Posts

The Value Creators Podcast Episode #28. Chet Richards: Certain To Win

Chet Richards discusses the intersection of military strategy and business leadership, offering valuable insights for navigating complex environments. Emphasizing the importance of agility and adaptability, Chet explores Colonel John Boyd’s OODA Loop concept, highlighting the need for continuous observation, orientation, decision-making, and action. 

He underscores the role of leadership in shaping organizational culture, driving innovation, and maintaining an external focus for sustained success. The idea of being “certain to win” is derived from Sun Tzu’s teachings, emphasizing the importance of constant self-evaluation and continuous self-improvement, conducted from an external perspective.

Resources: 

Chet Richards on LinkedIn

Certain To Win: The Strategy of John Boyd Applied To Business

Zen Mind: Beginner’s Mind: 50th Anniversary Edition

Show Notes:

0:00 | Intro
3:00 | Chet’s Perspective of Strategy: Strategy is about people
09:22 | Vision: Attraction and Uplifting Spirit
17:08 | Centrality of Time in General
25:14 | Helping Companies with Reorientation: Many-Sided Implicit Cross-Referencing
29:15 | Old and New Experiments and Allocating Resources for Success
33:34 | Ambi Dexterousness: Chaos Theory, It’s Called Explore and Exploit
41:52 | Culture as Opposed to Organization
42:24 | Wrap-Up: Culture as Developing External Focus and Acting on It

Knowledge Capsule

Strategy is about people.

  • It’s an error to think about strategy in terms of numbers (like market size and shares), spreadsheets, or plans and analyze competitive strengths and construct competitive advantages. 
  • Strategy is entirely about people and how they work together.

People should be “stoked up” and in harmony.

  • Ask if the people in your firm are “stoked up” – inspired by a shared vision, energized by a shared mission, and excited about what can be achieved.
  • And are they in harmony – fully aligned and all pulling in the same direction?

The harmonious team maintains an External Focus and an Open System:

  • Leaders emphasize the significance of maintaining an external focus in business.
  • Leaders operate as open systems, avoiding internal entropies.
  • Stress the importance of adapting to external changes for organizational success.

If these conditions are met, the externally-focused firm can move forward towards success, whatever the chaos of the world.

  • Unexpected events, surprises, setbacks, and unplanned opportunities represent the natural state of the world.
  • Different people within the firm will react differently, but if they are all pointed in the same direction towards a shared goal, a creative shared response to the changing environment will emerge.

Challenges in Maintaining External Focus:

  • It’s hard to maintain an external focus over time.
  • Highlights the role of leadership, particularly the CEO, in initiating and maintaining external orientation.
  • Emphasizes the need for tangible actions, mechanisms, and a culture encouraging an external focus.

Bureaucratic Challenges:

  • Internal bureaucratic hierarchies represent a challenge for the externally oriented firm.
  • There’s an inevitable tendency for individuals to prioritize internal career advancement.
  • This has a negative impact on innovation when internal orientation prevails over external market dynamics.

Cultural Strategy:

  • Think of “culture” and “strategy” interchangeably.
  • Culture plays a critical role in organizational success.
  • Culture aligns with the principles of harmony and orientation, essential for an effective strategy.

Portfolio of Experiments:

  • A business is a portfolio of experiments.
  • Discusses Lockheed’s skunkworks approach as an example.
  • Notes the challenge of maintaining viability for experimental endeavors alongside established operations.

Certain to Win Philosophy:

  • Chet Richards derives the concept of Certain To WIn from Sun Tzu’s teachings.
  • Focuses on constant self-improvement and self-evaluation.
  • Advises leaders to concentrate on fundamental aspects, harmonize efforts, and remain open to creativity.
  • Winning consists of passing one’s tests, not those of others.

Economic Life After The Corporation.

Corporations are a major protagonist in the capitalist system. We think of them as the source of the goods and services we accumulate and combine to power our businesses, furnish our homes, enable our communication and mobility, aid our productivity, entertain us, clothe us, protect us, and generally provision us both as businesspeople and consumers. 

