Three Traps: Complacency, Cannibalization, Competency

The Three-Box Solution: A Strategy for Leading Innovation by Vijay Govindarajan is a great book to help leader innovate with simple and proven methods for allocating an organization’s energy, time, and resources across the three boxes:

Box 1: The present—Strengthen the core

Box 2: The past— Let go of the practices that fuel the core business but fail the new one

Box 3: The future—Invent a new business model.

Below is an excerpt on the three behavior traps. How do you manage them to the lead your organization to innovate?

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While there were many within IBM who clearly understood the implications of both nonlinear shifts, their insights had difficulty penetrating the entrenched logic of the past. The dominant logic of the past exerts its hold on business cultures and practices in three distinctive but tightly interlocking ways. I think of their dynamic effects as traps that snare the unprepared. All three have common origins in mind-sets that focus excessively on past values, behavior, and beliefs.

The Complacency Trap

Current success conditions a business to suppose that securing the future requires nothing more than repeating what it did to succeed in the past. This is the complacency trap. Complacency shrouds the future in a fog of misplaced confidence, hiding from view a clear understanding of the extent to which the world is changing around you.

IBM’s extraordinary success driving revenues in its Box 1 mainframe business masked difficulties to come. Rather than face up to looming threats to the mainframe business, IBM applied temporary patches. One such patch ‘was to change the revenue model from leasing mainframes to selling them outright. S This produced a pleasing surge in near-term revenues that postponed IBM’s day of reckoning.

The loyalty of successful organizations to the past is often so potent that they become quite ingenious at ignoring the onset of fatigue in the Box 1 business. Instead of building the future day by day, IBM prolonged it’s past with what amounted to an accounting change. The resulting years-long period of bolstered revenues made it easy for the company to think that everything was just fine-four words that fairly summarize complacency.

Another way to understand how IBM fell into the complacency trap is that the company’s continuing Box 1 profitability delayed development of a sense of urgency that might have motivated a more prescient Box 2 judgment: that it was important to invest aggressively in the new enterprise model of client/server computing.

This is the dark side of success. No matter the industry or company, each great innovation spawns a steady accumulation of Box I-based structures, processes, and attitudes of the kind that blinded IBM to its predicament. IBM mainframes were not simply smart machines; they were smart machines that over the years had created at customer work sites whole new layers of enterprise management that had never existed before.

Mainframe computers were island fortresses, secured and operated by a newly empowered IT function and inaccessible, except through IT proxies, to the rest of the enterprise. If a technology can embody a governing philosophy, the mainframe’s philosophy was exactly opposite that of the open, accessible internet that was yet to appear. Even before the internet emerged as a business tool, there were pitched battles within almost every company about making valuable mainframe data accessible to and usable by employees with networked PCs. This increasingly loud demand clashed with the mind-set of IBM’s IT customers, who saw their mission as protecting the security and integrity of corporate data: allowing liberal access would lead to data corruption and to proliferating unreliable versions of the “truth.”

In fact, customers can play an important role in deepening a complacency trap. IBM had collaborated with its customers in creating what became an entrenched system of governance for computerized organizations. That system’s structures and attitudes were a self-reinforcing feedback loop amplified by IBM’s large-enterprise customers.

Ultimately, a more modern version of the mainframe emerged and made peace with the rest of the IT infrastructure. Today’s version powers big data analytics and other applications in many large enterprises. But in the IBM of the 1990s, mainframes cast a long shadow over the emergent model of more open, democratized network computing.

The Cannibalization Trap

The cannibalization trap persuades leaders that new business models based on nonlinear ideas will jeopardize the firm’s present prosperity. So, like antibodies attacking an invading virus, they protect the Box 1 business by resisting ideas that don’t conform to models of the past.

At its heart, the fear of cannibalization reflects a wish to keep the world from changing. It is perhaps easy to understand that wish, but it’s much harder to excuse it. The glib answer to those who suffer from this fear is to remind them that change is inevitable and the world will change either with them or without them. When a business allows worries about cannibalization to interfere with its strategy, it has overinvested in its past and is doomed to undermine its future.

Cannibalization is typically understood-and feared-as a near-term threat. As foresighted as IBM was in developing its personal computer in the early 1980s, forces marshaled within the company to protect the legacy business. Those who feared the PC believed it had the potential to threaten the mainframe computing model, perhaps by feeding the growing appetite to liberate enterprise data or by diverting attention and investment away from the company’s dominant business.

