: Pixabay

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Purpose Has Transformative Power

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Purpose Has Transformative Power

GUEST POST from Greg Satell

Wherever I go in the world to speak and advise organizations, I always get the same question: “How can I get people to listen to my ideas?” The truth is that no one wants to listen to your ideas unless they solve a problem that is meaningful to them. So many initiatives fail because leaders get so focused on their passion for an idea that they fail to communicate it effectively.

People already have enough going on in their lives with their own responsibilities, ambitions and dreams. They have families to take care of, friends that they want to spend time with and their own ideas that they want to pursue. The status quo always has inertia on its side and never yields its power gracefully.

The truth is that good ideas fail all the time. In the two decades I have been researching and advising leaders about transformation, what I have found is that few have trouble coming up with new concepts. The hard part is to get others to buy in and work together towards a common purpose. That can only be done in the context of shared sense of values and mission.

Why Occupy Not Only Failed, But Could Never Succeed

On September 17, 2011, #Occupy Wall Street took over Zuccotti Park, in the heart of the financial district in Lower Manhattan. Declaring, “We are the 99%,” they captured the attention of the nation and then the world, eventually growing to encompass protests in 951 cities across 82 countries.

The protesters were angry and rightly so. A global economic elite had bilked us out of trillions and then gotten off scot-free. However, despite all of the self-righteous indignation, they offered no alternate vision of how they wanted things to be. There were no proposals for legislation, alternative business models or anything else really, just anger and frustration.

As Joe Nocera noted in the New York Times, the Occupy movement “had plenty of grievances, aimed mainly at the ‘oppressive’ power of corporations,” but “never got beyond their own slogans.” It’s never enough to merely point out what you don’t like — you need to put forward a clear idea of what you want instead.

When General Stanley McChrystal sought to transform military operations in Iraq, his mantra was “it takes a network to defeat a network” and he built his strategy for change around that one basic principle. Lou Gerstner pulled off one of the most extraordinary turnarounds in history by refocusing his organization from its proprietary “stack” of products to its customers’ “stack” of business processes.

A sense of grievance is never enough to bring change about. You need to put forward an affirmative vision of tomorrow.

How the Mission Drives Your Strategy

We usually think of strategy as a rational, analytic activity, with teams of MBA’s poring over spreadsheets. We often forget that strategy has to have a purpose and that purpose is almost always personal and emotive. Great strategy starts, not with analysis, but from defining and committing to a mission.

Strategy is never created on an empty canvas. While we can make rational assessments about whether we want to pursue a strategy based on low costs, differentiation or an attractive niche. We can, through investments and divestments, fill in missing pieces on a PowerPoint chart, but the fate of a strategy ultimately hinges on personality and ambition.

The success of Apple can’t be separated from Steve Jobs’ ambition to weave technology and design into products that were “insanely great.” Southwest’s dominance in the travel industry is a direct consequence of Herb Kelleher’s mission of being “THE low cost airline,” which drove everything he did from the planes he bought to which routes he competed on.

As Adam Michnik, one of the key intellectual leaders behind the Solidarity movement in Poland, put it, “Start doing the things you think should be done, and start being what you think society should become. Do you believe in free speech? Then speak freely. Do you love the truth? Then tell it. Do you believe in an open society? Then act in the open. Do you believe in a decent and humane society? Then behave decently and humanely.”

Any vision for the future needs to be rooted in desire and desires are essentially personal. They are deeply entrenched in our sense of self.

The Value of Values

The 2008 financial crisis posed serious challenges for every business. With sales taking a nosedive, companies had to make painful cuts to rein in costs. In the vast majority of cases, that meant layoffs and millions lost their jobs. It’s one of those understandable misfortunes.e No one likes it, but few see alternatives.

The steel giant Nucor, however, had pledged never to lay off employees and it cost it dearly. In 2009, the company lost $294 million dollars. At the time, many saw the move as quixotic and impractical. Yet the results speak for themselves. Today the company is valued more than 30% higher than its closest rival ArcelorMittal S.A., with significantly higher profit margins and twice the return on equity.

In The Good Jobs Strategy MIT’s Zeynep Ton tells a similar story about Mercadona, Spain’s leading discount retailer, when it needed to cut costs in 2008. Rather than cut wages or reduce staff, it asked its employees to contribute ideas. The result was that it managed to reduce prices by 10% and increased its market share from 15% in 2008 to 20% in 2012.

Values are how an enterprise honors its purpose. Yet living up to them involves certain costs. You can’t say you value employees and then lay them off at the first sign of trouble, just like you can’t say you value innovation and obsess about quarterly earnings. You can’t commit to a purpose without making hard choices.

We Need to Start Asking Different Questions

When the Business Roundtable issued a statement in 2019 that discarded the old notion that the sole purpose of a business is to provide value to shareholders, many were dismayed. Some thought it was just another example of misguided altruism by “elites.” Others saw it as a cynical and disingenuous ploy.

The truth is that the whole idea of shareholder capitalism was a cop-out. It gave leaders an excuse for not making choices because it implied that whatever the stock market valued was somehow more relevant than human agency. The anonymous collective of the market was primary, while individual choice was considered to be less consequential.

The ascendant concept of “stakeholder capitalism,” unfortunately, isn’t much better. Surely we can’t value all stakeholders equally. So which communities should we choose to serve? Which consumers do we value over others? Which partners do we choose to get in bed with? What standards should we insist that our suppliers meet?

None of these are easy questions. If for instance, we stop working with suppliers who don’t meet certain environmental or governance standards, we take away jobs from certain communities and run the risk of diminishing our ability to serve our customers. So we need to be thoughtful and offer intelligent standards making tough and uncertain choices

The reason so many organizations find themselves unable to pursue a purpose isn’t because they don’t want to, but because it is hard. Purpose doesn’t begin with a single step, but with a diverging path. We must choose one direction at the expense of another, or stay mired and lost, unable to move forward.

