Media Watch: Harvard Business Review

You probably heard that Mike Hammer, often known as the "father of reengineering," died unexpectedly at age 60 few weeks ago. I worked closely with Mike for seven or eight years, and together we started a successful research program on IT management called PRISM. Anyone who writes on the "next big thing" owes him a major debt, and I learned a lot from him.

What we owe Mike for most is his relentless focus on business processes and their radical improvement. The only next big thing that he was really interested in was how organizations can improve how they do their work. In Isaiah Berlin's taxonomy, he was clearly a hedgehog--he knew one thing really well, and that thing was his lens on almost every aspect of business.

Mike was trained as an electrical and computer engineer at MIT, and then became a professor. I don't know much about his life and work there, but I wouldn't be surprised if he focused on the process of compiler design--or some other process-oriented topic--at that time. When I met him in 1983, he was well into a process-focused perspective on "office automation." His perspective was that it didn't make sense to use office automaton tools--word processing, copiers, etc.--to support existing office procedures. Instead, he argued, the procedures should be redesigned to take advantage of the new technologies. This message, of course, recurred throughout his career.

Mike and I were working together at the beginning of "reengineering." We found some PRISM sponsors, including IBM, Mutual Benefit Life, and Hewlett-Packard, that had dramatically improved their business processes through the use of IT. We parted ways shortly thereafter, and started competing to get some key ideas on paper. Jim Short and I beat Mike by a few weeks to publish the first article on the topic. Mike, however, wrote a much more attention-getting piece in Harvard Business Review, and thereafter he was known as the reengineering guru. The same pattern prevailed in books--I wrote the first one (Process Innovation), but Mike and Jim Champy penned the blockbuster tome Reengineering the Corporation.

Both Mike's writing and his speaking were bombastic and revolutionary in tone. I wasn't always happy about how the ideas came out, but I was happy that he got the attention of managers and businesses. From Mike I learned that how you present the ideas is just as important--if not more so--than the quality of the ideas and the research behind them.

Mike could be cranky, arrogant, and stubborn, but he was always worth the trouble to work with. He never lacked--in 1-to-1 interactions or large conferences--for jokes, interesting stories, and distinctive perspectives on people and events. He never gave a boring presentation. Even though he stuck with reengineering and business processes for several decades, he always had new and interesting things to say and write about them.

Mike Hammer the man was just as interesting as Mike Hammer the guru. No one was more conversant with cutting-edge business ideas and technologies, but he also maintained a fierce and old-fashioned loyalty to his family and his religion. He had all the latest computers and networks, but he never touched a lightswitch on the Sabbath. He could speak with CEOs around the world, but he preferred the company of his family any day.

Mike was sufficiently prolific that it will probably take companies many years to absorb and implement all of his ideas. And radical process change is difficult no matter whose methods you follow. But without the enthusiasm and the impetus he provided, reengineering will be even harder without Mike Hammer.

Also of interest: Michael Hammer: A Tribute to the Guru of Operations

We met an interesting young man this summer.

In early June, a stranger knocked on our door. When I answered the door, a clean cut, friendly young man was leaning over scratching one of our dogs behind the ear, making friends. I took note that even the most wary pup had already decided to welcome this guy into the four-footed fraternity.

He politely told me he'd like to work here.

Ah, well, this is a home. We don't employ people.

That's okay, he said. I just love how this place looks. I'd like to work here.

Hmmm. My brain churned through all that I knew about Gen Y's as I listened to Chris tell his story. He'd gone to college, like all his friends, but hadn't found it particularly interesting or relevant. He'd stopped going. He had a job at a local place, but didn't find it particularly challenging or important.

He liked dogs and thought he would like horses, if he got to know some. He thought he would enjoy working at our place.

Well, ah, we really weren't planning to hire someone, I said. What are you thinking about compensation?

Oh, money doesn't matter, he said. I've moved back with my parents. I would just like to work here.

What could I say?

Well, my husband, when I told him the story later that day, thought the answer should have been pretty obvious. Are you crazy? he exclaimed. That sounds very weird. Of course you said, no, right?

Well, not exactly. You see, it didn't strike me as all that odd. He just didn't want to do things that weren't interesting, challenging, relevant or important. He sounded like a Gen Y to me.

So I had "hired" him. And he spent some of the summer hauling brush, mowing fields, repairing fences, and generally helping with farm chores. (And, yes, we paid him a modest wage.)

I hope he enjoyed the summer outdoors, although it was clear that he soon found hard work outdoors to be no more suited to his needs than whatever work he'd been doing indoors before. He set off on another adventure.

David Brooks, in his column for the New York Times, has described people in their 20s today as living through a new life stage - the Odyssey Years - a time of exploration and experimentation.

My recommendation is that the next time one stops off on his or her journey to try life in your neck of the woods, don't panic. They're just being Gen Y's. They're enjoying the experience -- you might as well, too.

Thank you, Chris, for sharing a bit of your Odyssey with us.

Companies screw up. Nothing shocking there. Much more surprising is the degree to which mistakes spiral out of control before executives and other authorities decide to act--and I'm not just talking financial markets. The dairy industry in China, to take a not-so-subtle example, has all but imploded, primarily because people neglected to act when and as they should have as a very bad situation unfolded (and then unfolded some more). Whistleblowers were ignored, customer complaints weren't addressed, four infants died, and hospitals were forced to create makeshift exam rooms in hallways just so they could handle the tens of thousands of children seeking medical attention. Motivations were called into question--those of government officials as well as the milk producers and sellers--and now other countries have yet another reason not to trust the quality of goods coming out of China.

In a piece we're developing for an upcoming issue of HBR, the Kellogg School's Alice Tybout and Wake Forest University's Michelle Roehm dissect the nature of brand scandals--which are likely to blow up, which are likely to fizzle, what sort of response is necessary and when. They offer a four-step approach to figuring out what to say and do when things go horribly wrong with a brand. At its core, it involves keeping the voice of the customer front and center; and being mindful of two interrelated phenomena driven by customers' perception of the wrongdoing:

The spillover effect. No matter who initiated the bad behavior, customers are willing to paint you and your competitors with the same broad brush. Doesn't matter if your drug exhibits none of the same side effects as other medications in its class; once one brand is tainted, they all are.

The rebound effect. The public maybe actually become more sympathetic to the plight of a fallen organization as it becomes aware of similar companies that are just as likely to mess up. Lots of toy makers found that the goods they were producing in China had lead paint; why penalize just Mattel?

