Tag Archives: dynamism

Does capitalism have thermals (aka, the evolution of Paramecium, Inc.)

A couple of months ago, I had the good fortune to have lunch with Napier Collyns.  Mr. Collyns is one of the founders of the Global Business Network and a man with a deep feeling for the rhythms and complexities of capitalism.

I came home and banged out this little essay.  It’s an effort to think about the possibility that “value” goes from the material to the immaterial.  A company might begin by making hammers but sometimes it ends up making value that is  less literal and more broad.

Does capitalism have thermals?

Ember

 
A bigger picture may be called for when we think about capitalism.   In his famous essay, Marketing Myopia, Theodore Levitt encouraged people to ask, “What business are you in?”   The question had a strategic purpose: to rescue managers from their literalism.

In the early days of the railroads, managers were preoccupied with laying thousands of miles of track.  The next generation devoted itself to making a magnificent delivery system for industrial America.  With the rise of the automobile, the truck and the plane, things changed.  But the conceptual shoe didn’t fall for management until Levitt gave them a big picture. “You’re not in railroads, you’re in transportation.”

There is perhaps an inevitable developmental pressure.  As the world becomes more complicated (and capitalism routinely makes the world more complicated), the ideas with which it is understood must become more sophisticated.  One minute we’re laying track.  The next, we’re wondering how to compete with things that fly.

The only way to grasp the intellectual challenge is to generalize.  This helps break the grip of literalism, the one that says, trains are trains and planes are planes.  No, says Professor Levitt, trains and plains are the same thing but only if we move to a higher vantage point.

A second thermal comes in the shape of commodity pressure.   In every market, incumbents eventually draw imitations (aka “knock offs”) into play.   The incumbent is faced with two choices.  It can engage in a “race to the bottom” that occurs as incumbent and imitator sacrifice margins until everyone finds themselves mere pennies above cost.  (Thus does the innovation has become a commodity.)

Or, the innovator can climb the value hierarchy, moving from simple functional benefits that the imitators can imitate to “value adds” they cannot.  Thus did IBM find itself challenged by off-shore competitors who offered bundles of software and hardware at 40% of what IBM was charging.

Customers snapped up these cheaper alternatives, only to discover that the commodity player was not supplying the strategic advice and intelligence that came with the IBM version of the bundle.   Now IBM had to learn to talk about this value, and to make more of it.   They were obliged to cultivate a bigger picture.

Here’s another “thermal.”  Premium players traditionally defend themselves from commodity attack by creating higher order value that almost always comes in the form of idea and outlook.  Thus Herman Miller, the furniture maker, confronted by an off-shore competitor that was prepared to make chairs for much less, redoubled it’s effort to sell not just chairs but new ideas for what an office could be.  This thermal intensified as new commodity players have emerged from China, India, and Brazil.

Paramecium, Inc.

We could argue that capitalism has thermals from almost the very beginning.  In this beginning, enterprise were inclined to be structurally simple, a single cell mostly oblivious to the world outside itself.  Call this “Paramecium Inc.” or Level 1.  The enterprise makes hammers.  It assumes someone out there wants hammers but the focus of attention is on the hammer.

Eventually someone comes along and says, “actually, what the company makes matters less than what the consumer wants.”  Thus spoke Charles Coolidge Parlin in 1912 when he asserted that the “consumer was king.”    Closing the gap between company and consumer has been a work in progress.  New methods, theories, and resolve have come from the likes of Peter Drucker and A.G. Lafley, and somehow the gap persists.   But at least the Paramecium is evolving, reckoning with things outside itself.  This is Level 2.

In time someone says, “we need to think more systematically about our competitors.”  This is the long standing focus of Economics, but in the late 1970s, Michael Porter offered a new approach and strategy proved influential.  Here too the organization is sensing and responding to the world outside itself.  It is scaling not so much up as out.  We are now at Level 3.

With each new Level, we “dolly back” to see more of the world. Our “paramecium” is increasing aware of itself and the world outside itself.  This is a movement from the narrow to the broader view, from the local to the global, from the provincial to the cosmopolitan.

Level 4, collaboration, has several moments.  The enterprise, once less solipsistic, can entertain partnerships.  The organization that once insisted on a crisp, carefully monitored border now consents to something that looks more porous.  The Japanese influence helps here.  So did the “outsourcing” movement.  Most recently, with the advent of new media and digital connections, collaboration expands to include still more, and more diverse, parties.

In Level 5, we are encouraged to see that the enterprise must reckon with the meanings, stories, identities, subcultures, and trends with which people and groups construct their world.  Noisy and rich in its own right, culture supplies some of the “blue oceans” of external opportunity and the “black swans” of external threat.  A great profusion of consultancies and aggregators springs up to cover culture.

Level 6, context, was once merely a field or container for all the other levels.  But now the field has come alive, no mere ground but now a source of dynamism all its own.  In this bigger picture, the enterprise can feel itself a tiny cork in a veritable North Sea.  Disruptive change comes from all directions.  Strategy and planning become more difficult, and some enterprises descend into a simple adhocery. The world roils with deliberate change and its unintended consequences.