People who fear new technology are usually more right than wrong about its potential to supersede legacy products. The truth is, every Box 1 business has reason to fear, sometimes even hate, whatever shiny new thing is being launched. When Steve Jobs gave a big push to the Macintosh launch toward the end of his first stint at Apple, the group in charge of the incumbent Apple II felt threatened and undercut. It was as if cofounder Jobs had sponsored an insurrection.”

In reality, however, cannibalization should be understood as a long- term benefit. The new Apple Macintosh embodied features that soon enough would make its predecessors obsolete. If Apple hadn’t moved quickly, a competitor-maybe even IBM-would have filled the vacuum. Given its history, IBM’s embrace of microcomputing was unexpected. But it quickly set the standard for PCs and legitimized them as tools for both home and business users. While IBM’s marketing of the PC initially tilted toward home users, the real revenue bonanza came from businesses. Suddenly, at least part of IBM had reason to root for client/ server computing. No matter what anyone in the mainframe business thought about it, the client/server model had the shine of inevitability.

So, while companies must take the fear of cannibalization seriously as a problem to manage, it can’t become a reason not to act with foresight when new nonlinear strategies or business models present an opportunity.

The Competency Trap

The competency trap arises when positive results the current core business encourage the organization to invest mainly in Box 1 competencies and provide little incentive for investing in new and future-oriented competencies. In established companies built around a spectacular success, such as IBM’s industry-defining mainframe computers, it is natural to want to create a workforce whose skills dominantly reflect the legacy success. But a competency trap is a double- edged sword. IBM’s investments in Box 1 competencies helped its mainframe business. But Box 1 logic asks, why invest in skills not vital to the company’s current profitability? That is why Box 2 is necessary.

IBM eventually recognized that the dominant computing model it had exploited to achieve such great success was changing. Yet, despite having made significant investments in a robust R&D function, it was having chronic difficulty incubating new ventures. It struggled to find what IBM insiders called “The Next Big Thing.” The organization appeared to have succumbed to a “four monkeys” value system.

Believing that there were indeed systemic problems, then-CEO Louis Gerstner commissioned an internal inquiry to identify root causes. The inquiry, led by Bruce Harreld, IBM’s head of corporate strategy, confirmed Gerstner’s fears. Looking at a number of recent examples of flawed new-business incubation, Harreld’s team concluded that the company’s dominant Box 1 systems, structures, processes, and culture had:

  • Created a powerful bias for near-term results.
  • Encouraged a focus on existing customers and offerings to the extent that new technologies and nonlinear trends were either underestimated or escaped detection entirely.
  • Burdened new businesses with unreasonably high performance goals-especially damaging to ventures that targeted newer, riskier, but often more promising markets.
  • Motivated an unimaginative approach to market analysis that impaired the company’s ability to understand the sorts of “embryonic markets” most likely to spawn nonlinear Box 3 ideas.
  • Interfered with development of the skills necessary to adaptively transition a new business through its emergent and growth stages until it finally became an established enterprise.
  • Caused assorted failures of execution, many owing to the inflexibility of Box l=driven organizational structures, which leaders of new ventures “were expected to rise above … Voicing concerns over [such challenges], even when they were major barriers to new business initiatives, was seen as a sign of weakness.”

What the report didn’t say is important to note. IBM’s problem was not caused by a lack of research competency. On the contrary, its workforce possessed at least some expertise in a wide array of disciplines and technologies. Among its research projects were some that were quite promising and others that were highly speculative, unproven, and obscure. But for all the reasons listed, even ideas that managed to get traction were being ineptly developed and executed. What IBM needed was a well-designed process for enabling, supporting, and rewarding its maverick monkeys and likewise for managing new ventures onward through their developmental stages.

Such a process typically should incorporate a range of structural, cultural, and leadership remedies. At IBM-first under Gerstner and later Sam Palmisano-these distinctive remedies came together under the emerging business opportunities (EBO) framework, which created new structures, changes to the buttoned-down IBM culture, and more versatile and adaptive leadership behavior.

A TRIPOLITAN TRAGICOMEDY

This is a funny story about chopping down a flag pole from the book Thomas Jefferson and the Tripoli Pirates: The Forgotten War That Changed American History by Brian Kilmeade, Don Yaeger.

A TRIPOLITAN TRAGICOMEDYThomas Jefferson.jpg

Three days later, the bashaw (Yusuf Qaramanli) made good on his threat. On May 14, 1801, he dispatched his men to the American consulate; the party of soldiers arrived at one o’clock that Thursday afternoon.

