Emerging Management Paradigms

“The future belongs to constructive capitalists. Here’s how to become one.”

Umair Haque – The New Capitalist Manifesto

The twentieth century saw the establishment of industrial era capitalism as a game of cost cutting and rapid growth. Companies achieved competetive advantage by shifting costs and borrowing benefits from society (deep debt). The price of a hamburger is artificially set at $3 because so much of the real cost to society has been hidden. As Ankita points out below, the actual cost of a juicy Big Mac is closer to $30 after counting the harm it will do to society and the environment. “The real debt crisis isn’t what America owes to China, or what Europe owes to Germany. It’s the deep, ever-mounting, unpaid debt of harm that business as usual owes people, communities, society, the natural world, and future generations, whether denominated in oil spills, banking meltdowns, or carbon emissions. Today, countries, companies, and people are struggling to repay the deep debt incurred by yesterday’s harm. The result is the slow, steady diminishment of prosperity.”

The twentieth century industrial model of growth through cost shifting is dead. We can even see it happening in the market via Haque’s list of 200 constuctive capitalist companies. Since the turn of the century those value of those companies has tripled, while the value of the S&P has actually dropped. How could this happen? How could companies that avoid shifting costs onto society compete with others, let alone grow during an economic crisis? Haque argues that the link between constructive capitalism and success are the adoption of 5 new institutional cornerstones. Adopting these new cornerstones produces advantages that stem from the creation of authentic economic value as opposed to thin value based on deep debt. The 5 ways a constructive capitalist gains his advantage is by utilizing Value Cycles instead of Value Chains, Value Conversations instead of Value Propositions, Philosophies instead of Strategies, Market Completion instead of Protection, products that are “betters” instead of “goods”.

By incorporating these 5 cornerstones “insurgents” (Constructive Capitalist Companies) have the power to attain next generation efficiency, productivity, effectiveness and agility, while “incumbents” (Industrial Capitalist Companies) can only drive down costs so much by borrow marginally more benefits. Some examples are Apple’s socio-productivity leaving it miles ahead of Sony, Google’s evolvability letting it create new services so quickly that it left Yahoo! in the dust, Walmart’s socio-efficiency compared to Target, Nike’s socio-effectiveness helping it outcompete Adidas and Puma, Lego to Mattel, Nintendo to Sega, Tata to GM, and Threadless to the Gap, the list goes on.

The moral of the story? There are real advantages to insurgency. “Constructive capitalists are able to turn thin value on its head and create thick value instead—value that matters, value that lasts, and value that multiplies.” Industrial capitalists are relegated to cost cutting and benefit borrowing, and society will come knocking looking to collect on its debts sooner rather than later.

Prosperity on an ark differs from prosperity on a game reserve. During the reign of industrial capitalism the fiercer hunter (the one who shifts more costs onto society) engendered the most prosperity, now that society has realized that the world is something more like a fragile ark the fiercer hunter becomes obsolete, even punished. It is the radical insurgent who will be rewarded for creating authentic value. The example of Walmart highlights this shift.

Once the “Death Star of companies: ultra-lean, ultra-mean, and the size of a planet,” Walmart became the biggest company in the world by exploiting natural resources, squeezing suppliers, and crushing communities. It also became public enemy number one for a generation of activists and reformers. While still not perfect, even “Walmart is learning that, as the world shifts from the economics of a game reserve to those of an ark, competitive advantage is just table stakes. It is constructive advantage that fuels twenty-first-century outperformance.” It has since adopted three constructive capitalist goals, “to use 100 percent renewable energy, to achieve zero waste, and to sell only products that benefit the environment.” Walmart’s goal here isn’t so much altruistic as it is likely still to reduce cost through increased efficiency, but that is exactly the point. The new capitalist world that Haque lays out is one where even the largest company’s have to realize that costs cannot be infinitely shifted in a finite world, and they will be forced to adapt, forced to forget about cost advantage and focus on constructive advantage, forced to think of authentic value creating instead of thin value and deep debt.

Want to become a constructive capitalist? Now is your chance says Haque. Beat the big guys to a constructive advantage, don’t do it out of necessity but rather as a purpose and you will be rewarded in a big way.

Ariel

This article fits well with our conversation about multi-tasking parents during our last class.

“Dr. Turkle said that she recognizes the pressure adults feel to make themselves constantly available for work, but added that she believes there is a greater force compelling them to keep checking the screen.”

kristine

Book Review

Title: Change by Design

Author: Tim Brown – CEO and President of IDEO

This book is about how “design thinking” can transform organizations and Inspire innovation. Tim Brown uses a lot of examples and cases to illustrate the following ideas:

Design Thinking is a human centered design technique in which people (not only designers) use a set of tools to reach high levels of innovation in products, services, businesses models and almost any other problem.