In these roiling markets, the conditions are just so ripe: The pressure is on to cut costs, which can sometimes mean cutting corners. Online networks make it easy to spread a piece of bad news, rally communities around it, and amplify it beyond recognition. With all that in mind, does your company have an effective strategy in place for responding to a brand blowup?

I was doing some prep work a couple of weeks ago for a blog on whether Barack Obama's success in politics would rub off on African Americans in the C-suite. During my conversation with a leading African American business scholar, he said something that rang all too true.

"In the life of the average American," he argued, "you would be very hard pressed to find a white woman who'd say 'let me be a black man' - and that cuts right across all parts of society. That said, it's easier for people to take a black man as a leader at the highest levels of government than it is for them to accept a woman, black or white. That doesn't mean that a woman can never be a leader, but once people get over the fact that a black guy has the power, it's less anxiety provoking for people to have a man rather than a woman at the top."

I imagine it's not easy being a person of color in this society, but what the African American scholar said chimes with what former Dean of the Harvard Kennedy School Joseph Nye writes in a Harvard Business Review interview that will hit the newsstands in November (keep an eye out for it). According to Nye, there are two kinds of power that combine to create "smart" power: hard power (coercion) and soft power (persuasion). He argues that smart power is essential to leadership in the 21st century, but that it's much harder for women to exert smart power than it is for men (both black and white) - particularly in America, where "macho myths" dominate the culture. Women have to fight so hard against the gender stereotype of being too soft that they have come out fighting like the Iron Lady. Nye points out that unfortunately this leaves women's opponents better suited to show support for softer issues like hope, a new beginning, a new future.

There are many explanations put forward by feminists, sociologists, Marxists, and others about why people (men and women) are so ambivalent towards women. A psychoanalytic interpretation of the unconscious is that as developing infants we split our earliest caretakers (who are overwhelmingly women) into all bad and all good figures. It takes a lot of psychic work and development to bring the two aspects of the feminine mystique together and most people never fully succeed. So in times of stress, we regress to an earlier stage where we both fear and are captivated by the influence of the powerful, wicked witch of the West or look for sanctuary from our Fairy Godmothers. If they are aware of this power dynamic, of course, both men and women can deliberately manipulate it to their own ends.

Consciously or unconsciously the question of gender and race has played and will continue to play a huge role in determining the outcome of this election year. There certainly will be a subtext in the Thursday debate between vice-presidential candidates Sarah Palin and Joe Biden. Set aside the debate over whether or not Palin is qualified for the office, can we somehow get past the caricatures of women that dominate both sides of the political divide? I'd be surprised if we do. The truth is, whoever wins the debate - or indeed whoever wins this election - women still find it hard to get on a level playing field.

Today's question for Ask the Coach:

After any crisis -- like the economic crisis we now experiencing -- there is a lot of finger-pointing. Any tips on how to help my team avoid finger-pointing when we face a crisis?

You are making a great point. I have seen massive amounts of finger pointing on TV and on the internet this week. 

Concerning our economic crisis - I have seen 'experts' blame the President, the Congress, Democrats, Republicans, Socialists, the free enterprise system, bankers, consumers, economists, regulators, deregulators, 'rich people' and even other competing 'experts.'
Strangely enough, I have seen very few people pointing the finger of responsibility at themselves!

It was be so refreshing to hear at least one person say, "One of the main reasons that our country is in trouble, is because people like me screwed up. I was really wrong on this one."

My suggestions to help your team avoid finger-pointing in a time of crisis:

1. Encourage everyone on your team to remember four words that can help all of you get though your crisis in the best way possible: help more, judge less. Reflect upon these four words. Aside from work, how many of us have friends and family members at home who might be happy if we 'helped' a little more - and 'judged' a little less?

2. Try to get team members to focus on a future that they can impact, not a past that they cannot change anyway. Have you ever made a fool of yourself in front of important people before? It was bad enough when it happened. Having others make you relive this 'fool making' experience is usually not that helpful.

3. Try to get people to take responsibility for their own behavior. Sometimes it is easier to see our own mistakes in other people than in the mirror. We may not be able to change what other people have done, but we can certainly change ourselves.

4. Ask each person to reflect on the question, "What can I learn from this crisis?" Anyone can provide leadership when times are easy. Great leaders - and great teams - step up when times are tough. Rather than get lost in whining, have each team member focus on how he or she can grow from this experience. 

5. Ask everyone on your team to reflect on the question, "What can we learn from this crisis?" After each person's individual reflection, encourage your team to engage in collection reflection. Find ways to improve cross-team communication and build teamwork.

6. Encourage each team member to avoid speaking when angry or out of control. We all get angry. That is natural and completely appropriate. We just don't have to talk until we settle down and can collect our thoughts. Plenty of research has shown how our 'angry mind' can lead to irrational behavior that we later regret.

7. Before speaking don't just ask, "Am I correct?" - ask "Will this help?"Just because we believe that something is true, we don't have to say it. If our comment may be hurtful to individuals or destructive to teamwork, it can sometimes just be left unsaid. 

Readers - I would love to hear your thoughts and reflections on the finger pointing that has accompanied our present economic crisis. Any ideas on how to avoid finger pointing would also be appreciated.

When a company talks about trading off pure performance in the name of lower prices, disruptive alarm bells start ringing. After all, companies like Dell Computer, Southwest Airlines, Wal-Mart, Charles Schwab, and Nucor have prospered by following this kind of low-cost disruptive strategy.

A startup company called LifeSize Communications hopes to be next on the list. As described in a recent BusinessWeek article, the company offers reasonably high-quality videoconferencing over the Internet at prices that are sharply below emerging market leaders Cisco Systems and Hewlett-Packard. LifeSize's solutions range from $5,000 to $40,000, compared to as much as $300,000 for Cisco's solutions.

It's reasonable to predict that we'll see an increasing number of similar low-cost strategies as economic woes continue and start-up companies seek to find the opportunity in economic turmoil. Therefore, it's natural to ask: How can you tell if a low-cost disruptor is going to succeed?

