Work, business & professional services

The success of failure

In the IPO prospectus for Google, the company stated that it would invest in projects that had a 10% chance of success if the return could be a billion dollars plus. The company also said it would 'place smaller bets in areas that seem speculative or even strange'. In other words, Google will invest in strategies and products that are more likely to fail than succeed.Failing often, failing fast and failing cheap (otherwise known as experimentation) will be a core competence in the future, but how do you create a culture that not only accepts and learns from its mistakes but does things that it knows will fail? The difference is important. Unlike scientists, managers do not deliberately try to prove themselves wrong. Instead, they use historical evidence to prove that something will work in the future. Scientists, work on a different basis - that you can never prove something is right, only that it is wrong. In other words, only through making mistakes can you disprove a hypothesis and the more mistakes you make the faster you will disprove it. So how can you harness the power of deliberate mistakes to improve your strategy or innovation process? Or to put it another way, how can you tell the difference between a smart mistake and a dumb one? To some extent the answer is not about how but when. Mistakes made on purpose are best used when the potential gain of being right far outweighs the cost of being wrong. Another reason to make deliberate errors and study the outcome is when rigid assumptions drive large numbers of small decisions. For example, it was once a core assumption that giving credit cards to students was a bad idea. However, Citibank decided to test that assumption and found that that the 'worst possible risks' were in fact nothing of the sort. Other instances when making deliberate mistakes can pay off include situations where the industry landscape is changing fast, where problems are complex and solutions are numerous or where experience with a situation is limited. In each of these cases deliberately making a mistake and learning from it can be a powerful strategy but it is rarely something that large organisations feel comfortable with. Programs like Six-Sigma have created measurement systems and cultures that aim to eliminate failure, not promote it. Employees feel insecure because of short-term employment contracts and evaluations so while they buy into 'mistakes done right' in theory, in practice they are loathe to put their own careers on the line. One solution to this dilemma is to evaluate employees on longer timeframes.This is something that IBM Research is trying. Bonus payments are linked to one-year performance, but salary and rank are linked to three-year timeframes. Maybe they've been listening to Thomas Watson, the founder of IBM, who once said ' If you want to succeed, double your failure rate'.
Ref: Various including Harvard Business Review (US), June 2006, 'The wisdom of deliberate mistakes', P.J.H. Schoemaker, R.G. Gunther. See also Business Week (US), 10 July 2006, 'How failure breeds success', J. McGregor, W.C. Symonds. and Fast Company (US), October 2005, 'Celebrate failure', R. Watson.

Do the right thing

Has the corporate obsession with strategy gone too far? Is the idea that 'strategy is destiny' just plain wrong? Is having good execution more important than having a perfect strategy? These heretical ideas are explored in a new book by Jeffrey Pfeffer and Robert Sutton (Hard Facts: Dangerous half-truths & total nonsense), which is surely a must-read for anyone involved with strategy planning. The argument is essentially this: Spending large amounts of time and money finding a perfect strategy is more or less a waste of time because the answer is usually obvious - simply listen to what your customers and employees are telling you and then just do it. This usually means making your customers (and employees) happy by delivering great products and service. Moreover, if you focus too much on a fixed strategy you will develop tunnel vision that reduces flexibility in uncertain and rapidly-changing landscapes. But can the secret of success really be as simple as responding to your environment and trying different things? This is essentially what entrepreneurs do intuitively, but because such activity cannot be easily measured or controlled, larger organisations tend to replace instinctive decision-making with formal planning structures. But not all of them. Meg Whitman, CEO of eBay has said that much of eBay's success has come from the fact that strategy is not fixed. This is very much at odds with the resource-based view of organisations which argues that the role of strategy is to find a resource that is rare and valuable or both. But these days very few things are either, let alone both. Sure, if you can discover a strategy that's invisible and difficult for competitors to copy, do it, but most aren't. Most strategies are openly paraded in annual reports, rolled out by the dozen by consultants or stolen by employees, so what's the point? Companies would therefore be much better off is they simply did what everyone knew they had to do and spent the resources they would have spent on consultants on implementation instead.
Ref: AFR Boss (Aus), June 2006, 'The failure of strategy' J. Pfeffer and R. Sutton,

The future of risk

What are companies worried about these days? A survey by several of the world's biggest insurance and risk-management companies has found that corporate-centric risks (for example, internally created or transmitted risks) are of greater concern than policy-centric, societal or environmental risks. The list of risks varies by country, and presumably by sector, although there are some commonalities. First, companies are very worried about computer-related risks, namely the loss of data, identify theft and viruses. They are also worried by the actions of governments at both a national and international level, especially with regard to government policy and legislation. This includes compliance and regulation but also, potentially, employee liability. Also on the list, in no specific order, are the actions of competitors, damage to brand or reputation, asset damage and business continuity - the last two both heavily influenced by terrorism and volatile climate change. Other issues include global pandemics (especially Avian Flu), the recruitment and retention of talent, and resource scarcity. As to whether things are getting better or worse, the consensus seems to be the latter. This is partly due to recent events, especially terrorist attacks and environmental disasters, but it's also linked to globalisation. Risks are now networked because everything is increasingly linked to everything else. For example, back in 2000 a lightening-strike started a fire in computer chip plant in New Mexico (US). The fire only lasted ten minutes but destroyed profits at Ericsson because they were unable to find an alternative supplier. Everything from supply chains to customer service is now outsourced globally, often to countries that are hazardous in terms of political regimes, economics and even the weather.
Ref: CFO (Aus), 17 July 2006, 'Awash in the age of anxiety', M. Hanly. See also The Economist (UK), 29 October 2005, 'When lightening strikes'. and Spiked Online (UK), 27 June 2006, 'Meet the new Malthusians manipulating the fear of terror', F. Furedi.
Search words: risk, risk management, outsourcing, globalisation

Stress at work

According to Jupiter Research (US), the average employee receives 32 emails per day and senior staff receive between 50 and 100. Furthermore, the volume of email is increasing at a rate of 85% annually. Implications? One consequence is an increase in stress-related compensation claims. In Australia, stress-related claims in New South Wales and Victoria have increased by 73% since 1998-99 and payouts in New South Wales have grown from AUD $5 million in 1991-92 to AUD $92 in 2004-05. Is this a problem? Obviously, yes, from a financial point of view, but research has also shown that stressed employees are, unsurprisingly, less productive too. So what, apart from email, is causing the problem? One answer, according to Dr Courtney von Hippel (an organisational psychologist) is the trend for open plan offices, which reduce privacy and increase distractions and disturbances. Another cause could be organisational cost-cutting and 'de-layering' which increases the workloads of those individuals who still have a job. Then there's increased insecurity created by short-term employment contacts and a host of external factors ranging from the breakdown of the family unit to global terrorism. However, it's e-mail that seems to be the easiest target, so experts are suggesting that employees should be persuaded to stop looking at email after hours. However, this will be difficult. Currently 50% of employees access email outside the office and on holiday according to a study by Oklahoma State University (US) and the development of new mobile technologies is going to make the situation worse, not better.
Ref: Sun Herald (Aus), 6 August 2006, 'The business of stress', E. O'Dwyer.