How and why organizations can achieve and then sustain competitive advantage, especially in turbulent and uncertain times
Although this book offers – in my opinion — the single best introduction to the major insights of Michael Porter, other than an extended period of one-on-one time with him during which he explains them, Joan Magretta also offers other invaluable business information, insights, and wisdom within a much larger context. Those who have read her earlier business classic, What Management Is: How It Works and Why It’s Everyone’s Business, already know that she possesses highly-developed perspectives on both the scope and depth of business, and, the specific details (and relevance thereof) of what management is and does as well as how its core competencies can be developed and then applied to achieve sustainable high-impact and superior performance.
Her brilliant analysis of Porter and his major contributions includes:
o How to develop the right mind-set for competition
o “The Five Competitive Forces That Shape Strategy”
o How and why a value chain can be a decisive competitive advantage
o What the “core” is and how it can help to create value
o How and why trade-offs are strategy’s “linchpin”
o How and why the value or cost of one activity is affected by how other activities are performed
o How and why continuity enables development of competitive advantage
The coverage of Porter material includes an Epilogue that consists of “A Short List of Implications, followed by Magretta’s interview of Porter and a “A Porter Glossary: Key Concepts.”
All this would be more than sufficient to establish Magretta’s book as a “business classic” but there is more, so much more that she offers. After providing a vigorous and comprehensive discussion of Porter’s major insights, she then calls upon her expertise as a business historian and her skills as an educator to help her reader to select and then apply whatever would be most relevant – and most appropriate — to the reader’s own specific needs, interests, strategic objectives, and resources. This is the “context” for understanding to which I referred earlier.
Here is a partial list of the mini-commentaries that Magretta’s inserts throughout her lively and eloquent narrative:
“One-Upmanship Is Not Strategy” (Page 25)
“The Fundamental Equation: Profit = Price – Cost” (40-41)
“The Five Forces: Competing for Profits” (61)
“Do You Really Have a Competitive Advantage? First You Quantify, and Then You Disaggregate” (82-83)
“Discovering New Positions: Where to Begin” (118-119)
“Keep the Core, Outsource the Rest? Not So Fast” (153)
“Ten Practical Implications” of mastering Porter’s major concepts (184-185)
As indicated, what we have in this immensely valuable book are separate but related, indeed interdependent discussions of “the essential Porter” and how that material can serve as an enduring foundation for decisive competitive advantage, one that almost any organization can achieve and then sustain, whatever its size and nature may be. Congratulations to Joan Magretta on a brilliant achievement. Bravo!
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To check out a wealth of resources and subscribe to its online newsletter, please click here.
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For Peter Drucker, New Year’s resolutions came in August. Or least that’s when he liked to take a look back at the 12 months just gone by.
“I’ve learned to sit down with myself for two weeks in August and review my work over the past year,” Drucker revealed in Managing the Nonprofit Organization. “Where should I concentrate next year so as not only to give my best but also to get the most out of it?
Over this past year, we here at the Drucker Exchange have presented a lot of Drucker’s notable insights on management, economics and politics, among other things. To usher in the coming year, we’d like to review three lesser-trumpeted but highly valuable Drucker tips that readers might consider incorporating into their own resolution lists.
1. If you’re doing something really well, but it’s not really a fit with your values, ditch it.
“What one does well—even very well—and successfully may not fit with one’s value system,” Drucker wrote, in a passage flagged in Joe’s Journal earlier this year. “I was doing extremely well as a young investment banker in London in the mid-1930s; it clearly fitted my strengths. Yet I did not see myself making a contribution as an asset manager. . . . Despite the continuing Depression, I quit—and it was the right thing to do. Values, in other words, are and should be the ultimate test.”
2. Never forget that people, including your employees and bosses, often do not get what you’re saying. But talking to people in terms of their experience can help.
“Just as the human ear does not hear sounds above a certain pitch, so does human perception altogether not perceive what is beyond its range of perception,” Drucker noted in Management: Tasks, Responsibilities, Practices. (Misunderstandings were something we asked about early this summer—hoping we’d be understood .) “One can only communicate in the recipient’s language or altogether in his terms. And the terms have to be experience-based. It, therefore, does very little good to try to explain terms to people if the terms are not of their own experience.”