(James Leander) Cathcart was ready to make one last offer to keep the peace, to avoid what had begun to seem inevitable. He approached the seraskier, the leader of the squad and the bashaw’s minister of war, and asked that the promise of a tribute of $lO,OOO be conveyed to the bashaw. A messenger departed for the castle, but returned minutes later. The bashaw had rejected the offer.

(James Leander) Cathcart knew any further attempts at diplomacy would be futile, and stopping the bashaw’s men by force was impossible. Helpless, he stood watching on that bright, hot Thursday as the Tripolitans began hacking at the flagpole.

The bashaw’s men shouted encouragement to one another as they swung their axes but to their dismay, felling the pole was harder than it looked. Chips flew, but the flagpole refused to fall. As if to mock the men, the flag fluttered with each stroke of the ax, its staff staunchly in place. A gesture meant to humble the Americans was rapidly becoming a humiliation for the Tripolitans.

The bashaw had ordered that, if the men had trouble dropping the pole, they should pull on the halyard, the line anchored at the top of the pole used to hoist the flag. He thought they might be able to break the pole in half by doing so. To the dismay of the men, that strategy failed, too, and once again, the resilient flagpole refused. to fall. The men who had arrived to dishonor the flag were proving singularly inept.

More than an hour passed before the Tripolitans finally caused the pole to splinter just enough to lean against the consulate house. The American diplomats looked on, darkly amused by the whole episode. (James Leander) Cathcart wryly recorded the events in a dispatch to Secretary of State James Madison.

“At a quarter past two they effected the grand atchievement and our Flagstaff was chop’d down six feet from the ground & left reclining on the Terrace …. Thus ends the first act of this Tragedy.”

 

Why Winner-Take-AII Is Winning

Is the building supply industry going to turn into a winner-take-all market? Do you have a strategy if technology disrupts the distribution of goods and service? The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee

Why Winner-Take-AII Is WinningSecond Machine Age.jpg

Why are winner-take-all markets more common now? Shifts in the technology for production and distribution, particularly these three changes:

  1. the digitization of more and more information, goods, and services,
  2. the vast improvements in telecommunications and, to a lesser extent, transportation, and
  3. the increased importance of networks and standards.

Albert Einstein once said that black holes are where God divided by zero, and that created some strange physics. While the marginal costs of digital goods do not quite approach zero, they are close enough to create some pretty strange economics. As discussed in chapter 3, digital goods have much lower marginal costs of production than physical goods. Bits are cheaper than atoms, not to mention human labor.

Digitization creates winner-take-all markets because, as noted above, with digital goods capacity constraints become increasingly irrelevant. A single producer with a website can, in principle, fill the demand from millions or even billions of customers. Jenna Marbles’s homemade YouTube video “How to trick people into thinking you’re good looking,” to take one wildly successful example, garnered 5.3 million views the week she posted it in July 2010.13 She’s now earned millions of dollars from over one billion viewings of her videos around the world. Every digital app developer, no matter how humble its offices or how small its staff, almost automatically becomes a micro-multinational, reaching global audiences with a speed that would have been inconceivable in the first machine age.

In contrast, the economics of personal services (nursing) or physical work (gardening) are very different, since each provider, no matter how skilled or hard-working, can only fulfill a tiny fraction of the overall market demand. When an activity transitions from the second category to the first the way tax preparation did, the economics shift toward winner-take-all outcomes. What’s more, lowering prices, the traditional refuge for second-tier products, is of little benefit for anyone whose quality is not already at or near the world’s best. Digital goods have enormous economies of scale, giving the market leader a huge cost advantage and room to beat the price of any competitor while still making a good profit.” Once their fixed costs are covered, each marginal unit produced costs very little to deliver.

Perfect Horse

Perfect Horse: The Daring U.S. Mission to Rescue the Priceless Stallions Kidnapped by the Nazis by Elizabeth Letts is a charismatic book. Below is an excerpt from the book about General George S. Patton:

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The door to the black car swung open, and stepped General George S. Patton, now secretly in England, where he was participating in a mock mission to confuse the Germans about the Allied invasion. Resplendent in high brown cavalry field boots and a gleaming helmet, he, walked briskly down the hillside toward the ten-man guard of honor, who stood at attention. Patton passed slowly in front of them, looking each soldier up and down and then peering into each man’s face. From there, he walked straight up onto the platform.

