How to avoid the success trap

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Did you know that the chances of your company still being successful in 50 years is probably just 10 to 15%?

Just over 12% of companies that made up the Fortune 500 list of America’s largest corporatations in 1955 were still around in 2014.

A staggering 88% had failed, merged or fallen from fortune, without enough revenue to be listed.

This is the impact of the “success trap” that lies in wait for strong and profitable companies that dominate their markets, like dinosaurs lumbering towards a tar pit.

Bill Gates once said that “Success is a lousy teacher. It seduces smart people into thinking they can’t lose”.

And from Robert Kiyosaki, “The biggest trap, the biggest dungeon in life is isn’t laziness or bad luck, it’s comfort.”

Great companies got there by doing something different. Ford Motors is named after a man who changed the entire structure of transportation using new techniques of mass production and creating a practical affordable car for the masses.

He didn’t get there by listening to his customers. If you had asked them what they wanted, they would probably have said “a faster horse”.

By creating something completely different in the mass-produced car and making it possible for many people to afford it, Ford sounded the death knell for horse-drawn carriages, stagecoaches and buggies.

Yet now, a hundred years later (the Model T came out in 1908), an upstart electric car manufacturer that should not need naming is valued at more than the venerable automaker.

The main problem is that successful companies got there by being good at doing something new. So, they focus and improve those aspects of their business until it becomes business as usual.

They are also under pressure to deliver results, so they focus on the decisions that will produce immediate and visible returns.

In doing so, they forget that what made them successful were the innovative things they did in the past. If they stop innovating, then someone else will come along and do that instead.

When that happens, the market changes around the company, even though it still looks like it’s doing just fine. But eventually, things have changed so much that the company just becomes irrelevant.

So, how do you deal with the success trap?

First, if you are already in it and want to get out, you have a job ahead of you. You need to transform your company, cutting costs and pruning back heavily to the core of your capability. Then you need to invest in the future, innovating and exploring.

It’s not easy, but you can do it. Lego went from being a moribund toy producer in 2003 to taking significant portions of parents’ disposable incomes with its product launches such as Ninjago and tie ups with film franchises such as the Avengers.

To avoid the trap altogether, you may want to reflect on the title of a book written by Andy Grove, a former CEO of Intel, called Only The Paranoid Survive.

How to create innovation using teamnets

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The challenge for many organizations is how to move from managing people to managing knowledge.

Countries from the UK to India see services as a crucial part of their economy.

Managing services, especially services based on knowledge work, requires a different approach from managing organizations based on machine and physical labour.

In particular, when it comes to innovation, what an organization is capable of doing depends on what the individuals in it have learned over time, the know-how they have developed, and the extent to which they have the ability to understand what they are doing.

“Understanding”, the ability to be reflective, creating meaning and sense, is crucial for innovation, because that is what enables the framework for new insights, creativity and change.

Managing knowledge is different from managing information. Just writing down everything that needs to be done may capture information – but that is not enough.

Managing knowledge is more about creating the right conditions, an environment that encourages people to create, show, share and collaborate to provide better services to their customers.

In addition, any single organization may not have all the knowledge required to meet the needs of a customer.

Jessica Lipnak and Jeffrey Stamps used the term “teamnets” to describe clusters of organisations that work together to serve customers better.

Teamnets are formed of groups of individuals that come together, share knowledge and create new and better organizational capabilities.

This can be done even more effectively with virtual teams that are made up of people in different time zones, geographical locations, distances and cross over organizational boundaries.

The term “teamnet” was coined in 1993. Twenty four years later, we have the internet and an array of tools to help us collaborate and work together better.

Many organizations, however, still trap people in organizational silos with management controls based on hierarchy and authority with inflexible systems and hidebound communications.

That needs to change before they can become more innovative.

Should you be a specialist or a generalist?

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The way in which modern society is organized tends to drive people and organizations towards specialization.

Our economic system is based on the idea of division of labour. Virtually all the products we use are the result of myriad activities carried out in different parts of the world by different people.

