The Leader's Guide to Radical Management

Yes, A Business CAN Disrupt Itself

Disruptive innovation kills businesses. We learned that in 1997 from Clayton Christensen’s brilliant book The Innovator’s Dilemma which starkly depicted the phenomenon. What can CEOs do about this seemingly incurable disease?

“Good management” isn’t a solution

In the 13 years since then, we have learned that “good management” isn’t a cure: in fact, as Alan Murray has pointed out in the Wall Street Journal, it’s actually “good management” that accelerates death.

The disasters occurred because managers were following the dictates of “good” management, when management is viewed as optimization. Thus managers studied their customers. They carefully researched the market and new technologies. They meticulously cultivated innovation. They stringently evaluated new development and weighed the cost of new investment against potential gains. And in the process, they missed disruptive innovations that opened up new customers and markets for alternative blockbuster products.

In some cases as at Nokia in 2004, the disruptive innovation that was overlooked came from within the firm itself.

The Innovator’s Solution isn’t a solution

In 2003, Clayton Christensen and Michael Raynor offered The Innovator’s Solution which argued that an organization could cope with disruptive innovation by setting up a separate unit to carry out the innovation. The problem with this reasoning is that the insulation usually breaks down unless the new unit is totally independent. As a result, creating the new unit is not a solution: it’s usually just “deferring the innovators solution.” For the innovation to prosper on a sustained basis, at some point, the parent organization has to come to terms with the change. Typically that doesn’t happen.

Christensen 2009: “Disruption from within never happens”

Can management foster disruptive innovation from within? According Clayton Christensen, the answer is an unequivocal no.  In The Innovator’s Prescription, Christensen and his fellow authors write that fostering disruptive innovation within the firm isn’t a solution, because the culture of the existing business will crush the innovation:

“…disruptive innovators invariably find that ensconcing their piece of the system into the old value network kills their innovation—or it co-opts or reshapes their business model so that it conforms to that system. Vice versa never happens.” (Emphasis added)

Some examples of disruptive innovation from within

“Invariably” and “never” are strong words, particularly when we have staring us in the face many examples of disruptive innovation being conducted from within:

Take Apple [AAPL], which successfully disrupted its original computer business with the iPod, the iPhone and now the iPad.

Take Toyota [TM], which successfully disrupted its core business of highly reliable low cost cars with the luxury Lexus and the youth oriented Scion.

Why were these firms successful, when most firms aren’t?

Why traditional management kills innovation

The answer is that Apple and Toyota, and many other lesser-known examples, are practicing a radically different kind of management from traditional management.

Traditional management views the task of management as pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, of increasing efficiency through economies of scale, with the single-minded goal of making money of shareholders. In this world,  the arrival of a disruptive business model will represent a threat to management, to careers, to power structures, to traditional ways of thinking, to client bases, to brands, to corporate culture. Traditional management is looking at the firm and its operations from the inside-out. Anything that challenges the status quo is a threat.

Sadly, this way of managing is increasingly unproductive. As Deloitte’s Shift Index shows, the rate of returns on assets of US firms is only one quarter of what it was in 1965. The life expectancy of a firm in the Fortune 500 is now less than 15 years and heading towards 5 years, unless something changes.

The shift from inside-out to outside-in

What makes Apple and Toyota different is that they are being managed from the outside-in, rather than from the inside-out. They are managing the firm from the customer’s point of view. Instead of trying to “parse and manufacture demand”, they are considering what the customer needs and wants and adjusting what the firm does to meet or exceed these expectations. They have grasped that the new bottom line of business is: is the customer delighted? Or as Guy Kawasaki puts it in his wonderful new book, Enchanted: is the customer enchanted? As Umair Haque has pointed out in The New Capitalist Manifesto, it’s a fundamental shift from outputs to outcomes.

The shift from inside-out to outside-in isn’t an option. It’s the inevitable requirement of an epochal shift of power in the marketplace from seller to buyer. Management has to be transformed because the customer is now in charge.

Continuous innovation with disciplined execution

What’s different about the radically new way of managing is that innovation moves from being an occasional episodic initiative to a continuing way of life.

This means establishing the organizational goal of doing whatever is needed to go on delighting their customers, not just tweaking the supply chain. The firm needs to be permanently focused on generation positive customer outcomes, not merely generating outputs.

It means managers becoming enablers of the people doing the work, rather than controllers.

It means that the firm coordinates its work through dynamic linking, rather than through hierarchical bureaucracy, and with radical transparency so if that employees become aware of a problem, that problem gets communicated openly and quickly solved, rather than festering in the background for years.

It means that communications are conducted in horizontal adult-to-adult conversations, rather than command and control. If not, this too will dispirit employees and kill innovation.

Once these principles are consistently implemented, disruptive innovation from within not only becomes possible. It becomes inevitable.

To learn more

To learn what is involved in management that creates continuous innovation and disciplined execution, you can read recent books like Enchantment, by Guy Kawasaki, The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Professor Ranjay Gulati, or Leadership in a Wiki World by Rod Collins.

Or my book, The Leader’s Guide to Radical Management (Jossey-Bass, 2010) which provides a comprehensive overview of the principles and practices involved.

If you would like to get together with others who are intent on mastering what’s involved in creating a workplace of continuous innovation and customer delight, please join me, Rod Collins (author of Leadership in a Wiki World, Seth Kahan (author of Getting Change Right) and others for two days on May 12-13 in Washington DC. Cool, innovative and serious fun. More details here.

Domino’s: It Takes More Than Campaigns To Look Good Naked

 

Image via Wikipedia

My fellow Forbes contributor, Chunka Mui, has an insightful and entertaining article, How Dior, Galliano and iPad2 Reinforce the Need for Businesses to Look Good Naked. It gives multiple examples of businesses that failed to respect the inexorable trend towards greater transparency and suffered the consequences when poor performance was capture on amateur videos, including:

• David Carroll’s singing video about United Airlines breaking his guitar
• The video of a Comcast technician asleep on a customer’s couch
• John Galliano’s anti-semitic comments captured on a cell phone video
• The prank video that showed how bad are Domino’s pizzas [DPZ].

A brand is helpless in the face of a convincing amateur video. And the problem for firms today is that most people are carrying a video camera in their pocket or handbad. Something bad happens? Record it, and with the help of social media, send it spiraling on the Web to millions of interested customers.

There is, as Chunka Mui notes, “the prospect that any and every aspect of your business might go viral on YouTube.” Indeed there are now organizations are now springing up, whose object in life is to do exactly that, such as Witness.org, an organization tagline is “See it.  Film it.  Change it.”

“Campaigns” can make temporary gains

Once a video has gone viral, Dominos discovered that apologies didn’t work.  In desperation, after discovering that its critics were correct—its pizzas did taste like cardboard— Domino’s admitted the reality and invited its harshest critics to help improve its product. It jettisoned its 49-year-old cardboard/ketchup recipe, and replaced it with a product that won blind tasting tests against its competitors’ pizzas. They even had Stephen Colbert taste-test their product on his show, and drooling: “Is that pizza, or did an angel just give birth in my mouth?”