Our analysis of companies that have successfully and unsuccessfully followed low-cost disruptive strategies suggest that for LifeSize to succeed, it must be able to answer yes to three key questions:

1. Does it cross the "good enough" threshold? Stripping out performance to lower costs is not that difficult. But stripping out too much performance can leave a company with a product that actually under-delivers against a customer's needs. Consider a free, but inaudible, mobile phone, or a $200 laptop computer with 5 minutes of battery life. You must cross acceptable performance thresholds before price even enters into the equation.
2. Does the company's product / performance bundle run counter to the market leader's natural improvement trajectory? Staking out a low cost position isn't all that meaningful if a powerful competitor quickly crashes your party. Cisco has been quite clear in its desire to lower its price points to appeal to broader market groups. If natural product improvements lead to Cisco introducing a similarly featured, similarly priced product, LifeSize will be in trouble.
3. Does the company have a sustainable cost advantage? Lower input costs do not immediately translate into market success. Rather, low-cost disruptors have the greatest chance of success when they change the model in a way that makes incumbent success difficult. For example, Nucor didn't just offer lower priced steel. It used a completely different production technology (minimills) that allowed it to earn attractive profits at low price points. These kinds of production or business model advantages are much more difficult to replicate than particular features or functionality bundles.

Of course, the potentially massive videoconferencing market could support multiple players. But if LifeSize doesn't meet the three conditions detailed above, its chances of long-term success are quite low.

User innovation. Crowd sourcing. Peer production. By now, your eyes may glaze over when you hear about concepts like these -- unless, that is, mention of them starts your stomach churning and mind racing: What plans are rivals hatching around these ideas that could render my current business irrelevant?

An article in the October Harvard Business Review is a good antidote to this mixture of ennui and anxiety. In "The Contribution Revolution: Letting Volunteers Build Your Business," Intuit founder Scott Cook lays out a well-defined mechanism for harnessing the talents and energy of people beyond your organization.

A user contribution system aggregates and automatically converts user input into something that is useful for other users - to the ultimate benefit of the organization that creates the system. The article, which I worked with Scott to develop, offers numerous examples of how traditional companies (Unilever, Honda, and Hyatt Hotels, among others) are putting such systems to work throughout their businesses, from marketing to HR to capital investment.

But Scott brings something else to the piece that goes beyond this practical framework: firsthand experience struggling to get managers at Intuit (maker of financial software products such as Quicken and Turbotax) to accept this new approach to business problems. After all, he notes, it runs counter to the venerable management canon "Don't hold me accountable for what I don't control." Indeed, in recounting Intuit's successes and failures with user contribution systems, Scott admits to some fears of his own about putting so much power in the hands of users.

So he offers tips on how to get people in an organization - in your organization - to see the potential of such an approach and experiment with it. For instance, he recalls challenging a group of Intuit senior executives to count the number of separate user contribution systems on a single Amazon product page. (There are at least 23.)

But the best way to catalyze action is to give people a chance to directly experience the power of user contribution systems. With that in mind, Scott and a team of people at Intuit have created a companion website to the article that is, in effect, a user contribution system on user contribution systems. The aim is for the site, drawing on the knowledge and experience of others, to become the authoritative aggregation of knowledge and how-tos on the ways organizations can create, foster, and benefit from user contribution systems.

The site - created as a wiki that visitors can expand upon and improve - offers, among other things:
• a growing list of companies leveraging user contribution systems and how they're doing it
• exercise materials that can help foster experimentation with user contribution systems in your company
• an opportunity to ask questions and seek the advice of others who have engaged in such experimentation.

A visit to the site may be a good first step toward putting user contribution systems to work at your company.

This week's question for Ask the Coach:

As a coach, you are asked to give others advice - what is the best coaching advice that you have ever received?

Like many young Ph.D. students, I was deeply impressed with my own intelligence, wisdom and profound insights into the human condition. I consistently amazed myself with my ability to judge others and see what they were doing wrong.

UCLA Professor Fred Case was my advisor and head of the Los Angeles City Planning Commission - where I was doing my dissertation research. At this point in my career, he was clearly the most important person in my professional life. He was also a man that I sincerely respected. He had done an amazing amount to help the city become a better place. He was also doing a lot to help me.

Although he was normally in a very upbeat mood, one day Dr. Case seemed annoyed. He looked at me and growled, "Marshall, what is the problem with you? I am getting feedback from some people at City Hall that you are coming across as negative, angry and judgmental. What's going on?"

"You can't believe how inefficient the city government is!" I ranted. I immediately proceeded to give several examples of how taxpayer's money was not being used in the way that I thought it should be. I was convinced that the city could be a much better place if the leaders just listened to me.

"What a stunning breakthrough!" Dr. Case sarcastically remarked, "You, Marshall Goldsmith, have discovered that our city government is inefficient! I hate to tell you this Marshall, but my barber who is cutting hair down on the corner figured this out several years ago. What else is bothering you?"

Undeterred by this temporary setback, I angrily proceeded to point out several minor examples of behavior that could be classified as favoritism toward rich political benefactors.

Dr. Case was now laughing. "Stunning breakthrough number two!" he chuckled. "Your profound investigative skills have led to the discovery that politicians may give a more attention to their major campaign contributors than to people who support their opponents. I am sorry to report that my barber has also known this for years. I am afraid that we can't give you a Ph.D. for this level of insight."

As he looked at me, his face showed the wisdom that can only come from years of experience. He said, "I know that you think that I may be old and 'behind the times', but I have been working down there at City Hall for years. Did it ever dawn on you that even though I may be slow, perhaps even I have figured some of this stuff out?"

Then he delivered the advice I will never forget. "Marshall," he explained, "you are becoming a 'pain in the butt'. You are not helping the people who are supposed to be your clients. You are not helping me and you are not helping yourself. I am going to give you two options:

"Option A - Continue to be angry, negative and judgmental. If you chose this option, you will be fired, you probably will never graduate and you may have wasted the last four years of your life.

"Option B - Start having some fun. Keep trying to make a constructive difference, but do it in a way that is positive for you and the people around you.

"My advice is this: You are young. Life is short. Start having fun.

"What option are you going to choose, son?"

I finally laughed and replied, "Dr. Case, I think it is time for me to start having some fun!"

He smiled knowingly and said, "You are a wise young man."

Most of my life is spent working with leaders in huge organizations. It doesn't take a genius to figure out that things are not always as efficient as they could be - almost every employee has made this breakthrough discovery. It also doesn't take a genius to learn that occasionally people are more interested in their own advancement than the welfare of the company. Many employees have already figured out this one as well.

Real leaders are not people who can point out what is wrong. Almost anyone can do that. Real leaders are people who can make things better.

Dr. Case taught me a great lesson. His coaching didn't just help me get a Ph.D. and become a better consultant. He helped me have a better life.

Think about your own behavior at work. Are you communicating a sense of joy and enthusiasm to the people around you - or are you spending too much time in the role of angry, judgmental critic?

Do you have any co-workers who are acting like I did? Are you just getting annoyed or are you trying to help them - in same way that Dr. Case helped me? If you haven't been trying to help them, why not give it a try. Perhaps they will write a story about you someday!