The corps chaplain stepped up to the microphone to give the invocation, asking for divine guidance so that the Third Army might help speed victory to an enslaved Europe. Next to speak was Lieutenant General William H. Simpson. “We are here,” he said, “to listen to the words of a great man, a man who will lead you all into whatever you may face with heroism, ability, and foresight. A man who has proven himself amid shot and shell.” Most of these soldiers were awestruck, having never seen the famous commander in person, but this was not the case for Patton’s fellow cavalryman Hank Reed, who had been acquainted with him for many years. Since the invasion of North Africa and Sicily, in which the general had played a starring role, George Patton’s name had been familiar in every American household. But Reed had known him as a rough-and-tumble polo player possessed of a foul mouth and a fierce competitive spirit.

Though Patton was eighteen years Reed’s senior, the two officers shared a strong tie. Each had been a member of the prestigious War Department polo team, Patton in the 1920s and Reed in the ’30, Patton’s ferocity on the polo field was an army legend. He seemed to go to war every time he galloped out onto the pitch. Even among tough competitors, the general was renowned for the particular bellicosity with which he approached the game. Once, while playing at the Myopia Hunt in Massachussetts, he was hit so badly in the head with a mallet that blood started streaming down his forehead. Patton wrapped a bandage around his head, shoved his helmet back on top of it, and continued to play. Another time, he fell so hard that he sustained a severe concussion. His daughter, Ruth Ellen, who was watching the match, knew something was terribly wrong because it was the first time she had ever seen him let go of the reins when he fell off a horse.

Patton, like many others in the army, had believed that in peacetime, when men had no chance to experience combat firsthand, the horseback battles played on the polo field were the best way to train a man for combat. If Patton’s theory was right, then the ace polo player Hank Reed was among the best-prepared soldiers at Camp Bewdley that day. None of the 2nd Cavalry men had seen real combat before, including their leader, Colonel Reed.

The general approached the microphone and looked out over the great mass of soldiers standing at attention on the hillside. “Be seated,” he said. His amplified voice echoed out across the hillside, high and clear. His tone was firm and commanding. In an undulating wave, the men sank back down onto the grass.

“Men, this stuff we hear about America wanting to stay out of the war, not wanting to fight, is a crock of bullshit! Americans love to fight-traditionally. All real Americans love the sting and clash of battle. When you were kids you all admired the champion marble player, the fastest runner, the big league ball players, the toughest boxers. Americans love a winner and will not tolerate a loser. Americans play to win-all the time….”

Up on the hillside, the men of the 2nd Cavalry listened intently. All of them knew that General Patton was the one who got called in when the going got tough. Indeed, the general then strictly admonished the crowd that his presence in Bewdley was to be kept top-secret. Nobody knew exactly what was coming next; they just knew that they would be part of something bigger than all of them.

From Patton’s vantage point up on the platform, the assembled men of the Third Army looked like an enormous sea of humanity gathered with a common purpose. Despite the uniforms that made them resemble one another, every man sitting there that day had his own life story, his own pathway that had brought him to that place. Born in 19I5, blue-eyed Jim Pitman was one such soldier. He had the face of a sprite, all upturned angles, quick to smile, his smooth skin radiating youth. Hank Reed had had twenty years to prepare for this moment; Jim Pitman had just four. Graduating from West Point in 1940, he joined an army gearing up for war and had been swept right into the heart of it.

Do You Have a Growth Or a Fixed Mindset?

Grit: Passion, Perseverance, and the Science of Success by Angela Duckworth is a fascinating book. She explores a lot of topics to improve your success in life. Below is an excerpt from the book:

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Here are four statements Carol (Dweck) uses to assess a person’s theory of intelligence. Read them now and consider how much you agree or disagree with each:

Your intelligence is something very basic about you that you can’t change very much.

You can learn new things, but you can’t really change how intelligent you are.

No matter how much intelligence you have, you can always change it quite a bit.

You can always substantially change how intelligent you are.

If you found yourself nodding affirmatively to the first two statements but shaking your head in disagreement with the last two, then Carol would say you have more of a fixed mindset. If you had the opposite reaction, then Carol would say you tend toward a growth mindset.

I like to think of a growth mindset this way: Some of us believe, deep down, that people really can change. These growth-oriented people assume that it’s possible, for example, to get smarter if you’re given the right opportunities and support and if you try hard enough and if you believe you can do it. Conversely, some people think you can learn skills, like how to ride a bike or do a sales pitch, but your capacity to learn skills — your talent — can’t be trained. The problem with holding the latter fixed-mindset view — and many people who consider themselves talented do — is that no road is without bumps. Eventually, you’re going to hit one. At that point, having a fixed mindset becomes a tremendous liability. This is when a C-, a rejection letter, a disappointing progress review at work, or any other setback can derail you. With a fixed mindset, you’re likely to interpret these setbacks as evidence that, after all, you don’t have “the right stuff” – you’re not good enough. With a growth mindset, you believe you can learn to do better.