This paradigm relies on our ability to be intuitive, to recognize patterns, to construct ideas that have emotional meaning as well as functionality, to express ourselves in media other than words and symbols.

Design Thinking uses the approach of three spaces of innovation: Inspiration, Ideation and Implementation.

-Inspiration: The problem (or design brief) or opportunity that motivates the search of solutions

-Ideation: The process of generation, developing and testing ideas

-Implementation: The path that leads from the project room to the market.

IDEO facilitates the design thinking process through dedicated spaces to liberate creativity, called “project rooms”, but to be creative, a place does not have to be crazy, kooky and located in Northern California, the prerequisite is an environment –social and special- in which people know they can experiment, take risks, and explore the full range of their faculties.

In the first part of the book, Brown introduces how Human Centered Design techniques –field observations, prototyping, visual storytelling- can be used not only by designers but these skills can migrate outward into all parts of organizations and upward into highest levels of leadership. The second part explains how design thinking can be used to solve problems like pollution, poverty and inequity. As Brown says: “Design Thinking can help us chart a path into the future”.

This book about the story of Tony Hseih and Zappos, which was later sold to Amazon.com for around $1.2 billion. Tony initially takes us through the story of his first startup LinkExchange and how he sold it to Miscrosoft for $265 million. He was particularly unsatisfied by the culture and people they hired in rapid growth period, which eventually led him and his partner to sell the business to Microsoft. This experience eventually helped him designing better hiring process and also unparalleled culture at Zappos.

Tony also tells us one of experiences at the rave parties he attended, how he was mesmerized by the laser lights, fog and especially how everyone was dancing together with no self-conscientiousness as if individual consciousness had disappeared and been replaced by a single unifying group consciousness. He quotes,

“I didn’t know it at the time, but ten years later I would learn that research from the field of the science of happiness would confirm that the combination of physical synchrony with other humans and being part of something bigger than oneself (and thus losing momentarily a sense of self) leads to a greater sense of happiness, and that the rave scene was simply the modern-day version of similar experiences that humans have been having for tens of thousands of years.”

This experience was profound and inspirational in shaping Zappos culture.

Zappos was facing major financial difficulties in the initial phases. Tony even had to scarifies most of his property in funding the company. In the midst of such situation they had to make strategic decision core to their business between choosing drop shipping which was easy money, and managing inventory by themselves, which was cumbersome but allowed them better customer service. They chose to the higher road and decided to manage inventory by themselves making customer satisfaction their ultimate goal than just making profits. Tony recalls the core takeaway from the book Good to Great by Jim Collins,

“Yeah, you should definitely read it,” I replied. “He talks about what separates the great companies from just the good ones over the long term. One of the things that he found from his research was that great companies have a greater purpose and bigger vision beyond just making money or being number one in a market. A lot of companies fall into the trap of just focusing on making money, and then they never become a great company.”       

In this process they also decide to burn their option of drop shipping immediately to completely focus on managing inventory themselves as a business. I think this level commitment helped them create a far greater company than mere profitable business.

Moving Zappos entire business from San Francisco to Las Vegas and not outsourcing their core competency allowed them to create better company culture and focus on the customer service. Zappos on focused three main things in their company to achieve the success they had, customer service (which would build their brand and drive word of mouth), culture (which would lead to the formation of their core values), and employee training and development (which would eventually lead to the creation of our Pipeline Team).

– Kuldeep

The seemingly ordinary activity of buying fresh tomatoes is unveiled as having one of the highest human and environmental costs in the industry. In Tomatoland, we are taken on an striking journey that exposes corrupt practices adopted by the agricultural industry, in its quest to bring consumers those perfect round tomatoes all year round. It begins on the streets of Florida, where the author accidentally comes across some hard green fruits. He later discovers these are unripe tomatoes; ones that are on their way to be gassed till ripe, packed and shipped to destinations all over the US. His  investigation finds that this is part of a long series of abusive practices the tomato industry uses to maximize its crops. The author traces  back the conditions surrounding tomato production to the impoverished town of Immokalee, Florida. He exposes controversial issues such as the extensive use of highly toxic, carcinogenic pesticides and the enslavement of migrant workers in sub-human living conditions. He sheds the light on the all-too-similar stories of 3 field worker families who’s exposure to toxic chemicals caused their babies to be born with birth defects. Other migrant workers found themselves making no more than 20$ a week or less, while sinking into debt to their crew bosses. The vicious cycle in which workers found themselves would have them trapped in harsh conditions for years, some being subject to brutal beatings or even death. Even so, a group of workers were able to come together under the name of the “Coalition of Immokalee Workers”. The group started when a 16 year old tomato picker was beaten for taking an un-authorized water break from work, then evolved into an organization which is determined to protect field workers from such abuse. One that was able to exert enough pressure on a number of fast food chains to become more aware and socially responsible in their supply chain.