— Article courtesy of the Digital Tonto blog
— Image credits: Dall-E

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Revolutions Never Begin with a Slogan

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Revolutions Never Begin with a Slogan

GUEST POST from Greg Satell

Ukrainian President Volodomyr Zelenski has been compared to great orators like Winston Churchill. He vowed to the English House of Commons to fight “in the forests, in the fields, on the shores, in the streets.” In a speech to the US Congress he told President Biden, “Being the leader of the world means to be the leader of peace.”

While new to politics, Zelensky is no neophyte when it comes to delivering a line. A longtime actor and comic who was the voice of “Paddington” in the Ukrainian adaptations of the hit movie, his production company Kvartal 95 produced a series of hits. It would be easy to boil his effectiveness down to his communication skills.

That would be a mistake. Zelenski’s eloquence derives its power from the plight of his people, their passion for freedom and their unwillingness to return to an often troubled past. One reason why change so often fails is that we spend so much time focusing on wordsmithing that we neglect why the need for change arose in the first place. That is where we must start.

Gandhi’s Satyagraha

As a young man, Mohandis Gandhi wasn’t the type of person you would notice. Impulsive and undisciplined, he was also so shy as a young lawyer that he could hardly bring himself to speak in open court. With his law career failing, he accepted an offer to represent the cousin of a wealthy muslim merchant in South Africa.

Upon his arrival, Gandhi was subjected to humiliation on a train and it changed him. His sense of dignity offended, he decided to fight back. Yet he would do so not by attacking his enemies, but by targeting his own weaknesses. The aim, as he put it, was “the vindication of truth not by affliction of suffering on the opponent, but on one’s self.”

His method of Satyagraha was not passive resistance as commonly understood, which he considered a “weapon of the weak.” In fact, it was extremely strategic. Its aim was to undermine his opponents legitimacy and, in doing so, their freedom of action. He sought to back them into a corner in which both action and inaction would yield essentially the same result —an upending of the existing order.

At its core, Satyagraha is intended to be a quest for truth. The aim is to get your opponents to confront themselves. As the South African leader Jan Smuts would put it. “It was my fate to be the antagonist of a man for whom even then I had the highest respect… For me — the defender of law and order — there was the usual trying situation, the odium of carrying out the law, which had not strong popular support.”

Stalin’s Gift That Just Kept Giving

One of the first things a visitor to Warsaw will notice is the Palace of Culture. When arrived in the country in 1997, it dominated the skyline. A replica of the Seven Sisters buildings in Moscow, it was forced upon the Polish people by Stalin in 1955 and for decades it served as a reminder of Soviet domination.

I remember attending a business meeting there where my host pointed out that it had the best view in Warsaw, because it was the only place where you couldn’t see the Palace of Culture. Its tower had the feel of Sauron, the evil force in J. R. R. Tolkien’s Lord of the Rings series. It was more than just a foreign presence at the heart of the capital city. It was an all-watching eye, a reminder that Poles’ lives were not fully their own.

We remember the Solidarity movement in Poland as a struggle for labor against communism and economics were certainly part of it. But the larger grievance was encapsulated in the Palace of Culture, the feeling of being completely subjugated by another nation. Poles felt it deeply and never truly accepted Soviet rule.

Much like Gandhi on the train, it was that emotional sense of injury that pushed the Polish people to be passionate about change and it is similar forces that propel the Ukrainians now. Vladimir Putin, much like Stalin before him, has unwittingly empowered his own opposition by failing to recognize their identity and attempting to subjugate their identity,

Today, the Palace of Culture still stands, albeit enfeebled by the modern skyscrapers bustling with commercial activity, that surround and obscure it.

Steve Jobs and the Products That Sucked

Steve Jobs didn’t believe in market research. He once explained, “Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d ask customers what they wanted, they would’ve told me a faster horse.’ People don’t know what they want until you show it to them.” That’s why he didn’t start out with a product idea, but something that “sucked”

Computers sucked. They were ugly and hard to use. That’s what drove him to create the Macintosh. Music players sucked. He wanted something that would put 1000 songs in his pocket. That’s what drove him to create the iPod. Phones sucked. That’s what drove him to create the iPhone. Much like Gandhi’s humiliation and the Palace of culture, these things offended his sensibilities.

If you want to create change in this world, you need to identify a grievance that people care about. Because if people don’t see a problem, they’re not going to care about your solution. It doesn’t matter if it’s in your team, your organization, your industry or throughout society as a whole. Change isn’t about ideas, it’s about solving meaningful problems.

When we begin to work with a leadership team on a transformational initiative, we always start out asking about what problem they are trying to solve. Often, they don’t know. There are so many wonderful things to adopt that it’s easy to fall into the trap of identifying a solution before you’ve actually defined a problem.

Don’t Let Talking About Change Undermine Your Ability to Achieve It

Every leader wants to be seen at the vanguard of change. The truth is, it’s relatively easy to announce a change initiative, hire vendors to implement new technologies and then bring in change consultants to hone messaging and arrange training, but these things are unlikely to bring about successful transformation.

In fact, evidence suggests that all of the talk about change may be undermining our ability to achieve it. One survey found that 44% of employees say they don’t understand the change they’re being asked to make, and 38% say they don’t agree with it. A clear majority, 65% of respondents complained of “change fatigue.”

Change doesn’t begin with an idea. It starts with identifying a meaningful problem. That’s why it’s so important that before you start an initiative you ask questions like, ask questions like, “What problem are we trying to solve? Is there a general consensus that it’s a problem we need to solve? How would solving it impact our business?

When we look at transformational leaders who achieved great things, the first thing we tend to notice is their words, not the cause that compelled them to act. The words are easy to replicate. Anyone can speak them. But If you want to create change in this world, you need to identify a grievance that people care about. Because if people don’t see a problem, they’re not going to care about your solution.