There is an intellectual challenge at Level 6.  Making sense of a world that is so turbulent, hard to read, and inclined to change is difficult.  Indeed identifying the unit of analysis is vexing.  Are we looking at “trends,” “stories,” “scenarios,” or “complex adaptive system?”   Should the enterprise do this work by hiring x, y or z?

“Context” is a wind driven sea.  The horizon keeps disappearing, navigational equipment is dodgy, the world increasingly unfamiliar, inscrutable and new.  We are to use the language of T.S. Kuhn, post –paradigmatic.

The movement of levels 2 through 4 has been conducted under expert supervision.  But Levels 5 and 6 are vexing partly because there is no obvious intellectual leadership.  Even the “experts” are challenged.  The problem created by Levels 5 and 6 are simply unclear and we continue to disagree on even simple matters.

Reading this through, a couple of hours after publications, it occurs to me that there is for some corporations a Level 7.  This is where the corporation embraces its externalities and takes an interest in the larger social good that can come when the corporation thinks about what value it can create for creatures other than itself.

I was in a strategy session a couple of years ago when a guy from Pepsi, I believe he was actually the CMO (let me check my notes), actually said, “I am committing my organization to solving every environmental problem it has in its purview and can get its mitts on.” Wow, I thought, this is capitalism writ large.

Denial and the new, nimble, agile corporation

Ember Status ItemSome time in the last year, I spend 40 minutes and 55 slides telling a roomful of senior executives about a trend that was “on approach.”

Trend X emerged sometimes in the 1960s and was now moving towards them with something like the force of a Tsunami.

Trend X was in the process of disrupting the industry, hollowing out the client’s business model and turning their value proposition inside out.

Then something happened.

Denial happened.

For the rest of this post, please go to the HBR blog here.

What business are we in? Just business, actually

A couple of days ago, in the WSJ, I noticed an ad for Chevron.  They claimed to be getting out of the dirty energy business into the clean energy business.   The other day I was surprised to see that Nike Plus has embraced a new model that dispenses with one of their revenue sources, the chip.

Nimble business are learning to abandon the existing business model before someone rips it out from under them.

This marks a move away from the literalism of capitalism.  The old corporation was founded to make a particular widget and these widgets came to define this corporation’s essential concept of itself, its identity, sometimes its very soul.  People who made heavy equipment saw themselves (sexist language warning) as "tractor guys forever."  A company like this might branch into monorails, say.  But they were unlikely ever to contemplate book binding.

But I think that has to change.  Especially if we are a big corporation.  To survive in a really dynamic marketplace, we have to be prepared to reinvent ourselves very substantially.  That might be the only path to survival.  So the corporation can no longer say, "we’re in this business."  The best it can hope for is, "we’re in business."

Even Theodore Levitt’s famous dictum, "What business are you in?" is beginning to feel a little literal.  He asked this question of the people who owned the trains.  When they came up with the wrong answer ("the train business?"), the Professor was obliged to chide them, "You are in the transporation business."

Yes, Levitt helped them out of the literalism, but "the transportation business" is still too narrow.  Even this larger idea is too small.

The trouble here is that it is a deep familiarity with one particular industry or sector that makes some companies so good at what they do.  The devil is in the details, and these companies know the details all the way down to the nitty gritty.  This matters a lot less now that so much is outsourced, but this problem remains a problem.  And I intend to set it aside.

I think every company has a purview.  This is the part of the world that’s visible while it gets on with business as presently defined.  (If we make heavy equipment, we can "see" monorails. Bookbinding, probably not.)  The corporation doesn’t act on everything it sees in this purview but it has this ambit or peripheral knowledge.  The purview is all the knowledge the corporation ends up knowing in order to know things it really needs to know about.  Whew.

The trouble with the purview is that it may be partial but it’s just so very available.  Indeed, the purview may even masquerade as a comprehensive view of the world.  In any case, this is where the average corporation is going to go looking for new opportunities when it is having second thoughts about its present ones.

Bad luck.  The purview is spectacularly partial knowledge.  Nothing appears here unless it happens to be near useful knowledge.  Or let’s put this another way.  The corporation is a kind of glass bottom boat.  It makes a window on the sea.  But what gets into this window depends entirely on proximity. The new opportunity, the new industry, may well not be visible from here.

We know that there are very good reasons for the corporation to have something like a 360 degree view of the world.   After all, blind side hits can come from anywhere.  To pick them up early, we need to be looking everywhere.  But now it looks as if there is a positive reason to have a comprehensive view of the world.  Only this will guarantee that we see all our options in the event that we will have to up and suddenly change our stripes.

And this will take a Chief Culture Officer and a big board.

References

Levitt, Theodore.  1986. Marketing Imagination, New, Expanded Edition. Free Press.

McCracken, Grant. 2009.  Chief Culture Officer.  Basic Books.

A “Special Teams” Unit for the corporation

The corporation is very good at problem solving.

Next to getting things done, this is what it does best.  

The trouble is the problems are getting tougher.

This is exactly what we would expect.  After all, the world is speeding up.  Most corporations expect to reinvent themselves continually, and they do.  This is what it is to live in the world that Tom (Peters) built.