Very few things are made by people completely in isolation from everyone else.

Mathematically, it is more effective to split up work between two parties, even if one of the parties can do everything better than the other.

So, surely specialization is the obvious and good thing to do?

But there are problems with specialization. Charles Roxburgh in this McKinsey article on scenario planning, writes about what he calls the “sabre-toothed tiger” problem.

A sabre-toothed tiger evolved to catch large land animals, able to sink its fangs into creatures like pre-historic horses.

As the climate changed around 12,300 years ago, however, the megafauna of the Americas died out and the sabre-toothed tiger became extinct, its specialist jaws unable to catch the smaller creatures that survived.

Sharks, on the other hand, have been around for over 400 million years and are virtually perfect predators.

Roxburgh argues that the shark evolved to be a generalist killing machine and therefore survived.

So does that mean you should be a generalist?

Specialization in itself is not a bad thing – the challenge is adapting when the environment that fostered that specialization changes.

If you are trained to do one thing well, and that thing you do is no longer needed, then you have a big problem.

You may run a company like Nokia, with a near monopoly on the supply of phones with keypads and what seems to be an impregnable market position.

Then along comes Apple with the iPhone and within a decade, keypads have disappeared, and with them Nokia’s market share.

It may be that the question in the title itself is flawed.

Maybe it’s not about choosing between being specialist or generalist.

It’s about choosing whether to be adaptable or rigid.

One approach will help you evolve with the environment and survive.

The other will leave you behind.

How renewable heating can be used for industrial processes

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Most people are aware of the potential for electricity generation from renewable sources such as wind and solar and how they can be integrated into buildings.

It seems natural to collect renewable energy, convert it into electricity, perhaps store that energy in batteries and then use the energy to do useful work.

But there are other areas to consider as well.

Most of our energy requirements, however, are in the form of heat, making up two-thirds to three-quarters of industrial energy demand.

Of this, around 57% needs temperatures of less than 400 degrees C and 30% is at temperatures of 100 degrees C or less. In addition, most facilities require space heating and hot water.

Using renewable heat directly, for example by installing advanced thermal solar systems, could provide up to half the heat demand in the industrial sector.

Simple off-the-shelf systems can provide low temperature heat at less than 80 degrees C while more complex solar concentrator systems can generate compressed steam at 400 degrees C.

Countries with high sun hours such as India, Mexico and parts of the Middle East are seen as key growth markets.

India, for example, has some of the world’s largest solar kitchens for community cooking, designed to feed tens of thousands of people at religious centres every day.

Over 80% of primary energy demand in industrial processes is currently met using fossil fuels.

A significant proportion of this could be displaced using renewable energy sources but there are problems.

Three quarters of the total heat demand is concentrated in a small number of energy intensive plants – around 30 -60,000 with existing industrial processes, temperature requirements and application areas. They would need to develop new expertise and compatible processes.

Costs for installing systems can be high up-front, even if the total lifecycle costs of operating are lower.

Despite this, there are an increasing number of installations worldwide and the Solar Heat for Industrial Processes (SHIP) database is a useful resource to get an idea of what is going on.

While such systems are unlikely to completely replace existing systems for creating heat in the near future, they will form an important component of hybrid systems that use renewable sources of energy primarily and call on fossil fuel based energy as a last resort.

When should you quit?

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How do you know when to keep going on a project and when to quit?

You may have spent years and invested large sums on a particular strategy. Can you just walk away or should you just try for a little longer?

One approach put forward by Chase Jarvis, the CEO of Creative Live, is to ask yourself two questions.

  1. Is it working?
  2. Do you still believe in it / does it bring you joy?

The first question seems relatively easy to answer – it should be possible to measure it in many cases.

For example, are prospects interested, are you able to get appointents, are sales growing, are you reducing costs, have you started to do something quicker or is your team happier with the changes you have put in place?

The second question is a little more fuzzy – what does it mean to believe in something?

