Smaller Beats Bigger

An excerpt from Exponential Organisations

“Size Does Matter, Just not the Way You Think…

Ronald Coase won the 1991 Nobel Prize in Economics for his theory that larger companies do better because they aggregate assets under one roof and, as a result, enjoy lower transaction costs. Two decades later, the reach delivered by the information revolution has negated the need to aggregate assets in the first place.

For decades, scale and size have been desirable traits in an enterprise. A bigger company could do more, the argument went, because it could leverage economies of scale and negotiate from strength. That’s one reason why, for generations, business schools and consulting firms have focused on the management and organization of extremely large companies. And Wall Street has gotten rich trading the stock of giant companies, which often merge to create even more gigantic organizations.

All that is changing. In The Start-up of You, Reid Hoffman shows that transaction costs are no longer an advantage and that each individual can (and should) manage himself or herself as a business. Why? One reason is the unparalleled and unprecedented ability of a small team today to do big things—an ability that grows ever greater if the exponential technologies described in Chapter One are put to use. Both now and in the coming years, adaptability and agility will increasingly eclipse size and scale.

A telling example is how Netflix, with its centralized DVD rentals and small footprint, easily outmaneuvered and eventually destroyed Blockbuster, despite its 9,000 stores and distributed geographical assets. In the software world, Salesforce.com, which operates 100 percent in the cloud, can adapt to changing market conditions much faster than can competitor SAP, given that the latter requires customized installations onsite.

We’ve already discussed Airbnb, which by leveraging its users’ existing assets, is now valued at more than the Hyatt Hotels chain worldwide. While Hyatt has 45,000 employees spread out across its 549 properties, Airbnb has just 1,324, all located in a single office. Similarly, Lending Club, Bitcoin, Clinkle and Kickstarter are forcing a radical rethinking of the banking and venture capital industries, respectively. (No retail outlets are involved in these new financial tech startups.)

Richard Branson’s Virgin Group is structured to maximize the benefits of a small-form factor. Its global research center is home to the company’s R&D department and a unit that spins out new businesses under the umbrella brand. The Branson group now consists of more than four hundred companies, all operating independently. Collectively, they are worth $24 billion.

As Peter Diamandis has often noted, one key advantage of a small team is that it can take on much bigger risks than a large one can. This can be seen clearly in the graph below—courtesy of Joi Ito, director of the MIT Media Lab—which shows how startups are characterized by high upside potential and low downside, while large organizations are characterized by just the opposite.”

Excerpt from “Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it)” by Salim Ismail, Michael S. Malone, Yuri van Geest, Peter H. Diamandis)

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The problem with experts

An excerpt from Exponential Organisations

The reason “Disruption is the New Norm” is that democratized, accelerating technologies, combined with the power of community, can now extend Christensen’s Innovator’s Dilemma to an unstoppable force.

The old saw that an expert is “somebody who tells you why something cannot be done” is truer than ever before. History has shown that the best inventions or solutions rarely come from experts; they almost always come from outsiders. That is, from people who aren’t domain experts but who offer a fresh perspective.

When Kaggle runs a competition, it has found that the first responders are experts in a particular domain who say, “We know this industry, we’ve done this before and we’ll figure it out.” And just as inevitably, within two weeks, complete newcomers to the field trounce their best results. For example, the Hewlett Foundation sponsored a 2012 competition to develop an automated scoring algorithm for student-written essays. Of the 155 teams competing, three were awarded a total of $100,000 in prize money. What was particularly interesting was the fact that none of the winners had prior experience with natural language processing (NLP). Nonetheless, they beat the experts, many of them with decades of experience in NLP under their belts.

This can’t help but impact the current status quo. Raymond McCauley, Biotechnology & Bioinformatics Chair at Singularity University, has noticed that “When people want a biotech job in Silicon Valley, they hide their PhDs to avoid being seen as a narrow specialist.”

So, if experts are suspect, where should we turn instead? As we’ve already noted, everything is measurable. And the newest profession making those measurements is the data scientist. Andrew McAfee calls this new breed of data experts “geeks.” He also sees the HiPPO, or “highest paid person’s opinion” as the natural enemy of geeks because HiPPOs still base their opinions largely on intuition or gut feeling. We don’t believe that this is a contest that should be won completely by one side or the other. Instead, we think that when it comes to ExOs, both groups will co-exist—but with a proviso: the role of HiPPOs (or experts) will change. They will continue as the best people to answer questions and identify key challenges, but the geeks will then mine the data to provide the solutions for those challenges.