In the event that someone missed the news, the business presses put us on notice with titles like "Faster," "Blur," "Out of Control," "Blown to Bits" "Fast Forward," "Creative Destruction." We are learning to live with dynamism.

Please have a look at my little model above.

I believe we’ve spent most of the last 20 years learning to live with life at (C).  This is where problems are difficult but not intractable.  They test our systems and our assumptions, but with a concerted effort we can put things right.  Often the corporation will call in the consultants, send everyone off to a brainstorm or two, and search it’s soul until old models and assumptions are unrooted, and a new approach is put in place.  

Whew!  We’re good for 6 months.

Now is the time to prepare ourselves for living at (D).  This is where the world inflicts upon us a blind side hit so grievous that we feel exactly like the quarterback who was just visited by a defensive end weighing 260 pounds and travelling at ten yards a second (over 40 yards). The coach asks "How many fingers?" The QB replies, "let me get back to you on that one."  

We are now much better at opposable problem solving and creative thinking.  We are better at collaboration, brainstorms and skunk works.  We are better at "thinking outside the box," and a host of other cliches.  

But we have gone a long way to go.  The thing about (D) is that we have to think our way out of confusion.  And the only way to do that is to embrace assumptions we know are wrong.  And to put these assumptions into constellations we know are wrong. 

We are terraforming.  We are creating a great mass of bad ideas as a platform on which to create some good ideas.  ??? (D) is now beginning to look more like (C).  Eventually, this will give way to (B). And eventually, for a brief while, we will be at (A).  

Now it used to be enough to build our new systems when we got to D.  But it’s clear, I think, that we need a faster response time.  We need a team of people who spend their professional lives creating new models, lots of new models, so that if and when the corporation finds itself at (D), it’s got alternative ideas at the ready.  By this reckoning the corporation will now constantly entertain many visions of itself, so to protect against against intellectual stasis that comes from (D).

This Special Teams unit doesn’t have to have the perfect answer.  (Guess who spent too much time watching football yesterday?  How bout them Browns?)  But it has several possible models, each of which is far enough along that the corporation can be returned to (C) and retrieved from the wilderness and the horror of (D).  The trouble with (D) is that there is no platform. There’s just chaos.  And failure.

Installation of new models, that’s another model.  Someone from the Special Teams unit will suddenly appear at our desk.  The conversation will go something like this,

"Oh oh. Special Teams. You people are never fun."

"We just want to put a new model in places.  Not to worry.  Won’t take long.  You know, the way we’ve been thinking about product innovation?  Ok.  Here’s the new model.  And you know the way we distinguished between the collaboration and competition?  Big change there.  Here’s the way it works now."

Remember when we used to terrify one another with stories of how the Japanese could re-engineer a product line with almost no downtime.  That’s what we are looking at here.  A kind of corporation reprogramming that can be made to happen almost in real time.  

Technical change will continue to speed up.  Cultural changes will continue to speed up. The corporation is going to have to make ready.  It’s going to take on new order of intellectual difficulty.  It’s going to need a new order of intellectual power.  And, yes, it’s going to need a Special Teams unit. 

References

Brown, Tim. 2009. Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation. HarperBusiness.  

Champy, James, and Nitin Nohria. 1996. Fast Forward: The Best Ideas on Managing Business Change. Harvard Business Press.  

Cowen, Tyler. 2004. Creative Destruction: How Globalization Is Changing the World’s Cultures. Princeton University Press.  

Davis, Stan, and Christopher Meyer. 1999. Blur: The Speed of Change in the Connected Economy. 1st ed. Grand Central Publishing.  

Evans, Philip, and Thomas S. Wurster. 1999. Blown to Bits: How the New Economics of Information Transforms Strategy. 1st ed. Harvard Business Press.  

Foster, Richard, and Sarah Kaplan. 2004. Creative Destruction: Why Companies That Are Built to Last Underperform the Market–And How to Successfully Transform Them. Reprint. Crown Business.  

Gleick, James. 2000. Faster: The Acceleration of Just About Everything. 1st ed. Vintage.  

Grove, Andrew S. 1999. Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company. First. Crown Business.  

Handy, Charles. 1995. The Age of Paradox. Harvard Business Press.  

Handy, Charles. 1991. The Age of Unreason. 1st ed. Harvard Business Press.  

Kelly, Kevin. 1995. Out of Control: The New Biology of Machines, Social Systems, & the Economic World. Basic Books.  

Lessig, Lawrence. 2008. Remix: Making Art and Commerce Thrive in the Hybrid Economy. Penguin Press.  

Martin, Roger L. 2009. Opposable Mind: How Successful Leaders Win Through Integrative Thinking. Harvard Business School Press.  

McCracken, Grant.  2006.  Flock and Flow: Predicting and Managing Cultural Change in a Dynamic Marketplace.  Bloomington: Indiana University Press.

Peters, Tom. 2006. Re-Imagine!: Business Excellence in a Disruptive Age. DK.

Peters, Tom. 1988. Thriving on Chaos: Handbook for a Management Revolution. Harper Paperbacks.