3. If an inside voice says “whoa there” after you’ve made some decision, then hang on—for a moment, at least.
Drucker said that wise executives know to heed the “inner voice, somewhere in the bowels, that whispers” a warning sound. “Nine times out of 10 the uneasiness turns out to be over some silly detail,” Drucker wrote in The Effective Executive. “But the 10th time one suddenly realizes that one has overlooked the most important fact in the problem, has made an elementary blunder, or has misjudged altogether.” Still, this was no excuse for inaction: “The effective decision-maker does not wait long—a few days, at the most a few weeks.”
What work-related resolutions do you plan for the coming year?
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Sears & Rock Music & Hollywood and Blackberry & (“Old”) Malls are in Trouble — A Few Observations at the End of 2011
(Personal note – call this a bit of a rambling reflection on the close of 2011. This is just me, kind of thinking out loud).
I went to a couple of movies this week. That should not be a big deal to note – but, you see, I haven’t been to many movies for quite a while. But, I am also no longer the target audience for movies (boy, does that make me feel old…). I liked the movies – they were ok, gripping even. But, they were old/new/old; sequels (to sequels to sequels). One of them, the new Sherlock Holmes, is a sequel to countless sequels that came before. (A little over 30 years ago, I went to an all-night marathon of old Basil Rathbone Sherlock Holmes movies).
I shopped some for Christmas. Nearly all of it on-line. I am pleased with the outcome. But I did my part to put the malls in jeopardy.
As I read, the malls are in some trouble. Not too many Christmases ago, here in Dallas, Northpark, Valley View, The Galleria, and PrestonWood (and Richardson Square) were all full-to-overflowing at Christmas time. Now, Northpark is definitely flourishing, but there is no PrestonWood or Richardson Square left, Valley View is at least half a ghost town and certainly on its last legs, (and I haven’t been to the Galleria – so no opinion on that one). And Sears? Well, I drove by a couple of their stores, and never saw enough cars in front to think “they’re having a good Christmas.” And, it turns out, I was right – they are closing 100 to 120 stores (or more?)…
And, as for Hollywood, the box office is down. And in terms of actual attendance (factoring out higher ticket prices), way! down! And Rock Music is “zombified.” Here’s the quote:
“2011 may well be remembered as the most numbing year for mainstream rock in music history,” declares New York Times critic Jon Caramanica. “Declaring a genre dead is the worst, least imaginative sort of proclamation, so let’s call it zombified.” (Read the article here).
Blackberry will try again soon to revitalize its brand, but plenty are doubtful. And the list could go on and on. (Where did all the cafeterias go?)
This could all be inevitable, and even good. Creative destruction; on-going economic innovation… The old must die, the new will come.
I suspect that this is true. The mall replaced the shopping center; the big box store replaced the mom and pop store; the virtual store, in many instances, is replacing the brick and mortar store. The new businesses will replace the old. The Shamrock Hotel in Houston gives way to the Gaylord Texan in Grapevine. The new is so much “better” that the old is replaced, and the new is bigger, better, newer, more high-tech, more innovative. Sometimes the old is simply leveled (Texas Stadium is gone, as is Reunion Arena, both replaced by far better, newer, bigger, “cooler” versions. And, by the way, in the case of Reunion Arena, we tore it down before it was even fully paid for. Amazing!)
This, of course, is not a post about rock music, or malls, or Hollywood, or where we shop, or where we work. It is a post about our era – about this time in our history.
Montgomery Ward invented the catalogue, and lasted 129 years. Sears made it 117 years before merging with Kmart in 2005, forming the current, now precarious, version. BlackBerry has been around about 11 years – MySpace was practically dead and buried after about seven years. The list is long, and growing longer.
I think this – we are in the midst of such an all-consuming, everywhere-permeating moment of “creative destruction.” We are in the throes of giving birth, even as we are in the throes of (more than a few) deaths. It is an uncertain time. The optimists among us tell us that when the dust settles, it will be better. And we will do just fine. I hope so. But it is unsettling as we go through it, don’t you think? And as far as that “when the dust settles” part – I suspect that the next new new change will come so quickly after the next new change that the dust may never quite get a chance to fully settle again.
A brilliant analysis of the differences between healthy and unhealthy perfectionism
I agree with Jeff Szymanski that perfection is best viewed as an on-going process rather than as an ultimate destination. As he observes, perfectionism “isn’t necessarily a bad thing to be eliminated altogether. Quite the opposite is true, in fact; your perfectionism might be one of your most valuable attributes and the source of your success and self-esteem.” He divides the material into two Parts. In the first, he explains what perfectionism is (definition, types, characteristics, benefits and perils, etc.); in the second, he explains how to maximize the benefits of healthy perfectionism. Although his approach is clinical, based on an abundance of real-world experience, he immediately establishes a direct and personal rapport with his reader that he skillfully sustains throughout the narrative.
