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When I was the editor of the Harvard Business Review, I had a recurring fantasy
(no, not that kind of fantasy).
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In my fantasy the dean of the Harvard Business School—my boss—would call me into his dimly lit, book-lined, wood-paneled office.
He would sit me down, draw the shades, and lock the door.
He would pace. In some version of the fantasy he would wring his hands, shrug, hem and haw. In others he would offer me a glass of port and a fine cigar.
(I liked the second version better.)
In that fantasy, the dean—an enormous man with a raspy, conspirator’s voice—would say to me that my job at the Harvard Business Review was to make business appear difficult to the readers.
“Don’t publish any smart-aleck articles about how Andrew Carnegie or Henry Ford never finished grammar school or how Bill Gates dropped out of college.
Publish articles that talk about how difficult business is, how complicated it is to read a balance sheet, how many times you have to run a regression analysis to really understand your market, how the problems of strategy are intractable.
Make it all seem hard,”he would tell me with a scowl.
“Hard? Why? ”
I would ask rather meekly.
“Why ? Why ?”
he would repeat, eyes narrowed into tiny slits.
“Did you really ask me why, you nincompoop?”
“Yes,”I would say, clearing my throat. “I did.”“Because it is.
And besides, what would happen to our business if your readers thought business wasn’t all that difficult ?
That any imbecile could do it ?
What do we do then ?
”the dean would bellow.
“We sell business education, business books, business magazines, online business content, business videos, business case studies, lectures, degrees, research, class notes.
The whole shebang.
If people thought business was easy,
we’d be wiped out.
End of story.”My fantasy did not go on much after that.
And in truth, I have great admiration for the dean, the school, the students,
and the faculty.
The Harvard Business School is a tremendous institution, and it has done an enormous amount of good for thousands of people and institutions on many, many levels.
Even so, as I think about business, I have come to understand that my fantasy was in some ways right as well as wrong. It was wrong because business isn’t easy.
At least it isn’t at the moment.
The forces governing competition today are very difficult to navigate.
They are global, technological, financial, and human.
The cycles of growth and decline—which many pundits in the 1990s said were no longer applicable—are back in full force.
In fact, the same items—globalization and technology—that people said had ended the business cycle are now being viewed as making it worse.
Globalization and technology, it is now said, have destroyed the ability of many companies to price their goods and services at a premium, which is hurting profits globally.
(In the ’90s, the same phenomenon was viewed the other way around.
Globalization and technology would check inflation and keep prices low
so that cost-conscious consumers would continue buying,
fueling what some people at the time called the “long boom.”) But that’s not all.
The forces governing business are large—very large.
They range from sudden, short-term shifts in consumer buying habits—a two-season-long denim craze, a two-year Hula Hoop frenzy,
a four-year-long cigar fad, for example—to slower, medium-term changes, such as the decade-long shift from conservative business attire to clothes for casual Fridays and then to clothes for (as my children might say) whatever.
And then there are the longer-term changes on top of these shorter-term shifts.
In many countries since the 1960s there has been a slow growth of citizen movements (nongovernmental organizations,
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protest and pressure groups, business-oriented religious groups, human rights groups, antiglobalization groups, animal rights groups, and so on).
Over the last three or four decades, these groups have become very sophisticated, professional, and well organized.
Many are well funded and highly strategic in their approach.
Many of their leaders have degrees from elite business and professional schools.
These groups employ carefully thought-out strategies to achieve their overall goals.
They ally themselves with political parties and labor groups.
I have had direct experience with several of these groups in the United States
and in Europe.
The leader of a French antiglobalization group told me that his organization would never compromise with business on their aims because they have a greater
The group—whose leaders include some well-respected French journalists and university professors—told me they will not negotiate.
Their aim was to restrict outbound French investment (keep French jobs in France), create tougher environmental restrictions, and limit non-French cultural imports (movies, music,
and books), among other things.
The leader of the group said he was against markets and against
When this group plans a demonstration, tens of thousands of people show up.
