Here are some things I wanted you to take a look at:
ChangeThis – The idea for ChangeThis originated with Seth Godin and a group of interns in the summer of 2004. Seth called the site “an idea distribution center.” The manifestos are produced in a landscape pdf format making them easy to read and spread online. To date, 3.3 million manifestos have been downloaded from the site. Seth came to 800-CEO-READ in 2005 in search of a permanent home for the site. Since then, we have published 260 manifestos on topics ranging from using Toyota Production System techniques in healthcare to excellence in non-profits to using improvisation techniques in the business setting.
InBubbleWrap – The site was created as an innovative way to connect publishers with readers. Each day, a new book was posted with a description and an opportunity to enter a electronic raffle to win a copy of the book. The site was funded by co-operative sales dollars from publishers. At the apex of its popularity, InBubbleWrap had an audience of 10,000 readers and more than 1,500 people would enter for the raffle daily. 800-CEO-READ still uses the site, but they have changed from daily to weekly.
My Favorite Business Book – Readers of The 100 Best Business Books of All Time often contact Jack and I with books that they felt should have been included in the list. We built myfavoritebizbook.com as an outlet for those readers to share the stories of their favorite books. To date, 174 stories have been entered about 117 different books.
Writing and Reviews
THE MIGHT AND MYTH OF GOOD TO GREAT
by Todd Sattersten
I wrote this piece in response to the growing evidence calling into question Jim Collins’ research methodology and findings.
A growing wave of critics is taking shots at Jim Collins and his book, Good to Great, questioning the research and Collins’ oft-followed path for corporate success. The arguments against Collins are nicely summarized in a Boston Globe article written by Drake Bennett titled “Luck Inc.” Jim Collins is quoted, pushing back on some of the counterclaims to his contribution to “business-success literature.” Bennett also gets a quote from Tom Peters, co-author of In Search of Excellence —- which takes its share of hits for similar offenses. (Peters posted two lengthy response on his own blog – part one and part two). Halo Effect author Phil Rosenwieg makes an appearance too, strongly advocating a second look at the validity of these types of books. In sum, I found that the article offers a good history of business books and shows great journalistic work on Bennett’s part.
Rather than write a lengthy response here with additional claims, I am going to direct you to Bob Sutton’s (whom Drake interviewed for his article) blog post, “A Well-Crafted Critique of Business “Success” Books and My Ambivalence About Good to Great.” In typical form, Sutton delivers a response with substance and clarity, having explored this terrain well with Jeffery Pfeffer in Hard Facts, Dangerous Half-Truths and Total Nonsense. One particular point of Sutton’s that bears repeating, however, is the irony in that many of the findings that Collins reports are supported by other peer-reviewed research, something Collins fails to use in Good To Great. His theories about “Getting The Right People On The Bus” and “The Hedgehog Concept” might be worthy of pursuit, but given the shortcomings in the research it would be wrong to attribute the importance of thoughtful hiring and strategic focus to Collins’ work alone.
The bottom line is this: there is enough evidence now to force us to reconsider Good To Great as the pinnacle management book of this decade. Michael E. Raynor, Mumtaz Ahmed, and Andrew D. Henderson in their recent HBR article say that success studies should be treated like fables and looked at as sources of inspiration, not how-to manuals. Good to Great is directionally correct, but it is hard to see the book as the roadmap for making your company great.
What makes all of this more interesting is the May 19th release of Collins’ new book, How the Mighty Fall: And Why Some Companies Never Give In. The book’s publisher, HarperCollins, is not releasing any advance copies, but here is the marketing copy for the new effort:
Good to Great and Built to Last identified the distinguishing characteristics shared by companies that not only achieved greatness, but also sustained it. In How the Mighty Fall, Jim Collins considers the “dark side,” offering a perspective on how a fall from greatness can happen — to even the seemingly invincible. Adapting the very methodology that established Good to Great as a landmark, How the Mighty Fall shows that every institution, no matter how great, is vulnerable to decline, but recovery is possible. In some cases, companies emerge stronger — even after having crashed into the depths of a near-catastrophic fall. Collins presents a framework that will help business leaders and companies identify the “silent creep of impending doom” and swiftly set a correction course. Rigorous in its analysis, surprising in its findings, How the Mighty Fall is an in-depth look at the decline of some of our nation’s greatest companies and a useful tool for companies and individuals seeking to avoid such a fate. Themes from How the Mighty Fall:
Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.
An institution can look strong on the outside but already be sick on the inside, dangerously on the cusp of a precipitous fall.
The signature of the truly great versus the merely successful is not the absence of difficulty, but the ability to come back from setbacks, even cataclysmic catastrophes, stronger than before…As long as you never get entirely knocked out of the game, hope always remains.
