In Eric Ries bestselling book, The Startup Way, the Silicon Valley entrepreneur explains how he helped lead General Electric’s transformation from a stodgy industrial era dinosaur into a lean, entrepreneurial enterprise. Yet strangely, as Steve Blank points out in Harvard Business Review, the effort ended up with the ousting of GE’s CEO for underperformance.
Why did such a seemingly promising initiative turn out to be such a tragic failure? To be honest, I have no idea. Maybe the cultural strain of “lean startup” thinking caused the company to take its eye off the ball. Or maybe it was simply a matter of short-term thinking by activist investors. Or maybe something else entirely.
On a deeper level, running a significant enterprise is incredibly complex and, to be successful, a lot of things need to go right. There are no silver bullets. Unfortunately, that doesn’t stop pundits and consultants from offering them. As Blank also points out in his article, Ries’s ideas weren’t the problem at GE, but neither did they address what apparently were serious issues.
Would You Rather Be Apple Or Microsoft?
Until a few years ago, Apple was the unquestioned leader in tech. A decade earlier, Microsoft reigned supreme and Apple was near bankruptcy. Now Microsoft is on an upswing and some believe that it will be the first company to achieve a trillion dollar valuation. So whose path should you follow?
More specifically, Apple and Microsoft have very different longstanding philosophies. Apple takes a distinctly integrated approach, taking control of every aspect of its products. Microsoft, on the other hand, has a more modular ethos, collaborating with other firms to deliver an entire system. Steve Jobs himself noted this difference shortly before he passed away:
“You know, because Woz and I started the company based on doing the whole banana, we weren’t so good at partnering with people. And, you know, actually, the funny thing is, Microsoft’s one of the few companies we were able to partner with that actually worked for both companies. And we weren’t so good at that, where Bill and Microsoft were really good at it because they didn’t make the whole thing in the early days and they learned how to partner with people really well.”
Both approaches have their advantages. Integrated strategies tend to work better earlier in technology cycles, when taking total control reduces the variation that leads to bugs and glitches. It can also speed time to market. Modular strategies work better later in the cycle, when technologies are more mature, better understood and can be connected more dependably.
Interestingly, some of the biggest successes have happened when each company strayed from their core strategies. Steve Jobs was dead set against allowing third-party apps in the App Store at first, but then relented. More recently, Microsoft took a more integrated approach with its surface tablet. No strategy fits every problem.
Profit From The Core or Seek Out Blue Oceans?
In 2001 Bain consultants Chris Zook and James Allen published their book, Profit from the Core, which argued that firms who focus on their core business significantly outperform those who stray. It immediately gained a large following and led to two follow-up books as well as a large consulting practice based on its principles.
In 2005 W. Chan Kim and Renée Mauborgne, both distinguished professors at INSEAD, published Blue Ocean Strategy, which was even a bigger hit. It argued that the best strategy is to create entirely new markets in “blue oceans” rather than fighting it out in “red oceans” with rabid productivity. A sequel, Blue Ocean Shift, was published with great acclaim in 2017.
Clearly, both these things cannot be true and when you look a little closer both books have serious problems. Blue Ocean Strategy falls prey to survivorship bias by not accounting for the cost of failures. Focusing on your “core” may seem simple, but can be defined as core markets, core capabilities and other “core” things. The authors themselves seem confused, praising Enron but bashing Amazon for “straying from its core.”
Google follows the 70-20-10 rule, investing 70% of its resources in its core business, 20% in adjacencies and 10% in “blue oceans,” which seems far more sensible. Nevertheless, in my conversations with the company, it was clear that even this diversified approach is used more like a rule of thumb than an absolute principle.
Design Thinking Or The Innovator’s Dilemma?
One of the most powerful ideas in business today is design thinking developed largely by David Kelley, founder of the design firm IDEO. Steve Jobs swore by it and it played an important role in his success at Apple. Stanford University was so taken by design thinking that it devoted an entire school to teaching its precepts.
What makes design thinking so effective is its relentless focus on the needs of the end user. Instead of starting with a laundry list of features to be developed, it trains people to investigate the needs of the end user and then work to define a solution. Designers develop products through a series of prototypes, continuously improving and refining them through testing.
That all makes a lot of sense until you read Clayton Christensen’s classic The Innovator’s Dilemma, in which he argues that good companies fail by listening too much to their customers. They end up improving on outdated metrics, miss important shifts in the basis of competition and get disrupted by a new class of competitors.
Much like focusing on your “core” and seeking out “blue oceans,” we are confronted with two contradictory ideas, both of which seem to make sense. As I point out in my book, Mapping Innovation, the issue isn’t that one is right and one is wrong, but that different types of problems require different types of solutions and we always need to understand the problem first.
The Problem With Patterns
Pundits and strategy entrepreneurs follow a standard practice. They identify a pattern, validate that it can be repeated and then sell it as a general principle, complete with snazzy charts and graphs. The problem with patterns is that the real world is a messy place and doesn’t succumb to neat, tidy order just because we want it to. No amount of curation or simplification will change that basic fact.
The truth is that patterns can never be validated backward, only forward, because we can never be sure what comes next. In fact, there is an entire branch of mathematics dedicated to identifying when distinct patterns arise from random points, so we cannot even be sure that the pattern we think we are seeing even exists at all.
The ugly little secret of business strategy is that you need to make your best guess in an uncertain context, manage resources wisely and see what works. You will make mistakes and have to fix them. The very term “leadership” implies that you are out ahead, marching boldly into new territory, with others following. There is no silver bullet that can hit an unknown target.
Or, as Mark Twain put it, “All generalizations are false, including this one.”