Soon after Jack Welch became the CEO of General Electric (GE), one of the largest companies in the world (with a history back to Edison, the inventor of the lighbulb), he decided that each of GE’s businesses would either rank number 1 or number 2 in its global market or they would exit it.

Five years later, GE was a more focused group and remains a global powerhouse of a company now.

Could this be stretched to mean that Jack Welch decided to stick with businesses he belived in?

What about hiring? Some top consultancies have policies where they routinely invite the people that rank in the bottom 10% of their performance assessments to leave.

Does this mean that they stick with the people they believe in?

Some might argue that this is a actually an absence of belief – these companies are getting rid of the ones they don’t believe in rather than keeping those they do.

Regardless of the exact meaning you ascribe to the second question, if the answer to both is no, then you should probably quit. And soon.

If the answer to both is yes, then you should probably increase your commitment, double down in betting terms, and put more effort into the project.

When you have a mixed yes/no set of responses, you need to consider things a little more carefully.

If you believe in something but it isn’t working, you need to figure out whether you’re right and everyone else is wrong, or whether the market is right and your approach is flawed.

This is a hard place to be, especially if you are personally invested in an idea.

This is often when you need to “pivot”, the term adopted by Silicon Valley to mean a change of strategy and direction.

Sometimes, pivoting is essential to succeeding. For example, did you know that You Tube was originally a dating site, Nokia was a paper maker and Nintendo made playing cards?

Then finally there is possibly the hardest quadrant, one where things are working but you don’t believe in it.

That is a time for questioning.

If you operate in an environment that is unethical, where you have forms of corruption or where you need to compromise your principles in order to make money, do you carry on because the returns are so good?

Or, in a less malign setting, what if the principles that underpinned your original entry into the project are no longer valid?

It seems like the most powerful use of this framework is when it helps you choose what to retain rather than what to discard.

It may not be easy, but you would think that doing more of what works and what you believe in is the way to maximise your chances of eventual success.

Conversely, changing direction or quitting may be essential before you can move forward once again.

It’s not personal, it’s just programming

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We could be hearing this title line from the film Tomorrowland a lot more in the future.

Much of what we do is increasingly determined by robots.

It used to be determined by people in power.

The phrase “Nothing personal, it’s just business” is familiar to most people, and was apparently coined by organized crime, a group that rely on the application of power. The saying even made its way into the film Godfather.

So where do we see this happening?

The most visible application is in the recruitment business.

Everyone who has applied for a job and had to go through a screening process has experienced this.

From a recruiter’s perspective, sifting through a pile of applications can be the most time consuming activity in the recruitment process.

Surely it makes sense and is fair to get applicants to log into a portal, complete a set of questions that measure their match for the role and interview only the ones that score the best?

But hiring technology company HireVue takes this a few steps further. Their homepage looks like something out of the series Lie to Me, where an expert studies facial expressions to get to the truth.

The company provides the techology to carry out unmanned video interviews where candidates record their responses to questions and the software analyses their emotions and facial expressions, speech patterns and language patterns, integrating all that information to presumably provide recruiters with more insight into candidates.

It sounds like something the CIA would find useful.

Then there is the news, something which dominates our perception of what is happening in the world.

Is the information we are getting the “real” thing or are we being fed a diet of processed news by robots?

The Associated Press began using robots in 2015 to generate automated news stories based on fairly standard styles and outlines.

The idea was that the day-to-day standard news reports can be automated and free up humans for complex, nuanced stories.

In the UK, Google is funding a project where robots will write local news. They will take data feeds and create local versions so that you will be able get news customised to your location and criteria.

This activity also carries dangers. When it is quick and easy to take and rework and republish stories, the chances are that fake news can spread just as quickly as real news.

The checks provided by experienced, sceptical journalists that look to verify assertions may be lost in the process, resulting in an avalanche of incorrect information that can be impossible to reverse.

There is no doubt that the robots are here to stay, and as we use them more we will learn better how to use artificial intelligence, machine learning and algorithms to make better decisions about everything from which route to take to whom to marry.