As a result, the politicians listen and companies must cope.
Another group, an American environmental organization, explained to me why it had mounted a boycott against a certain Japanese automaker.
The carmaker, the group’s leader explained, was actually innocent when it came to the environmental offense in question.
It did, however, have significant investment from, and shared directorships with, another Japanese company that was clear-cutting hardwood forests in Indonesia.
By putting pressure on one company it could exert influence over the other due to their shared governance structure, the environmental leader explained.
Over the last twenty-five years this organization has come to know as much about business as the best stock market analysts and investment bankers do.
There are other large, long-term changes as well—new technologies (broadband,
for example) where the business case has been obvious for decades but the correct business model has yet to materialize.
In this category, difficult, long-term problems increased competition from nontraditional corporate and/or global rivals—the three-decade-long rise of China from economic backwater to high-tech manufacturing giant, the nearly three-decade move by several European governments to develop Airbus Industries into a powerful rival to Boeing for passenger jets,
the growing threat to Microsoft from the so-called free (you still have to pay experts to install it and customize it) Linux operating system.
Competition from the margins moves to center stage in a familiar pattern written about by Harvard’s Clayton Christensen, author of The Innovator’s Dilemma.
In this work Christensen recounts the story of Digital Equipment Company
until the late ’80s, produced a market-leading minicomputer—the VAX—whose dominance was overturned by the PC,
which began as an inferior product that wasn’t even on DEC’s competitive radar scope.
He also recounts the story of how Big Steel suddenly found itself supplanted by the rise of mini-mills that produced far cheaper steel from scrap, while the big players were forced to smelt ore using higher-priced technologies and processes.
There is no question that business is complex.
On that point, I have to hand it to the dean.
But difficult does not mean hard, which I take to mean something akin to joyless toil.
From my point of view, doing business is not the emotional equivalent of a sentence to San Quentin or Rikers Island.
Nor is it drudgery.
Business is one of life’s great games, and it is exhilarating.
In fact, calling business business is demeaning.
I much prefer the words the French use for business, les affaires, which imply (at least to me) that the subject, in one way or another, applies to nearly everything;
that it is encompassing, vast, integral to what we are and even who we are.
Business is not just a job.
It is so much more—goods and services, folly and delight, wealth and power, value and loss, money, dazzle, hype, dread, and exuberance, and of course exchange.
In the end—or rather the beginning—business is about exchange, which means that it is a game that cannot be played alone.
A farmer can grow food enough for himself and his family, but it is not business until someone takes that food to market to trade it for something else.
Business is a networking event.
Business has no equivalent of a baseball pitching machine.
It is not bowling alone, nor is it hitting a tennis ball against the garage door.
Business is played with others and without a helmet.
The beauty and enticement of business is not just that it is so broad.
People make a living from overseeing pharmaceutical research that takes decades and will save lives, just as they do from printing custom T-shirts with pictures of your dog.
The beauty of business is that no part of it—from the gigantic pharmaceutical company
to the little T-shirt entrepreneur—is ever risk-free.
Big companies fail just like the little ones.
It is not exactly fair to say that people find business exciting for the same reasons that deep-sea divers or aerialists like their areas of endeavor.
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Yet the potential for a business washout does focus the mind.
And if business is a game—as I believe it is—it is all the more exciting because
the stakes are so high.
I don’t mean to sound flip or inhumane in this short introduction to this big book.
People losing their jobs, their savings, and their retirement accounts are not subjects
to laugh about.
When Enron, WorldCom, or Barings Bank failed, thousands of people’s lives were devastated. Not only were their bank accounts lightened, their dreams were dashed, and worse.
Still, because business is played with only the barest of safety nets—at least in the United States—successes, when they occur, are that much sweeter.
Every business is built on Big Ideas.
What do I mean by Big Ideas ?
I am not necessarily talking about complex ideas, flashy ideas, complicated ideas,
or mathematical ideas, although they certainly have their place.
