Most managers live in the past. That statement may sound ridiculous. What about all the five-year plans, the spending on research and development, the new initatives in cyberspace, the ambitious acquisitions, and so on? Despite all that activity, managers are inevitably and deeply affected by what they have, by their legacy business and legacy systems - so deeply affected that they resist even unavoidable change.
At Intel, for example, when the foundation business in memory chips collapsed in the early 1980s, much of the management wanted to fight with might and main to achieve the impossible - to turn back a Japanese invasion which had already driven the business into large and persistent losses. Half of its managers were unable to accompany the switch to building the business round microprocessors that created one of the great growth engines of the late century.
PLAYING THE ENCORE
To read chairman Andy Grove's account of these events, in Only the Paranoid Survive, is to relive a searing experience. Note that this was a company with only a short (and highly successful) history. It must be far harder for older and less dynamic organisations to accept that the world has changed, and that the future demands something entirely different from the past. The old question, 'what are you going to play for an encore?', has acquired a new and urgent significance.
Appearing on British television, Michael Dell, the founder of Dell Computer, was asked about 'the next Dell', and replied that he hoped Dell would be the next Dell. There are a few precedents - Intel is one - for lightning striking in the same company twice. But in the vast majority of cases companies that have triumphed in the past are left behind as newcomers advance into the future. This is rarely because the oldcomers have tried and failed in the new businesses and technologies. Mostly, they have ignored the trends, or left their response too late.
Part of the problem lies in the very important steps that managers take to protect the existing business and to ensure its sound progress. Nearly every business, for example, obeys the following Ten Commandments:
1. Set reasonable targets
2. Focus on your core busness
3. Defend the corporate values
4. Lead from the top
5. Concentrate research and development
6. Tightly control capital spending
7. Seek to retain employees
8. Make big bets only
9. Concentrate activities
10. Administer rewards conservatively.
These rules and principles are fine as far as they go: but that's not far enough. In fact, according to Gary Hamel, who teaches at the London Business School, the ten precepts are the exact opposite of the ways in which to get 'billion-dollar business ideas' to 'bubble up from the ranks'. If you want a culture that inspires innovation - that is, looks to the future - you need 'to design context rather than invent content'.
STRATEGIES AND ACTIONS
This means that 'management's job isn't to build strategies', but to enable them. At Intel, Grove expresses the same vital point in a different way. He is convinced that strategy is shaped by 'strategic action' rather than by the convential, top-down plans. In his experience, the latter always turn into 'sterile statements, rarely gaining traction in the real work of the corporation'. The differences between plans and actions are critical:
Strategic plans are statements of intention
Strategic actions are already taken or being taken and imply longer-term intent
Strategic plans sound like political speeches
Strategic actions are concrete steps
Strategic plans are abstract and usually have no concrete meaning except to management
Strategic actions immediately affect people's lives
Strategic plans deal with events far in the future and thus of little relevance to today
Strategic actions take place in the present and thus command immediate attention.
The reversal of rules recommended by Hamel, writing in Fortune, is basically a switch from planning to action. If you really want to face the future, rather than the past, he says, set unreasonable targets. Any target acts as a ceiling on people's ambitions. Set one that they think impossible, and they may surprise themselves - and you. Never accept 'average industry growth' or some other mediocre standard as the target. If you are not markedly better than average, you shouldn't be in the job.
Second, take a wide view of what constitutes your market. At General Electric, the famous rule - Be first or second in your global market, or else - has been modified. Units are now told to redefine their markets so that their share is less than 10%. That leaves 90% of the market at which to aim, and points the management at opportunities beyond the traditional bounds.
Third, managers will move into these extended markets with more energy and enthusiasm if they are creating, not just a business, but a cause. This means pursuing an overall objective which your people can understand and with which they can identify. Intel came out of its crisis by trumpeting its change from a memory company to 'Intel, the microcomputer company'. While this message didn't actually encompass all Intel's activities, it said it all. That was the great cause.
Fourth, if you want to do new things, listen to new voices. Guru Charles Handy recommends companies to turn over next generation strategy to the next generation. As Hamel asks. 'Why exclude the very group with the biggest emotional stake in the future - the young - from the process of strategy creation?'. He also recommends talking to people at the perpihery of the organization - and getting hold of newcomers and their new thinking right away, before they get hijacked by the old culture.