Readers - Please send in comments on Dr. Case's advice - or the best coaching advice that you have ever received.

I've never become more than a modestly competent skier - capable of safely negotiating most intermediate slopes, but frankly way over my head when I venture onto anything more difficult. Slopes with deep moguls, ice, or the dreaded diamond are, well, nerve-wracking. When I start down, with the ground dropping away under my feet and nothing in sight but blue sky, every instinct in my body urges me to lean back. Now, those of you who ski know that that would be a disastrously bad move.

The key to skiing is to overcome your natural instinct to lean back, and instead, shift your weight out - into the blue, over the tips of skis that seem to have no ground beneath them.

I've had a similar sensation at times riding horses. Frankly, there is no feeling like being on top of a 2000-pound animal that is running at full speed toward a solid rock wall. Again, there is that moment of human sanity when every shred of common sense - every ounce of preservation - tells you to pull up. Lean back. Shorten the reins. Stop this craziness. Of course, by the time that thought crosses your mind, you are way past the point of no return when that would be plausible. The only thing to do is, as they say, kick on.

We are in nerve-wracking times. Over the past month, I've certainly felt at times that there was little ground under my feet or that I was racing toward a stone wall. Perhaps you have, as well.

My fellow writers on this site have offered some useful things to do during these nerve-wracking times: be tough, be hopeful, be decisive. I've offered my learnings on the importance of continuing to ask great questions, build relationships of trust, and seek disruptive perspectives. These are all things we know are effective.

However, as the experiences of skiing or equestrian jumping have taught me, at the critical movement, during the crux of the nerve-racking event, the key is to actually do the things our minds know need to be done, rather than fall back on our instincts.

When times are tough and every instinct tells you to retreat - to figuratively or literally stay in bed - remember that these are the times when your team needs to hear from you the most. When your strong preference would be to dampen dissent - remember that considering the contrary view can strengthen the eventual choice immeasurably.

As much as we might each want to, these days are not ones in which we should lean back or pull up. Kick on.

MORE FROM TAMMY ERICKSON:

• Dear Gen Y: Here's How to Weather a Recession
• Hard Times Demand Teamwork, Not an MVP

MORE FROM HARVARD BUSINESS:

• A Manager's Guide to Surviving the Downturn
  

The comment that stuck with me the most vividly after a high-powered Harvard panel discussion (RealPlayer required) on the financial crisis yesterday was a stray remark that might have interesting implications for businesses over the long term.

It came at the very end of a brief Q&A session that followed informal presentations by six well-known professors who had accepted Harvard President Drew Faust's invitation to sit on a Cambridge stage and explain what the crisis is all about and what might cure it.

I don't even remember the question. But the answer, from public-policy professor Kenneth Rogoff, addressed the evident fact that much of the discussion's audience consisted of young people - undergrads, grad students, and young Harvard staff.

After an hour and a half of brilliant, blunt, pithy - and decidedly gloomy - talk among the professors about what has been happening in the housing and financial markets over the past few months, Rogoff pointed out that "not everyone's a loser" in the crisis. As housing prices fall, older generations of Americans are seeing significant amounts of their wealth evaporate, but the decline presents opportunities for younger people. "There's a real intergenerational transfer" of wealth, he said.

That was it - the discussion was over immediately afterward, and, along with thousands of others, I wandered out of Sanders Theatre into the overcast afternoon. I was thinking about intergenerational transfer and the possibilities it raises for businesses. Is it conceivable that in the near future, young people with modest means won't be excluded from home ownership? Or have to go into debt way over their heads to buy homes? That would be a significant change. Is it possible that, with nest eggs shrinking, the younger generation stands to inherit not Ma and Pa's cash but something that might be even more valuable - a remade housing-cost landscape that is actually buyer-friendly?

The implications go beyond real estate, of course, to purchasing power in general: With more affordable housing, young people might actually be able to win back some of the earning power that the American middle class has been steadily losing to globalization and offshoring. Greater purchasing power based on a better ratio of housing costs to real income is a far more cheering long-term prospect for businesses than, for example, a reinflation of the housing bubble would be.

As management professor Robert Kaplan pointed out early in the discussion, Americans' ability to tap into their home equity had for years masked a fundamental deterioration in their ability to pay for goods and services with their wages. And as we all can see too clearly now, what's under that mask isn't a pretty sight.

Early on the morning of August 7, 1974, French wire walker Philippe Petit, aided by a multinational band of co-conspirators, stepped out onto a slender cable his team had rigged between the twin towers of the World Trade Center. He stayed on the wire for 45 minutes, making eight trips back and forth--strolling, dancing, lying on his back, coming teasingly close to the grasp of waiting police and then retreating--all to the delight and amazement of New Yorkers watching from the streets below.

The tale of Petit's self-described "coup" is told in an exhilarating documentary called Man on Wire. The film celebrates the power of Petit's charismatic personality to motivate his circle of friends to join him in making real the magnificent folly that gripped him from the moment he first read about plans to build the world's two tallest structures side by side: He was determined to walk a tightrope between them.

When I saw the film a few weeks ago, I'd just finished editing an article for the October issue of HBR. "Shaping Strategy in a World of Constant Disruption," by John Hagel III, John Seely Brown, and Lang Davison, describes an audacious type of strategy whose aim is to lead whole industries and markets in powerful new directions (as, for example, Bill Gates did in the early 1980s by exhorting the software industry to focus on the desktop). Success in so uncertain an endeavor depends on the ability of the leader to articulate a view of the future that is compelling, complete, and likely both to inspire confidence that the shaper is in it for the long haul and that the strategy will amply reward those who rally behind it.

Comparisons of this kind are imperfect, but Philippe Petit embodied some of the characteristics of a gifted shaper in his WTC expedition. Despite the daunting obstacles to success (which ultimately required trespass, subterfuge, cunning, and luck), as well as the jaw-dropping fearfulness of the wire-walk itself, Petit was able to enlist a variety of necessary allies and persuade them that he had the wherewithal to pull it off. Besides a small band of friends from France, he got help from three Americans. One of these men at first questioned Petit's sanity in pursuing so risky a venture--until he traveled to France and saw the rigor of the preparations and Petit's great skill on the wire.

Industry players who enlist in a leading company's shaping strategy likewise need to witness such demonstrations of competence, commitment, and trustworthiness. Most of all, they must invest in the shaper's view of how the future will unfold; that view is the fulcrum for changing their own companies' direction. Ultimately, the shift is an act of creative belief, for it involves investing one's strategy in another's prediction, however plausible.

