The NOSE

Avoiding Management Blunders

Why do we make the mistakes we do make? What leads us to make Whoppers or truly big mistakes? Every organizational leader should read this book: Blunder: Why Smart People Make Bad Decisions by Zachary Shore. There are plenty of management and motivational books on getting things right or doing things well. What about the converse? How as leaders and managers can we prevent things from going wrong, terribly wrong? (Today's NY Times reports on the latest blunder in the financial sector: "Citigroup Saw No Red Flags Even as it Made Bolder Bets".)

An Associate Professor of National Security Affairs at the Naval Postgraduate School, Zachary Shore draws on literature, culture, history and politics to illustrate seven common "cognition traps". You will recognize many of these in your own organization:

Exposure Anxiety: fear of being seen as weak Causefusion: confusing the causes of complex events Flat View: seeing the world in one dimension Cure-Allism: thinking that one-size solutions can solve all problems Infomania: an obsessive relationship to information Mirror Imaging: thinking the other side thinks like you do Static Cling: the refusal to accept that circumstances have changed

Reading Blunder I was drawn to re-reading George Orwell's classic essay "Shooting an Elephant". Exposure anxiety is a "perennial plague upon those in positions of power".  Shore does a fine job of limning the underlying psychology of exposure anxiety by using Orwell's essay among his examples. Instead of pursuing a course of action commensurate with the the problem at hand or simply admitting that we don't know the solution, we fall prey to bravado. Orwell is led inexorably to shooting an elephant in front of hundreds of Burmese because he wants to avoid looking weak or a fool. This despite the fact that he does not want to shoot the elephant and knows exactly what he ought to do.

Dissecting Citigroup's fiasco in the coming months I am sure will reveal many of Shore's cognition traps. The most likely one to emerge in Citigroup's case is what Shore calls "Infomania", an example of which is information avoidance. Citigroup's risk managers failed miserably to follow-up and investigate the bank's vulnerabilities, relying instead solely on the word of a senior executive. According to NY Times reporters Eric Dash and Julie Cresswell, "Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses. But many Citigroup insiders say the bank’s risk managers never investigated deeply enough."


I have two minor criticisms of the book. First, blunders are always obvious in retrospect and even more so to someone looking in from the outside. Shore does a good job of classifying blunders but only hints at how to avoid them. But this is not a shortcoming of Shore's fine book. Shore has given us a taxonomy to work with. It's up to us to investigate and to put in place both personal and organizational "checks and balances" to avoid catastrophic decisions. Second, it would be shame if readers avoided the book because of the cutesy category names ("Causefusion", "Cure-Allism"). Blunder is a well written book and its numerous case studies are worth studying.

How to Handle the Performance Review

A thought provoking posting on 'How to handle the "Performance Review" by Creating Passionate Users (by far one of the best blogs). 

Why Chefs Don't Matter

There are as many management theories these days as there are diets. Might it be valuable to clean our attics from time to time and discard those that have seen better days or, in some cases, no days at all?

Nicolas Carr has been peddling the "IT Doesn't Matter" thesis since his May 2003 article in Harvard Business Review. John Hagel and John Seely Brown have convincingly argued that fundamentally "Carr attacks a red herring – few people would argue that IT alone (emphasis mine) provides any significant business value or strategic advantage." Yet Carr marches on. A sequel to the article, The End of Corporate Computing, appears in the Spring 2005 issue of the MIT Sloan Management Review. In a recent blog entry Carr cites a Gartner observation that the commoditization trend in IT continues, moving now from hardware to software and services.  But since when is IT commoditization tantamount to IT irrelevance?

Here is a simple refutation of Carr's thesis. Since food ingredients are now commodities, Chefs don't matter. All chefs have access to the same ingredients. Ergo, there is no basis for competitive advantage among restaurants. Imagine a world in which most restaurants suck and there is a growing backlash among customers. Restaurant critic Carr comes along and puts forward the thesis that "Chefs Don't Matter Anymore". Carr would advise that "IT management (subsitute "culinary arts") should, frankly, become boring. The key to success, for the vast majority of companies is no longer to seek advantage aggressively but to manage costs and risks meticulously."

Kevin Rollins, CEO of Dell Computer, has refuted Carr's thesis simply and more directly:  "That's (Carr's thesis) absolutely wrong. If that's true, then why don't all companies perform the same way? They've all got access to this standard technology! When you take those standard components, which are now low cost, the question becomes, Which technology do you implement? and then, What you do with it? So IT does matter. But now what counts most is the execution (emphasis mine) and implementation of all the standard pieces. And you can do that poorly. You can buy the wrong pieces, or you can buy the right pieces and do it well."

IT is fundamentally about Execution. As more and more of the business depends upon IT, the more IT becomes an Art.

Metrics Anyone?