— Article courtesy of the Digital Tonto blog
— Image credits: Pexels

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Don’t Get Fooled by Hucksters, Gurus and Consultants

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Don't Get Fooled by Hucksters, Gurus And Consultants

GUEST POST from Greg Satell

When I lived in Poland, it was common to say that “life is cruel, and full of traps.” From an American perspective, the aphorism can be a bit of a culture shock. We’re raised to believe in the power of positivity, the American dream and the can-do spirit. Negativity can be seen as something worse than a weakness, both an indulgence and a privation at the same time.

Over the years, however, I came to respect the Poles’ innate suspicion. The truth is that we are far too easily fooled and taken in by those prey on the glitches in our cognitive machinery. Sometimes the ones peddling bunk have fooled also themselves. Their claims seem to be supported by logic and evidence, but their promises never quite pan out.

We’re taken in because we want their claims to be true. We’d like to think that there is a secret we’re missing, that there’s a black magic that we’re not privy to and, if we prove our worth and obtain access to a few simple truths, we’ll capture the success that eludes us. Yet these frauds follow common patterns and there are telltale signs we can learn to spot.

1. The Survivorship Bias Trick

In 2005 W. Chan Kim and Renée Mauborgne, both distinguished professors at INSEAD, published Blue Ocean Strategy. In their study of 108 companies the authors found that “blue ocean” launches, those in new categories without competition, far outperformed the shark-infested “red ocean” line extensions that are the norm in the corporate world. It was an immediate hit, selling over 3.5 million copies.

Bain consultants Chris Zook and James Allen’ book, Profit from the Core, boasted even more extensive research encompassing 200 case studies, a database of 1,854 companies, 100 interviews of senior executives and an “extensive review” of existing literature. They found that firms that focused on their ”core” far outperformed those who strayed.

It doesn’t take too much thinking to start seeing problems. How can you both “focus on your core” and seek out “blue oceans”? It betrays logic that both strategies could outperform one another. Also, how do you define “core?” Core markets? Core capabilities? Core customers? While it’s true that “blue ocean” markets lack competitors, they don’t have any customers either. Who do you sell to?

Yet there is an even bigger, more insidious problem and it is a trick that hucksters, gurus and consultants regularly employ to falsely establish dubious claims. It’s called survivorship bias. Notice how “research” doesn’t include firms that went out of business because there were no customers in those “blue oceans” or because they failed to diversify outside of their “core.” The data only pertains to the ones that survived.

Can you imagine a medical researcher failing to include the results of patients that died? Or an airplane designer forgetting to mention the prototypes that crashed? Yet hucksters, gurus and consultants get away with it all the time.

2. Dressing Up Social Proof As “Research”

Another trick hucksters, gurus and consultants use is to dress up social proof as research in order to increase their credibility as experts and establish a need for their services. They say, for example, that they find company profitability is strongly correlated with a customer focus or that culture has a statistically powerful effect on performance.

At first glance, these claims seem reasonable, but as Phil Rosenzweig explained in The Halo Effect, it’s all part of a subtle bait and switch. What is being “researched” is not really “customer focus” or “culture,” but perceptions about those things in responses to a survey. So it is highly likely that successful companies are merely being perceived as having these traits.

For example, in 2000, before the dotcom crash, Cisco was flying high. A profile in Fortune reported it to have an unparalleled culture with highly motivated employees. But just one year later, when the market tanked, the very same publication described it as “cocksure” and “naive.” Did the “culture” really change that much in a year, with the same leadership?

Some might say that it’s “obvious” that a strong culture and customer focus contribute to performance, but then why go through the whole kabuki dance of “research?” Why not just say, “if you believe these things are important, we can help you with them?” It’s hard to avoid the conclusion that their is either an intent to deceive or just pure incompetence.

You don’t have to look far to see that this is an ongoing con. A few quick Google searches led me to major consulting firms currently selling halo effects as causal relationships to trusting customers here and here.

3. The VUCA World

Today it’s become an article of faith that we live in a VUCA world (Volatile, Uncertain, Complex and Ambiguous). Business pundits tell us that we must “innovate or die.” These are taken as basic truths that are beyond questioning or reproach. Those who doubt the need for change risk being dismissed as out of touch.

The data, however, tell a very different story. A report from the OECD found that markets, especially in the United States, have become more concentrated and less competitive, with less churn among industry leaders. The number of young firms have decreased markedly as well, falling from roughly half of the total number of companies in 1982 to one third in 2013.

A comprehensive 2019 study from the National Bureau of Economic Research found two correlated, but countervailing trends: the rise of “superstar” firms and the fall of labor’s share of GDP. Essentially, the typical industry has fewer, but larger players. Their increased bargaining power leads to more profits, but lower wages.

The truth is that we don’t really disrupt industries anymore. We disrupt people. Economic data shows that for most Americans, real wages have hardly budged since 1964. Income and wealth inequality remain at historic highs. Anxiety and depression, already at epidemic levels, worsened during the Covid-19 pandemic.

So why do hucksters, gurus and consultants insist that industries are under constant threat of disruption?

4. The Allure Of Pseudoscience

In Richard Feynman’s 1974 commencement speech at Cal-Tech, he recounted going to a new-age resort where people were learning reflexology. A man was sitting in a hot tub rubbing a woman’s big toe and asking the instructor, “Is this the pituitary?” Unable to contain himself, the great physicist blurted out, “You’re a hell of a long way from the pituitary, man!”

His point was that it’s relatively easy to make something appear “scientific” by, for example, having people wear white coats or present charts and tables, but that doesn’t really make it science. True science is testable and falsifiable. We can’t merely state what you believe to be true, but must give others a means to test it and prove us wrong.

This is important because it’s very easy for things to look like the truth, but actually be false. That’s why we need to be careful, especially when it’s something we already believe in. The burden is even greater when it’s an idea that we want to be true. That’s when we need to redouble our efforts, dig in and make sure we verify our facts.