Mindsets have been shown to make a difference in all the same life domains as optimism. For instance, if you have a growth mindset, you’re more likely to do well in school, enjoy better emotional and physical health, and have stronger, more positive social relationships with other people.

A few years ago, Carol and I asked more than two thousand high school seniors to complete a growth-mindset questionnaire. We’ve found that students with a growth mindset are significantly grittier than students with a fixed mindset. What’s more, grittier students earn higher report card grades and, after graduation, are more likely to enroll in and persist through college. I’ve since measured growth mindset and grit in both younger children and older adults, and in every sample, I’ve found that growth mindset and grit go together.

Coolidge on Budget and Citizenship

CoolidgeCoolidge by Amity Shlaes is a fascinating biography of the 30th President of the United States. Below is an exempt from the book about budgets and good citizenship.

Coolidge on Budget and Citizenship Coolidge

“The budget idea, I may admit, is a sort of obsession with me,” he told a group of Jewish philanthropists in a phone conversation from his room at the White House. “I believe in budgets. I want other people to believe in them. I have had a small one to run my own home; and besides that, I am the head of the organization that makes the greatest of all budgets, that of the United States government. Do you “Yonder, then, that at times I dream of balance sheets and sinking funds, and deficits, and tax rates, and all the rest?” He continued, “I regard a good budget as among the noblest monuments of virtue.” When you budgeted, you could take care of your own people; that was important, too. Peter Stuyvesant, the Dutchman who had ruled the colony of New Amsterdam, had asked Jews to make what became known as “the Stuyvesant Pledge,” to commit to taking care of their own ill and indigent should they stay in New Amsterdam. The colonial community had honored that pledge and had sustained the tradition through the centuries. Coolidge let the charities know he appreciated that: “I want you to know that I feel you are making good citizens, that you are strengthening the government.”

A NOTICING MIND-SET

The Power of Noticing: What the Best Leaders See by Max H. Bazerman is fantastic book. Below is an excerpt from the book about leadership and first-class noticers.

A NOTICING MIND-SETThe Power of Noticing: What the Best Leaders See

Before reading further, try to remember a crisis that surprised you or your organization. (Stop and really do this.) Now imagine that you are telling a close friend, someone from outside the organization, the story of that crisis: what happened, who did what, and what resulted. Your friend’s response would very likely be “Why didn’t anyone see that coming?” Keeping in mind the actual crisis, think through what your answer would be. (Again, please actually do this before reading ahead. Even better, write your answer on a piece of paper.)

Was your response something like one of the following?

  • No one could have predicted what happened.
  • The odds of its happening were so low that it didn’t seem worthy of consideration.
  • It wasn’t my job to see the warning signs.
  • There are so many possible crises at any given moment that we couldn’t reasonably have known that this was the one that would get us.

Or was your response something more like one of these?

  • I didn’t examine what threats were confronting our organization.
  • I didn’t think about how other parties could affect our organization.
  • I didn’t ask others about what data were missing.
  • I didn’t search hard enough for more options for my organization to consider.

Do you see the difference between the two lists? The first consists of external attributions. These explanations focus on factors outside your control; the problem was the situation, not you. In contrast, the second group consists of internal attributions for the failure, things you realize you could have done better. Most crises are due to both internal and external causes: you and the organization were in a tough environment fraught with unfortunate and surprising conditions, and you and your colleagues didn’t anticipate and manage the crisis as well as you could have.

A well-established social science research finding is that when we think of our successes, we tend to come up with internal attributions. We focus on what we did right to affect the ultimate result. By contrast, when we think of our failures, we tend to come up with external attributions; we blame others, the context, or circumstances beyond our control.” Executives who have a fantastic year often take personal credit for their success, or if they are more generous, they credit their management team. But executives who suffer severe setbacks are quick to attribute these results to economic conditions, market trends, or government interventions.

First-class noticers, however, are more consistent. Even when failures occur, they focus on what they did and, more important, on what they could do differently in the future. As a result, they avoid repeating their mistakes. It is this focus on self-improvement that allows us to learn from experience and develop the tendencies needed to become first-class noticers.