Petit had a genius for inspiring belief in his comrades. He rewarded them with a piece of breathtaking achievement, culminating in an act so beautifully daring that it literally stopped New York City in its tracks. The wire-walk itself unfolded exactly as he predicted it would, and it left everyone (including the waiting police) feeling fulfilled. That's exactly what you would want from a well-conceived and artfully executed shaping strategy.

There is clearly some evidence that the current financial crisis was created--at least in part--by poor use of analytical approaches and techniques. If we're going to avoid similar crises in the future, we have to learn from our mistakes.

What's the evidence that the problem was somewhat analytical in origin? Let me count the ways:

• Banks and mortgage companies use analytics to make automated or semi-automated decisions about mortgage loans. Various industry experts have told me that many firms continued to make subprime loans even though a close analysis of the data would have suggested that chargeoff rates were climbing for such loans. The companies simply didn't monitor their analytical models closely enough.

• Saul Hansell in a New York Times blog argues that Wall Street quants "lied to their computers" in their analytical models. He states that they included more years of history in their trading models for mortgage-backed securities than was warranted in order to make them look less risky. Quoting Gregg Berman of RiskMetrics, Hansell also states that traders knowingly traded mortgage-backed securities even when the risk of the securities being traded wasn't accurately assessed by available metrics.

• There seems to have been a general problem in financial analytics with the transparency and explicitness of assumptions behind quantitative models. Many mortgage-oriented models were implicitly based on the assumption that housing prices would continue to rise. Credit default models were based on the assumption of continued liquidity in credit markets. Neither, of course, have turned out to be valid assumptions for the current period.

• I've heard several suggestions that some of the hedge funds that are having difficulty now used me-too trading and valuation models. The quant analysts involved either moved from one fund to another--taking their models and assumptions with them--or they reverse-engineered the models based on what they could learn through their social networks.

• It's also clear that risk analytics are not what they should be. AIG almost fell because of its inability to price and predict credit defaults; Moody's, S&P, and Fitch were clearly unable to assess the risk of mortgage-backed securities and attach accurate credit ratings to them. The 1987 stock market crash was caused in part by a similar inability to assess the risk of portfolio insurance, as Richard Bookstaber describes in the book A Demon of Our Own Design.

There are undoubtedly more analytical problems behind the current crisis. Of course, we can't only blame the quants. I've also heard stories of analysts telling executives that they needed to hedge mortgage portfolios, and they didn't act on the advice. We also don't know who was responsible for violating the implicit or explicit assumptions behind quantitative models.

Going forward, however, financial services organizations need to radically change their analytical focus. They need to incorporate "model management"--the systematic capturing and monitoring of analytical models--into their businesses. They need to be much more explicit and transparent about the assumptions behind models. They--and their regulators--need to be skeptical about the ability to model and manage risk in extraordinary circumstances. And financial firm executives need to learn much more about the models that are running their businesses.

Naseem Nicholas Taleb's book The Black Swan argues that there are some events that are impossible to model or predict. It appears lately that there are more black swans in financial markets than white ones. Our analytical approaches and philosophies must be adjusted to accommodate them.

On Tuesday, Michael Arrington from TechCrunch.com had a fascinating post about his experience playing around with a startup called YouNoodle, which tries to do for start-up funding what credit scoring did for personal lending.

Before the 1950s, lending depended on the wisdom and judgment of loan officers. Then, a company called Fair Isaac developed a way to use four simple variables to develop a credit score that reliably predicted the risk of lending to an individual. Using the approach could allow any individual to meet, if not exceed, the accuracy of a loan officer, whose judgment might be clouded by extraneous factors.

Further refinements to the credit scoring methodology fueled disintegration and disruption in the banking industry, spurring the rise of credit cards and specialist providers of auto loans, home mortgage loans, and small business loans.

Likewise, YouNoodle has developed a database that it claims can predict the valuation of early-stage startup companies. It developed the database by assessing 3,000 startup companies. The model relies on four basic areas: the team, financial factors, the concept, and advisors. A startup company fills in a survey with detailed questions focused on these four areas, and out pops the valuation.

Arrington found that TechCrunch would carry a valuation of about $85 million. Google would carry a valuation of $88 million three years after its founding. While that figure represents an obvious bargain to Google's ultimate valuation, the figure was a clear sign that Google was well positioned for success from the get-go.

If YouNoodle actually works--and that remains a big if--it could drive substantial change in the venture capital industry. Historically venture capitalists used their wisdom and judgment to inform investment decisions. Investors that demand lower stakes or less control in companies could more confidently invest in startups.

There's an important lesson in YouNoodle's algorithm for innovators inside a corporation as well. Most corporate innovators spend a great deal of time thinking about one of YouNoodle's four variables - the concept. But almost everyone knows that highly innovative concepts will necessarily require numerous iterations before succeeding. Having the right team, the right advisors--inside and outside the company--and the right approach to financing are under-appreciated factors that influence the ability to iterate to success.

You can reasonably predict that venture capitalists will be highly skeptical of the ability of algorithms to trump their judgment. That skepticism might be warranted. But YouNoodle is just one articulation of a general movement bringing greater predictability to the fuzzy world of innovation. People who understand how to use predictive patterns like YouNoodle's or the disruptive innovation model can position themselves to beat the so-called experts.

For the last ten days - as I've been predicting for the last few years both here and at bubblegen - a fire has raged through the heart of the global economy.

Central banks and governments are throwing money at an economic superstructure rotting from the inside - but given the severity of the situation, that's like trying to put out a fire by throwing Molotov cocktails at it.

So what should we do - what can we do - about it? Here's my answer.

The macro crisis tells us that it's time to get serious about what we've been discussing for the last few months: building a better kind of business. So here's a five-step construction kit for tomorrow's revolutionaries.

* * *

The first step in building next-generation businesses is to recognize the real problem boardrooms face - that we've moved beyond strategy decay. Building next-gen businesses depends on recognizing that they are not about new business models or even new strategies.

The stunningly total meltdown we just witnessed in the investment banking sector - the end of Wall St as we know it - was something far darker and more remarkable. It wasn't simple business model obsolescence - an old business model being superseded by a more efficient or productive one. The problem the investment banks had wasn't at the level of business models - it had little to do with revenue streams, customer segmentation, or value propositions.

And neither was it what Gary Hamel has termed "strategy decay" - imitation and commoditization eroding the returns to a once-defensible strategic position, scarce resource, or painstakingly built core competence.