What I mean by Big Ideas are concepts that are practical, down-to-earth, and appropriate, and which in the end reduce the fog of complexity into something simple, solid, tangible,
and most of all workable.
Big Ideas are practical ideas.
They are ideas that help people achieve their dreams, that serve as the pathways from
one success to another.
They help one group fulfill another group’s needs.
You do not have to be the proverbial rocket scientist to be successful,
unless your business is building rockets.
A century and a half ago Levi Strauss founded the clothing company that continues to bear his name when he realized that miners in the California gold rush needed trousers far more rugged than anything they could buy at the time.
True, it wasn’t exactly the theory of relativity, and denim pants don’t exactly cure cancer.
But Levi Strauss’idea was imbued with great utility and—as we know—longevity.
His idea was sufficient to support the development of a company that over time provided the livelihood of tens of thousands of workers in factories and in stores,
all the while covering, protecting,
and in some cases enhancing the bottoms of millions of customers.
To put it in the vernacular, it was an idea with legs.
But that’s not the end of the story,
as we know.
The wonderful and simple idea that begat the world’s first blue-jeans maker, Levi Strauss, also begat a host of rivals worldwide.
Many of those rivals had very short lives.
But many found their own niches, taking away market share from the once-dominant player.
What is the point of this story ?
Simply that the game of business is not just played on the offense.
There is a defensive game as well.
Great companies—and great business leaders—play both games equally well.
In this book I have asked some of the best minds in business to put down some
of their best thoughts.
I have asked them to be candid, open, and opinionated.
I have asked them to tackle the subjects they love from perspectives
that they know work.
I have asked them to give readers a glimpse of how they think about what they do.
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There are a number of different types of contributors to this book.
First, there are American invention of mass production, the standard-issue British musket had no peer and the British Empire had little competition.
So why tinker with success ?
Today, in a world of intense competition, we are in a period where the customer’s
needs must be identified and fulfilled.
To do that may mean refining the design of a carburetor, a fuel injector, or even a service offering four or more times in a year.
The point is, nothing remains static for very long, least of all the way we please customers.
Without innovation, the customer or client is likely to leave us in the dust. J.K.
PEOPLE DON’T BUY INVENTIONS OR TECHNOLOGY, THEY BUY INNOVATIONS
THAT SOLVE PROBLEMS
Dean Kamen Perhaps no other corporate mandate has received as much attention
over the past decade as innovation.
In the ever-increasing competitive landscape brought about by globalization,
companies have spent ceaselessly and exorbitantly in the search for the next best thing,
be it product or service.
“Innovate or die”has become the watchword for a vast number of industry sectors,
and even in a soft economy most corporations continue to brag about their firm
commitment to research and development.
Despite this crush of interest in innovation and the endless flood of new products and services into the marketplace, there remains a significant lack of understanding about innovation.
The best businessperson in the world can’t sell something the world isn’t ready to use.
People don’t buy inventions.
They don’t buy technology.
They buy a solution to a perceived problem.
And if you have the greatest solution in the world and people don’t perceive it as the answer to their problem, they are not going to buy it.
Indeed, throughout history there has been a great deal of confusion about the differences between invention and innovation.
Misconceptions about the invention process track straight into the dearth of understanding about when an invention becomes an innovation.
As an inventor, I’ve always been amazed at people’s misunderstanding of what I do.
The public always loves the easy, one-shot answer.
You can tell by their questions that they really believe I went to bed one night, got up the next morning, and instead of making toast invented the Segway Human Transporter or the
IBOT Mobility System.
I must have leaped out of bed with the concept completely defined in my head, right down to the decals. Invention is a difficult, messy process, more an evolution than a revolution. Inspiration may be of the moment.
But bringing the inspiration to reality is usually a long, painful, expensive process.
You end up iterating again and again and again.
You make five different wrong turns that get you to the same place you were at six months ago. And after all the conceiving, designing, building, refining, and polishing, an invention remains a great distance from an innovation.