When we think of individual items that make up the categories of these goods and services, we often think in terms of innovation: the new iPhone that didn’t exist 20 years ago, or AI chatbots and electric cars, or new clothing styles and fabrics, online shopping with same day delivery, fiber optic cable and cloud computing, streaming video and CRM systems and Quickbooks and run-flat tires. Innovation is the output of corporations.

But corporations themselves have not always been a part of the economy, or central to economic functioning. They were, in fact, a capitalist innovation. Prior to their introduction, in the second half of the 19th century, the more usual form of economics organization was the partnership. This was generally an arrangement of two individuals, sometimes a few more, who came together to collaborate temporarily on a single-purpose business undertaking. The partners typically invested their own money, and did so at one time, since they would expect to finance any future expansion out of the positive cash flow from the business. Mostly, these were small, local businesses although some proved able to generate broader appeal. 

A great example is Josiah Wedgwood, who, along with his partner Thomas Bentley, established his company as a leader in pottery, producing innovations such as creamware and Jasperware (often in the distinctive shade of Wedgwood Blue). The company had an international clientele, including Catherine the Great of Russia and the Queen of England, as well as a large base of affluent households as customers. But the partnership was not a corporation and it was never a big business. 

With the introduction of the limited liability corporation, new vistas of scale and scope emerged. Indeed, the mass production, mass distribution, mass marketing businesses of the late nineteenth and early twentieth century required the new corporate structure to make them possible. The new corporations could recruit investors widely when investors knew that their liability was limited to the amount of their investment. Eventually, stock exchanges, funds and investment clubs would become institutional supports for the growth of large corporations. The emerging corporations could contract with each other for scale implementations never before dreamed of – Standard Oil contracting with railroads to bring affordable illumination in the form of kerosene to every household in America, and Carnegie Steel (and eventually US Steel) contracting for ever more technologically advanced steelmaking equipment to raise the quality and lower of the price of steel for the construction boom across the US. The corporation was an emerging benefit for customers and consumers throughout the world economy.

But all systems can decay. Science calls the process entropy – the leakage of productive work in the form of waste and the loss of clear direction and defined purpose. In the case of corporations, we can detect several forms of entropy. The first is found in their management systems. The corporations were founded by entrepreneurs, purpose-driven individuals aiming to serve the needs of customers and receive the market’s rewards for doing so. These entrepreneurs found that the new scale and scope of operations they had brought into being required a lot of co-ordination that they could not oversee entirely on their own, so they invented management (e.g. supervisors to oversee workers) and specialized departments (e.g. for construction, operations, marketing and sales, accounting, and so on – individuals focused on specialized tasks via division of labor).

After the entrepreneurs passed on and the managers took over the reins, they transformed management systems into command-and control systems. The goals became prediction (planning and projecting business outcomes in advance), precision (no surprises), and power (coercive and administrative sway over the behaviors of employees). These command-and-control systems were dominant in corporate management in the twentieth century.

These systems, in turn, bred three more distortions of the corporate form. The first is bureaucracy, the mechanism for corporate control. Bureaucracy is not externally focused on production for customer value, but internally on control via compliance and procedures, accounting, regulations, and process management. One of the outcomes is that bureaucracies spawn more and more of the jobs and methods of control, to the point where researcher David Graeber (a professor of anthropology at London School of Economics) coined the term “bullshit jobs” to describe them: jobs that have no point implemented by individuals who recognize them as pointless and totally lacking meaning and purpose.

The second distortion takes the form of entanglement with government. This phenomenon was greatly accelerated by the war economies of the First World War and the Second World War. In these periods, government took it upon itself to allocate resources in the economy to serve war purposes rather than customer needs. One of their methods was to appoint “czars” for munitions production and the production and distribution of supplies for the armed forces, and to import CEO’s and senior executives from the private sector to put them in the czar role with command power over the productive firms in the economy. After the wars, the executives returned to the private sector, but their relationship, and that of the corporations they managed, with government had been irreversibly changed. Corporations now found that they could benefit from government protection via regulations, tariffs and laws, and actively sought them in return for considerations such as political donations, subsidized research and construction contracts, and mutually designed policies. Companies like Amazon, Microsoft and Palantir are entangled with government via their contracts for developing government IT and security and AI systems. Banks accept government subsidies and bail-outs. GM was another that accepted government funds and conceded greater compliance. The separation between the private and public sectors is no longer clear.