The results, as reported by Adage in October of 2010 have been spectacular: For 2010, Domino’s posted a 14.3% same-store-sales gain — a record for the fast-food industry. In the most-recent quarter, the number was 14.5%. The chain, which opened its 9,000^th store worldwide in March, recorded a 56% increase in profit for the quarter.

At this point, conventional management thinking would be to declare the battle won and go back to running the business as usual.  The truth is that a few battles may have been won, but the real war has only just begun: how to change the organization on a permanent basis. Despite the recent gains, Domino’s share price is still barely ahead of where it was in 2004.

Marketing is more than “initiatives” and “campaigns”

As Al and Laura Ries document in their wonderful book, War in the Boardroom: Why Left-Brain Management and Right-Brain Marketing Don’t See Eye-to-Eye–and What to Do About It, the marketing department is generally viewed by traditional management as no more than a temporary problem-solver.

“Got a brand problem? Bring in the marketing folks and maybe they can help solve it, so that then you can go back to grinding out production, tweaking the supply chain, searching for efficiencies and all the standard preoccupations of traditional management. “

The problem is that grinding out production in the traditional management manner is what caused Domino’s branding problem in the first place. It was the reason why Domino’s could go so for many years without either realizing that its pizzas tasted like cardboard or doing anything about it.

Going back to running the company by grinding out production would be a guarantee that similar problems will re-emerge in due course, as employees are dispirited by traditional management and customers are frustrated by lackluster service from dispirited employees.

Nor is it going to help for Domino’s to ask customers to video problems and send in the video, so that management could weed out “poor performers”. The problem of cardboard-tasting pizza wasn’t a problem of a few “poor performers” at the working level. The problem of the cardboard-tasting pizza was the result of company policies and management at the very top of the organization that prevented the identification of the problem and the action needed to solve it. The policies and practices inhibited innovation or didn’t bring out the best in people so that they would discover problems and fix them.

Permanent change in management

What Domino’s needs is a permanent way of managing the company that combines continuous innovation and disciplined innovation.  What does this mean?

• It means establishing the organizational goal of doing whatever is needed to go on delighting their customers, not just making money. The fact that Domino’s has pleased some customers today is no guarantee that it will do so tomorrow.  Domino’s needs to be permanently focused on generation positive customer outcomes, not merely generating outputs.

• Managers have to become enablers of the people doing the work, rather than controllers, Control and bureaucracy are what dispirits workers. Unless Domino’s managers are enabling their employees, the openness that Domino’s has embraced will quickly reveal the low level of engagement of the employees.

• Domino’s needs to coordinate its work through dynamic linking, rather than through hierarchical bureaucracy. If it doesn’t the dreaded pall of bureaucracy will descend and infect everything that Domino’s does.

• Domino’s needs to run their organization with radical transparency so if that employees become aware of a problem, like cardboard tasting pizza, that problem gets communicated openly and quickly solved, rather than festering in the background for years.
• Communications need to be conducted in horizontal adult-to-adult conversations, rather than command and control. If not, this too will dispirit employees, not something that will look pretty when it becomes visible in a youTube video watched by millions.

The problem for Domino’s is that now that they have embraced openness, they have to learn to live with it, not just for the duration of a few marketing campaigns. They have live with continuous innovation and embrace it as a way of life forever.

This is not about campaigns or initiatives. It’s a different way of thinking, speaking and acting in the workplace.

To learn more

To learn what is involved in permanent management change that creates continuous innovation and inspired employees, you can read recent books like Enchantment, by Guy Kawasaki, The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Professor Ranjay Gulati, or Leadership in a Wiki World by Rod Collins.

Or my book, The Leader’s Guide to Radical Management (Jossey-Bass, 2010) which provides a comprehensive overview of the principles and practices involved.

If you would like to get together with others who are intent on mastering what’s involved in creating a workplace of continuous innovation and customer delight, please join me, Rod Collins (author of Leadership in a Wiki World, Seth Kahan (author of Getting Change Right) and others for two days on May 12-13 in Washington DC. Cool, innovative and serious fun. More details here.

Part 4: Measuring The World’s Most Neglected Competitive Weapon: Time

 

This article is the fourth part in a series of posts on measuring what matters in organizations: the shift from outputs to outcomes. Today the focus is on measuring the crucial element of delighting customers: time.

Not so long ago, I ordered a pair of shoes from Zappo’s. It was around 10pm on Sunday evening. The price was very reasonable. I was also happy to see that two-day shipping was free and so I placed my order. The next morning around 8.30am, I opened my front door and found that my pair of shoes had arrived—a day and a half early. I wasn’t happy. I was delighted!

I asked myself: how was this possible? How could Zappo’s have possibly got the shoes to me so quickly? I found out later that it’s because Zappo’s doesn’t run its warehouse and shipping so as to minimize costs. Instead, it runs them so as to get the goods to customers as soon as possible. The result of my delight as a customer is to tell many other people of my experience: by delighting its customers Zappo’s turns them into the unpaid marketers for the firm. Zappo’s is thus using time as a powerful competitive weapon.

The traditional management treatment of time

This is not the way most firms in the Fortune 500 operate.

With their hierarchical bureaucracy, with multiple vertical layers of authority and many different departments and divisions, work jams are occurring all over these organizations on a daily basis. Typically no one recognizes them or does anything about them. Work sits waiting in queues.  Approvals are holding things up. Customers are trying to get answers and waiting for responses or deliveries. Well-intended cost savings or big production runs implemented in one part of the organization are slowing things down in another part of the organization, retarding the overall delivery of value to customers. Big production runs are particularly costly because of the direct costs of working capital of warehousing as well as significant indirect costs and noxious secondary effects.

Time identified as a key competitive weapon

As a result, most Fortune 500 companies are not paying attention to one of the most important elements that will determine the future of their businesses: time. They might be surprised to learn that time as the key competitive weapon was clearly identified in Harvard Business Review over half a century ago.

• In 1958, Jay W. Forrester of MIT published a pioneering article in Harvard Business Review which established a model of time’s impact on an organization’s performance.[1] The article showed how time flows through a system, and how focusing on time-based competitive performance results in improvements across the board. When work is done quickly, costs come down naturally. The article noted that companies generally become time-based competitors first by correcting their manufacturing techniques, then by fixing sales and distribution, and finally by adjusting their approach to innovation. Ultimately, it becomes the basis for a company’s overall strategy.

• Again in 1989, George Stalk Jr published in a brilliant article in Harvard Business Review, “Today, time is on the cutting edge. The ways leading companies manage time in every aspect of organizational performance-in production, in new product development and introduction, in sales and distribution-represent the most powerful new sources of competitive advantage. … While time is a basic business performance variable, management seldom monitors its consumption explicitly—almost never with the same precision accorded sales and costs. Yet time is a more critical competitive yardstick than traditional financial measurements.”[2]

Despite these insights for over half a century, it is still true today that few traditional organizations monitor the consumption of time as explicitly and as carefully as they do for costs and sales.