“Try a lot of stuff and keep what works.”Having examined countless visionary companies known for innovation, such as 3M,
Hewlett-Packard, and Johnson & Johnson, the authors were struck by how often these companies “made some of their best moves not by detailed strategic planning,
but rather by experimentation,
trial and error, opportunism and—quite literally—accident.”Most inventors aren’t businesspeople.
But the reason many fail is not because they aren’t good businesspeople;
some are, others aren’t.
They fail because they misunderstand the difference between invention and innovation.
There is a big valley between the two, and it is the public, the cruel arbiter of history, that decides if an invention has the influence and sustainability to become a true innovation.
The day after Thomas Edison created the lightbulb, everybody read about it by the candles they had been using for thousands of years.
Who had electricity to power the first lightbulb ?
It was fragile and didn’t provide much light.
It was expensive, people didn’t trust it or believe in it,
and there was no infrastructure to support it.
Similarly with the airplane: the day after the Wright Brothers first flew at Kitty Hawk,
people rode into town on their horseless carriages to buy a newspaper to read about it.
The airplane and the lightbulb may be the inventions, but the innovation is the process by which those inventions start to affect the way people live,
think, and make use of the technology.
What is often required is massive marketing and public relations, extensive positive reaction in the media, and word of mouth, along with accessibility.
More than anything else, it takes a long time.
One reason it takes so long is that there is inherent risk in using something new and different. People don’t like change.
They don’t like to fail.
They don’t like situations that make them feel uncomfortable.
More often than not they were pretty happy doing things the way they were
doing them before.
In fact, the invention might only slightly improve the ability to do what
they were doing before.
The significant potential, the key differentiation between invention and innovation,
is that a true innovation allows someone to do something they never thought
about doing before.
Ford built his first automobile, and for years people called it the horseless carriage because they had horses pulling carriages for transportation.
To them, this was an analog to what they had been doing before,
getting from one place to the other.
But it wasn’t a horseless carriage at all, it was a car, and it could do things a horse-drawn carriage could never do.
ON MANAGEMENT SYSTEMS AND INNOVATION
The Visible Hand:
The Managerial Revolution in American Business ALFRED D. CHANDLER JR.
• The multiunit business enterprise, it must always be kept in mind, is a modern phenomenon.
It did not exist in the United States in 1940.
At that time the volume of economic activity was not yet large enough to make administrative coordination more productive and, therefore, more profitable than market coordination.
Neither the needs nor the opportunities existed to build a multiunit enterprise.
The few prototypes of the modern firm—textile mills and the Springfield Armory—remained single-unit enterprises.
The earliest multiunit enterprise, the Bank of the United States, became extremely powerful and, partly because of its power, was short-lived.
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Until coal provided a cheap and flexible source of energy and until the railroad made possible fast, regular all-weather transportation,
the processes of production and distribution continued to be managed in much the same way as they had been for half a millennium.
All these processes, including transportation and finance, were carried out by small personally owned and managed firms.
The first modern enterprises were those created to administer the operation of the new railroad and telegraph companies.
Administration coordination of the movement of trains and the flow of traffic was essential for the safety of the passengers and the efficient movement of a wide variety of freight across the nation’s rails.
Such coordination was also necessary to transmit thousands of messages across
its telegraph wires.
In other forms of transportation and communication, where the volume of traffic was less varied or moved at slower speeds, coordination was less necessary.
There the large enterprise was slower in coming.
When steamship and urban traction lines did increase in size, they had little difficulty in adapting procedures perfected by the railroads.
And when the development of long-distance technology permitted the creation of a national telephone system, the enterprise that managed it became organized along the lines of Western Union.
• From Alfred D. Chandler Jr., The Visible Hand:
The Managerial Revolution in American Business (Belknap Press, 1977).
When personal computers first appeared, for example, people used word-processing software much like an electronic typewriter.
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It took a long time before people realized that the PC was not a souped-up
They could do far more than type on a keyboard and have the letters appear
on the screen.