The third distortion can be encapsulated in the concept of financialization: the financial sector of the economy (what Americans often call “Wall Street”), which corporations initially utilized productively to fund R&D, internal investment and innovation, becomes an extractive, counter-productive and quite dominant influence, eclipsing the productive sector. Corporate priorities shift to financial quantification and away from the purpose of fulfilling the qualitative needs of customers. The financial sector demands predictable, consistent earnings on a quarterly horizon, compromising the investment firms must make in longer-term projects that may not have a pay-off for years rather than this quarter. Firms use stock buybacks to transfer their profits to hedge funds and institutional shareholders rather than fund current innovation projects. Financial markets prefer cost-cutting and budget control to meet quarterly earnings targets over creative innovation. 

These three distortions of the corporate form will lead to a much different economic landscape in the future. Today’s landscape is dominated by the major global corporate entities and their supply chains, and the financial structures that support them including not only stock markets but megabanks, giant pension funds, hedge funds and corporate finance behemoths like Goldman Sachs. Here are three vectors of change.

  1. The ascendancy of the dynamically flexible network.

Customers drive markets. They identify their own needs and then evaluate all the alternative ways of meeting them, ultimately selecting one or more as the best alternative(s) while continuously remaining open to the next new alternative that emerges from the churn of market dynamics. Increasingly today, customers have the option and ability to sort through all the possible business connections to find the suppliers and partners they prefer. They can close off one connection and switch to another and build a customized, dynamic network. Some of the connections may be to big business, but, increasingly, they will be able to connect to innovative new small and emerging firms with novel solutions. They’ll be able to shape these novel solutions to meet their own distinctive needs. The result will be a flatter network of small to medium-sized firms, highly specialized in serving customer needs, interspersed with a few big businesses providing relatively undifferentiated utility services.

  1. A new relationship with financial markets.

The conceptual size of the statistically dominant corporations today is inflated by their relationship with stock markets. It’s convenient for investors and money managers and CFO’s to bundle multiple businesses together in a single stock. Berkshire Hathaway is the poster child. According to Liberated Stock Trade Berkshire Hathaway owns 65 distinct companies divided into a complex web of over 260 subsidiaries. Why? So as to trade Berkshire Hathaway as a single stock. Amazon, Google, and Microsoft are, to a large degree, similarly structured: they operate multiple businesses under a single brand and stock umbrella. They are financial brands rather than operating brands.

Yet stock markets are no longer fundamental for the capital needs of the largest companies. Investors are trading the stock, but the companies are not raising new capital there. They’re actually pumping capital out of the corporation into the coffers of investors via dividends and stock buybacks. Stock markets are drains on the economy’s productive investment in innovation. They serve the interests of the financial sector not the productive sector. Over time, they’ll become less relevant as corporations fund R&D from free cash flow or from private sources other than stock market investors.

  1. A rise in entrepreneurship

Bureaucratization and financialization exert a significant brake on innovation in large corporations. The cost of innovation has gone up for corporations – the cost in time and administrative burden, as well as the sheer deadweight of size that compels the undertaking of larger and larger projects to move the behemoth’s needle. The opposite is true for entrepreneurial projects in smaller and more nimble companies. The cost of entrepreneurship is coming down in small and medium size businesses. Without the bureaucratic overhead, small and medium businesses can quickly experiment with new value propositions, test and explore with real customers, respond to feedback and expand and grow agile new businesses and brands quickly. The cost of operations is greatly reduced by the advent of AI and plug-in supply chains from the Internet. A new business can be tested, launched, expanded and made profitable before the large corporations have completed their budget meeting.

These three shifts will not herald the end of the presence of the corporation in the economy, but will relegate corporations to a subsidiary, residual role.

The Value Creators Episode #24. Amanda Goodall on The Power Of Expert Leaders

In our ongoing series investigating leadership in business – coming from the skeptical perspective of “Is there such a thing?” – we meet Amanda Goodall, a professor of leadership at Bayes Business School, City University of London, specializing in the influence of leaders and managers on performance, shares insights from her book “Credible: The Power of Expert Leaders.” 