Measuring time requires a different mindset

Why is it so difficult for traditional management to use time as a strategic weapon? It’s primarily because managing time requires a wholly different mental model of management.

So long as management is seen as the task of pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, of increasing efficiency through economies of scale, with the single-minded goal of making money of shareholders, the question of when the customer actually receives products or services will always be a secondary consideration. Management is looking at the firm and its operations from the inside-out.

Sadly, this way of managing is increasingly unproductive. As Deloitte’s Shift Index shows, the rate of returns on assets of US firms is only one quarter of what it was in 1965. The life expectancy of a firm in the Fortune 500 is now less than 15 years and heading towards 5 years, unless something changes. Only one in five workers is fully engaged in his or her work.

From inside-out to outside-in

As a result of an epochal shift of power in the marketplace from seller to buyer, this way of management is being transformed to reflect the new reality that the customer is now in charge. As Professor Ranjay Gulati has pointed out in his book, Reorganize for Resilience, managers need to replace the inside-out perspective, with an outside-in perspective: they need to be seeing the firm from the customer’s point of view. Instead of trying to “parse and manufacture demand”, they need to be considering what the customer needs and wants and adjusting what the firm does to meet or exceed these expectations. The new bottom line of business is: is the customer delighted? As Umair Haque has pointed out in The New Capitalist Manifesto, it’s a fundamental shift from outputs to outcomes.

Time is one of the key determinants of customer delight. To prosper, firms must offer a continuing supply of new value and deliver it sooner. No matter what else the firm does, it has no chance of delighting the customer, if its products or services are not timely. It’s only when the management makes the transition in mindset from viewing the function of an organization as that of producing not just outputs, but outcomes for customers, that the vital importance of time comes into view.

A more disciplined approach to time

With the shift from outputs to outcomes, a more disciplined approach to the measurement of time becomes both possible and necessary.

Giving primary attention to time also has another crucial advantage: by doing things more quickly, costs come down of their own accord. In both lean manufacturing and software development, it has been shown that delivering value to customers sooner usually results in overall costs coming down of their own accord. Focusing on time thus produces a multiple wins.

George Stalk noted in 1989 that “as a strategic weapon, time is the equivalent of money, productivity, quality, even innovation.”[3]

Shortened cycle time

From an organizational point of view, cycle time in terms of getting things to the ultimate customer is the crucial temporal dimension. In traditional management, attention is usually spent on improving internal processes, some of which are not adding any value to the ultimate customer. Instead improving them, management needs to eliminate them.

Cycle time must be looked at from the ultimate customer’s point of view. In development, how long does it take to go from concept to customer delight? Or in production, how long does it take to go from order to customer delight?

Short cycle times can give a firm an enormous competitive edge, by increasing its ability to offer a wider array of products and services sooner than its competitors. However, keeping track of total cycle times is only a beginning. The key step in managing time comes by identifying where delays in delivering products and services to the ultimate customer are occurring and systematically eliminate them. A key tool for this purpose is value-stream mapping.

Value stream mapping

Value stream mapping is a tool that can be used to measure time by identifying and eliminating delays in getting value to customers. It analyzes the flow of materials and information currently required to bring a product or service to a customer. In effect, the workplace is viewed from the ultimate customers’ point of view, with the object of accelerating or eliminating any step or activity that does not add value to them.

Although value stream mapping emerged in the manufacturing sector, it is also used in logistics, supply chain, service industries, health care, software development, and new product development.

The originator of value stream mapping in Toyota [TM], Shigeo Shingo, suggested drawing the value-adding steps horizontally across the map and the non-value-adding steps in vertical lines at right angles to the value stream. The vertical line is the “story” of a person or work station, and the horizontal line represents the “story” of the product being created. The object is to accelerate the horizontal story of delivering value to the customer by reducing or eliminating the steps represented by vertical lines. In most large hierarchies, much of the activity is represented by vertical lines because it doesn’t add value to the ultimate customer. A value stream map dramatically draws attention to this fact.[4]

Meshing short work cycles with medium-term goals

Working in short iterations and focusing on eliminating delays doesn’t mean that there is no longer term view. Take OpenView Venture Partners, a Boston-based venture capital fund that got started in September 2006.¹³ It invests in small to medium sized software development firms, and provides operational assistance to those firms.

Founding managing director Scott Maxwell combines the work cycles of self-organizing teams with a balanced scorecard approach. At the highest level, the firm’s mission, vision, values are translated into strategic themes and goals for a year. Inside that is a quarterly cycle. And within that, the goals are broken down into initiatives, which can be spelled out in specific user stories to be implemented by the teams in weekly iterations. Maxwell calls it “extraordinary execution” and is introducing it to OpenVenture’s portfolio companies.

Maxwell says the approach works well because it helps deal with the reality that you can’t predict what’s going to happen. Traditional management assumes perfect predictability in which the entire project can be laid out from beginning to end, with a beautiful product coming out at the end of it.

In reality the world next month, or next quarter, will look very different from today, because the firm has impacted the world and because the world will have changed of its own accord. So drawing up a detailed plan about how exactly we are going to get to where we want to be three years from now is a waste of effort.

“Instead,” Maxwell says, “we need to put a stake in the ground as to where we want to be in three years, and then break that down. If we want to be there in three years, where ideally would we need to be in a year? And then let’s break that down further. If we want to be there in a year, what would we have to do? And so on. That then flows into the user stories to be implemented by the teams in weekly iterations.”

For other parts of this series:

1. Measuring customer delight at the organizational level (Part 1)
2. Measuring customer delight at the working level through user stories: (Part 2)
3. Part 3: Measuring customer delight: sizing and prioritizing user stories (Part 3)
Coming next: Measuring customer delight in real time: social media.

A different way of managing

Here, as elsewhere, the individual tools that are used to measure time are less important than the management mindset that deploys them. Effectively measuring time entails a wholly different way of thinking, speaking and acting in the workplace.

To learn more

To learn more about the principles and practices of managing time, read my book, The Leader’s Guide to Radical Management (Jossey-Bass, 2010) which provides a comprehensive overview.

If you would like to get together with others who are intent on mastering what’s involved in measuring time, and creating a workplace of continuous innovation and customer delight, please join me, Rod Collins (author of Leadership in a Wiki World, Seth Kahan (author of Getting Change Right) and others for two days on May 12-13 in Washington DC. Cool, innovative and serious fun. More details here.

[1] Jay W. Forrester: “Industrial Dynamics: A Major Breakthrough for Decision Makers” (July-August 1958).

[2] Stalk, G. “Time-The Next Source of Competitive Advantage” Harvard Business Review, 1989, Jul-Aug, 41-51.