Hucksters, gurus and consultants love to prey on our weakness for authority by saying that “the science says…” The truth is that science doesn’t “say”anything, it merely produces hypotheses that haven’t been disproven yet. Some, like Darwin’s theory of natural selection, have been around a long time, so we’re pretty sure that they’re true, but even in that case a large part of it was debunked within months. The ‘theory” as we know it now is what survived.

There are no absolute answers. There is, as Sam Arbesman has put it, a half life of facts. We can only make decisions on higher or lower levels of confidence. In the real world, there are no “sure things,” and don’t let hucksters, gurus and consultants tell you any different.

— Article courtesy of the Digital Tonto blog
— Image credits: Pexels

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Building Transformative Teams

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Building Transformative Teams

GUEST POST from Greg Satell

One of the most common questions I get asked by senior managers is “How can we find more innovative people?” I know the type they have in mind. Someone energetic and dynamic, full of ideas and able to present them powerfully. It seems like everybody these days is looking for an early version of Steve Jobs.

Yet the truth is that today’s high value work is not done by individuals, but teams. It wasn’t always this way. The journal Nature noted that until the 1920’s most scientific papers only had a single author, but by the 1950s that co-authorship became the norm and now the average paper has four times as many authors as it did back then.

To solve the kind of complex problems that it takes to drive genuine transformation, you don’t need the best people, you need the best teams. That’s why traditional job descriptions lead us astray. They tend to focus on task-driven skills rather than collaboration skills. We need to change how we evaluate, recruit, manage and train talent. Here’s what to look for:

Passion For A Problem

I once had a unit manager who wasn’t performing the way we wanted her to. She wasn’t totally awful. In fact, she was well liked by her staff, coworkers, and senior management. But she wasn’t showing anywhere near the creativity required to take the business to the next level and we decided to ease her out of her position.

Then a funny thing happened. After she left our company, she became a successful interior decorator. Her clients loved how she could transform a space with creativity and style. She also displayed many of the same qualities that made her so well liked as a manager. She was a good listener, highly collaborative, and focused on results.

So why is it that someone could be so dull and unimaginative in one context and so creative in another? The simplest answer is that she was a lot more interested in interior decorating than she was in our business. Researchers have long established that intrinsic motivation is a major component of what makes people creative.

The biggest misconception about innovation is that it’s about ideas. It’s not. It’s about solving problems. So the first step to building a transformative team is to hire people interested in the problems you are trying to solve. If someone has a true passion for your mission, work to develop the ideas you need to crack the problem.

Collaboration Skills

We often think of high performing teams being driven by a dominant, charismatic leader, but research shows just the opposite. In one wide ranging study, scientists at MIT and Carnegie Mellon found that high performing teams are made up of people who have high social sensitivity, take turns when speaking and include women in the group.

Harvard professor Amy Edmondson has researched the workplace for decades and has found that psychological safety, or the ability of each team member to be able to give voice to their ideas without fear of reprisal or rebuke, is crucial for high performing, innovative teams. Google found much the same thing when it studied what makes great teams tick.

Stanford professor Robert Sutton also summarized wide ranging research for his 2007 book, The No Asshole Rule, which showed that even one disruptive member can poison a work environment, decrease productivity and drive valuable employees to leave the company. So even if someone is a great individual performer, it’s better to get rid of nasty people than allow them to sabotage the effectiveness of an entire team.

The most transformative teams are the ones that collaborate well. Unfortunately, it’s much easier to evaluate individual performance than teamwork. So lazy managers tend to reward people who are good at taking credit rather than those who actively listen and provide crucial support to those around them.

High Quality Interaction

There is increasing evidence that how teams interact is crucial for how they perform. A study done for the CIA performed after 9/11 to determine what attributes made for the most effective analyst teams found that what made teams successful was not the attributes of their members, or even the coaching they got from their leaders, but the interactions within the team itself.

More specifically, they found that teams that work interdependently tend to perform much better than when tasks are doled out individually and carried out in parallel. Another study found that teams that interacted more on a face-to-face basis, rather than remotely, tended to build higher levels of trust and produced more creative work.

While the quality of remote working tools, including teleconferencing apps like Zoom and collaboration tools like Mural and Miro, have greatly improved in recent years, we still need to take the time to build authentic relationships with those we work with. That can include regular in-person team meetups for remote teams or even intermittent relationship building calls unrelated to current projects.

What’s crucial to understand and internalize is that the value of a team is not just the sum of each individual contribution, but what happens when ideas bounce against each other. That’s what allows concepts to evolve and grow into something completely new and different. Innovation, more than anything else, is combination.

Talent Isn’t Something You Hire, It’s Something You Build

The truth is that there is no effective answer for the question, “how do we find innovative people?” Talent isn’t something you hire or win in a war, it’s something you empower. It depends less on the innate skills of individuals than how people are supported and led. As workplace expert David Burkus puts it, “talent doesn’t make the team. The team makes the talent.”

All too often, leaders take a transactional view and try to manage by incentives. They believe that if they contrive the right combination of carrots and sticks, they can engineer creativity and performance. Yet the world doesn’t work that way. We can’t simply treat people as means to an end and expect them to achieve at a high level. We have to treat them as ends in themselves.

Effective leaders provide their teams with a sense of shared purpose and common mission. They provide an environment of psychological safety not because of some misplaced sense of altruism, but to enable honest and candid collaboration. They cultivate a culture of connection that leads to genuine relationships among colleagues.

What’s crucial for leaders to understand is that the problems we need to solve now are far too complex for us to rely on individual accomplishments. The high value work today is done by teams and that is what we need to focus on. It’s no longer enough for leaders to simply plan and direct action. We need to inspire and empower belief.