She has a new perspective on business leadership. It’s not a general management function that can be taught in an MBA course. It can’t be learned from leadership courses. It can’t be implemented by management consulting firms. Leaders must first be experts in their field and the core business of the firm.

Amanda shares the importance of experts in providing a clearer sense of purpose and fostering a longer-term organizational perspective. The dialogue concludes with a call to establish expert-friendly environments, and emphasizes the removal of impediments to harness expertise for organizational success.

Resources:

https://amandagoodall.com/

https://www.goodreads.com/book/show/63251919-credible

https://www.amazon.com.au/Credible-Expert-Leaders-Amanda-Goodall-ebook/dp/B0BS3FS9XH

Knowledge Capsule:

Evolution of Management:

  • Amanda discusses the historical transition from individuals working their way up through the industry to the influence of Taylorism in the 1940s.
  • Taylorism introduced a hierarchical structure, separating workers from managers, marking a significant change in organizational dynamics.

Role of Business Schools – making leadership generic and generalized:

  • Highlighting the initial existence of business schools that provided specialized education tailored to specific industries.
  • Business schools transitioned towards offering more general degrees, such as MBAs, contributing to a generic approach to leadership and management.

Management Consulting Firms – promoters of generic leadership:

  • Management consulting firms became promoters of generic leadership principles, differing from business schools.
  • The irony is that these firms, despite promoting generic leadership, are led by individuals who are internal experts, having worked their way up within the organization.

Metrics Obsession and Bureaucracy:

  • Amanda emphasizes that metrics and measurements control more and more aspects of the business. Where non-experts don’t understand the core business, they use metrics for assessing performance.
  • This results in a metric-obsessed and bureaucratic approach, impairing decision-making processes.

Importance of Expert Leadership:

  • Expert leadership contributes to a clearer sense of purpose within organizations.
  • Expert leaders win the respect of those they work with, precisely because of their expertise, and create a more collaborative and collegial workplace.
  • Expert leaders are more likely to invest in research and development, contributing to a longer-term organizational perspective.

Creating Expert-Friendly Organizations:

  • Amanda emphasizes that expert-friendly organizations recognize and cater to the needs of core workers, valuing their expertise.
  • Expert-friendly organizations can remove unnecessary barriers to expert direction, such as excessive rules and bureaucracy, to create an expert-friendly work environment.

The Value Creators Podcast Episode #7. Hermann Simon: Hidden Champions Of Value Creation

The vast majority of businesses – the very backbone of the economic system – are derogatorily defined as small and medium enterprises by government statisticians. A better mental model is that they are the champions of value creation.

Hermann Simon is a renowned management thinker and author, and chairman of the consulting firm Simon-Kucher and the founder and leader of the research project he calls Hidden Champions. Hidden Champions uncovered the data demonstrating that – compared to the larger and more publicized companies of the major stock indexes like the S&P 500 – small and medium businesses are typically more profitable, more efficient (higher revenue per employee), faster growing, better at investing in and producing innovation, and better at making a return on that innovation, i.e. creating new value.

Show Notes:

0:00 | Introduction

0:48 | The Role of Language in Business

1:27 | Introducing Hermann Simon

2:28 | Hidden Champions

3:09 | History & Background of Hidden Champions

4:46 | Performance Metrics for High-Performing Companies

7:36 | Common Quantitative Metrics

9:39 | Establishing Close Relationships with Customers

12:25 | Customer-Driven Relationship

13:49 | Employee Commitment

14:36 | Industrial Digitalization as Germans

15:50 | Tacit Knowledge

17:36 | Long-Term Goals in Companies

18:57 | Cultural Differences for Long-Term Goals

20:34 | Deepening the Value Chain

22:57 | Value Capture as an Expertise

24:48 | Pricing as a Skill

27:18 | Calculating Value Created for Customers

29:17 | Different Approaches to Financing

30:57 | Self-Financing

34:14 | Organization

36:51 | Emergent Strategy

39:20 | Wrap-Up on Hidden Champions

41:43 | Works of Hermann Simon

Knowledge Capsule

In his books and writings, Dr. Hermann Simon explores the characteristics and success factors of these Hidden Champions. Here is a summary of some of the key points and causal factors the highlights:

*    Niche Focus: Hidden Champions typically specialize in niche markets, focusing on narrow segments where they can achieve a dominant market share. They often serve niche customer needs with highly tailored products or services.