[3] Stalk, op. cit. 41.

[4] For a good discussion of value stream mapping, see Poppendieck, M., and Poppendieck, T.  Implementing Lean Software Development. Upper Saddle River, N.J.: Addison-Wesley, 2007.

Why Can’t We Reform The Health System?

Beyond any of the political skirmishing around the recent health reform law lies the issue of the poor performance of the US health system. Almost as frightening as its cost is how poorly it performs.

More money per person is spent on health care in the United States than in any other nation in the world, yet US life expectancy lags 42nd in the world. That’s well behind most rich nations, and after Chile (35th) and Cuba (37th). Yes, Cuba! One can debate how far the health care system itself is responsible for these shocking statistics, since access to care has been far from universal. But it is hard to argue with the death rates from medical errors.

Clayton Christensen: the analogy to the PC industry

Clayton Christensen has an interesting short video on Forbes that seeks to explain why health system reform doesn't happen. He uses an analogy with the PC industry.

Christensen begins by describing how a personal computer is made up of various parts—a keyboard, a processor, a hard drive, memory chips, a DVD player, a screen, and so on. Each part is made by a different manufacturer. Each manufacturer can optimize its individual piece of the PC, but none of them is able to optimize the whole system. That can only be done by the firm responsible for the overall PC, such as Apple [AAPL].

Similarly, he argues, the health system is made up of different parts—hospitals, insurers, doctors, nurses, primary care facilities, pharmaceutical manufacturers, and so on. Each of them can optimize their individual piece of the system. But none of them can optimize the whole system. That would have to be the responsibility of whoever is responsible for the well-being of the overall system. The problem is that there is no such entity like Apple who is responsible for the overall well-being of the health system. Hence overall reform of the health system as a whole doesn’t happen.

The argument is interesting as far as it goes. But does it get to the root cause?

The problem of “management viewed as optimization”

Christensen has written brilliantly about the phenomenon of disruptive innovation in his book, The Innovator's Dilemma (HBSP, 1997). In it, he describes how market-leading companies in industry after industry have missed game-changing transformations.

But the mistakes that were made by those companies were not the result of "bad" management. Instead, as Alan Murray has noted in his article in the Wall Street Journal, the disasters have occurred because managers were following the dictates of "good" management, when management is viewed as optimization. They studied their customers. They carefully researched the market and new technologies. They meticulously cultivated innovation. They stringently evaluated new development and weighed the cost of new investment against potential gains. And in the process, they missed disruptive innovations that opened up new customers and markets for alternative blockbuster products.

A recent example of the phenomenon is at Nokia.

If one listens carefully to Christensen’s video talk, one can hear that he is still assuming that management consists of “optimization of the parts”, whether it’s making a PC or running a health system. It’s an inside-out perspective of tweaking the value chain and searching for internal efficiencies as the main goal of management. It’s precisely the kind of management that is the root cause of the phenomenon of disruptive innovation, about which Christensen has written so brilliantly. Put another way, disruptive innovation is a symptom of traditional inside-out management.

The results of "management viewed as optimization"

The result of running private sector organizations in this fashion has been disastrous, as shown by in a comprehensive study of some 20,000 US firms by Deloitte’s Center for the Edge.

• The rate of return on assets of US firms is one quarter of what it was in 1965.
• The life expectancy of a firm in the Fortune 500 has declined to less than 15 years and is heading towards 5 years unless something changes.
• Executive turnover is accelerating.
• The topple rate of leading firms is speeding up.
• Only one in five workers is fully engaged in his or her work: the larger the company, the lower the level of passion among the workers.

It doesn’t work for industry. There is no reason to think that it will work for the health system.

The alternative: “management that adds value to customers”

The alternative to the model of “management as optimization” is an outside-in customer-driven approach in which everyone in the organization is focused on finding ways of adding more value to the ultimate customer (or primary stakeholder) and delivering that value sooner. The approach is described by Roger Martin his classic HBR article “The Age of Customer Capitalism.” Harvard Business Review, Jan. 2010, pp. 58–65. It is also reflected in The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Professor Ranjay Gulati, or Leadership in a Wiki World by Rod Collins.

My own book, The Leader’s Guide to Radical Management (Jossey-Bass 2010) offers a comprehensive account of the principles and practices involved.  

In business, the task of management becomes that of delighting the customer, and providing a continuous stream of additional value and delivering it sooner. 

A “patients first” health system

Christensen is right that reform of the health system will be impossible if the players in the game are merely trying to optimize their particular part. The health system will infected with the same bureaucracy that has hamstrung the private sector and the government.

The solution however is not, as Christensen implies, to appoint some authority, or czar, to be the master designer of the overall system. Quite apart from political difficulty of setting up such an approach, it is precisely the kind of top-down thinking that has led to such poor results in industry.

Real reform in health means getting away from a system that is focused on optimization of costs and where administrators, insurance companies and health professionals are trying to optimize their particular part of the system. It means transforming the health system into one in which everyone is truly focused on “patients first”, with genuine patient-driven care. All of the players must be focused on continuously adding more value for patients, and finding ways to deliver that value sooner. In this way, the system will self-optimize for the good of the patients, without the need for any kind of health czaar.

The good news is that we know how to do this.

To learn more

If you would like to learn even more about reinventing management for both the private sector and for the health system,, please join me for two days on May 12-13, 2011 in Washington DC in a workshop that is all about cool, innovative and serious fun. More details here.

Don’t Blame Green For GE’s Problems

A fellow contributor on Forbes, Aman Singh, has an insightful spotting of some Jack Welch pronouncements, starting with the startling headline, “GE May Be Going Too Green”.

Her article interprets Welch’s latest message delivered at The Tulsa Business Forum hosted by Oklahoma State University’s Spears School of Business as: “The main social responsibility for a company is to win.”

Apparently, Welch is not impressed with the bevy of new alternative-energy products offered by GE [GE], which have generated some $18 billion in annual revenue. As reported by the Tulsa World, Welch said, “If it doesn’t turn green into green, it doesn’t turn out to be a helluva good business. The whole idea is to grow jobs,” adding, “The main social responsibility for a company is to win.”

“We played business like it was a sport,” Welch said of his philosophy heading up GE from 1981 to 2001. “You make a game of it; you field the best team and weed out the weakest. The weeds you’ve got to pull out if you’re going to build a beautiful garden.”

The clear implication from Welch’s talk is that if he was still running GE, the Ecomagination projects that CEO Jeff Immelt vaunts, and President Obama praises, would be high on his list of “weeds” to be pulled, because they don’t make money fast enough.

Does this make any sense?

GE has a problem

First, let’s face it. GE has a problem. Its share value is now roughly 50% of what it was ten years ago, when Jack Welch retired. He is right to point this out, even obliquely. He is also right to imply that it’s misguided to argue (like Michael Porter) that “going green” is a panacea that will by itself save either GE or the entire US economy.