— Article courtesy of the Digital Tonto blog
— Image credits: Pexels

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We Need to Stop Rooting for Change

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We Need To Stop Rooting For Change

GUEST POST from Greg Satell

Today, everyone seems to want to associate themselves with change. Jeffrey Immelt, General Electric’s former CEO, loved to call his firm a 124 year-old startup. Its value fell by 30% under his tenure and would later collapse. Bill Gates pointed out that the culprit wasn’t innovation or disruption, but basic mismanagement.

It seems that, these days, Immelt’s leadership is closer to the rule than the exception. Everybody wants to be an innovator. Nobody wants to be associated with the status quo. Even political conservatives describe themselves as a “movement,” a seeming contradiction in terms. Change has become gospel, an end in itself rather than a mere means to an end.

The truth is that innovation is less about new ideas than it is about identifying meaningful problems. Too much happy talk about change can actually undermine meaningful transformation. If your focus on the fabulous yonder obscures your view into the day-to-day, you’re most likely headed for trouble. We need to start taking change more seriously.

Change Is Hard. People Are Struggling

Humans struggle to adapt. Our brains are not wired for change, but build synaptic pathways based on past experiences. These can change over time, but with some difficulty. We are also greatly influenced by those around us, whose brains have been shaped by similar experiences. Finally, there are often genuine switching costs that need to be overcome.

The notion that transformation can be challenging is nothing new. What managers often fail to account for, however, is that change never happens in a vacuum. It must be seen in context of everything else that’s going on in people’s lives, including pressures related to family, economic and health concerns.

Consider that research points to a dramatic increase of anxiety and depression since the start of the pandemic. Another study reported in Harvard Business Review found that 76% of employees in 2021 reported at least one mental health symptom, up from 59% in 2019 and 50% have reported leaving a job due to mental health concerns, compared to 34% two years earlier. Those are dramatic increases on already high levels.

Yet even before the pandemic there were signs of trouble. A 2014 report by PwC revealed that 65% of respondents in corporations cited change fatigue, 44% of employees complained they don’t understand the change they’re being asked to make, and 38% say they don’t agree with it. Should we be surprised that so many change initiatives fail?

Too Much Early Talk Ignites Resistance

Managers launching a new initiative often seek to start with a bang. They work to gain approval for a sizable budget as a sign of institutional commitment. They recruit high-profile executives, arrange a big “kick-off” meeting and look to move fast, gain scale and generate some quick wins. All of this is designed to create a sense of urgency and inevitability.

Yet this approach can often backfire. Any time you ask people to change what they think or how they act, there will be some who won’t like it and they will work to undermine you in ways that are often dishonest, underhanded and deceptive. Starting a transformation initiative with a big kickoff just gives them an early warning that they’d better get started sabotaging you or change might actually take place.

Unfortunately, there are perverse incentives involved in many initiatives. When change involves new capability, there are inevitably vendors involved and consultants are brought in to manage the process. Often, in addition to helping to design and procure systems, these consultants are given the assignment for organizational change management as well.

At first, it may seem intuitive and sensible that the same vendor that designs the system helps implement the program. However, what is often missed is that these consultants are much more heavily financially incentivized to close the deal, which can often be worth hundreds of millions of dollars, than to drive genuine long-term transformation.

So it shouldn’t be surprising that what passes for “organizational change management” is often little more than an internal communication strategy and a training program implementation. That clearly doesn’t suffice.

Change Is Nonlinear. There Are Advantages To Starting Slow

People who are passionate about change naturally want it to happen as soon as possible. This is especially true of action-oriented managers, who pride themselves on executing a plan quickly and efficiently. There are often informal organizational incentives as well. Executives who are seen to be hard-charging and who “get things done” can be more likely to move up the corporate ladder.

Yet consider the case of Gandhi and the struggle for Indian independence. Soon after returning to India from South Africa, he called for nationwide strikes in response to the repressive Rowlatt Act. The people immediately rose up, but things quickly spun out of control and ended in tragedy. A decade later, he learned from his mistake and set out on his Salt March with just a small, disciplined cadre, which would inspire the world and help lead to Indian Independence.

Similar strategies have proven highly effective in organizational transformations. When Wyeth Pharmaceuticals began its shift to lean manufacturing, it started with a single team in a single plant, but success there led to a transformation involving 17,000 employees. When Experian sought to shift to a cloud-based enterprise, it started with internal API’s that had limited effect on its business, but helped lead to genuine and complete change.

What each of these had in common is that they started with a keystone change, which had a concrete and tangible goal, involved multiple stakeholders and paved the way for future change. While the initial wins were small, they showed what was possible and, because they were successful, they were able to build momentum and grow exponentially.

Change isn’t linear. Success grows exponentially on success. That’s why you often need to start slow to move fast.

Making Change Meaningful

My friend Srdja Popović once told me that the goal of a revolution should be to become mainstream, to be mundane and ordinary. If you are successful it should be difficult to explain what was won because the previous order seems so unbelievable. Yet many leaders approach change initiatives as if they were swashbuckling heroes in their own action movie.

The simple truth is that every change initiative starts out weak and vulnerable, without a track record of success. People are bound to be suspicious. They already have everyday struggles and don’t want someone else’s idea to add to their burden. Most often, they’ll pay lip service, take a “wait and see” approach and then turn away at the first sign of trouble.

The problem with cheerleading change is that it puts the cart before the horse. People don’t embrace change because you came up with a fancy slogan, they adopt what they find meaningful, that creates genuine value to their lives and their work. Without that, all the happy talk just seems like a con.

We need to have more reverence for the mundane and ordinary. For better or worse, it works and it’s what people know. To create genuine transformation we need to get out of the business of selling ideas and into the business of selling success. If we can help allies to make change successful, even on a small scale, they can bring in others who bring in others still.

That can’t be done through persuasion, we have to start by identifying people who are already enthusiastic about change. Change isn’t about communication, but empowerment.