It was something bigger and more vital: institutional decay. Investment banks failed not just as businesses, but as financial institutions that were supposedly built to last. It was ultimately how they were organized and managed as economic institutions - poor incentives, near-total opacity, zero responsibility, absolute myopia - that was the problem. The rot was in their DNA, in their institutional makeup, not in their strategies or business models.

The point is this: the central challenge 21st century boardrooms must face is not reinventing strategies, or business models, but reinventing businesses as institutions.

To make that less abstract, let's take the second step in building next-gen businesses: let's look at the big picture, to understand how the global economy, beyond all the chatter about bailouts, bankruptcies, and bubbles, is really changing.

The macroeconomic landscape is in a state of institutional flux. Investment banks are the tip of a bigger iceberg. Central banks no longer have the levers to shape economies. Hedge funds are on the cusp of a shockwave of deleveraging. And yesterday's industrial era corporate giants - from GM to GE to Microsoft to the Gap - are increasingly feeble, eking out a more and more tenuous and meager economic existence. In sum, all of these forces are slowly threatening to unravel a fragile web of free-trade deals painstakingly woven over a century - the beating heart of today's global economy.

The centuries-old institutions of orthodox capitalism cannot support the transition to a hyperconnected global economy. They are increasingly unable to allocate capital efficiently, much less grow it productively. And so what we are seeing nothing less than the wholesale deconstruction of the global financial and economic system.

Who's going to reconstruct it? We are. By bringing new DNA to a table packed with crony capitalists, CEOs more concerned about their cash-outs than the companies they captain, and agitpropagandists thinly disguised as so-called arbitrageurs.

That's the third, simplest, and most fundamental step in building next-generation businesses: understanding that next-generation businesses are built on new DNA, or new ways to organize and manage economic activities.

Think that sounds like science fiction? Think again. Here are just a few of the most radical new organizational and management techniques today's revolutionaries are already utilizing: open-source production, peer production, viral distribution, radical experimentation, connected consumption, and co-creation.

The need for new DNA is the most visceral lesson of the macro crisis - and it's why we've been discussing many of the radical innovators above in painstaking detail over the last few months.

So how do the rest of us begin reinventing yesterday's tired, stale DNA?

New DNA addresses the rot which pervades the economy at every level. That's the fourth step in building next-generation businesses. It's also the most complex, because it requires us to confront the sheer scale and scope of the rot in our economy head on.

We need no less than better corporate governance, a working shareholder democracy, a recognition of what capital really is (and isn't), radically more enduring incentives - aligned with outcomes that actually matter to people - the capacity to trust and be trusted, more accurate and timely reporting, strategy that creates authentic value instead of just shifts numbers around, and business models that can yield sustainable growth.

All of those are components of the economic superstructure that are failing. And all are avenues for radical innovators to rethink and reinvent business.

Yet, listing all of those components is just a start - and a poor one, because it's just the sterile, often meaningless language of economics. The fifth, final, and most difficult step in building next-generation businesses is this: we have to put the meaning back into business.

For too long, business has been meaningless: a passionless, soul-crushing game of ripping the next guy's head off, to attain a short-lived competitive advantage - often simply balanced out by someone else's disadvantage - in order to score points on an illusory scoreboard of "shareholder value creation".

That toxic recipe cannot power global economic growth in the 21st century. When your market cap, for example, can be utterly vaporized in a matter of days, it's a stark reminder that shareholder value is a videogame - and it is human outcomes that make work meaningful.

This final step - rediscovering meaning in the work we do - isn't just the most difficult to come to grips with. It's also the most critical - because though the other steps are necessary, they're not sufficient. Without a deeply felt - and a powerfully lived - sense of meaning, every business will devolve to what the investment banks became: machines engineered with relentless precision to destroy long-run value, often implosively so.

No wonder so many think anything "corporate" is a monstrosity. They're right - if the implosion of the investment banks tells us anything, it's this: when what we do is meaningless, it's neither economically valid, strategically viable, nor truly value-creating.

* * *

The macro crisis tells us in no uncertain terms: without meaning, businesses devolve to the lowest common denominator: empty exercises in trivial gamesmanship - not next-generation institutions built to fuel another century of economic growth.

We'll be discussing each of these steps in detail in the coming weeks, with even cooler examples - and I'll have a video to accompany this post up soon.

For now, fire away and feel free to add stuff, subtract stuff, or just vent :)

If you're reading this column, I guess I've caught you at one of the best moments in your working year. The sun is shining, work is winding down for the summer and you're probably heading off for your annual holiday. You're ready to leave everything behind, to take some time out to reflect on your year to date. I'm lucky enough to be doing the same, from the cool hills above Portugal's windswept Algarve coast.

For many of us, this two-week summer vacation is an oasis in our working lives. Thoughts of the office, the credit crunch and global world disorder float away as we enjoy time with our family and friends, lazy walks to the beach or golf course and long, relaxing evenings. It's a brief window of happiness when life feels as it should - relaxed, full and happy. But it doesn't last long: in a blink, we'll be back at the office and back in the middle of all the problems, difficult people and tough decisions we briefly managed to escape.

But imagine what it would be like if you couldn't wait to get back to work, if you were actually reluctant to leave your job even for a short break because you enjoyed it so much. I'm sure there are some such lucky people out there, but what about the rest of us? Should we expect to be happy at work?

As a business coach, I've noticed that more and more managers and leaders are expecting to derive more happiness and satisfaction from their work. They are often young, talented and successful people who view their jobs as routes to self-actualisation. Yet this shift in the purpose of work raises many questions: how much satisfaction are we entitled to derive from work? And should employers be expected to provide meaning and happiness as well as a job and salary?

Far from being a pipe dream, companies are now beginning to take the concept of happiness at work very seriously, and for sound business reasons. A recent research paper by Alex Edmans, a finance professor at Wharton, found that US corporations with the happiest employees have a financial performance notably better than lower-ranked companies.

Felicia A. Huppert, professor of positive psychology at Cambridge university, says happiness has been scientifically proven to make us live longer and healthier and work more successfully. Happy folk use the left side of their brains more and have better immune systems. This has obvious implications for the creative thinking and innovation that is so valuable for business today. Moreover, as Edmans says, employee satisfaction is a very effective motivational tool and a powerful method of retaining key employees.

Google is one US company that repeatedly wins plaudits for being a great place to work. At the top of Fortune magazine's annual list of the "100 Best Companies to Work for in America," the company is well- known for caring about employees' welfare and its emphasis on corporate social responsibility.

