It is Halloween, a wonderful pagan ritual with occult overtones that began with the Celts. It is a day and, more importantly, a night when fear runs rampant as goblins, ghosts and ghouls take over and roam far and wide. It is a fitting time to step back, reflect on and perhaps even embrace one’s greatest fears.
Since this is not a personal confessional blog but instead a professional perspectives blog, I’ll spare you an exploration of my personal fears and instead focus on my professional concerns this Halloween eve. What do I fear as the greatest obstacles standing in the way of executives as they seek to create and capture more value for their stakeholders? Here’s my list of goblins:
In a rapidly changing world, data can hold us prisoner to old mindsets and old behaviors. If executives need lots of data before they feel comfortable making a decision, chances are they will not act until it is way too late. Don’t get me wrong, data are extremely valuable. It’s just that, if we insist on too much data, we will often miss significant changes on the horizon. This isn't just about analysis paralysis; it's much more insidious. Data inevitably draws us into the past; after all, there is not much data about the future (or even very recent events), but an abundance of data about the past. Data not only draw us into the past, they also draw us into the core because the core is so well documented and analyzed relative to various edges where data are at best fragmentary and often contradictory. To avoid being blind-sided, we need to pay equal attention to stories and train ourselves to detect patterns in the stories, even if the data supporting the stories remains fragmentary. Stories are generally our first indicators that something really interesting is about to happen; something that data will only reveal to us in full force much, much later.
Everyone’s got a core business and we all know we are supposed to focus on our core. But core businesses can consume our attention and we run the risk of losing perspective on what’s happening on the edge. As the title of this blog suggests, the edge often provides us with early, faint signals of significant new opportunities and threats – if we’re not paying attention, we may miss those signals until they get amplified into clear and present threats. Core businesses also tend to breed complacency – they generate cash that can often reduce the sense of urgency required to aggressively exploit new opportunities (see “Complacency” below).
Everyone (well, almost everyone) has them. The theory is that by creating broad portfolios of investments, executives can more effectively manage risk. Well, I’m not so sure – count me as a contrarian on this one. Portfolios of investments work great if you are an investor, but work less well if you are business manager. They create risks of their own. First, I see a pronounced tendency to spread resources too thin across too many bets even in the largest of companies. The result? Risk actually increases because no single program has the critical mass of resources required for success. But it gets worse. Complacency also increases as the portfolio expands (see “Complacency” below). If some of the investments start to hit rough times, executives tend not to worry because there are a lot of other investments that might pay off. This can become a dangerous mindset.
This has been a buzzword du jour for too many years now. The adaptive enterprise has become the nirvana all large companies strive to achieve. Cognoscenti draw on complex adaptive systems theory to make the case that adaptation ought to be the primary goal of strategy. Well, maybe . . . if we are reptiles or honey bees. Here’s my concern. Adaptation may be much too modest a goal. Adapting may help to ensure survival, but we will likely miss many of the real opportunities created by rapid change. When environments go through rapid changes, these changes create far more degrees of freedom for action than more stable environments. There is more opportunity for purposeful strategies to shape the environment, rather than simply adapting to it, and to reap the rewards that can accrue to successful shapers. Both Wal-Mart and Microsoft reaped significant rewards as shapers, not as adapters. Here’s the catch – the mindsets, skills and actions required to be a successful adapter are quite different from those required to be a successful shaper, so executives have to choose between these strategies. Too often, adaptation becomes the default strategy or, even worse, companies try to straddle between the two without making an explicit choice.
Efficiency is a diminishing returns game – there are natural limits. There’s nothing wrong with efficiency in small doses, but when it becomes an obsession, it leads to dysfunctional behavior. Efficiency initiatives are seductive because they generally yield more predictable results, at least in the near-term. But there are problems. Efficiency focuses us back on the core business (see above) because that’s where the biggest gains are. We also seek to eliminate edges because edges are always messy and often horribly inefficient. The problem is, of course, we can never eliminate edges; we can only shrink our field of operation and vision. JSB and I talk a lot about productive friction – from our perspective, it is the source of significant innovation – the clash of different perspectives and skill sets is often required to break through to different beliefs and behaviors. But, seen through the lens of efficiency, productive friction is deeply suspect, especially since it tends to be most prominent on the edges of our operations.
This goes with efficiency. Who could argue with it? Wouldn’t it be better if we all agreed? Problem is – from my experience, if senior management all agrees, that’s a real red flag. It means one of several things. Often it means that no one is asking the right questions – it’s easy to agree if no one is posing hard questions about the future of the business or priorities in near-term allocation of resources. In other cases, it could mean that everyone’s talking at such a high level that they can say the same words, but mean completely different things. Other possibilities: management has developed a culture of conflict avoidance or they have been together far too long, drinking from the same kool-aid bowl. Sometimes it is all of the above. In any case, high performing and innovative companies generally have lots of friction – it’s just that they have figured out how to make it productive rather than dysfunctional.
OK, now I am really going after a sacred cow. And it is not just because I was almost expelled from third grade for playing hooky by forging notes from my parents. Education (and let’s throw in training while we are at it) is bankrupt – we don’t need to fix it; we need to start from scratch and re-think it, starting with the terminology. It represents a huge drain on resources at best and, at worst, takes bright and inquiring minds and slowly but inevitably extinguishes passion for learning. As the very term indicates, education starts with a push mindset. What we really need are more effective pull platforms to foster learning. There are actually a lot of these pull platforms rising up around us, in such diverse and unlikely places as World of Warcraft and the tea houses of Chongqing, China. We need to learn from these experiences to develop new institutional learning architectures recognizing that learning is a life-long requirement and that push approaches play an increasingly marginal role in successful
This is a big issue, although this fear is mainly focused on Western companies. As JSB and I have noted before, we are struck by the contrast between the complacency we find among many Western executives and the sense of urgency that marks all of our meetings with executives in emerging economies like China and India. Much of this complacency comes from taking a snapshot view of the world versus focusing on the movie. Enough said.
When complacency confronts the harsh reality of intensifying competition, we run the risk of flipping into resistance and using whatever means are necessary to protect us from competition. I guess if I had to single out the goblin that I worry about the most, it is the risk of a public policy backlash. This could play out in two different scenarios. In one scenario, large established economic interests in more developed economies join forces with domestic workers feeling more insecure about their jobs and push through a set of protectionist measures that roll back much of the liberalization that has occurred in public policy over the past several decades. Alternatively, the backlash could surface in emerging economies and established political and economic interests capitalize on the growing frustration of the rural populations bypassed by globalization to implement their own protectionist measures. Either way, the results are likely to be disastrous with public policy retaliation in other parts of the world and growing potential for political and perhaps even military conflict. Boo! Now that’s a really scary thought.