— Article courtesy of the Digital Tonto blog
— Image credits: Pexels

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How to Leverage Haters to Your Advantage

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How to Leverage Haters to Your Advantage

GUEST POST from Greg Satell

What can be hardest about change, especially when we feel passionately about it, is that at some point, we need to accept that others will not embrace it. Not every change is for everybody. Some will have to pursue a different journey, one to which they can devote their own passions and seek out their own truths.

Yet there’s something about human nature that makes us want to convince those who vehemently oppose our idea. That’s almost always a mistake. Often, the reason for their opposition has less to do with any rational argument than their identity and sense of self. For whatever reason, it offends their dignity.

Still, we can learn to love our haters, because they can often help us find the way forward. All too often, we end up preaching to the choir instead of venturing out of the church and mixing with the heathens. That’s how change efforts fail. On the other hand, if we can learn to use their tactics and rhetoric to our own advantage, we have a powerful weapon for change.

“Separate But Equal” as a Force for Justice

In 1896, the Supreme Court case of Plessy vs. Ferguson codified the doctrine of separate but equal into constitutional law, which allowed states to discriminate against black Americans. Many saw it as fundamentally unjust and argued passionately against it. But a brilliant lawyer named Charles Hamilton Houston saw it as an opportunity to use his opponent’s evil idea for good.

The principle of “separate but equal” was designed to prevent blacks from benefiting from common resources, such as a water fountain or a grade school. However, when applied to rare resources, such as a graduate school, its logic began to unravel. When a man named Lloyd Gaines was refused admission to the University of Missouri law school because he was black, Houston brought suit.

But he didn’t argue against “separate but equal.” In fact, he argued for it. Clearly if the State of Missouri was going to refuse Gaines admission, there had to be a separate but equal facility. Yet there was only one law school in the state and it would be out of the question for the state to build an entire law school just to satisfy the doctrine. The Supreme Court ruled in Gaines’ favor and he was admitted to the program.

Houston would continue to argue similar cases along with his protege, Thurgood Marshall, and began taking down Jim Crow brick by brick. Unfortunately, he would die of a heart attack in 1950, before Brown vs. The Board of Education would strike down the doctrine of “separate but equal” in 1954, but his legacy lives on through Howard University Law School, which he helped build and shape.

Using Arrests To Bring Down A Regime

One of the primary tools a repressive regime has to intimidate its citizens is arrests. Getting arrested being treated like a common criminal is scary and degrading. You are made to feel alone and helpless. Yet the Serbian movement Otpor was able to figure out how to turn arrests to their advantage so that they furthered, rather than weakened their cause.

The first step was preparation. The protesters were trained so that they knew what to expect during arrests and how to respond. One key procedure was to always have “reserve” activists at every action to observe what took place. If the police arrived and began taking the comrades away, they would alert teammates who would set a plan in motion.

Phone calls would immediately go out to lawyers, friendly journalists and international NGOs as well as musicians, actors and other celebrities. While the lawyers met with the police, a protest would be organized outside the precinct, including music, games and “Mothers of Otpor” who would demand to know why the police were abusing their children.

After the fall of the Milošević regime, internal documents made it clear how frustrated the police became with all of this. The protests outside the police stations, along with the media spotlight they created, would tie their precinct up for hours. Any brutality on their part would be publicized, undermining their authority further. Often, Otpor would get more and better publicity from the arrests than from the initial protests.

This is what my friend Srdja Popović calls a dilemma action because it puts your opponent in a bind. The police had two choices, they could either stop arresting Otpor activists or continue to arrest them, but either way Otpor would grow stronger.

Betting On The Muscle Of Electric Cars

Environmentalists make the case that the long-term dangers of pollution and climate change far exceed the costs of the short-term sacrifices required. They advise us to turn down the thermostat and wear a sweater in winter, check the air in our tires and buy small cars. Clearly, these are not insurmountable challenges with the fate of the planet in the balance.

Yet the truth is that people don’t like to be inconvenienced, especially when it comes to their cars. Americans in particular have always had a love affair with big, fast muscle cars. Sure, a Prius will get you from point “A” to point “B”, but you can’t feel POWERFUL. It’s like going to a steakhouse and only eating the vegetables.

That’s why the first electric vehicle Tesla came out with in 2008, the Roadster, was anything but “responsible. It was a $100,000 status symbol for Silicon Valley millionaires. Because these customers could afford multiple cars, range wasn’t as much of a concern, but in any case the high price tag made a larger battery more feasible.

Compare that to Shai Agassi and the strategy for his electric car company, Better Place, which was a much more expansive vision. Instead of building a high-performance sports car, he built a family car for the masses and sought to overcome the challenges of range through a network of battery switching stations. It blew through $700 million before it went bust.

Musk understood a car is far more than a mode of transportation. It is a part of people’s identity. You can ask people to change just about anything, except to stop being who they think they are.

Your Targets Determine Your Tactics

When we feel passionately about change, we want to take action. We want to take to the streets, argue against injustice. We want to make decisions, launch a business, get things done. Activity gives us something to point to. It’s something rather than nothing. When we take action we can tell ourselves that we’re not just sitting idly by.

Yet actions without a sound strategy are doomed to fail. That’s why we need to learn to love our haters. If we listen to them they will show us how to win. Charles Hamilton Houston could have railed against the doctrine of “separate but equal,” but he leveraged it to take down Jim Crow instead. Otpor used the Milošević regime’s own repressive tactics to their advantage. Elon Musk didn’t ask Tesla’s customers to sacrifice, but satisfied their desire for high-performance cars.

In each case, redefining the target made all the difference. “Separate but equal” was designed for grade schools, but its significance changed completely when applied to graduate programs. A cop on the beat is almost all-powerful, but vulnerable at a precinct. The Tesla Roadster wasn’t designed for regular families to use every day, but for millionaires to zip around in on the weekends.

To change the world, we need to learn to see it differently. We can’t just fight the same losing battles. We need to redefine the terms of our struggle in ways that tilt the playing field to our advantage. In the final analysis, that’s what makes the difference between people who want to make a point and those who actually make a difference.