Here in the UK, Happy, a small IT training company, is making its own waves. It has won numerous awards for being one of the most inspired places to work and for its its approach to employee and customer relations. Here are some of its guiding principles:

• Create an environment where people feel good about themselves. Research has shown that managers spend three times as much time telling people what they did wrong as telling them what they did right. How often you can spot somebody doing something right?
• Give people freedom. When did you personally work at your best? Probably when you were given freedom and trusted to do it your way. Is this what you provide for your people? Have they been challenged, trusted and given freedom?
• Ensure your people are working within your organisation's principles and have clear targets. Make the framework crystal clear, then give people the freedom to work out their own way to achieve it - this will create opportunities for innovation.
• Feedback is crucial to job ownership. Ensure that your people regularly receive feedback from their internal or external customers. And ownership reinforces both responsibility and innovation -- if people genuinely have full ownership, they will make sure it works.
• Choose managers according to how good they are with people. Do you appoint managers on the basis of core skills or length of service, regardless of their ability to motivate, support, and develop staff?
• Ensure managers know how they are doing with their staff. Do your managers regularly receive peer and upward appraisals?
• Recruit for attitude, then train for skills. At the interview, do you test people on their ability to talk through their CV and their ability to do the tasks? What about whether they show positive attitude, how supportive they are to others, or their ability to cope with change?
• Systems, not rules. Trust everyone to do their jobs to the best of their ability - with a clear set of principles and a framework, but without detailed rules and instructions. Have you ensured that a process or system can be changed if any member of staff can find a better way to meet the needs of customers?
• Celebrate mistakes. Saying 'I got it wrong' is a sign of responsibility and an indication of an honest and open corporate culture. If people haven't made any mistakes, they probably haven't tried anything new. Does your culture ensure people remain open or does it stifle learning?

What do you think about Happy's principles? Does your company or organization operate on these or similar guidelines? Are they realistic for your organization? Would your company be a better place - for leaders, employees or customers - if it followed these principles? Do you have any further suggestions?

"Recession is possible." Fed Chairman Bernanke has used the R word in this week's Congressional hearings. That in itself makes a US recession more likely. The proposed $700 billion bailout will apply a temporary "bandaid" to the current dire economic situation, or, to use current parlance, put lipstick on a pig. The pressure for tax rate increases at Federal and State levels will increase; expect accelerated privatizations of public infrastructure as elected officials do everything to avoid the day of reckoning.

Consumers will be poorer or feel poorer. They will be more frugal and cautious in their expenditures. Reassuring the consumer, holding her hand in a "we're going to get through this together" manner is a vital ingredient of successful marketing during a recession. Value brands with low cost structures such as JetBlue and Wal-Mart will do well. Fighting brands -- low priced brands supported by minimal advertising and competing on price to retain market share -- will play a greater role. Companies targeting the middle segment of the market will face the most difficulties.

Marketers should fasten their seat belts for a long and difficult 2009. The pressure for proven returns on marketing expenditures will increase. More agency consolidations and single client-single agency alignments are likely. Marketers should avoid long-term commitments on advertising time and space as spot market rates for media will become progressively more attractive.

Below is my earlier blog "How To Market in a Recession," posted on this site in February, 2008.

-------------------------------------

The signs of an imminent recession are all around us. The spillover from the subprime mortgage crisis is weakening both consumer confidence and the consumer spending--much of it on credit--that has been buoying the US economy.

Companies should bear eight factors in mind when making their marketing plans for 2008 and 2009:

1. Research the customer. Instead of cutting the market research budget, you need to know more than ever how consumers are redefining value and responding to the recession. Price elasticity curves are changing. Consumers take more time searching for durable goods and negotiate harder at the point of sale. They are more willing to postpone purchases, trade down, or buy less. Must-have features of yesterday are today's can-live-withouts. Trusted brands are especially valued and they can still launch new products successfully but interest in new brands and new categories fades. Conspicuous consumption becomes less prevalent.

2. Focus on family values. When economic hard times loom, we tend to retreat to our village. Look for cozy hearth-and-home family scenes in advertising to replace images of extreme sports, adventure and rugged individualism. Zany humor and appeals on the basis of fear are out. Greeting card sales, telephone use and discretionary spending on home furnishings and home entertainment will hold up well, as uncertainty prompts us to stay at home but also stay connected with family and friends.

3. Maintain marketing spending. This is not the time to cut advertising. It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain consumers need the reassurance of known brands--and more consumers at home watching television can deliver higher than expected audiences at lower cost-per-thousand impressions. Brands with deep pockets may be able to negotiate favourable advertising rates and lock them in for several years. If you have to cut marketing spending, try to maintain the frequency of advertisements by shifting from 30-to-15 second advertisements, substituting radio for television advertising, or increasing the use of direct marketing, which gives more immediate sales impact.

4. Adjust product portfolios. Marketers must reforecast demand for each item in their product lines as consumers trade down to models that stress good value, such as cars with fewer options. Tough times favour multi-purpose goods over specialised products and weaker items in product lines should be pruned. In grocery-products categories, good-quality own-brands gain at the expense of national brands. Industrial customers prefer to see products and services unbundled and priced separately. Gimmicks are out; reliability, durability, safety and performance are in. New products, especially those that address the new consumer reality and thereby put pressure on competitors, should still be introduced but advertising should stress superior price performance, not corporate image.

5. Support distributors. In uncertain times, no one wants to tie up working capital in excess inventories. Early-buy allowances, extended financing and generous return policies motivate distributors to stock your full product line. This is particularly true with unproven new products. Be careful about expanding distribution to lower-priced channels; doing so can jeopardise existing relationships and your brand image. However, now may be the time to drop your weaker distributors and upgrade your sales force by recruiting those sacked by other companies.

6. Adjust pricing tactics. Customers will be shopping around for the best deals. You do not necessarily have to cut list prices but you may need to offer more temporary price promotions, reduce thresholds for quantity discounts, extend credit to long-standing customers and price smaller pack sizes more aggressively. In tough times, price cuts attract more consumer support than promotions such as sweepstakes and mail-in offers.

7. Stress market share. In all but a few technology categories where growth prospects are strong, companies are in a battle for market share and, in some cases, survival. Knowing your cost structure can ensure that any cuts or consolidation initiatives will save the most money with minimum customer impact. Companies such as Wal-Mart and Southwest Airlines, with strong positions and the most productive cost structures in their industries, can expect to gain market share. Other companies with healthy balance sheets can do so by acquiring weak competitors.