Its not an unusual story, that of disadvantaged workers hired to harvest goods for corporations who reap high profit margins. Nonetheless, this particular book is intriguing because of the extent to which it was allowed to persist with minimal intervention of the law. It draws our attention to the responsibility we all have towards understanding where our food comes from, after all, our produce may have been picked by the hand of a slave. An interesting reference was also made to the findings of a study which states that the profit of organic tomato farming is only 10% less profitable than that of commercialized green fruits. More importantly, going organic can be a profitable business. It is truly appalling to take an in-depth look at what is really going on in the fields, but hope is restored with the  efforts of pro bono attorneys, social workers, and local organizations such as the “Coalition of Immokalee Workers” who strive to improve those conditions everyday.

Naila

Daniel Pink gives an interesting take on motivation theories in his book “Drive:The surprising truth of what motivates us”.

The book has two parts of which the first part examines the problems with the current “carrot and stick” motivation theories used for rewards in businesses. He calls these theories as “Motivation 2.0” which worked for the Industrial Age. He gives several reasons and talks about a research where it is clearly proved that for tasks which require the use of the left brain, we cannot simply use the carrot and stick motivation techniques where “pay more do more” will not be sufficient.

Hence he introduces the theory of intrinsic motivation. He says that just extrinsic motivation is not enough but a person should be intrinsically motivated when he doing a task.For this, in the second part talks about the three elements which are at the core of using intrinsic motivation namely

1) Autonomy: People should be given freedom to choose their task, timelines,team and technique at their workplace.

2) Mastery: Using Goldilocks tasks which are just right so as to guide a person to master a task which is given to him/her.

3) Purpose: Giving the employees a sense of purpose which is bigger than themselves will often be an important of motivating the employees to do the job.

He calls the above model as “Motivation 3.0” which is more relevant to the Information Age. The employees of todays technology industries are information workers who need to be creative and hence we cannot have the same “Motivation 2.0” tools in this case.

The example which I liked the most is the power of open source software. We can see all the above mentioned factors are work in the open source field. The people are not motivated by extrinsic factors.However, they have autonomy in what they are doing. The tasks which are done by the open source community are voluntary in nature and so they come with real autonomy where the person can choose all the mentioned attributes namely the task itself, timelines, team and the technique.They are doing it in order to gain mastery over an open source technology/platform. They want to get better at the software component that they are building. They also have a sense of purpose in that they are contributing to the society at large and will potentially be used by a large user base.

The book ‘Good Boss, Bad Boss’ illustrates the characteristics of good bosses and advises readers how to become a good boss. The book starts with the mindset of good bosses. He argues that the mindset of a great boss should have the following key characteristics:

– Constantly think about themselves

– Got grit

– Focus on small wins

– Beware the Toxic Tandem

– Got their employee’s backs

It follows how to become a successful and good boss. To become  a successful boss, he gives the following advice:

– Take control

– Strive to be wise

– Select and breed employees who bring out the best in others

– Link talk and action

– Serve as a human shield

– Don’t shirk the dirty work

– Squelch your inner bosshole

The author says that these are the key success factors to become a successful boss.

There are two questions that I would like to consider together.

1) These are quite generic arguments. These are not magic pills that can turn some bad boss into good boss. To achieve this, you need to change yourself as well as find a way to achieve them. Especially, for those that aim to improve interaction between the boss and employees, how can bosses achieve this? by careful observation on employees? by empathy? by more communication (involving more private matters between them)?

2) Good bosses are financially beneficial (or beneficial in some success metrics) to companies? If so, how? When is the case if not? For example, if a general is not bossy enough in the military and not intentionally overly aggressive, he or she would not be able to control their group effectively in certain situations. In finance industry, masculine men can be found easily because the attitude expedites decision process. If this is generally true, would being good bosses have positive impacts on the performance of companies?

— Travis

One of the recent examples of doing well and doing good that I saw is “Ek Gaon” which literally means “One Village” in Hindi. The concept is simple, using the basic mobile phones to notify the Indian farmers about the decisions that they need to make with regards to the crops and when to dispense them and so on. However, they are doing well as this is a much needed service to the farmers. Currently, there has been an alarming increase in the number of farmers suicides in India. Hence, Ek Gaon is certainly a step in the right direction

Ek Gaon

Collaborative Fund is a do-goody VC company that has among its aims ‘collaborative consumption’–getting people to consume efficiently by sharing and renting rather than purchasing new products all the time.  Rentcycle is one of the companies that it invests in.

Seems like there is a lot of potential in web companies reducing search costs for reusing products.  eBay is largely a market for second-hand goods, which means people can throw out less.

I wonder if there are limits to the potential of these kinds of services.  Is there a maximal market efficiency for product reuse that we are headed for?