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Cargo Cult Strategy

2016 November 27
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by Greg Satell

During World War II, natives on Pacific islands saw something most unusual. Strange men appeared, cleared long strips of land and built structures decorated with flags. Some of these men wore large cups over their ears, while others waved sticks and, almost magically, machines appeared from the sky carrying valuable cargo.

After the war ended, the men left and the supplies stopped coming. Some of the natives formed cargo cults which copied many of the the rituals the soldiers performed. They marched in formation, wore cups over their ears and waved sticks around. Alas, no airplanes ever came.

Clearly, the idea was patently absurd. Anybody who thinks that waving sticks will cause airplanes to appear is missing some basic principles about how air travel works. Yet many modern executives also believe by mimicking the tactics of others they will somehow achieve the same results. These “cargo cult strategists” don’t do much better than the islanders.

How Siri Got Left Behind

In a recent column, longtime tech journalist Walt Mossberg complained about the ineptness of Apple’s Siri personal assistant. “So why does Siri seem so dumb?” he asked. “Why are its talents so limited? Why does it stumble so often? When was the last time Siri delighted you with a satisfying and surprising answer or action?”

Mossberg seems not only exasperated, but surprised. He shouldn’t be. The truth is that Apple thrives in engineering and product design, not developing cutting edge technology. It lacks the skills and resources of firms like IBM, Google, Microsoft and Facebook, who lead in artificial intelligence. It also has cultural constraints that make it difficult to compete in emerging areas.

While Apple is famously secretive, the firms that thrive in AI take a decidedly more open approach. IBM recently formed a Cognitive Horizons Network to collaborate with top academic institutions. Google open-sourced its library of machine learning tools, TensorFlow. The top AI companies also regularly publish their research openly.Despite its recent decision to publish its research, it’s hard to imagine Apple matching the same level of openness Google, IBM and others.

To get access to the most talented scientists and cutting edge research, you need to take a collaborative approach. For Apple, which built its business surprising competitors with “next big thing” products, that’s a tall order. The big question about Siri isn’t why Apple is failing, but why it is competing at all. It would probably be better off finding a partner to work with.

Why Blockbuster Really Failed

By 2004, it was obvious that Blockbuster was in trouble. Netflix, a fledgling startup that eschewed retail stores in favor of mailing movie rentals to its customers, was quickly gaining ground. Clearly, Blockbuster CEO John Antioco and his team needed to do something quickly to respond to the disruptive threat.

So they formulated a strategy to meet the challenge head on. Blockbuster created an interactive unit that built a sleek website and abandoned the late fees that annoyed its customers. It also launched a new product offer, called Total Access, that gave customers the convenience of renting by mail a movie and then returning it to a retail location.

Before Blockbuster was gaining ground, but other problems soon surfaced. Its franchisees worried the online business would cut into their sales, while investors balked at the heavy costs of building the online platform and eliminating the late fees. In the end, Antioco was fired and the new CEO abandoned his strategy. The firm went bankrupt in 2010.

The executives at Blockbuster understood the Netflix threat and built a viable strategy to compete. What they did not understand was that, unlike Netflix, they were not a startup. They had investors who expected consistent profits and franchisee partners that depended on revenues for their incomes. That was the part of the Netflix model they couldn’t replicate.

IBM Is Not A Lean Startup (And Probably Never Will Be)

IBM created and then dominated the machine tabulating industry, but was outfoxed by Remington Rand, which built the first commercial digital computer, Univac. Then it completely missed out on the minicomputer revolution while firms like DEC, Wang and others prospered. After IBM created the PC revolution, Compaq and others went on lead it.

Remington Rand, DEC, Wang and Compaq all have two things in common. They all were leaner and faster than IBM and they are all out of business today. IBM, meanwhile, remains the big, slow company it always has been and earned $15 billion on $80 billion in revenues last year.

One reason that IBM continues to thrive, despite the inevitable ups and downs, is that it knows what it is. It is not lean nor is it fast. It is not always even particularly smart. Like most companies, it has made some foolish mistakes. What is does have is deep client relationships and a Research division that has more Nobel Prizes than most countries.

Today, IBM does not directly compete with companies like Google, Apple or Facebook in areas like search, mobile or social networks. Rather, it’s betting its future on cognitive computing, It is also investing in new computing architectures, like quantum computing and neuromorphic chips. These are all areas where it has considerable advantages.