HEARING NEW VOICES
Fifth, there's no point in listening to new voices unless you are also open to new ideas. Venture capitalists make plenty of mistakes, but failing to listen to innovative propositions is not among them. Give everybody a chance to have their ideas considered - remember that Intel's gigantic microprocessor business sprang from the new idea of one man, Ted Hoff, who saw that you could put several chips on the same piece of silicon.
Sixth, forget those capital budgeting rules. People with path-breaking projects will very rarely present convincing figures in their business plans (however much the numbers convince the proposers themselves). One venture capitalist says he regards business plans as a story about an opportunity, 'and how a committed, passionate person is going to create and capture value'. The investment may well be relatively small. But you should emulate the venture capitalists. Be prepared to make many bets, but with lofty aims: their objective is a tenfold increase in value over five years. They sometimes win far more and thus easily absorb the many inevitable flops.
Seventh, not only should you make many bets: start up many independent units. The case for division is now overwhelming. As one company, Enron, told Hamel: 'Big businesses will scratch their itch first'. That means concentrating on what you are already doing and giving a lower priority to the new. As Thinking Managers has long argued, you win by spinning off the new into new units, with new and loose guidelines, and a new business model. There is no other effective way.
Eighth, spinning off helps to open up the market to talent. Don't go to elaborate lengths to stop people moving. Encourage mobility, but provide the upwardly mobile with abundant opportunities to succeed inside the organization. You will have to reward them accordingly, of course. But that's the ninth point. End the absurd system that gives gigantic rewards to the undeserving boardroom, but underpays people who accomplish real breakthroughs lower down. Throw away the salary scales; fit punishment to the crime, reward to the achievement.
THINK BIG, ACT SMALL
Finally, learn to think big while acting small. Hamel writes that 'most companies are torn between the majority of their managers, who believe that it is better to be a fast follower than a foolhardy risk taker - and the minority, who ague that to capture new markets a company must be bold'. Fast following is not a good idea: the person you are following will very probably get there first. But bold does not equate with foolhardy, and caution does not equate with conservatism. Have big ambitions for your innovatory experiments, but keep the initial commitment suitably small.
This is all asking a lot of senior managers who have been brought up on the Ten Commandments listed at the start. But top management cannot expect others and the company to change unless they are prepared to change themselves - and to do whatever that takes. This is a shift of personal resources, but the necessity for this personal transformation cannot be evaded.
Grove stresses that the knowledge, skills and expertise of your best people - including you - are as valuable as material resources. Whenever you shift resources from one task to a new challenge, 'you're putting more attention and energy into something, which is wonderful, positive and encouraging'. But you are also subtracting production and managerial resources - and your own time - from other activities. The natural urge will always be to stick with the familiar, where the risks are known, and the upside limited, rather than to venture into the unfamiliar, where the risks are unquantifiable - but the potential is huge.
Suppose you are considering (as you should be) the case for e-commerce. In the B2C (business to customer) area alone, according to BT's James Callaghan, there are seven alternative strategies,. They offer a rich variety of choice, but involve radical departures from established channels:
Taking these in turn, you can sell direct over a website (like Dell), share space with a few others on a site (Excite), open or participate in a massive site (Amazon), take orders which you pass on to a supplier (Autobytel), use auctions to bring buyers and sellers together (eBay), aggregate buyers into larger groups to reduce prices (Mercata), or run a kind of trading stamp operation, in which buyers accumulate 'currency' that can be exchanged for other goods or services (Beenz).
There is no way in which full value can be won from any of these unorthodox routes to market within an orthodox business. You need unorthodox people, unorthodox ideas and unorthodox methods. The only orthodox requirement is that you must commit all the resources needed to create success. If you're going the whole way, moving from stores, say, to sell on-line, that meams redeploying all the resources you have in order to accomplish a genuine transformation.
Without full resourcing, says Grove, transformation 'turns out to be nothing but an empty cliche. He adds that 'the most effective way to transform a company is through a series of incremental changes that are consistent with a clearly articulated end-result'. Make up your mind about the end-result, and make that truly ambitious. Then look back at the Ten Commandments and ask which you are prepared to break for the greater good of inventing your future. Do not agonize about your sunk investment. That belongs to the past. It's your new investment that will count.