Jim Collins’ extensive interview with Bo Burlingham in the 30th anniversary issue of Inc. Magazine alludes to some of the new material. BusinessWeek is also going to have early coverage of the book according to a sales mediakit.
I find it intriguing that the promotional copy proudly touts the “very methodology” Collins used in creating Good to Great and think instead many will be looking at this book much more closely to see if Collins has corrected some of his research faults.
THE CORE TRILOGY BY CHRIS ZOOK
A Review by Todd Sattersten
This is an essay I wrote that compiled the findings of Zook’s work. I wrote it early on for The 100 Best Business Books, but the length and style didn’t match the other reviews we had written. I’d like to see more pieces in the Review that pull together concepts over time.
You are a witness to strategy playing out all around you. When the local newspaper runs its yearly story about which restaurants have closed, it is really reporting on failed strategies. Every one of those restaurants felt they could draw a sufficient number of customers to sustain a business…and they were all wrong. Our publisher, Portfolio, in deciding to publish this book, made a strategic decision, one based on the belief that this book could compete with others on the retail shelves. Strategy is not some arcane methodology limited to discussions around a boardroom table. Strategy is about competition and determining a course of action based on the realities of the market.
There are a nearly infinite number of choices when it comes to determining strategy for a company, department or even PTA. The bad news is that once a leader decides on a course of action, there is only a one-in-four chance that action will be successful. That is a sobering statistic and explains just why so many restaurants close within the first year of business. So, what if you could get a hint about which action might be more apt to succeed? What if there was some trustworthy information that could improve your odds?
Chris Zook, head of Bain’s Global Strategy practice, has been looking at where growth comes from for over seven years and he has written three books that detail his work. The first, Profit from the Core, summarizes ten year’s worth of research and proves that successful growth comes from focusing, not diversifying. Beyond the Core takes the next step, and in it, Zook argues for companies to make adjacent strategic moves leveraging their core for growth. Unstoppable explains how the need to redefine a company’s core strategy may be the only option and how to make the transition successfully.
These three books can be read together or individually. A specific problem may lead you to read a specific title. The key insights appear in all of the books, but receive varying degrees of emphasis. Let’s start by getting you excited about what Zook has to say.
The Reality of Growth (Say No to the Status Quo)
Companies have to grow: Competitors are in a constant battle to steal customers and their precious dollars; Inflation eats away at steady profits; Investors expect better-than-bond returns. Growth metrics indicate the health of a business and its strategy.
In Profit from the Core, Zook and his team defined reasonable growth levels (at least 5.5 percent growth rate in both sales and earnings) and analyzed market data to determine how many companies meet the criteria. Only one in eight companies met the growth criteria over a ten-year period. It gets worse: a study of strategic planning processes showed 90% of companies believed they would.
To explain the disconnection between strategic hopes and market realities, Zook examined over 160 reports on the topic of growth and found these sober statistics:
- The success rate for new products is about 30%.
- The success rate for startups is below 10%.
- The success rate for joint ventures is about 20%.
- The success rate for related acquisitions is about 30%.
These numbers could be a strong argument to embrace the status quo, but taking no action at all can be just as dangerous. One-third of the top 500 companies did not survive the 1990’s, disappearing through acquisition or bankruptcy. Of the 350 companies which did survive, nearly one-half changed their primary business strategy. Taken together, six out of ten companies faced significant challenges to their core business and only half of them survived the ordeal.
King of the Hill
Let’s revisit those companies who did manage to grow significantly over that ten-year period. They showed an interesting commonality: almost 80% had a single-focused core business. Zook believes defining and distilling a company’s core is the key to long-term growth.
There was something else interesting in the growth group: these companies were all market leaders in their industries. Market leadership brings with it enviable benefits:
- In a typical multi-firm industry, the top player captures 70 percent of the profits.
- Market leaders earned a return on capital twice that of parity players and three times that of followers.
- Market leaders’ market-to-book values are double that of followers.
Zook calls this phenomenon “leadership economics.” This incredible leverage means that market leaders can reinvest at a rate significantly higher than their competitors. (Zook found a nearly 2X difference.) This strengthens the market leader’s position by lowering costs and further improving margins.
Big Fish in a Big Pond
There is no benefit in market leadership if there is no money to be gained. Industry market size is unimportant, says Zook. Locating and properly estimating the size of profit pools within the industry is the key. These funds are what competitors are really fighting for. These profit pools can shift among competitors, flow amid steps in an industry’s value chain, or even disappear completely with step-function changes in technology.
Profit pools bring clarity to strategic discussions. Does our core exist in a market position that has a sufficient profit pool? Do other potential strategic moves have larger profit pools? Can we use our market leadership to draw profits from other pools along the value chain?
To summarize what we have learned thus far: you want to be a big fish growing in a big pond.
Who Am I? (Who Are We?)