*    Global Market Leadership: Hidden Champions strive for global market leadership in their respective niches. They aim to become the best in the world in their specific domain, rather than merely being local or regional players.

*    Innovation and Differentiation: These companies emphasize continuous innovation and differentiation as key drivers of their success. They invest significantly in research and development, constantly striving to improve their products, processes, and technologies.

*    Customer Proximity: Hidden Champions maintain close relationships with their customers, which allows them to understand their needs deeply and respond quickly to changing demands. They often offer superior customer service and build long-term partnerships.

*    Operational Excellence: These companies excel in operational efficiency and effectiveness. They have lean and agile organizational structures, efficient processes, and high productivity levels. They continuously strive for operational improvements.

*    High-Quality Workforce: Hidden Champions focus on attracting and retaining talented employees who possess the necessary expertise and dedication. They provide a motivating work environment, invest in employee development, and foster a strong sense of commitment.

*    Internationalization: Many Hidden Champions have a strong international presence. They actively pursue global expansion, establishing subsidiaries and distribution networks in different countries to access new markets and customers.

*    Long-Term Orientation: These companies adopt a long-term perspective in their decision-making and strategy. They prioritize sustainable growth over short-term gains, often reinvesting a significant portion of their profits into research, development, and market expansion.

Dr. Hermann Simon’s research and insights into Hidden Champions provide valuable lessons for businesses seeking to achieve sustainable success. By focusing on niche markets, pursuing innovation, maintaining close customer relationships, emphasizing operational excellence, and cultivating a high-quality workforce, companies can strive to become Hidden Champions themselves.

Resources

Hermann’s book: Hidden Champions Of The 21st Century: The Success Strategies of Unknown World Market Leaders

Hermann’s autobiography: Many Worlds, One Life.

The Value Creators Podcast Episode #6. Kevin Roy: How To Stay In The Lead In The Adaptive System Of Digital Marketing

Continuous change is a feature of the adaptive entrepreneurial model of value creation. Digital marketing is a perfect illustration. By definition, it’s a field characterized by feedback loops and the only way to stay ahead is fast response and a willingness to learn and change.

Kevin Roy, CEO of the digital marketing agency Green Banana, has pioneered in this field and stayed ahead as a leader.

SHOW NOTES:

0:00 | Introduction

0:36 | Digital Marketing

1:36 | Introducing Kevin Roy

2:03 | Definition of Digital Marketing

3:17 | Changes in Digital Marketing over the Years

4:47 | Metrics of Digital Marketing

5:49 | Measuring Effects in Digital Marketing

7:16 | Green Banana: What Makes Them Unique

10:03 | Building Relationships

10:29 | Social Media Marketing

12:49 | Email Marketing: Ranked

14:12 | Partnering as a Service

14:56 | Being Seen, Being Heard.

16:14 | Values-based Campaigns with Digital Marketing

17:29 | Over-reliance with Digital Marketing 

18:56 | Introvert Generations

20:00 | Consumer Feeling with Digital Marketing

21:29 | Privacy is no longer a Social Norm

22:30 | Controlling our Personal Data in the Future

23:26 | Digital Marketing Technology

25:10 | Innovations with Digital Marketing AI Future

27:47 | Bottomline with Digital Marketing

28:40 | Final Wrap-Up

Knowledge Capsule

Here are ten things Kevin Roy told us.

1. Digital marketing changed the world with measurability. You learn your results every day, every second, every click. It’s necessary to live in this world of results, not judgment.

2. The same commitment to results is true for practitioners – digital marketing clients are going to pay for performance, not for promises or creative flair.

3. Paradoxically, the commitment to measurability leads to stronger client relationships. You need complete technical expertise to generate and measure results, and deep human expertise to guide clients through the white water of results versus expectations.

4. The world of digital marketing changed even more with the advent of social media and marketing to individuals and personas – with this level of hyper targeting you now know for sure who likes your offering and who doesn’t.

5. More measurability means more experimentation – you can run a host of test campaigns and expand those that work – it’s essence of the adaptive entrepreneurial method. Don’t fret about creativity, just measure outcomes.