— Article courtesy of the Digital Tonto blog
— Image credits: Pixabay

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Why So Many Smart People Are Foolish

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Why So Many Smart People Are Foolish

GUEST POST from Greg Satell

When I lived in Moscow, my gym was just a five-minute walk from my flat. So rather than use a locker, I would just run over in my shorts and a jacket no matter what the weather was. The locals thought I was crazy. Elderly Russians would sometimes scream at me to go home and get dressed properly.

I had always heard that Russians were impervious to the effects of weather, but the truth is that they get cold just like the rest of us. We tend to mythologize the unknown. Our brains work in strange ways, soaking up patterns from what we see. Often, however, those experiences are unreliable, such as the Hollywood images that helped shape my views about Russians and their impenetrability.

The problem is that myths often feel more real than facts. We have a tendency to seize on information that is most accessible, not the most accurate, and then interpret new evidence based on that prior perception. We need to accept that we can’t avoid our own cognitive biases. The unavoidable truth is that we’re easiest to fool when we think we’re being clever.

Inventing Myths

When Jessica Pressler first published her story about Anna Sorokin in New York Magazine, it could scarcely be believed. A Russian emigrant, with no assets to speak of, somehow managed to convince the cream of New York society that she was, in fact, a wealthy German heiress and swindled them out of hundreds of thousands of dollars.

Her crimes pale in comparison to Elizabeth Holmes of Theranos, who made fools of the elites on the opposite coast. Attracting a powerful board that included Henry Kissinger (but no one with expertise in life sciences), the 20-something entrepreneur convinced investors that she had invented a revolutionary blood testing technology and was able to attract $700 million.

In both cases, there was no shortage of opportunities to unmask the fraud. Anna Sorokin left unpaid bills all over town. Despite Holmes’s claims, she wasn’t able to produce a single peer-reviewed study that her technology worked even after 10 years in business. There were no shortage of whistle blowers from inside and outside the company.

Still, many bought the ruses and would interpret facts to support them. Sorokin’s unpaid bills were seen as proof of her wealth. After all, who but the fabulously rich could be so nonchalant with money? In Holmes’ case, her eccentricities were taken as evidence that she truly was a genius, in the mold of Steve Jobs or Mark Zuckerberg.

The Halo Effect

People like Sorokin and Holmes intentionally prey on our weaknesses. Whenever anybody tried to uncover the facts, they threw elaborate defenses, making counter-accusations of any who dared to question them. Often, they used relationships with powerful people to protect them. At Theranos, there was very strict corporate security and an army of lawyers.

Still, it doesn’t have to be so diabolical. As Phil Rosenzweig explains in The Halo Effect, when a company is doing well, we tend to see every aspect of the organization in a positive light. We assume a profitable company has wise leadership, motivated employees and a sound strategy. At the same time, we see the traits of poorly performing firms in a negative light.

But what if it’s the same company? Rosenzweig points out that, when Cisco was at its peak before the dot-com bust, it was said to have an “extreme customer focus.” But a year later, when things turned south, Cisco was criticized for “a cavalier attitude toward potential customers” and “irksome” sales policies. Did its culture really change so much in a year?

Business pundits, in ways very similar to swindlers, prey on how our minds work. When they say that companies that employ risky strategies outperform others who don’t, they are leveraging survivorship bias and, of course, firms that took big risks and failed are never counted in the analysis. When consulting companies survey industry executives, they are relying more on social proof than uncovering expert opinion.

The Principle Of Reflexivity

In the early 70’s, a young MBA student named Michael Milken noticed that debt that was considered below investment grade could provide higher risk-adjusted returns than other investments. He decided to create a market for the so-called junk bonds and, by the 80’s, was making a ton of money.

Then everybody else piled on and the value of the bonds increased so much that they became a bad investment. Nevertheless, investors continued to rush in. Inevitably, the bubble popped and the market crashed as the crowds rushed for the exit. Many who were considered “smart money” lost billions.

That’s what George Soros calls reflexivity. Expectations aren’t formed in a vacuum, but in the context of other’s expectations. If many believe that the stock market will go up, we’re more likely to believe it too. That makes the stock market actually go up, which only adds fuel to the fire. Nobody wants to get left out of a good thing.

Very few ever seem to learn this lesson and that’s why people like Anna Sorokin and Elizabeth Holmes are able to play us for suckers. We are wired to conform and the effect extends widely throughout our social networks. The best indication of what we believe is not any discernible fact pattern, but what those around us happen to believe.

Don’t Believe Everything You Think

One of the things that I’ve learned over the years is that it’s best to assume people are smart, hardworking and well-intentioned. Of course, that’s not always true, but we don’t learn much from dismissing people as stupid, lazy and crooked. And if we don’t learn from others’ mistakes, then how can we avoid the same failures?

Often, smart people get taken in because they’re smart. They have a track record of seeing things others don’t, making good bets and winning big. People give them deference, come to them for advice and laugh at their jokes. They’re used to seeing things others don’t. For them, a lack of discernible evidence isn’t always a warning sign. It can be an opportunity.

We all need to check ourselves so that we don’t believe everything that we think. There are formal processes that can help, such as pre-mortems and red teams, but most of all we need to own up to the flaws in our own brains. We have a tendency to see patterns that aren’t really there and to double down on bad ideas once we’ve committed to them.

As Richard Feynman famously put it, “The first principle is that you must not fool yourself—and you are the easiest person to fool.” Smart people get taken in so easily because they forget that basic principle. They mythologize themselves and become the heroes of their own stories. That’s why there will always be more stories like “Inventing Anna” and Theranos.

Suckers are born every minute and, invariably, they think they’re playing it smart.