Finding the core of your business is relatively easy—identify the customers and products that generate the most economic profit. From there it gets much more difficult. What about all the product lines that are not making any money? What about the planned distribution center in Omaha? The budding partnership with your material vendor to bring a whole new quality level to the industry?
Defining the boundaries of your core is not made much easier by reading Zook’s work. This is no fault of the author. It is simply the reality of strategic thought. The ever-changing realities of suppliers, competitors, customers, and technologies make this the most difficult part of the process. These boundaries need to be questioned and challenged regularly.
Settling on a definition for the core is followed by a round of action. Executives surveyed said they only exploit 50 percent of the business opportunities within their cores. Every action should be taken to establish and/or maintain market leadership, influence the industry’s reinvestment rate (re: make others not want to enter), and possibly shape and capture a larger portion of the profit from the extended industry (e.g., what Intel and Microsoft do in the PC market).
Right Next Door
Market leadership feels good. The company grows. Shareholders, employees, and shareholders are all happy. It is time to find the next source of growth. This is where most mistakes occur. Look back at those failure rates.
For this reason, Zook spends an entire book, Beyond the Core, discussing business expansion. Zook calls these “adjacencies” and is one of the themes that appears in all three books. His thinking and the data he shares evolves with each book, but the definition never changed. Business adjacencies are growth opportunities that allow a company to extend the boundaries of its core business through drawing on skills that already exist.
Zook’s research again helps us make better decisions about our strategic future. His research identified five dimensions (customers, competitors, cost structure, distribution and brand) to consider
when planning an adjacent move. When a company uses the strengths it already possesses, the odds of success improve and the insight here is to make small moves. Changing only one of the dimensions in an adjacent move showed a 37% of success, better than most failure rates quoted earlier. Changing two dimensions shows a familiar 28% chance of success. With three dimensions changes, the success rate drops to below 10%.
Every adjacent move should be one made toward robust profit pools, and, in those profit pools, companies want to leverage leadership economics. Expansion requires reinvestment and market leadership is the only way to ensure profits needed.
Six in ten companies are going to have to redefine their core business in the next ten years because their profit pool is going to shift, be redistributed, or collapse completely. Our company faced a profit pool collapse in 1996 when Amazon entered the book business. Our robust catalog business evaporated and 1/3 of our total business disappeared in six months.
Unstoppable captures Zook’s thoughts on core renewal. The book is the broadest and most ambitious of the three. Starting over isn’t something companies do well, but Zook believes there are hidden assets in all companies that can be the basis for redefining their cores. New customer insights can reveal previously unseen habits and behaviors. New markets can appear when the company’s capabilities are identified and applied differently. Small peripheral businesses can act as a new center for a struggling core. While not all companies have these starting points, Zook stresses the importance of looking for hidden assets before abandoning everything for a new industry.
Some Help and a Head Start
No matter what stage your business is at (defining a core, growing from that core, or needing to find a new core), Zook’s research offers clear direction¬: search for profit pools, market leadership delivers the needed profits, and small, repeatable moves improve odds of success. If you can clearly identify where your organization appears in Zook’s trilogy, certainly pick up the appropriate book for your needs. However, if you are looking for broad-spectrum knowledge, at the end of Unstoppable, Zook provides a road map for how to read the trilogy together, directing the reader to the strongest material in each of the books. I am certain that reading Zook will also improve your odds of success.
INFLUENCE BY ROBERT CIALDINI
A Review by Todd Sattersten
This is another review too long for the book.
The simple act of accepting a flower from a stranger starts a chain reaction. The recipient almost immediately feels compelled to reciprocate in some way. We humans are preprogrammed with a whole set of rules that help us get through life. If we were required to consciously consider every decision we made, we would quickly become paralyzed. As humans have evolved, we have created a set of short cuts to help us deal with this onslaught of choice. Many of these mechanisms are positive and have served to help society function and flourish. However, these mental routines can be used to exploit us.
Social psychologist Robert Cialdini’s deep understanding of persuasion is evident in the wide array of examples he uses through Influence. University research is woven together with well-known, often infamous events in U.S. history. He adds personal anecdotes from field research he did for the book, ranging from busing tables at a high-end restaurant to enrolling as a sales trainee at numerous companies. His research pools together what con men and car dealers have known for a long time.
As a result, Cialdini refuses to sign petitions any more. He walks by musicians who salt their tip jar. He also purchases more flight insurance after a highly publicized suicide.
The Flavors of Persuasion
Let’s return to the acceptance of that flower. This kind of compulsion allowed tribes to divide tasks among members and cultures to trade goods across oceans. Samples at your local supermarket can create the same feeling of indebtedness. The reciprocity rule forces us to accept these acts of kindness. The Hare Krishnas maintain their sect giving flowers to travelers passing through airports; each recipient mechanically returning the favor with a small donation.