If you’re on the wrong side of the table, however, life could get more bewildering.

What does it take to be a genius?

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If you know exactly what you are going to do, what’s the good in doing it? – Pablo Picasso

Picasso was one of the most prolific artists of the twentieth century, creating over 50,000 works of art from paintings to sculptures.

His style is instantly recognizable, especially the pieces that defy convention, with surreal images and bold colours.

What does it take to be Picasso, or write like Hemmingway or be Woody Allen?

Do you need have something special – to be able recognize that idea or creative thought that will change the world, or at least the way the world sees you?

Or do you just need to work on something every day?

That is what Mason Currey examines in his book Daily Rituals, which pulls together routines of 161 creative geniuses from household names like Picasso to less well known but prolific performance artists like Twyla Tharp.

Obviously, as Currey writes, there is no ONE way to work, but each genius has THEIR way.

There are, however, things they have in common.

The most important thing seems to be to show up each day. Charles Darwin, for example, had a routine that started at 8 in the morning with a work session and then followed the same pattern of work and rest for 40 years, more or less.

They didn’t work all the time though. Consistency was important, but three to four hours of creative effort at most a day seemed the norm.

Some had to work in cracks of time during the pressures of normal living. Toni Morrison rose every day at 5am so she could write before her 9-5 job while raising two sons as a single parent.

A balanced schedule was important. Many protected their time to create, but also spent time doing a variety of things, including spending time with friends and family.

It is easy to assume that older artists had more time to structure their days without the distractions of a modern, technological society.

But people haven’t changed all that much. In 1912, Kafka complained of the obstacles in his way that he had to contend with to get on with his work.

As Siobhan Phillips astutely observes in her review of the book, “good ideas or great art are the unpredictable outcomes of a predictable regimen.”

Ultimately, it seems that few people know they are geniuses while they are doing their work.

They spend their time in something that absorbs them and work hard on things that are new and challenging to them.

Eventually, they may be recognized for their genius. Or not, as the case may be.

They would still have spent their time well.

Do we know what we should be doing for BREXIT?

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Steven Landsburg in his book The Armchair Economist says – Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.

What exactly are we, as individuals and businesses, supposed to do to prepare for BREXIT?

The Department for Exiting the European Union has 41 publications, none of which seem to be particularly useful.

The first paper produced by the department is on “aspirations” for future customs arrangements. It notes that 200,000 businesses trade with the EU and imports and exports to and from the EU are over half a trillion pounds.

Is that big or small?

There are around 2 million businesses in the UK, 97% of them very small. Around 10% will be affected directly by the changes to trading, which would appear to be significant.

90% of future economic growth is going to come from outside Europe, a third of that from China.

The UK, however, cannot agree trade deals with any other countries until after it leaves the EU in 2019.

This may not be a problem. Most of the world seems happy to trade under World Trade Organization (WTO) rules.

Ruth Lea of the Arbuthnot Banking Group argues that trade with non-EU countries such as the US, China, India, Australia, Canada, Russia, the Middle East and so on have grown significantly in the absence of trade agreements.

In her words, “commercial factors and growing markets are arguably of far greater significance than trade agreements.”

There is quite a lot happening that businesses looking to grow should be aware of.

For example, the UK India Business Council highlights sectors that are changing rapidly from Advanced Engineering and Manufacturing to Sports Sciences.

There are opportunities here, but they require engagement and effort to get going.

It may be up to individuals and businesses to chart their own course through the changes that BREXIT will bring.

A global mindset and willingness to develop the capability to collaborate and work with partners around the world may be the differentiating factors that sort the winners from the losers as the system changes around them.

We need sticks, carrots and tambourines to get this right.

The government’s job should be to create the right incentives (sticks and carrots) to encourage the actions that will result in sustained growth.

Equally importantly, it needs to get better at strong and sustained communication (tambourines) about the benefits of international trade for all businesses.

What individual stress says about organizational defects

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There is never enough time to get everything done, everyone is always busy and some people are stressed.