6. The goal for clients is not just to be seen and heard — but to be seen and heard for the specific attribute or promise or feature that you want to be seen and heard for. Hyper tactical beats generalized values-based marketing – the values can emerge as a result of the tactical. If Nike sells a lot of shoes, they’ll be remembered as the “Just Do It” brand. Not otherwise.

7. The new generation of digital natives are just different than their predecessor generations – for example, they can be shy and reserved in person but super-energetic and productive on zoom. They are really, really comfortable in the digital space.

8. One consequence is that they’re not annoyed by all the ads and emails and pop ups that older folks might be. They live in the digital world and are comfortable with its consumption patterns.

9. And they don’t worry about Privacy. Privacy is no longer a social norm (Zuckerberg).

10. They welcome greater personalization – because ultimately they see it as a social good. In the future, personalization will bring them better health care, better education and better services in general. Through self-modeling by AI, they’ll create their personal avatar that will make presentations for them, design their personal logo and generate their personal images. They embrace AI and look forward to using it.

The Value Creators Podcast Episode #5. Adam Bryant on Leadership In Business: It’s More Than Just Business School Contrivance.

Is there such a thing as leadership in business? Or is it a manufactured concept to sell books and executive education courses from big name business schools?

To shed some light, we talked to Adam Bryant, who has made leadership into his own field of expert knowledge and professional practice. He did so by interviewing over 1000 business leaders, both CEO’s and other senior executives, in multiple industries and stages of business growth and at every scale. He’s published his findings on LinkedIn and in the “Corner Office” column he created for The New York Times.  His latest book on the subject is The Leap To Leader: How Ambitious Managers Make The Jump To Leadership. He is the senior managing director and a partner at the Exco Group, an executive leadership development firm.

SHOW NOTES:

0:00 | Introduction

0:38 | Concept of Leadership in Business

2:12 | Economic Role of Leadership

3:25 | Decision-making Role

6:02 | Being Good at Judgement

8:35 | Accumulating Experience

12:15 | Internal Competitiveness

14:34 | Problem-solving as Leaders

17:00 | Mental Models

18:54 | Individualism as Leaders

24:00 | The Concept of Agility Quotient

28:05 | Alignment as an Important Part of Leadership

31:28 | Economics in Leadership

32:06 | Alignment Guidance

34:50 | Guided Autonomy

37:22 | Adam Bryan’ts Leap to Leader Book

Knowledge Capsule

Leadership is a role to be played, with many aspects. A summary of Adam Bryant’s guidance would define leadership as the alignment of other resources, especially human resources, around the new purpose and business model that can emerge after taking a risk.

It’s about decision making – grappling with the hardest decisions, often when data is lacking or unclear, and making tough choices, alignment others around them, and eliminating friction.

Alignment is especially concerned with values – attractive values with which others can concur.

It’s a lightning rod role – being fully accountable, taking the blame when things go wrong, and owning outcomes.

It’s about focus that others around you don’t necessarily have – seeing the big picture, setting priorities, and focusing on the few things that matter.

It’s a role model for others – the value of risk-taking (“playing in traffic”) and learning from failures, setting the height of the bar, and being a pacesetter.

It’s creative – writing the playbook for your job.

It’s entrepreneurial – setting a compass for a new direction.

It’s being particularly good at processing feedback loops – reality just being source material for the stories we tell ourselves about our lives.

It’s about mediating tension – leadership is not a popularity contest.

It’s about motivating others – unlocking the potential in people, empowering them to do more than they thought they could.

It’s personal style – having the courage to take a stand.

It’s a set of problem-solving skills.

It’s a burden – sacrifices, longer hours, greater exposure to risk and failure.

It’s authority – being in charge, having ascended to a higher position in the hierarchy than others.

It’s a brand – how others perceive you.

It’s a mental model – reframing of issues in ways others can’t match.

It’s emotional – holding the strings to the emotional well-being of the company.

It’s individualism and self-awareness.

Leadership intelligence includes AQ – agility quotient,  the capability to sense and seize new opportunities and to create new business models. Is AQ a personality trait, or a learnable skill or a processed experience?

Resources

Adam Bryant on LinkedIn:  https://www.linkedin.com/in/adambryantleadership/

The Leap To Leader