When one compares GE’s performance to companies like Apple [AAPL] or Amazon [AMZN] whose share prices are now more than ten times what they were a decade ago, one can see that GE has a management problem of some kind. The question is: what kind?

GE’s problem is not in going green

Second, as Aman Singh points out, other businesses like Seventh Generation, Timberland, and Tom Shoes, are proving every day that green can be highly profitable. The question is how to achieve that kind of profitability.

Part of GE’s problem is Jack Welch’s legacy

Whatever else Jack Welch was, he was lucky. He left GE the day before September 11, 2001, thus leaving his predecessor to cope with the impact of September 11 on its business, parts of which were severely affected, e.g. its aircraft engine business.

He was also able to appear as the master of the universe by steadily growing GE’s earnings, in part through arrangements with GE Finance, which didn’t unravel until the financial crisis of 2008.

Jack Welch’s management regime looked good at the time, in part because the legacy of problems that he bequeathed to his successor didn’t appear until after he left.

GE’s main problem today is 20th Century management

GE’s main problem today is however something else: another Jack Welch legacy: 20^th Century management. This is a view of the world that sees organizations as pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, with the goal of making money of shareholders. It has been called shareholder capitalism and Jack Welch was its sponsor.

It was a way of managing that worked reasonably well, decades ago, when the marketplace was dominated by a few oligopolies (customers lacked both options and information about the options) and most work was semi-skilled work.

Today that world has all but vanished. The reality is that we now live in the age of customer capitalism. As a result of epochal shift of power in the marketplace from seller to buyer, the customer is now in charge. Making money and corporate survival now depend not merely on satisfying customers but delighting them. To prosper, firms must have knowledge workers who are continuously innovating and delivering a steady supply of new value to custonmers and delivering it sooner. The new bottom line of business becomes: is the customer delighted? It’s a fundamental shift from outputs to outcomes.

Firms like Apple [AAPL] and Amazon [AMZN] have grasped this transition and taken advantage of it. GE has yet to embrace it a wholesale way.

Not that GE’s declining performance is in any way exceptional. GE’s performance reflects disastrous declining trends across a wide array of firms, as shown by a comprehensive study of some 20,000 US firms by Deloitte’s Center for the Edge.

• The rate of return on assets of US firms is one quarter of what it was in 1965.
• The life expectancy of a firm in the Fortune 500 has declined to less than 15 years and is heading towards 5 years unless something changes.
• Executive turnover is accelerating.
• The topple rate of leading firms is speeding up.
• Only one in five workers is fully engaged in his or her work: the larger the company, the lower the level of passion among the workers.

In this new world, the Jack Welch style of management involving dictatorial management, tight control, ruthlessly cutting costs and pulling out weeds, measurement of outputs and sole focus on shareholder value is no longer appropriate or effective. It’s the problem, not the solution.

Instead, managers now have to be helping focus everyone in the organization on the goal of adding value to customers and delivering it sooner, rather than merely tweaking the supply chain and searching for efficiencies.

Bottom line: don’t blame green

So yes, Jack Welch is right to point out that GE has a problem: GE does need to be making more money. But blaming green isn’t going to fix it. Instead, GE has to transform its management into something fit for the 21^st Century marketplace.

GE—and Jack Welch—can learn what the new way of managing is all about from Roger Martin his classic HBR article Martin, R. “The Age of Customer Capitalism.” Harvard Business Review, Jan. 2010, pp. 58–65, or in The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Professor Ranjay Gulati.

The practices and principles involved are also comprehensively covered in my own book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).

To learn more

If you would like to learn even more about reinventing management, please join me for two days on May 12-13, 2011 in Washington DC in a workshop that is all about cool, innovative and serious fun. More details here.

Leadership’s #1 Challenge: Transforming Management

My fellow Forbes contributor, John Kotter, has an interesting post entitled, Corporate Culture: Whose Job Is It? He asks: who is responsible for corporate culture?

“Who raises red flags if the culture is impeding performance?  Who figures out how to change it if it is a problem, or maintain it if it is an asset?  If you ask the employees and managers of most companies, the most common answer is “the folks in HR.”  And that’s not a very good answer.  The truth is that top leadership, including the CEO, has to take responsibility if the culture is to be strong.”

Why are so few leaders taking on this responsibility? Kotter’s answer is that

“we have too many managers and not enough leaders in today’s business world.  Managers focus on timelines, budgets, organizational structures, metrics, controls, and numbers.  Leaders focus on vision, buy-in, motivation, culture, and people.  Of course management is important.  But while you may get the top job by excelling at management, you thrive in the top job by excelling leadership.  Culture is always in a leader’s job description.”

The implication seems to be that strengthening the creative culture is in the job descriptioin of leaders, but not necessarily in the job description of the manager.

Responsibilities are bifurcated. Leaders inspire people, spark change and strengthen the culture, while managers organize, control work, measure outputs and get things done. The tasks involve different skill sets and attitudes. The hope is that the roles happily complement each other.

The distinction between leaders and managers

The truth is that the division of responsibilities between managers and leaders is defunct, a relic of 20^th Century thinking. It’s a leftover from an era that viewed organizations pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, with the goal of making money of shareholders. It has been called shareholder capitalism.

While this seemed to work well for much of the 20^th Century, the results in today’s different work are disastrous, as shown by a comprehensive study of some 20,000 US firms by Deloitte’s Center for the Edge.

• The rate of return on assets of US firms is one quarter of what it was in 1965.
• The life expectancy of a firm in the Fortune 500 has declined to less than 15 years and is heading towards 5 years unless something changes.
• Executive turnover is accelerating.
• The topple rate of leading firms is speeding up.
• Only one in five workers is fully engaged in his or her work: the larger the company, the lower the level of passion among the workers. 

The age of customer capitalism

The reality is that we now live in the age of customer capitalism.[1] As a result of epochal shift of power in the marketplace from seller to buyer, the customer is now in charge. Making money and corporate survival now depend not merely on satisfying customers but delighting them. To prosper, firms must offer a continuing supply of new value and deliver it sooner. The new bottom line of business becomes: is the customer delighted? It’s a fundamental shift from outputs to outcomes.

In this new world, 20^th Century management involving tight control of workers and measurement of outputs is no longer appropriate or effective. Managers now have to be helping focus everyone in the organization on the goal of delighting customers, rather than merely tweaking the supply chain and searching for efficiencies.

As a result of the transition from semi-skilled labor to knowledge work aimed at delighting clients, the role of the manager shifts from being a controller to an enabler, so as to liberate the energies and talents of those doing the work and remove impediments that are getting in the way of work. They have to be enabling workers to achieve the goal of continuing to add value to customers and get it to them sooner, rather than tightly controlling them.

Managers have to put their primary emphasis on the new bottom line of business, i.e. whether the firm is delighting its customers, not merely whether it is making money for its shareholder. They have to be measuring customer outcomes, not merely outputs.