— Article courtesy of the Digital Tonto blog
— Image credits: Unsplash

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Good Management is Not Good Strategy

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Good Management is Not Good Strategy

GUEST POST from Greg Satell

One of the most annoying things I hear from leaders is that “we had a great strategy, but just couldn’t execute it.” That’s simply not possible. If you can’t execute it, it’s not a great strategy. Most likely, it was a fantasy cooked up by some combination of consultants and investment bankers which was enshrined in PowerPoint.

As Richard Rumelt points out in his book, The Crux, planning is not strategy. Yet that’s what managers are good at, so when they set out to create a strategy they build a plan, starting with objectives and working back to resources and operational directives, rejiggering assumptions along the way to make everything fit.

Good strategy doesn’t rely on assumptions. It changes them. When you look at visionary leaders, like Ray Kroc and McDonalds, Charles Lazarus at Toys “R” Us or Thomas Watson Jr. and the IBM 360, they all focused on solving an emerging problem. The truth is that the next big thing always starts out looking like nothing at all. Good strategy creates something new.

Defining A Problem And It’s Crux

Managers lead through objectives, or what they call in the military commander’s intent, to achieve a desired end-state. To achieve these objectives, good managers make plans, allocate resources and delegate authority to direct action. They monitor progress, give advice and guidance, and maintain an atmosphere of accountability and good morale.

But how are objectives determined? Is the prescribed end-state really desirable? Is it achievable and meaningful? As Rumelt points out, without a true strategic process in place, objectives tend to be tied to financial goals that are easily measured, such as “We want to achieve 15% revenue growth, while improving profit margins and increasing market share.”

Good strategy starts with defining a problem that addresses a particular market reality. Kroc designed McDonalds to fit with an emerging suburban lifestyle. Lazarus came up with the “everyday low price” at Toys “R” Us to solve for the huge inventory swings that sale events caused. Watson bet the company on the IBM 360 because the lack of compatibility among IBM’s machines was slowly killing the company.

Rumelt calls these “gnarly challenges” because none of them had obvious solutions, or even clear alternatives to choose from. Fast food franchises didn’t exist when Kroc got into the business. Most toys stores continued with sales even after Toys R Us came to dominate the industry. None of IBM’s competitors made a similar investment in compatibility.

What most people miss about strategy is that it’s not simply about making choices among defined alternatives. Innovation is never a single event, but a process of exploration, engineering and transformation.

What Do We Know?

Because good managers are so operationally oriented, their minds tend to focus on what they see every day. So in a typical leadership team, the CFO worries about financial and economic data, the CMO follows consumer trends, the CIO is concerned about shifts in technology, the CHRO takes note of changes in the workforce and so on.

When we first start working with a team we do something called a PDO analysis (Problems, Disruptions & Opportunities) to begin to uncover relevant challenges. What I always find interesting is how often some team members are completely unaware of issues that others consider dire threats or important opportunities.

With some further discussion and analysis, we can begin to pare down the list and prioritize a limited number of challenges. We discuss what makes them important and difficult to solve. We ask questions like, “What’s the potential impact these could have on the business?” and “How much do we actually know about them?” “Where we can find out more?”

During this exploration phase, it is important to stay disciplined and curb action-oriented managers’ tendency to want to jump immediately to a solution. At this stage, we mainly want to better understand what the desired end state might look like. Only then can we start to build a strategy to tackle the problem.

What Can Be Done?

The most salient aspect of any journey is that you don’t end up where you started. As you explore the challenges your organization faces, you will encounter insights that lead definable alternatives. You will need to make choices about, as A.G. Lafley and Roger Martin have put it, where to play and how to win.

Yet as I’ve pointed out, strategy is not a game of chess, in which we patiently move inert pieces around a well defined board of play. We need to learn to leverage ecosystems of talent, technology and information from a variety of sources, including partners, suppliers, customers and open resources as well, as from within our organization itself.

That’s why strategy isn’t made in a conference room and doesn’t live on a PowerPoint deck. It reveals itself over time. What we can do is choose a path forward, which means that we leave some attractive alternatives behind. Great businesses like McDonalds, Toys R Us and the IBM 360 didn’t arise from a flash of insight, but emerged as successful initiatives were built upon and failures discarded.

Yet it takes discipline to be able to continue on a chosen path while at the same time retaining the flexibility to adapt as the marketplace evolves. My friend Ed Morrison, whose Strategic Doing framework helps build strategies for collaborative problem solving, recommends holding monthly 30/30 meetings, which review the last 30 days and plan for the next 30.

Good Strategy Isn’t “Right,” But Becomes Less Wrong Over Time

As Mike Tyson has pointed out, “everybody has a plan until they get hit,” which is why we need to take a more Bayesian approach to strategy, in which we don’t pretend that we have the “right” strategy, but endeavor to make it less wrong over time. Good strategy isn’t a plan, but a set of choices made about how to address meaningful challenges.

Ray Kroc didn’t invent the Egg McMuffin at McDonald’s, but his strategy of allowing franchisees to experiment gave birth to it and many other things as well. Charles Lazarus started with a baby furniture store, but his quest to find repeat customers led him to create Toys “R” Us and pioneer the category killer. Thomas Watson Jr. bet the company on the IBM 360, but it was the decision to move to an 8-bit byte that would revolutionize the computer industry. None of these were planned for.

Today, we need to shift our mindset to compete in an ecosystem-driven world in which our ability to compete is no longer determined by what we can command and control, but what we can access. That’s why we need to abandon the fantasy that making a strategy successful is just a matter of executing a series of predetermined moves.

Good strategy is not a function of good management, but a process of discovery. Managing by metrics will always be limited to what came before and cannot see what lies ahead. We need to learn how to identify grand challenges that shift the competitive environment and change perceptions of what is possible.

The essence of a good strategy, as Richard Rumelt noted in Good Strategy/Bad Strategy, is that it brings relative strength to bear against relative weakness in the service of solving a meaningful problem.

— Article courtesy of the Digital Tonto blog
— Image credits: Unsplash

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