Not in a good way. Not in the way that makes you perform better, also called eustress.

Stressed in the way that means they are not happy.

How should organizations deal with this?

Most approaches revolve around helping individuals deal with stress through education, coaching or counselling.

It is seen as a problem that the individual needs to work through and solve.

Now, imagine you are in a large factory making widgets and the inspector finds a problem with a widget, say it has a crack.

The crack is a defect. The inspector does not blame the part for the defect – there is clearly something wrong with the system of production that has resulted in the defect when the part was produced.

Instead, the production line is stopped until engineers figure out what is going on and how the process can be fixed to make sure that defective parts don’t keep being produced.

We are still in the very early days of knowledge working environments and knowledge workers.

It is easy to say that stress is a problem for individuals and should be dealt with at that level.

This, however, is an example of the fundamental attribution error – saying that something is happening because of the people involved rather than the situation they are in.

There is a case to be made that cases of individual stress should be treated as symptoms of organizational failings.

The system creates the conditions for stress to develop.

Research shows that changing organizations instead of focusing on individuals could have real benefits.

Some organizations are trying to address this. Jason Fried, the founder of Basecamp, talks about “library rules” in this interview with the Harvard Business Review. At their offices they:

  • Work like they are in a library – you know, quietly.
  • Minimize interruptions, both physical and virtual.
  • Create deep communication; write things up and give people time to respond in their own time.
  • Dial down the speed; does everything always need to be in such a rush?

And much more.

There are no answers that are going to work for every organization – many people will disagree violently with Jason’s practices and argue that they won’t work for them.

The question, however, is that in a world where knowledge work can be done by anyone, anywhere, which organizations will develop the capability, processes and resources to pull ahead of the rest?

Is it time yet for another crisis?

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We had the dot com bubble at the start of the millenium and the financial crisis in 2008.

Where is the next bubble building and when could it pop?

Markets are now highly correlated – information is plentiful and most people know most of the same things about what is going on, and so make pretty much the same decisions about what, when and how much to buy.

Whether it’s shares, bonds or commodities, the large players all have more or less the same approaches and strategies.

And that leads to a problem.

If everyone were suitably diversified, and held enough different things, then no one thing should be enough to cause a crash.

But this isn’t how it seems to work in practice.

The financial crisis showed that all the major financial players were exposed to the same kinds of toxic products that they didn’t understand.

Like elephants in a rowing boat, when they all tried to get to the other side to escape, the whole thing tipped over and was in danger of sinking.

Governments had to step in and bail them out.

Apparently its easier to let markets blow bubbles and pick up the pieces when everything falls apart than it is to try and stop them before they get out of control, according to Alan Greenspan, once the U.S Federal Reserve Board Chair.

Since bottoming out after the financial crisis in 2008, stock markets recovered steadily and hit new highs.

Many investors, wary of overvaluated stock markets, began piling into bond markets.

That has led to higher bond prices and lower yields. Many bond yields are in fact negative in real terms.

The actual yield, however, is not always the main criterion. Having bonds in your portfolio acts as a hedge against the stock component.

If you could have had a 100% stock portfolio and it would have fallen by 50%, you might feel relatively happy if you actually had half your portfolio in bonds, and the actual drop was 25%.

Bonds have traditionally been your friend when things go wrong.

It’s not at all clear whether high valuations are a threat to markets.

Some people say that if interest rates rise, then all bets are off, markets will crash and values will fall.

Others say that just having valuations move higher is not the problem – the risk comes from increased lending for dodgy purposes.

Or in a slightly more technical words from Jim Chanos, a prominent short seller, “Bubbles are best identified by credit excesses, not valuation excesses.”

The existence of new and risky lending practices, however, is often hard to pinpoint until after they have wreaked havoc on the system.

Until then they are likely to be hailed as the best thing since sliced bread.

The rule of thumb is that a crisis happens every decade and a depression every seventy or so years.

Ten years after the last crisis, we might do well to be wary.