For example, in Chapter 2, he helps his reader to formulate a “perfectionist profile” (measurement of Unhealthy to Healthy range on a seven point scale) that provides a clearer sense of personal strengths and weaknesses when it comes to perfectionism. “This exercise will also help you consider which of the following chapters are relevant to you in terms of understanding what your strengths are and where you might consider making changes.” With all due respect to Szymanski, I presume to suggest that all of the chapters be read.
One of his key points is that developing healthy perfectionism depends on two factors: achieving wide and deep self-awareness, and, being not only willing and able but also determined to make whatever changes may be necessary to eliminate (or at least reduce) unhealthy attitudes and behavior. As I worked my way through the book, I recognized all manner of correlations between efforts to develop healthy perfectionism in an individual and in an organization. At both levels, the key to progress is continuous improvement.
For example, there are some areas of opportunity on which Szymanski focuses, identified as goals:
o Eliminating mistakes and flaws
o Elevating personal standards o Meeting expectations
o Everything and everyone exactly where they should be
o Ideals and “just right” (i.e. perfect) experiences o Absolutes (e.g. knowledge, certainty, and safety)
o Being “the best” and “best of the best”
Obviously, these are eminently worthy goals and, over time, some form of perfection may be experienced or achieved. However, to repeat, perfection is best viewed as an on-going process rather than as an ultimate destination. Szymanski is not perfect, nor is this book or anyone who reads it. I add to the previous list of goals two others: Read and then (preferably) re-read this book with an open mind, receptive to careful consideration of the information, insights, and counsel that Jeff Szymanski provides; then complete various diagnostics included within the book and be proactive when responding to what they reveal.
For additional perspectives and insights, I also recommend Dov Seidman’s How: Why How We Do Anything Means Everything and Tal Ben-Shahar’s The Pursuit of Perfect: How to Stop Chasing Perfection and Start Living a Richer, Happier Life.
Here’s an excerpt from a recent article from the Drucker Exchange (the Dx), an online resource that hosts an ongoing conversation about bettering society through effective management and responsible leadership. It is produced by the Drucker Institute, a think tank and action tank based at Claremont Graduate University that was established to advance and build on the ideas and ideals of Peter F. Drucker, the father of modern management. To learn more about the Dx and the Institute as well as to check out their resources and sign up for a free subscription to its online newsletter, please click here.
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If you’ve got employees who are “seemingly always part of problems instead of solutions,” get rid of ’em—and fast. That’s the word, anyway, from G. Michael Maddock and Raphael Louis Vitón of Maddock Douglas, a firm that consults with companies on innovation.
“You don’t want the victims, nonbelievers, or know-it-alls,” the authors wrote in a recent piece for Bloomberg Businessweek titled “Three Types of People to Fire Immediately.” “It is up to you to make sure they take their anti-innovative outlooks elsewhere.
If Peter Drucker were looking to hand anybody the pink slip, however, our guess is that he’d pick Maddock and Vitón.
Drucker certainly believed in setting high standards, but he often took a dim view of terminations as a way of bringing this about. That’s because all sorts of managerial mistakes can take potentially good workers and turn them into bad ones. So it’s worth answering these questions before wielding the axe:
[Here are three of the questions recommended.]
1. Are your employees buried by trivial meetings and paperwork? “This is not job enrichment,” Drucker warned in Managing For the Future. “It is job impoverishment. It destroys productivity. It saps motivation and morale.
2. Do your employees feel they can go straight to the top, if need be? “Every employee at IBM had the right to go directly to the company’s chief executive officer, that is, to Thomas J. Watson, to complain, to suggest improvements, and to be heard,” Drucker pointed out in The Frontiers of Management.
3. Do your employees understand how what they do fits into the bigger picture? Many fighter-plane factories during World War II had high turnover and bad morale. Then, at one factory, the boss arranged to have a completed plane brought to the plant. “To his amazement, this visit created the most intense excitement among the workers and resulted in an almost unbelievable increase in morale and productive efficiency,” Drucker recalled in Concept of the Corporation.
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To read the complete article, please click here.
G. Michael Maddock is chief executive, and Raphael Louis Vitón is president of Maddock Douglas, an innovation consultancy that helps clients invent, brand, and launch new products, services, and business models. Maddock is author of the upcoming book Brand New: Solving the Innovation Paradox—How Great Brands Invent and Launch New Products, Services, and Business Models (Wiley, April 2011).
