Business runs on certainty. Investors want predictable profits and will punish companies that vacillate up and down. Managers want accountable employees who they can trust to get things done. Customers want to deal with firms that they can be sure will be around next week.
When things are uncertain, penalties are imposed. Valuations tumble, people get fired, customers flee. That’s why managers learn to eliminate complexity from the system and keep it simple. They strive to remain within their realm of expertise and not stray too far into the unknown.
Yet to manage complexity we must do more than just ignore it. We can, of course, limit uncertainty by sticking with what we know and avoiding what we don’t. Still, uncertainty is not a bug, but a feature of any system that is exposed to the real world. Sooner or later, no matter what we do, it’s going to catch up with us. So, in the end, we need to meet it head on.
Self-interest has always been a primary tenet of capitalism. As Adam Smith famously wrote, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” Private interest, in the aggregate, is often a public good.
Yet in an article inHarvard Business Review, William Lazonick argued just the opposite. In particular, he accused greedy CEO’s of advocating for public research, while at the same time pumping money into share buybacks in order to gin up their stock based compensation, enriching themselves while impoverishing the rest of us.
His argument, while sensational and superficially persuasive, is ultimately flawed. First, he cynically selects his facts to suit his argument (more on that below). Second, he seems to fundamentally misunderstand the relationship between public and private investment. The reality is that stock buybacks are often positive and healthy for the economy and the country.
In his novel The Castle, Franz Kafka tells the story of a man named “K” who is summoned by mysterious authorities for unknown reasons. He finds himself at the mercy of their bureaucracy and endless paperwork, which is carried out for a purpose that nobody can fathom but everyone seems to accept.
Most people can relate to the story. 20th century era bureaucracies often seem as if they were designed by Kafka himself. From governments to corporations to international institutions like the IMF, we are often at the mercy of a monolithic central authority we don’t really understand, but must submit to.
Yet although we’ve mostly come to accept the realities of central authority, digital technology is creating a titanic shift toward distributed models. Rather than assets managed by centralized institutions, we have ecosystems managed by platforms. While most welcome this change, it does create new challenges. We’re all going to have to learn to adapt.
For decades, marketers plied their craft according to a simple formula: Advertising creates awareness which in turn produces sales. This was not, as many would argue, a mistaken belief. Virtually all of the great brands of the 20th century were built using that model and many still prosper with it today.
However, it has become incomplete. A variety of trends, including community marketing, digital technology, social media and mass personalization—just to name a few—have conspired against the traditional view that message and media are sufficient to create sales.
So today’s marketers have a serious challenge. If the old model is broken, what should replace it? Unfortunately, there is no easy answer. Media budgets continue to play an important role in successful marketing programs, just as many of the trendy new tactics often fall short. What we need is not a new model, but a more strategic way of thinking.
Humans are natural pattern recognizers. Whether, as in prehistoric times, we were recognizing danger in a telltale rustle of the bushes or skimming a page of letters and numbers today, we use patterns to derive meaning without having to do a more detailed inspection.
Futurist and entrepreneur Ray Kurzweil considers pattern recognition so important that in his recent book, How to Create a Mind, he argued that pattern recognition and intelligence are essentially the same thing. Expertise, in essence, is the familiarity of patterns of a specific field.
It’s earnings season again and Amazon, for the first time ever, has broken out the financial results of its cloud services division, Amazon Web Services (AWS). The results are impressive. In less than a decade, Amazon has grown AWS into a $5 billion business that is still growing at 50%.
Yet even more impressive—and strangely unnoticed—is that IBM cloud services is now a $7.7 billion business growing at 75%, according to IBM CFO Martin Schroeter’s prepared remarks during the company’s recent earnings call. Even for Big Blue, that’s a big business.
Amazon and IBM run vastly different operations, so making a direct comparison between the two announcements isn’t exactly apples to apples. Still, I think two things are clear. First, the cloud is becoming an absolutely massive business. Second, that much like the PC business back in the 90’s, most of the value will be in software and services, not hardware.
Most of us live busy lives. There is work, family, maybe a hobby or two and the need for some leisure time to refresh our batteries. So the amount of things we devote serious thought to is necessarily small and we get in the habit of not paying attention to much that goes on around us.
In the great majority of cases this is harmless, even prudent. We conserve our cognitive energy for things that are meaningful to us and let the rest sail by. Yet often, when tragedy strikes, it becomes clear that many people were aware of the problem, even laughed about it, but chose to do nothing.
Yet once you get into the habit of ignoring things, it becomes increasingly likely that you will miss something important. We often feel something is wrong, but look away and let the pangs of unease subside. There’s comfort in numbers, so it’s easy to go along with the crowd. However, crowds are often stupid. Simply going along with them can lead us horribly astray.
The successful decoding of the human genome in 2003 was a historic achievement. Not only because it unlocked the biological code to life, but also because it marked a new fusion of life sciences and information technology, using powerful computers and analytical techniques to multiply scientists’ efforts many times over.
Yet all of the technology won’t amount to much if the millions of people who work in healthcare can’t use it effectively. That’s the problem Dr. Lynda Chin is working to solve. By weaving together a diverse network of researchers, technologists, practicing physicians and other stakeholders, she’s creating a movement that she hopes will transform healthcare.
Tony Soprano, the heavy-handed mafia boss from the famous TV show, was a master of coercion. Through violence, extortion and bribery he rose to the top of his industry, leaving competitors in his wake. Despite the high employee turnover in his organization, he achieved attractive margins.
Yet sensing that he could benefit by exploring alternative strategies, he often sought the advice of Dr. Jennifer Melfi, who encouraged him to take a more collaborative approach. Tony thought about it for a minute and asked, “Then how do I get people to do what I want.”
Today, every manager has some version of the Tony Soprano problem. We’re used to hierarchal organizations optimized for specific tasks. Now we find that we’re competing in a networked world in which the old rules don’t apply. Rather than traditional lines of authority, we need to start thinking in terms of ecosystems, platforms and movements.
It’s no secret that big corporations aren’t what they used to be. In recent years, we’ve seen paragons such as General Motors, Kodak and Blockbuster have go bankrupt even as upstarts like Tesla, Instagram and Netflix rocket forward. The average lifespan of a company on the S&P 500 has fallen from more than 60 years to less than 20.
Throughout its history, IBM has played a special role in helping companies adapt to changes in the marketplace. It has a rare ability to not only develop advanced technology, but to design, implement and manage systems at scale. These days, however, technology is not enough and IBM’s new initiative seeks help to companies move at the speed of a lean startup.