In effect the role of management needs to be transformed.

Why should managers be different from leaders?

Why should managers be different from leaders?

The question only arises because of the supposed distinction between the roles of leaders and managers that was articulated in Abraham Zaleznik’s classic 1977 HBR article, “Managers and Leaders: Are They Different?”  

That article argued that managers have different skill sets and attitudes. Three aspects are key. First, managers focus attention on procedure and not on substance. Second, managers communicate to subordinates indirectly by signals, rather than clearly stating a position. Third, managers play for time. Amid conflicting rules and procedures, managers have no way of knowing what the right answer is. Self-protective routines are used, up and down the hierarchy.

The origin of Dilbert-style management

The insight that traditional managers act differently from genuine leaders might have led to an inquiry as to whether "focusing on procedure rather than substance" and "playing for time" were productive behaviors even in 1977. In fact, they constitute the essence of the Dilbert-style manager, whose antics are celebrated in Scott Adams’ popular cartoon. They dispirit workers, cripple innovation and frustrate customers.

Paradoxically, Zaleznik’s article led to an acceptance of those behaviors and to a bifurcation of management from leadership. The role of leaders was to inspire people to embrace change while managers were grimly grinding out disciplined execution. Leaders and managers not only had different attitudes and skill sets: inevitably they worked at cross-purposes. As much as leaders inspired employees with new ideas, managers were dispiriting them with their Dilbert-cartoon style management.

The result of the distinction between leaders and managers is an organization in conflict with itself, with leaders inspiring people doing the work, sparking change and strengthening the culture, while managers are busily undermining everything the leaders are doing by controlling work through bureaucratic processes and measuring outputs rather than outcomes.

The alternative to hierarchy and anarchy: dynamic linking

A principal reason offered today for preserving the distinction between leaders and managers  is that it is necessary to achieve disciplined execution. We don’t want chaos. So we are stuck with traditional management. It’s not pleasant or fun. But that’s the only way to run an efficient organization.

The ongoing reinvention of management shows that there is another way. One can mesh the efforts of autonomous teams of knowledge workers who have the agility to innovate and meet the shifting needs of clients while also achieving disciplined execution. It requires a set of measures that can be called “dynamic linking”. The approach began in automotive design in Japan and has been developed most fully in software development with approaches known as “Agile” or “Scrum”.

The main elements of “dynamic linking” are that (a) the work is done in short cycles; (b) the management sets the goals of work in the cycle, based on what is known about what might delight the client; (c) decisions about how the work should be carried out to achieve those goals are largely the responsibility of those doing the work; (d) progress is measured (to the extent possible) by direct client feedback.

As The Power of Pull  (2010) notes, one proceeds “by setting things up in short, consecutive waves of effort, iterations that foster deep, trust-based relationships among the participants… Knowledge begins to flow and team begins to learn, innovate and perform better and faster.… Rather than trying to specify the activities in the processes in great detail… specify what they want to come out of the process, providing more space for individual participants to experiment, improvise and innovate.”

It’s not hierarchy and it’s not anarchy. It gets the best of all worlds. It has the decisiveness and discipline of a hierarchy but without its inflexibility or its tendency to de-motivate workers and frustrate customers. It creates an agile environment that is radically more productive for the organization, more congenial to innovation, and more satisfying both for those doing the work and those for whom the work is done. The approach has been implemented for over fifteen years in organizations large and small with great success.

Managers must also be leaders

In effect, the problem in dealing with culture is not so much that we have too many 20th Century-style managers and not enough leaders.

The problem is that we still have 20th Century style managers at all. They have no place in the 21st Century organization.

In effect, in the 21st Century organization, the distinction between managers and leaders dissolves. Leaders need to be managers. Managers nee   d to be leaders.

The central challenge for both leaders and managers today is to lead the transformation of management and so generate the creative, innovative organizations that are needed for the 21^st Century.

To learn more

If you would like to learn more about the transformation of management, please join me for two days on May 12-13, 2011 in Washington DC in a workshop on “revolutionizing the world of work.” It’s all about cool, innovative and serious fun. More details here.

__________________________________________________________

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[1] Roger Martin wrote about the shift from shareholder capitalism to customer capitalism in his classic HBR article Martin, R. “The Age of Customer Capitalism.” Harvard Business Review, Jan. 2010, pp. 58–65. It is also reflected in The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Professor Ranjay Gulati and my own book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).

Reinventing Management

My article, The Reinvention of Management" has just been published in a special issue of Strategy & Leadership on "outracing change: learning to foresee, adapt, re-invent and innovate faster." (Strategy & Leadership, 2011, Vol. 39 Issue: #2, pp.9 - 17)

The article explains why business leaders and writers are increasingly exploring a fundamental rethinking of the basic tenets of management. It synthesizes a number of books including my own book, The Leader’s Guide to Radical Management (2010) and shows how management is being reinvented with five fundamental shifts:

• the firm's goal (a shift from inside-out to outside-in);
• the role of managers (a shift from controller to enabler);
• the mode of coordination (from command and control to dynamic linking);
• the values practiced (a shift from value to values); and
• the communications (a shift from command to conversation).

The raison d'être of the firm changes from a focus on efficiency and reducing transaction costs to scalable collaboration, learning and innovation. The shifts are interdependent: if only some shifts are made, the firm will slide back into hierarchical bureaucracy.

By adopting a people-centered goal, a people-centered role for managers, a people-centered coordination mechanism, people-centered values and people-centered communication the leaders of a firm can focus on the people who are its customers.

The article is available here.

Cool, innovative & serious fun

If you would like to learn more about the reinvention of management for the 21st Century, please join me for a two day workshop on May 12-13, 2011 in Washington DC that is all about cool, innovative and serious fun. More details here.

On hand will be some of the co-creators of the new world of work, including Seth Kahan, author of Getting Change Right, Rod Collins, author of Leadership in a Wiki World,and Madelyn Blair, author of Riding The Current.

 

 

Wal-Mart: Flying Blind With Missing Instruments

Suppose you find out that the aircraft that you are about to step into for a night flight is missing the instrument that would tell the pilot how high the plane is? Suppose you know that the air traffic controller is equally lacking access to any information about the altitude of the planes it is controlling? Will you step in to that aircraft? You won't.

Furthermore, if that were to be the situation with aircraft generally, would you be surprised to find that planes were repeatedly flying into each other or crashing into mountains? No, you wouldn't. That's the because the planes and the air traffic controllers would be missing the most critical piece of information to navigate the plane. The situation would be intolerable. Something would have to be done about it.

The missing information in the business world

Ironically, by analogy, that's roughly the situation we find ourselves in the business world. The instrument that would give us the most critical piece of information about the health of the organization is missing. As a result, the top management is flying blind. It really has no idea of where their organization is heading. Because they don't have this information themselves, they can't report on it to the public. As a result, it's missing from most of the discussions in the business press. Consequently, should we be surprised at how often firms are said to be doing well and then suddenly crash and burn? And yet not very much is being done about it.