Excerpt from “Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it)” by Salim Ismail, Michael S. Malone, Yuri van Geest, Peter H. Diamandis)

Sprint by Jake Knapp

Awesome book, buy it. Here’s a taster…

It’s a freezing December day, overcast and blustery. Two cofounders lean close to each other and exchange a few words. One week ago, their last prototype failed, but they think they know why. They’ve made a few fixes, and this morning, both men feel confident. After more then three years of building and testing, their crazy long-term goal might be within reach.

A cutting twenty-mile-per-hour wind curls fine spray off the sand. Most people would say the weather sucks, but the two men hardly seem to notice. If their prototype fails, they’ll still learn something, and they know that only five people will see it happen. They make the final preparations and check in with the observers. It’s time to begin.

And it works. For twelve glorious seconds, everything goes right. Their second test is another success, and the third. Hours after beginning, they run the fourth and final test of the day, and boom! Four-for-four. In the last test, the prototype works for a full fifty-nine seconds, and the cofounders are elated.

It’s 1903, and Orville and Wilbur Wright have just become the first humas to fly a powered aircraft…

The Wright brothers started with an ambitious, practically crazy goal. At first, they didn’t know how to get there. So they figured out which big questions they needed to answer…

For the next few years, they made progress by staying in a prototype mindset. One step at a time, they isolated challenges and broke through obstacles. Could they get enough lift? Would a person be able to keep the aircraft steady? Could they add an engine? Along the way they crashed. A lot. But each time, they used a new prototype purpose-built to answer one specific question. They remained fixed on the long-term goal, and they kept going…

Forming a question, building an experiment, and running a test became a way of life… Sprints [focuses] can create those habits in your company.

The smartest book ever?

I’m currently reading Smarter Faster Better by Charles Duhigg. It’s about how individuals and teams can become crazy productive.

It’s brilliant because it summarizes all my favorite books, and also because it’s a gripping collection of stories.

Here are the chapters i’ve read so far…

1. Motivation. What makes the Marines so effective? Drive by Dan Pink and Start With Why by Simon Sinek.

2. Teams. The story behind Saturday Night Live. Social Physics by Alex Pentland.

3. Focus. The nurse’s intuition. Superforecasters by Philip Tetlock.

4. Goal Setting. The Yom Kippur War. Work Rules! by Laszlo Bock.

5. Managing Others. How the FBI solves kidnappings. Agile and Lean.

6. Decision Making. The world’s first female poker champion. The Signal And The Noise by Nate Silver. Thinking, Fast And Slow by Daniel Kahneman.

7. Innovation. How Pixar turned Frozen from a flop into a smash hit. Creativity, Inc and wisdom from Steve Jobs.

8. Absorbing Data. How Cincinnati turned it’s schools around. Lean Startup by Eric Reis.

It even get a dash of Nassim Nicholas Taleb in there somewhere too.

The only big thing it’s missing so far is Made To Stick by the Heath brothers. (The recent People vs OJ Simpson series does a good job of covering that).

What do you think?

Making Ideas Stick

From the awesome book “Made To Stick

PRINCIPLE 1: SIMPLICITY
How do we find the essential core of our ideas? A successful defense lawyer says, “If you argue ten points, even if each is a good point, when they get back to the jury room they won’t remember any.” To strip an idea down to its core, we must be masters of exclusion. We must relentlessly prioritize. Saying something short is not the mission — sound bites are not the ideal. Proverbs are the ideal. We must create ideas that are both simple and profound. The Golden Rule is the ultimate model of simplicity: a one-sentence statement so profound that an individual could spend a lifetime learning to follow it.

PRINCIPLE 2: UNEXPECTEDNESS
How do we get our audience to pay attention to our ideas, and how do we maintain their interest when we need time to get the ideas across? We need to violate people’s expectations. We need to be counterintuitive. A bag of popcorn is as unhealthy as a whole day’s worth of fatty foods! We can use surprise — an emotion whose function is to increase alertness and cause focus — to grab people’s attention. But surprise doesn’t last. For our idea to endure, we must generate interest and curiosity. How do you keep students engaged during the fortyeighth history class of the year? We can engage people’s curiosity over a long period of time by systematically “opening gaps” in their knowledge — and then filling those gaps.

PRINCIPLE 3: CONCRETENESS
How do we make our ideas clear? We must explain our ideas in terms of human actions, in terms of sensory information. This is where so much business communication goes awry. Mission statements, synergies, strategies, visions — they are often ambiguous to the point of being meaningless. Naturally sticky ideas are full of concrete images — ice-filled bathtubs, apples with razors — because our brains are wired to remember concrete data. In proverbs, abstract truths are often encoded in concrete language: “A bird in hand is worth two in the bush.” Speaking concretely is the only way to ensure that our idea will mean the same thing to everyone in our audience.