Now they could search entire documents,
move blocks of text around with a mouse click,
edit, copy, spell-check, send and receive, and carry out hundreds of other functions
that they had never been able to do or think of doing before.
It takes people a long time to realize that this is not an analog to what they
were doing before.
From a business perspective, companies must be prepared to ride a long learning
curve to true innovation.
They must be prepared for people to substantially undervalue what is being given to them at the outset because users will always compare it to something they’ve already been doing.
I can carry a notepad and a pencil in my shirt pocket and it costs a dollar.
Why would I want a $500 Palm Pilot that fits into that same pocket ?
It certainly doesn’t compete with my desktop PC.
So what good is it ?
If all I am doing is keeping notes, why would I give up that pad and pencil ?
I can connect it to my computer at home and download my schedule every day instead of writing it down. I can update it on the fly.
I can beam messages to my colleagues and receive messages as well.
I can put games and an entire address book on it.
Over time people decided they needed the Palm Pilot not because it was better at what a pencil and paper could do but because with it they could do things
they hadn’t done before.
And since they hadn’t done these things before, few realized they needed those capabilities, and even fewer desired them.
So it takes not only great insight and invention on the part of the people who build the technology but a rethinking on the part of every potential user to decide that he or she understands and buys into the idea that this fills a need.
How innovation happens is the $64,000 question.
Unfortunately, there is no formula or correct answer.
It happens differently for different kinds of innovation.
Medical innovation can be quite clear.
If I tell the world,
“This vaccine will prevent your child from ever getting polio,”it is not surprising that in the space of a year fifty million people are immunized.
Certain innovations happen because the public knew it was looking for a solution
to a problem.
When the solution is provided, there is a ready marketplace.
When I was an undergraduate in college, for example,
I listened to my brother, who is a physician, complain about the lack of a viable way for patients to receive the proper dose of intravenous medicine.
Nurses were required to manually oversee the process in every patient,
a time-consuming and tedious procedure.
So I set out to build the first wearable infusion pump.
Because it filled a dramatic need, my AutoSyringe gained rapid acceptance in such diverse medical specialties as chemotherapy, neonatology, and endocrinology.
A short time later I left school and founded my first company,
to manufacture and market the pump.
to manufacture and market the pump.
But inventions, with rare exceptions, end up being used in ways that are a small subset of what makes them a Big Idea.
People may end up growing into them and turn them into an innovation.
When historians write about great inventions, they tend to start at the point of innovation.
In reality, innovation is subject to all sorts of pitfalls:
the public’s average state of competence, its imagination, the amount of risk the public is willing to take, and the amount of resources it collectively has to take on this change.
The key question is:
when will it happen ?
And, perhaps more important:
who will find it, not just financially but philosophically and emotionally ?
Who will benefit from using it ?
The window between invention and innovation is, in fact, the dark unknown valley in which typical inventors end up groping around in frustration.
As an inventor, I can control the creation and development of a product.
I can add or remove a feature, change my goals, tweak the technology, and finally produce something I am proud of.
It’s exciting, even if I fail.
I can control the failure.
But when I then take that product or idea out into the public, it is a very different experience.
I spend a lot of time explaining to people that the Segway is not a scooter,
that the IBOT is not a wheelchair, that the For Inspiration and Recognition of Science and Technology (FIRST) program is not a science fair.
It is not about supply but about demand.
And if that aspect of the equation doesn’t come to fruition, then all you have is an invention, a patent, an event in history.
very big business.
“DOESN’T PLAY WELL WITH OTHERS”:
THE ROLE OF DISRUPTIVE TECHNOLOGY
Victoria Griffith Every now and then a new technology comes along that shakes
up the business world.
The innovation is so significant that it changes the face of an industry.
Eventually the change causes established companies to die and new ones to be born.
Ever wonder why the makers of horse-drawn carriages didn’t simply transform into automobile makers ?