Making commitments and staying consistent with those commitments turns out to be very important to us and those around us. Once a person commits to a point of view, he has a very hard time doing a U-turn. As such, Cialdini recommends, for example, that if you are ever elected the foreman to a jury that you require secret ballots when voting. Also, telemarketers have found starting with the question “How are you doing today?” and leading a prospect to a positive response (“Just fine.”) doubles the success rate for charity requests. When creating goals, whether they be quitting smoking or starting a business, the act of writing and sharing your dreams activates that dual mechanism of commitment and constituency. Cialdini’s fear of signing petitions fails into the same category, based on research which confirmed people will agree to big things (like putting billboards in their front yard) after agreeing to little things (like displaying a small sign in their front window).
Persuasion can come in the form of taking cues from what others are doing. Cialdini labels form social proof and we are most susceptible under two conditions. The first is when there is uncertainty. Laugh tracks on sitcoms use the weakeness. The second is when we take cues from those who are similar to us. The more similar, the more likely we are to follow. Suicides are followed by more suicides as well as jumps in car accidents and plane crashes. Research has shown that most victims are of similar age to the original suicide and that the accidents were copycat suicides. The closer to location, the larger the copycat effect. People who were already considering ending their life received validation to take the final step. In this case, the actions of others, not our own, put us in danger. Cialdini’s increase in insurance coverage protects his family from the likelihood he could be affected by someone being swayed by social proof.
Liking someone can turn to be a problem as well. Sales professional are specifically trained on this technique of persuasion. When checking out your trade-in, a bag of golf clubs or baby stroller in the trunk creates a topic of conversation that buyers all too willing fall into. “Consultants” at Tupperware understand and use this a different way, organizing their parties around the host and the bond of friendship shared with the attendees. Research indicates the strength of affection between attendees is a better predictor of purchase than the affection for the product itself. Our best defense is to concentrate back on transaction and not the person presenting it.
Stanley Milgram’s research reveals another way our conscious mind can bypassed to do the inexplicable, in this case, through the use of authority. Milgram conducted a set of experiments in response to the Nazi war criminal trials, determining if individuals could be put in a situation where they would willingly following orders knowing they would cause harm to others. Test subjects or “teachers” asked questions to an actor collaborating with Milgram and a laboratory researcher supervised to make sure the test was administered properly. The teacher would press a button to send “a shock” increasing in intensity with each incorrect answer. The final voltage administered 450 volts and about two-thirds of Milgram’s subjects flipped all thirty switches needed to reach that point. Milgram concluded the researcher firmly exerting authority created the influence necessary for subjects to proceed. Not limited to the laboratory, a protester lost his legs as a train carrying weapons refused to stop, as the drive
rs strictly followed orders from superior. These are extreme examples, but things as simple as titles or clothing can put us under their spell.
Scarcity is probably the easiest to understand, and the method of influence we are most exposed to. Misprinted stamps or Brett Favre’s rookie card all carry higher value for their limited supply. Objects in short supply carry a higher value and as a shortcut lead us to feeling those things have a higher value. We also hate losing out on things; we think we have lost some freedom to act. We react against the interference wanting more than ever (p246). Children rebel in their two’s and teens whether they lose the toy car or car keys. Our desire for free information triggers the same response, but banning newspapers and burning books causes us to trust the information more rather than increase are desire for it.
What We Don’t Understand
The most important thing I learned from Influence is we don’t appreciate these programmed mental scripts. We too often accept the media generated answer. Cialdini recounts the story of Catherine Genovese. In 1962, she was murdered in Queens as 38 bystanders watched from their apartment windows. The popular view of the case is Americans were becoming callous and indifference. Research done since then has proven a completely different set of factors were at work. Social proof was the culprit. With some uncertainty about the nature of what was going on, a large group of people will look to each other for cues. Our built-in circuitry is what cost this woman her life.
There is protection available from being a victim. At the end of each section, Cialdini offers antidotes for how we can avoid being fooled, tricked, and exploited. If a salesman is trying to employ his charms, remember to focus on merits of the deal and not the person selling it to you. To avoid being exploited by individuals feigning authority, consider this pair of questions – “Is this authority truly an expert?” and “How truthful can we expect the expert to be here?”
In the epilogue, Cialdini makes his most aggressive stance and suggests we should all walk away from those you choose to mislead us by taking advantage of our mental scripts. If an advertiser uses actors in “unrehearsed interviews”, he suggests letters be written to the company demanded their advertiser be dismissed for their misuse of social proof. If a musician salts her tip jar, he demands we walk past. Cialdini believes the reliability of these shortcuts must remain intact for us to function in a world that is growing ever more complicated.
After the fun stories and cautionary tales fade away, Cialdini leaves us with two insights. Our life would be difficult minus mental shortcuts to influence our decision-making, and those same helps leave us open to being exploited, leaving a blurry line to where we ourselves may be the ones exploiting.