The new bottom line of business

As Roger Martin, Dean of the Rotman School of Management at the University of Toronto, pointed out in his classic HBR article[i], we live now in the age of customer capitalism. The era of shareholder capitalism, i.e. pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, with the goal of making money of shareholders, is over. The customer is in charge, as a result of epochal shift of power in the marketplace from seller to buyer. Making money and corporate survival now depend not merely on satisfying customers but delighting them. To prosper, firms must offer a continuing supply of new value and deliver it sooner. The new bottom line of business is: is the customer delighted?

Yet information about the business's new bottom line is precisely what is missing in what managers focus on, what they report to the public and consequently what the business press talks about. The talk is about everything except that. This is because the managers are still living and thinking in the past era of shareholder capitalism. 

The talk is about outputs, rather than outcomes, as Umair Haque would say in his wonderful book, : The New Capitalist Manifesto. They are still talking about the world of push, as John Hagel, John Seely Brown and Lang Davison say in their fine book, The Power of Pull. They are still thinking in terms of inside-out, rather than outside-in, as Ranjay Gulati says in his excellent book, Reorganize for Resilience. In short, they are talking about in a world that for practical purposes no longer exists.

The case of Wal-Mart

Let's stick with Wal-Mart [WMT] for a bit. I explained in my blog yesterday why Wal-Mart's business model is broken and also how it can be fixed. Wal-Mart thrived so long as it was the cheapest: now that it's no longer the cheapest, its only hope of survival is finding new ways to delight its customers.

Yet the CEO, Mike Duke, gives no indication of realizing that this is what he should be focusing on. Instead, he is focusing on "pricing and merchandising." To continue with the airline analogy, it's as though the pilot is down in the engine room of the plane, fiddling with the valves, while no one is watching where the plane is heading.

As a result, he supplies no information about whether customers are being delighted and if not, what is being done about it.

Excellent writers like John Jannarone in the Wall Street Journal are therefore forced to make inferences. In this case, the inferences are stunningly easy to make. Wal-Mart's game plan has been to sell goods at the lowest price. Wal-Mart is no longer offering the lowest prices. Ergo, customers are hardly likely to be delighted.  

What is missing is hard data on customer delight. That's what will tell us precisely where Wal-Mart stands now. The change in the numbers over time will tell us whether Wal-Mart is heading for a crash or whether it might survive.

The numbers that Wal-Mart does offer, such as store sales or profits, don't yield good information, because they are so easily manipulated. Wal-Mart may be able to pump up its sales numbers by offering costly discounts, or worse, finding ways to nickel and dime customers with hidden charges. Those devices can pump up the financial numbers while disgusting the very customers who need to be delighted if Wal-Mart is to survive. As a result, the more numbers are pumped up, the dimmer Wal-Mart's prospects of survival may become.

Measuring outcomes: customer delight

Traditional management was wrong about many things, but they were right about one thing: the importance of measurement. They said, correctly, that you can only manage what you measure.

The trouble was that they were measuring the wrong thing. They were measuring outputs, rather than outcomes. They were counting beans, rather than the things that were really going to drive the business.

Is it possible to measure something as mercurial as customer delight? Fortunately, Fred Reichheld and his colleagues at Bain & Company worked for 25 years to figure out how to do that.  And we now have a reliable body of expertise on how to do it. It's discussed in Fred's wonderful book, The Ultimate Question (HBSP, 2006).

To learn more

I summarize what we know about measuring client on pages 74-80 of my book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).

In subsequent posts, I will explain in more detail how to go about measuring customer delight, including both at the overall organizational level and at the micro level of individual teams, so that everyone in the organization has a clear line of sight to the goal of the firm: is the customer being delighted?

A time is thus coming in the not-too-distant future when the main topic of discussion at the analysts’ phone-in with the chief financial officer will be less about rather than its fudged quarterly financial numbers and more about the firm’s audited statistics on client delight.

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[i] Martin, R. “The Age of Customer Capitalism.” Harvard Business Review, Jan. 2010, pp. 58–65.

Wal-Mart And The Futility Of Traditional Management

 Last week, my garbage disposal broke down. I checked online to find out what I should replace it with. A consumer group recommended Waste-King. Where could I find it? A Google search revealed that the Waste-King was on sale at Amazon [AMZN] for $103.30.

If I had checked at Wal-Mart [WMT], I would have found that it is offering the same make and model for $129.27—more than 20% higher.

My experience is not exceptional. In a wonderfully insightful article the Wall Street Journal, John Jannarone cites a recent study which compared prices on a diverse basket of products: it found Wal-Mart is 19% more expensive than Amazon.

Wal-Mart: Death in The Amazonian Jungle

So I wasn't entirely surprised when I read this morning in the Wall Street Journal that Wal-Mart, the world's largest retailer, reported another quarterly decline in comparable-store sales at its key U.S. locations.

John Jannarone reports: "Wal-Mart is losing business to rivals of different shapes and sizes. Customer traffic at U.S. stores has declined for five straight quarters. Meanwhile, sales have surged at discounters like Dollar Tree and Family Dollar Stores. A recent study by Wells Fargo [WFC] showed that those chains often charge less than Wal-Mart, though they carry a much smaller selection of items."

So Wal-Mart is caught in the middle. If you want something quick, go to a convenience store. If you want something cheap, go to Amazon. Wal-Mart? We don't need you any more.

Jannarone reports: “While the likes of Wal-Mart and OfficeMax have struggled to increase revenues recently, Amazon has thrived, with sales rising 40% in 2010 to $34 billion. For the first time, annual sales of media products like books and DVDs accounted for less than half of total revenue.”

Over ten years, Wal-Mart’s share price has stagnated, while Amazon’s has increased around ten times.

So what is Wal-Mart doing about it?

Chief Executive Mike Duke said yesterday that “problems at Wal-Mart Stores Inc. have been more severe than management expected and will take time to fix.... Some of the pricing and merchandising issues in Wal-Mart U.S. ran deeper than we initially expected, and they require a response that will take time to see results.”

But will time show results? It seems more likely that if Mr Duke spends his time on pricing and merchandising issues, it won’t be long before Wal-Mart follows other retailers like Borders and Circuit City into bankruptcy, fresh victims of the Amazonian jungle.

Traditional Management Can’t Save Wal-Mart

There is no sign that Mr Duke realizes that his firm is suffering from a fatal disease: traditional management.  Working over “pricing and merchandising issues” isn’t going to save Wal-Mart. Instead Wal-Mart has reinvent itself. Wal-Mart has to start delighting its customers.

How?

Wal-Mart has some strengths. It has a lot of money and a lot of assets.

And it's a plus that Wal-Mart is undertaking a thorough reform of its energy and environmental policies and seems intent on becoming a model green corporation. That’s welcome news, but it’s not a business strategy that will save the firm.