Conventional wisdom has it that the managers of the deceased companies
didn’t know what hit them.
They were dumb; they failed to foresee the change and suffered as a result.
In 1997 a book by Harvard Business School professor Clayton Christensen,
The Innovator’s Dilemma, challenged this notion.
Christensen was skeptical of the conventional wisdom that executives at failed companies run into trouble because of their own stupidity.
His circle of acquaintances included a number of managers in this category,
and he knew them to be smart and capable.
So Christensen came up with a new theory: that companies fail not because managers are dumb but because the system doesn’t allow them to succeed.
These managers make good decisions within the organizational framework
of their employers.
It’s the organization itself that is wrong.
Executives at successful companies are on the ball, says Christensen.
They notice important developments in their industry—innovations the author calls
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”Yet although they recognize the threat, they are incapable of doing anything about it.
In their zeal to please shareholders, successful companies tend to do what’s best
for them in the short run, even though it could ruin them in the long term.
Managers’primary goal is to maximize profit margins,
because that’s what makes stock prices go up.
Unfortunately, the desire for short-term returns can be their undoing.
The fattest profit margins are usually at the top, so customers willing to pay a high margin for a superior product become companies’main focus.
The lower-margin businesses at the bottom end receive less and less attention.
Yet the greatest threats usually come from the bottom—the very segment established groups are not interested in guarding.
And there’s the rub.
Challengers are able to mount an attack on companies’weakest flank.
A disruptive technology is born when someone invents a way to do something more simply and cheaply.
Major innovations often don’t work very well when they are first introduced.
The top-end customers don’t want them.
Entrepreneurs are able to sell them only for a very low price.
They don’t make much money, but since they’re just a start-up, they don’t care.
Eventually, though, those entrepreneurs get better at what they do.
They move up the ladder to the middle market and finally challenge the established companies at the top end.
By that time the established managers are ready to act; the trouble is,
it is usually too late.
Christensen’s office at Harvard is filled with his collection of disk drives, and the industry’s failure is one of the author’s favorite cautionary tales.
In the 1970s the makers of 14-inch disk drives supplied manufacturers
of mainframe computers.
When new disk drive companies began making 8-inch drives, the manufacturers of the
14-inch drives asked the mainframe computer makers whether they were interested.
They were not.
The 8-inch drives were not as good and held less data.
The computer companies wanted to make better mainframes, because that was what their customers were demanding.
The 8-inch-drive makers sold products instead to a new generation of minicomputer makers, including Digital Equipment and Wang.
These companies became the new successes.
In the 1980s these groups too were swept aside as personal computers
became the rage.
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The pattern was the same.
Digital and Wang saw the personal computer coming,
yet their customers did not want the new technology.
By the time the personal computer rose to challenge them at the high end of their
business, it was too late.
Christensen’s theories enjoyed enormous popularity in the late 1990s as the Internet grabbed everyone’s imagination.
His thoughtful analysis seemed to explain why it was smart to gamble on companies that might generate big profits in the future, even though they were currently in the red.
Unlike many management theorists,
Christensen even had specific advice for long-in-the-tooth companies:
they should set up a separate corporation that could operate outside of the rules
of the existing one.
That way, when disruptive technologies came along,
they would be incorporated into the break-off group.
In the end, the entrepreneurial spin-off would rise like a phoenix from the ashes to take the corporation through to the next innovation cycle.
The bookstore Barnes & Noble, the office supply chain Staples, and other companies followed Christensen’s advice in addressing the challenge from the Internet, the greatest disruptive technology of the past decade.
They set up separate dot-com businesses, designed to attack the established organization from the outside.
The bursting of the dot-com bubble, however, eventually poked holes in the strategy.
As the stock prices of Internet companies collapsed, it reminded managers of why they cared about profit margins in the first place:
to guarantee they had enough cash to be in business tomorrow.
Staples’former CEO Tom Stemberg remarked that setting up Staples.com was his biggest strategic mistake in Internet retailing.