PRINCIPLE 4: CREDIBILITY
How do we make people believe our ideas? When the former surgeon general C. Everett Koop talks about a public-health issue, most people accept his ideas without skepticism. But in most day-to-day situations we don’t enjoy this authority. Sticky ideas have to carry their own credentials. We need ways to help people test our ideas for themselves — a “try before you buy” philosophy for the world of ideas. When we’re trying to build a case for something, most of us instinctively grasp for hard numbers. But in many cases this is exactly the wrong approach. In the sole U.S. presidential debate in 1980 between Ronald Reagan and Jimmy Carter, Reagan could have cited innumerable Statistics demonstrating the sluggishness of the economy. Instead, he asked a simple question that allowed voters to test for themselves: “Before you vote, ask yourself if you are better off today than you were four years ago.”

PRINCIPLE 5: EMOTIONS
How do we get people to care about our ideas? We make them feel something. In the case of movie popcorn, we make them feel disgusted by its unhealthiness. The statistic “37 grams” doesn’t elicit any emotions. Research shows that people are more likely to make a charitable gift to a single needy individual than to an entire impoverished region. We are wired to feel things for people, not for abstractions. Sometimes the hard part is finding the right emotion to harness. For instance, it’s difficult to get teenagers to quit smoking by instilling in them a fear of the consequences, but it’s easier to get them to quit by tapping into their resentment of the duplicity of Big Tobacco.

PRINCIPLE 6: STORIES
How do we get people to act on our ideas? We tell stories. Firefighters naturally swap stories after every fire, and by doing so they multiply their experience; after years of hearing stories, they have a richer, more complete mental catalog of critical situations they might confront during a fire and the appropriate responses to those situations. Research shows that mentally rehearsing a situation helps us perform better when we encounter that situation in the physical environment. Similarly, hearing stories acts as a kind of mental flight simulator, preparing us to respond more quickly and effectively.

The problem with computers and programmers. A lesson from the first atom bomb.

World War II almost ended differently. Physicists couldn’t help over-engineering the software to develop the atomic bomb.

“Well, Mr Frankel, who started the program, began to suffer from the computer disease that anybody working with computers now knows about. It’s a very serious disease and it interferes completely with the work. The trouble with computers is you play with them. They are so wonderful. You have these switches – if it’s an even number do this, if it’s an odd number do that – and pretty soon you can do more and more elaborate things if you are clever enough, on one machine.

After a while the whole system broke down. Frankel wasn’t paying attention; he wasn’t supervising anybody. The system was going very, very slowly – while he was sitting in a room figuring out how to make one tabulator automatically print arc-tangent X, and then it would start and it would print columns and then bitsi, bitsi, bitsi, and calculate the arc-tangent automatically by integrating as it went along and make a whole table in one operation.

Absolutely useless. We *had* tables of arc-tangents. But if you’ve ever worked with computers, you understand the disease – the *delight* in being able to see how much you can do. But he got the disease for the first time, the poor fellow who invented the thing.”

It’s an extract from “Surely You’re Joking Mr Feynmann”. It has some great stories about curiosity, collaboration and the importance of people understanding the “why” behind the “what” they are doing.

What Matters Now – Highlights

What Matters Now is Gary Hamel′s impassioned plea to rethink the fundamental assumptions we have about management, the meaning of work, and organizational life. He asks, “What are the fundamental, make–or–break issues that will determine whether your organization thrives or dives in the years ahead?” The answer is found in five paramount issues: values, innovation, adaptability, passion, and ideology.

Innovation: Innovation is the only defense against margin–crushing competition, and the only way to outgrow a dismal economy. In too many companies, innovation is still a buzzword, rather than the responsibility of every single individual. This must change.

Adaptability: In a world of accelerating change, every company must build an evolutionary advantage. The forces of inertia must be vanquished. The ultimate prize: an organization that is as nimble as change itself.

Passion: In business as in life, the difference between “insipid” and “inspired” is passion. With mediocrity fast becoming a competitive liability, success depends on finding new ways to rouse the human spirit at work.

Ideology: Today, businesses need more than better practices; they need better principles. Bureaucracy and control have had their day. It′s time for a new ideology based on freedom and self–determination.

Values: With trust in large organizations at an all time low, there is an urgent need to rebuild the ethical foundations of capitalism. What′s required is nothing less than a moral renaissance in business.