And Wal-Mart also has significant handicaps.

Wal-Mart’s assets are a mixed blessing. In the Amazonian jungle, bytes beat bricks. Managing a whole lot of real estate assets can distract management from its real challenge—creating a business that has a future. Besides, the stores are big and clunky and located in places that people used to be willing to drive to, just to buy cheap stuff. Now that its stuff is no longer the cheapest, distance becomes an issue.

Wal-Mart also has an unfortunate tradition of extraordinarily asocial practices in labor relations.  As a result, it may not have the kind of skilled and motivated staff that can easily generate the continuous innovation that is needed to turn Wal-Mart into a genuine 21^st Century firm.

Moreover Wal-Mart has no tradition of delighting its customers. It’s the quintessential 20^th Century firm with an inside-out perspective: “You buy what we sell, because it’s cheaper.” Now that what Wal-Mart sells is no longer cheaper, that business model is broken.

And Wal-Mart cannot simply emulate Amazon. Amazon is already so far ahead as an online firm, Wal-Mart will never be able to catch up.

Instead Wal-Mart has to reinvent its business model from scratch. Mr Duke isn’t going to save Wal-Mart just by working on pricing and merchandising. He needs to re-think his whole business.

What would a reinvented Wal-Mart look like?

How could Wal-Mart reinvent itself? It must begin by asking who its customers are and what would delight them? Wal-Mart has to start understanding them in depth, figuring out what might delight them and go on doing it, time after time.

Personally, I don’t know Wal-Mart customers well, but we could take the analogous case of my relationship with a local supermarket to start to see some of the directions that reinventing a supermarket might take.

• Offer what the customers really want: It’s only in the last few years that my local supermarket offered wine. Now it offers a wide selection of wines that I like at reasonable prices. This makes me want to go the supermarket, something I used to hate doing.
• Eliminate checkout queues: I used to hate waiting in line at the supermarket, as the checkout clerk moved at a snail’s pace to scan items. Now I can scan my own items at a self-checkout counter. I like doing the scanning and checking the prices, rather than waiting in a queue. I am in and out in a flash.
• Deliver: I now have heavy groceries delivered in bulk from the local supermarket to my kitchen. I used to hate carrying all that stuff. Now I don’t need to. The groceries are about the same price as Amazon groceries online, but the local supermarket guarantees the time when they will be delivered, something Amazon is unable so far to do. So for now at least, I have the groceries delivered by the local supermarket, not Amazon.
• Treat its own staff right: One thing I still don’t like about the local supermarket is the attitude of the staff, who seem embittered by the way they are treated there. If they were treated better, their attitude would be better, and they might be more inclined to find other ways that would delight me.

I am obviously not a typical Wal-Mart customer and am not likely to be, at least in Wal-Mart’s current incarnation. But my experience with the local supermarket begins to show how one might turn a relatively unpleasant relationship with a supermarket into something rather more promising.

For Wal-Mart to pursue this kind of a strategy, it would require a shift from an inside-out perspective of making money for its shareholders to one of pursuing customer capitalism and adopting an outside-in perspective that consistently seeks ways to delight its customers.

Mr Duke and his team would need to decide who its customers are, figure out what are the hopes and dreams and fears and irritations and fears, find ways to alleviate those fears and irritations and fulfill those hopes and dreams.

As Umair Haque argues in The New Capitalist Manifesto, firms need to stop focusing on outputs and instead focus on outcomes.

They have to be willing to scrap the things that made a winning firm in the 20^th Century and instead commit to becoming a genuine 21^st Century firm. Only then will Wal-Mart have a future.

To learn more

Becoming a 21st Century organization involves five basic shifts from traditional management practice:

• Part 1: Overview
• Part 2: Delighting the customer
• Part 3: From controller to enabler
• Part 4. From bureaucracy to dynamic linking
• Part 5: From value to values.
• Part 6: From command to conversation

For a comprehensive history of the rise and fall of traditional management as well as an account of the principles and practices underlying the reinvention of management, read my book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).

Fix The Deficit? Grow The Economy, Stupid!

When I was working in the World Bank in the early 1990s, I would attend workshops in which we would receive briefings on the state of the US economy from the most knowledgeable experts. In briefing after briefing, we heard that the budget deficit problem of the US was insoluble. No matter how you analyzed it, we were looking at growing deficits ad infinitum.

Then a strange thing happened. The economy grew. The deficits disappeared. By 2000, the deficit had been reduced to zero. It didn't last long of course, but the lesson was important. In a declining economy, the problems of the deficit seem insoluble. In a growing economy, the impossible becomes possible.

The end of American optimism

Fast forward to today, and even conservatives are declaring in the Wall Street Journal "the end of American optimism".

Or listen to this summary of the budget discussion in Washington, where even the $61 billion cuts proposed by the Republican Congress will make scarcely a dent in the overall deficit.

"This surreal debate about how small cuts should have to be comes in the context of a story in Washington Post announcing that federal, state, and local debt now exceeds the total size of the economy. That’s happened before, after World War II, but some of that debt ended up being paid down by a young population during an age of economic growth. Now we’ve got the opposite problem — a lingering recession and an entitlement load from Baby Boomers from which there’s seemingly no escape. The ship is going down, yet even a sum as paltry as $60 billion in cuts is somehow so unimaginable that we need a two-week patch on the budget to give us extra time to weigh whether we should do it. We’re truly doomed."

No way out? Yet even in this piece, we see the solution staring us in the face: economic growth. The only way out of our current situation is economic growth. We've done it before. And we can do it again.

Growing the economy

Growing the economy will however take more than pseudo-fixes like reducing regulation or streamlining the tax code, however useful these improvements will be.

And this time, it will take more than finagling another financial bubble, like the Internet bubble of the 1990s or the housing bubble of the 2000s.

This time, we need to deal with root causes. Instead of chasing phantom scapegoats like the poor or the unions for the country's economic problems, we need to address the fact that our private sector institutions have become unproductive. Studies such as Deloitte’s Shift Index show that management in the US private sector is in sharp decline. The return on the assets of U.S. firms is only a quarter of what it was in 1965. The life expectancy of firms in the Fortune 500 is already startlingly brief—now less than fifteen years and heading towards five years, unless something changes. And during twenty-five years from 1980 to 2005, firms older than five years produced zero net new jobs in the U.S.

To grow the real economy, we have to undertake fundamental shifts in the way organizations are managed.

Reinventing Management

The key to growing the real economy today’s marketplace is a different kind of management that prospers by combining continuous innovation with disciplined execution. Instead of a single-minded focus on efficiency, it aims at generating more value for customers sooner.

We can learn what is involved from  books like: The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Ranjay Gulati, Leadership in a Wiki World by Rod Collins and The Responsible Business by Carol Sanford.

For an comprehensive account of the rise and fall of 20^th Century management as well as an account of the principles and practices underlying the reinvention of management, read my book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).