8. Emphasise core values. Although most companies are making employees redundant, chief executives can cement the loyalty of those who remain by assuring employees that the company has survived difficult times before, maintaining quality rather than cutting corners and servicing existing customers rather than trying to be all things to all people. CEOs must spend more time with customers and employees. Economic recession can elevate the importance of the finance director's balance sheet over the marketing manager's income statement. Managing working capital can easily dominate managing customer relationships. CEOs must counter this. Successful companies do not abandon their marketing strategies in a recession; they adapt them.

Go to the Complete Downturn Survival Guide

This post is based on an article by John Quelch that appeared in The Financial Times of London on February 19, 2008. Reproduced by permission.

I've never become more than a modestly competent skier - capable of safely negotiating most intermediate slopes, but frankly way... Tammy Erickson

Early on the morning of August 7, 1974, French wire walker Philippe Petit, aided by a multinational band of... Lew McCreary

I relaxed last month over several enjoyable diversions:  reading The Post American World, the latest book by one of my favorite analysts, Fareed Zakaria, and watching the Summer Olympics.

The book is terrific - one I highly recommend.  Zakaria presents a thoughtful, grounded perspective on today's world, one as he argues, in which the U.S. is and will remain an extremely important and successful player, but will no longer dominate.  He presents his view of the future with persuasive historical context.

One interesting chapter compares the achievements of the East and the West over past centuries - what the societies accomplished - and even more interesting, how.

He tells the story of the Chinese Admiral Zheng He who, beginning in 1405, made seven ambitions exploratory expeditions, 87 years before Christopher Columbus' famous voyage.  Zheng He's first fleet included 317 vessels and 28,000 men (Columbus had 4 boats and 150 sailors).  Each of Zheng's ships was an astonishing accomplishment in itself - with intricate joints, sophisticated waterproofing techniques, luxurious cabins, silk sails, and windowed halls. Zheng logged over 300,000 nautical miles before Columbus was born.  And then the Chinese stopped sailing.

The Forbidden City, built from 1406 to 1420, was the centre of the ancient, walled city of Beijing.  The palatial complex consists of 980 surviving buildings with 8,707 bays of rooms and covers 720,000 square meters.  Yet similar construction never occurred throughout the country.

In the Indian subcontinent in 1631, the Mongol emperor Shah Jahan built the Taj Mahal, one of the most extraordinary buildings ever conceived, to honor his beloved wife.  Its construction required enormous artistic talent, tremendous construction skill and astonishing feats of engineering - never equaled.

By the 1800s, the East lagged far behind West on almost every measure of technical capability.  How could a society produce such wonders of the world and yet not move ahead more broadly?  How could the East not sustain or build upon these major accomplishments?

The answer, as Zakaria explains, lies in part in the value each society placed on human labor - and, more subtly, on the role that valuing labor has on driving and sustaining "progress."

The Forbidden City required the labor of a million men -- and another million soldiers to watch over them.  The flotilla was produced by a similar system.  The Taj Mahal was built by 20,000 laborers working day and night for 20 years.  No value was placed on the man-hours put into the project.

The sustaining value of valuing labor is illustrated by a comparison of the farmers of the Yangtze Delta and those of England, the richest regions of China and Europe in 1800.  Over the next 100 years, English farming surged ahead in labor productivity.  The Chinese made the land productive, but they did so by putting more and more people to work on a given acre.  The English kept searching for ways to make labor more productive through the incorporation of animals and machines.  By 1900, the average farm size in England was 150 acres; in the Yangtze Delta, it was about an acre.

If labor has little value, why spend money on labor-saving machines?

I read Zakaria's analysis about the time I was watching the extraordinary Opening Ceremony of the Summer Olympics.  When the floor of the auditorium begin to move, I suspect most Westerners watching immediately assumed it was the work of hydraulic lifts, mechanically choreographed in eerie precision.  The surprise of learning that each square was being maneuvered by one human being struck me as an apt reflection of the labor intensive wonders of China's past.  The entire ceremony, unquestionably beautiful, was astonishingly labor intensive.  That one show had a cast of over 15,000 performers.

Artists underneath movable boxes perform during the Opening Ceremony for the 2008 Beijing Summer Olympics at the National Stadium on August 8, 2008 in Beijing.

I thought of the labor issue again when I heard about the hand-drawn art that had been placed in each athlete's room. The media made a great deal over this kind and gracious gesture of hospitality.  I agree it was a lovely touch - and a smart one that capitalized on a resource that China has in abundance - school children. 

I loved the ceremony, and perhaps even more, appreciated the uniquely Chinese approach.  Virtually no other country could host the Olympics the way the Chinese did. No one else would have enough labor. 

As one person posted after viewing the Opening Ceremony photographs, it's amazing what you can do with a few million extra people.

As a loyal supporter of Amazon.com's Kindle e-reader, an email from a client titled "Throw that Kindle away!" was sure to catch my interest.

The email linked to a video demonstrating an electronic reader that a U.K. company called Plastic Logic plans to launch next year. The video is eye-catching. Plastic Logic's device--which is powered by the same E Ink technology behind readers offered by Amazon and Sony--is the size of a sheet of paper and has a stunning 13-inch screen.

As the company's name implies, the device is based on plastic technologies originally developed at Cambridge University. Plastic Logic is betting that lower capital costs and a simpler production process will provide it with a sustainable cost advantage over devices based on silicon.

A beautiful design and a sustainable cost advantage certainly sound troubling for Amazon. How worried should Amazon's CEO Jeff Bezos be?

Innosight's lenses suggest not too worried, unless Plastic Logic dramatically shifts its approach.

There are two problems with Plastic Logic's approach. First, the company appears to be targeting business users. Its demonstration showed how users can carry the device instead of bushels of documents.

What's wrong with that focus? After all, the business market is where the money is after all. And who likes being weighed down by thick stacks of paper?

But think about that target user. Hassled executives have defined patterns of behavior about how they interact with documents. They are used to flipping, scribbling, and shuffling through those documents. Sure, the weight of the paper can be cumbersome, but Plastic Logic faces an uphill climb if its device makes it harder rather than easier to review and comment on documents.

Even more importantly, Plastic Logic doesn't appear to be following a business model that can hold a candle to the elegant simplicity of the Kindle model. As an example of Kindle's simplicity, I recently passed the Kindle around a small group to which I was presenting. By the time the device got back to me, a friendly audience member had subscribed to The New York Times (Amazon let me easily cancel the subscription).

While Plastic Logic still has plenty of time to sharpen its market focus and develop a compelling business model, I'm not ready to throw away my Kindle yet. I continue to believe that Amazon remains in a great position to continue to build a booming growth business.