Nero was probably not a bad guy. It could be that the Emperor --using modern jargon--lacked "situational awareness" , thinking there were only a few spot fires occurring instead of a catastrophic conflagration. By the time he realized what was going on it was too late.

Could there have been something similar going on during Katrina?

There are probably all kinds of important management lessons to be derived from how Katrina was handled or mis-handled. One important lesson is how managers use and abuse metrics. Evan Thomas in Newsweek describes how President Bush continued to hear good news from his underlings even as New Orleans drowned:

"Bad news rarely flows up in bureaucracies. For most of those first few days, Bush was hearing what a good job the Feds were doing. Bush likes "metrics," numbers to measure performance, so the bureaucrats gave him reassuring statistics. At a press availability on Wednesday, Bush duly rattled them off: there were 400 trucks transporting 5.4 million meals and 13.4 million liters of water along with 3.4 million pounds of ice. Yet it was obvious to anyone watching TV that New Orleans had turned into a Third World hellhole."

What's the management lesson? Beware of Metrics. Good managers love metrics. And, of course, good subordinates know how to give a boss the numbers he wants to hear.

Innovation Life Cycle and the S-Curve

I recently completed a paper in which I try to derive some lessons about innovation and strategic advantage from open source. Because "innovation" is so frequently used these days it's important to remember that when we think of product and technology strategy, the notion of innovation needs to map to the business cycle. Here's an excerpt from the paper describing the Innovation Life Cycle:

Technology adoption, but also most product development, typically follows a business cycle called an S-curve. During the early phase a new technology is introduced into the market place but its adoption is limited to a small group of early adopters and small niche markets. As the product gains ascendancy, new capabilities are introduced and refined with the goal of meeting the needs of the broadest possible segment of mainstream users. During this middle phase a dominant design begins to emerge, winning the allegiance of the market place and also effecting standardization of everything from design to manufacturing. The dominant design in turn allows heightened competition as new entrants realize opportunities for further innovation based on cost and scale as well as product performance. This is the period of rapid and greatest growth as a technology matures and reaches the mainstream.  During the final phase the product reaches market saturation and hits a plateau. Successful companies begin to consolidate their market share, seek further economies of scale, but also shift focus by targeting other growth opportunities. (Utterback, 1996)

Figure 1: The adoption of technologies follows an S-shaped curve

During the early embryonic phase, before the emergence of a dominant design, the industry is characterized by high levels of experimentation among producers and customers. “No single firm has mastered the processes of manufacturing, or achieved unassailable control of the distribution channels. Customers have not yet developed their own sense of the ideal product design or what they want in terms of features or functions. The market and the industry are in a fluid stage of development. Everyone—producers and customers---is learning as they move along.” (Utterback, 1996)

During this phase innovation means achieving the dominant product design that will eventually gain the allegiance of the market place.  A dominant design fulfills the requirements of a large segment of users by optimizing the complex set of trade-offs between cost, functionality, design and performance. As the market settles towards an accepted configuration, a dominant design also drastically reduces the design options and engineering choices that need to be taken into account by a manufacturer. Once a dominant design emerges the basis of competition shifts radically from product design to process innovation. For example, the IBM PC format and design, consisting of a display monitor, standard disk drive, QWERTY keyboard, Intel 8088 chip, open architecture, and MS Dos operating system, became the de facto standard for personal computers and subsequently captured at least 80% of the market by the early 1990s.

Once this dominant design was accepted, the focus of innovation shifted to process innovation where Dell Computer emerged as the process leader in its ability to discipline production, master the supply chain, and create complementary economies. Competition shifts from innovation in product design and features to competition based on cost and scale as well as on product performance. During this phase the locus of business value is found in achieving process innovation, where the emphasis is less on “new” and more on cost, quality and product performance. The concept of a dominant design also incorporates a broader set of factors, including collateral assets, industry regulation, and strategic maneuvering, all with the aim of achieving product leadership in a relatively stable market. (Utterback, 1996)

As the market plateaus incumbent firms are increasingly challenged to realize incremental innovation while maintaining market advantage through a variety of management strategies. The more successful the product the more likelihood that there will be competitors, driving down margins and eventually laying the seeds of its own destruction. A new product is introduced, reaches maturity, and then inevitably faces extinction. In Only the Paranoid Survive, Intel founder Andy Grove writes, “Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left.”  (Grove, 1999)

Figure 2: The second curve represents the rise of a new technology that will replace the first.

The innovation cycle matches the business cycle of a product as depicted by the S-curve. A firm’s innovation strategy must operate at two levels. First, it needs to take into account the product’s full cycle and the differing requirements for innovation at each stage. Second, as a product reaches maturity and approaches the end of its life cycle transitional strategies must be in place for evolving the next generation product or developing an entirely new product line or set of services. In an increasingly global market, one set of challenges for firms takes the form of increasingly compressed times to bring a new product to market, achieve market leadership, and begin the cycle anew.