How and why powerful intentional presence can be a “personal game changer”
As I began to read this book, I was reminded of one of my favorite songs in the musical and film, Chicago, sung by Amos Hart (played by John C. Reilly in the film version) who characterizes himself as Mister Cellophane:
“And even without clucking like a hen.
Everyone gets noticed now and then
Unless of course that person it should be
Invisible, inconsequential me….”
Most people in most situations lack the ability to attract favorable attention. They feel invisible. Worse yet, many feel they deserve to be ignored because they are “inconsequential.” Fortunately, Kristi Hedges has developed what she calls “I-Presence, a model I have found to be the `secret sauce’ of executive presence. It is equal parts communication aptitude, mental attitude, and authentic style. It combines a supportive inner mindset with the outer skills needed to create the natural, confident, consistent leadership presence.” Actually, the information, insights, and recommendations that Hedges provides (with appropriate modification) can help almost anyone, including but not limited to executives) to develop with she characterizes as “intentional presence.”
Specifically, “understanding how you want to be perceived and subsequently communicating in a manner so that you will be perceived the way you want. It means aligning your thoughts with your words and your actions. And it requires a keen understanding of your true, authentic self, as well as your impact on others.” In essence, Hedges offers to help her reader to complete a process by which to develop these separate but interdependent capabilities:
o 100% fulfillment of one’s potentialities
o 360º perspective on interaction between one’s self and one’s environment
o moral compass for what is right…and what is not
o sixth sense for what is appropriate…and what is not
o street smarts for what will work…and what won’t
She immediately establishes a direct, personal rapport with her reader and sustains it throughout the 14 chapters and six appendices. Also, she inserts dozens of diagnostic exercises throughout the narrative that can help her reader to identify and then address specific areas of personal growth and professional development on which to concentrate.
Henry Ford and Pogo offer observations that suggest why this book can indeed be come a “game changer” for many of those who read it and then (key point) patiently but persistently apply what they have learned from Hedges. According to Ford, “Whether you think you can or think you can’t, you`re probably right.” Now Pogo: “We have met the enemy and he is us.” Everything any reader needs to derive maximum benefit from the material in this book is located between their ears and in their heart. I agree with Darrell Royal that “potential” means “you ain’t done it yet.” If yours is locked, this book could be your key. Now what? That’s up to you.
How to create customers who are profitable
This is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Having read all of them when they were published individually, I can personally attest to the high quality of their authors’ (or co-authors’) insights as well as the eloquence with which they are expressed. This collection has two substantial value-added benefits that should also be noted: If all of the articles were purchased separately as reprints, the total cost would be at least $60-75; also, they are now conveniently bound in a single volume for a fraction of that cost.
Those who aspire to make their customers both loyal and profitable will find the material in this HBR book invaluable. It is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Authors of the nine articles focus on one or more components of a process by which to turn angry customers into loyal advocates, get more people to recommend them, increase customer satisfaction by satisfying them, focus on profitable customers (loyal or not), invest in the right CRM technology, mine customer data for more effective marketing, and increase each customer’s lifetime value.
I now provide two brief excerpts that are representative of the high quality of all nine articles:
In “The One Number You Need to Know,” Frederick F. Reichheld explains what he characterizes as “The Ultimate Question”: “On a scale of 1 to 10, how likely is it that you would recommend our company to a friend or colleague?” There are two other questions that are effective predictors in certain industries: “How strong do you agree that our company sets the standard for excellence in our industry?” and “How likely is it that you will continue to do business with our company?”
The number to which the article’s title refers is what Reichheld calls the “The Net Promoter Score.” Promoters are those who provide a rating of 9 or 10, Passives 7 or 8, and Detractors 6 or less. For purposes of illustration, let’s say 100 customers respond as follows: 35 Promoters, 45 Passives, and 20 Detractors. The net score is determined by subtracting the total number of Detractors (i.e. 20) from the total number of Promoters (i.e. 35) and that is 15. That is a baseline against which subsequent efforts to increase Promoters and decrease Detractors are measured. Reichheld calls it the Net Promoter Score (NPS).