Unlike Apple and Blockbuster, IBM follows a strategy that is built to fit its unique capabilities and culture.

Understanding Strategy, Capabilities And Culture

Every organization can benefit by learning about the best practices of others. Certainly, Apple needs to find a way to compete in a new cognitive era that advances in artificial intelligence are bringing to the fore. Blockbuster’s management team was smart to borrow tactics from Netflix. IBM should try to be as agile as it possibly can.

Yet at the same time, we also must accept certain realities. Apple does not have the organizational culture in place to explore scientific horizons. It never has. Blockbuster, as a public company with thousands of investors and franchisee partners, had limitations that Netflix didn’t. IBM, with nearly 400,000 employees, will never be as nimble as a startup.

It makes no sense to build an airfield, without learning how to build machines that can fly first. In much the same way, you can’t expect to adopt the strategies and tactics of another organization and enjoy the same success, without building the capabilities and culture that will make those tactics effective.

In Good Strategy / Bad Strategy, Richard Rumelt wrote that good strategy “brings relative strength to bear against relative weakness” and that’s undoubtedly true. Yet far too many managers today are merely adopting the strategies that someone else made successful. They are, essentially, cargo cult strategists.

– Greg

10 Responses leave one →
  1. Michael Breeden permalink
    November 27, 2016

    IBM’s ability to systematically develop advanced technology has always amazed me. It is a well known aspect of the company. Two questions if you care to fill in a bit. How does IBM make its money and does IBM ever move their technology into “start ups” or “spin-offs”. Do they ever come up with something that needs market speed and the executives just say – lets make a small division to get this out there and make a truck load of money before everyone else copies it.
    An example might be that all modern high capacity hard drives depend on developments from IBM. Did they licence it or something? Did they even make money off it?

    [Reply]

    Greg Satell Reply:

    It’s true that IBM has missed out on a lot of opportunities over the years. Probably the best example is relational databases, which it invented, but allowed companies like Oracle and SAP to build enormous businesses out of. One reason is its history of antitrust problems, which inhibited its ability to aggressively seek out new markets. The other is, as I noted in the article, that it is a big, slow company.

    However, there have been important exceptions, such as the PC and, more recently, with how it is marketing Watson through API’s.

    – Greg

    [Reply]

  2. November 27, 2016

    Nice post. Enjoyed reading it. I’ve always thought that Apple is more of a marketing company rather than a technology company. It takes the technology that others have done and packages it in a nice clean package that is easy to use. And IBM is now more of a services company, helping companies use technology that others have developed. Many companies try to copy what others have done with little success due to their lack of understanding. Loved the cargo cult mention.

    [Reply]

    Greg Satell Reply:

    I think that is somewhat true of Apple, but they do design and engineer great products. IBM, however, has a history of pioneering technologies, even ones it doesn’t end up profiting from, including FORTRAN, hard drives, relational databases, the UPC code, RISC architecture and many more.

    – Greg

    [Reply]

  3. December 2, 2016

    We educators keep encountering the same kind of problem. We know that the PISAs and some other multinational assessments can be standardized and they can be compared in terms of outcomes. However, when we find the top performing countries, we find many experts pumping out “strategies and tactics” that apparently made those national education programs succeed. A few articles have come out exploring the cultures and policies of those successful nations and those articles have argued that we can’t simply absorb those strategies and tactics into our (the US’s) own, but this article, addressing the issue from a business standpoint, offers a fresh new perspective and powerful anecdote to share in Board of Education meetings and in education conferences.

    [Reply]

    Greg Satell Reply:

    That’s a very good point I hadn’t thought of. Thanks Duanne. Have a great weekend.

    – Greg

    [Reply]

  4. cy:beh permalink
    December 3, 2016

    Cargo Cult Science commencement address at Caltech by Feynman comes to mind 🙂

    [Reply]

    Greg Satell Reply:

    Yes, that’s what it’s based on:-)

    [Reply]

    cy:beh Reply:

    The Chief – All Genius, All Buffoon 🙂
    https://twitter.com/cy_beh/status/221471194896019457

    [Reply]

    Greg Satell Reply:

    A brilliant man!

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