In “Diamonds in the Data Mine,” Gary Loveman offers these suggestions when using a database to measure/predict customer loyalty:
1. Acquire a rich repository of customer information.
2. Slice and dice data finely to develop marketing strategies.
3. Identify core customers by predicting their lifetime value.
4. Gather increasingly specific information about customers’ references – then appeal to those interests.
5. Generously reward employees who prioritize levels and degree of customer service.
Other articles of specific interest to me include “Companies and the Customers Who Hate Them” (Gail McGovern and Youngme Moon), “Putting the Service-Profit Chain to Work” (James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger), and “The Mismanagement of Customer Loyalty” (Werner Reinartz and V. Kumar).
The Ultimate Question
The Ultimate Question 2.0
Frederick H. Reichheld
Creating Customer Evangelists
Ben McConnell and Jackie Huba
On Great Service
Discovering the Soul of Service
The New Gold Standard
Here is an enlightening, simple look at the fall of the Soviet Union by Leslie Geib: The Forgotten Cold War: 20 Years Later, Myths About U.S. Victory Persist. The primary argument in the article is that the United States came out ahead in the contest due to the economic strength of the United States, and the economic weakness of the Soviet Union. But, here is an especially revealing section of the article, from a former Soviet insider (from the later days of the Soviet Union).
“You know your country has military superiority over my country, and that your superiority is growing.”
“All modern military capability is based on economic innovation, technology, and economic strength,” he continued. “And military technology is based on computers. You are far, far ahead of us with computers.” Now waving his arms, “I will take you around this ministry and you will see that even many offices here don’t have computers. In your country, every little child has a computer from age 5.”
“We are so far behind because our political leadership is afraid of computers. The political leadership in my country sees the free use of computers as fatal to their control of information and their power. So, we are far behind you today, and will be more so tomorrow.”
And the lesson? The company (organization, country) with the technological advantage, spread far and wide throughout the entire organization, is ahead in the contest. So, to be behind, especially far behind, is genuinely deadly.
And, one price tag of such technological reach is that the people at the “top” lose control of some of (much of) the information. The Soviet Union saw “the free use of computers as fatal to their control of information and their power,” as indeed it was. But the further you spread the tools, the larger the circle of innovators can grow.
So, in other words, keep innovating, with all the technological tools you can afford (and, be sure you can afford the technologic tools), or be left far behind…
How to manage strategy effectively and on a continuous basis
In fact, everyone in a given enterprise (including but not limited to C-level executives) should be actively engaged in effective management of strategy. Only then can profitable growth be achieved and (more importantly) sustained. What Stuart Cross offers in this book is a cohesive, comprehensive, and cost-effective system within which to formulate and then execute a strategy by which to achieve those separate but related objectives. There are no head-snapping revelations, nor does he make any such claim. Rather, after carefully (and concisely) identifying the “what,” he focuses most of his attention on “how.”
Readers will appreciate Cross’s skillful use of devices throughout his narrative that facilitate, indeed expedite frequent review of key points. For example, all in Chapter 1, Figures that illustrate “The Three Drivers of winning business strategies,” “Drivers of Turbulence,” “Innovation vs. Problem Solving,” “The reality of problem solving.” In the same chapter, there are Checklists that encapsulate three inter-connected factors that are necessary for a successful and winning strategy business strategy, situations that an organization should avoid, key roles on which to focus during the strategy development process, and “The Ten Drivers of Turbulence.” All this in the first chapter and there are dozens more throughout the remaining chapters as well as a “Key Points” section at the conclusion of all ten chapters.
It is important to keep in mind this is a “handbook” and best read and then re-read with a highlighter pen in hand to identify key passages within the text. I also highly recommend a companion notebook in which to record supplementary notes. (FYI, I favor the optic yellow Sharpie ACCENT Tank Style and used most of one’s ink supply to highlight the key passages in this book. I also favor the Mead Black Marble Wide-Ruled Composition Book that Amazon now sells at a 67% discount.) Cross immediately establishes and then maintains a direct, personal rapport with his reader and seems determined to do all he can to help his reader to “create, sustain and accelerate profitable growth” and do so in effective collaboration with associates. Of course, it remains for each reader to determine which material is most relevant to the needs, interests, resources, and ultimate objectives of the given enterprise.
One final point: All of the results-driven, high-impact executives I have known and worked closely with through several decades “had dirt under their nails” and set an example with everything they said and did…as well as with everything they didn’t say and didn’t do. Similarly, Stuart Cross sets an example for other authors of business books with how he organizes and then presents the material in this book. He obviously agrees with Thomas Edison, “Vision without execution is hallucination,” and with Michael Porter, “The essence of strategy is choosing what not to do.”