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Inventing a New Kind of Business

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Bruce Eckel

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Registered: Jun, 2003

Inventing a New Kind of Business (View in Weblogs)
Posted: Jul 22, 2009 7:35 PM
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Summary
"In Search of Excellence" and "Good to Great" have had the greatest popularity and impact, but virtually no one actually does what they say, because "what's measured gets done."
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(Still working my way through Rules of Thumb which continues to generate ideas).

Tom Peters and Bob Waterman wrote In Search of Excellence in 1982. Jim Collins wrote Good to Great in 2001. The core of both books was that business success means: "get good people. Treat them well." And even though both books have been massively successful in terms of book sales and the fallout from the books (speeches, seminars, videos, consulting), virtually nobody does this.

Oh, sure. We say "people are our greatest asset." I'm sure we mean it when we say it, and we convince ourselves that we act that way. But when the going gets tough, we certainly don't do everything we possibly can to hold on to our greatest asset. Indeed, the idea of cutting staff comes up pretty easily. We can save all that money for salaries and overhead, just like that, by "letting a few people go." (See, it's a good thing. We're not firing, we're freeing them from bondage).

This is why startups can be the most amazing places to work ... right up to the first belt-tightening and subsequent layoffs. Until then, we can sustain the belief that it's all about the people. The instant the first layoff happens, the true goal of the company becomes clear. Money is not the root of all evil. Even worse: It's the only measure of success.

What's Measured Gets Done

Here's the problem. We may genuinely believe, when we create a business, that "people are our greatest asset." But there is no measurement that tells us how well we are managing our greatest asset. For most companies, the only measurement that happens measures money.

If it's not on the test, it's not important. We've been taught that all through school, and the success-oriented go-getters are the ones that ask and make note only of what's on the test. If the test is what determines success or failure, why not optimize for that? It makes sense: if the goal of school is to get A's, then you should figure out the most efficient way to do that.

And if the goal of business is to optimize profits -- and quarterly profits, if you're publicly held -- then you should figure out how to do that. That's what "bottom line" means, right? The bottom line on the spreadsheet says how much money we make.

Also, if you start talking about all this touchy-feely people stuff, the inevitable pragmatist will point out that sure, it's all fine and good to talk about it but in the end if we don't make money we don't stay in business. (And if we stop eating we don't stay alive. So by that reasoning we should only focus on getting and consuming food. Which is possible in developed countries, and how's that working out for everyone?)

The meta bottom-line is this: What you measure is what you pay attention to. If the only thing you measure is money, then that will be the constant inexorable force pushing all your decisions, even if you start out saying that you're really going to focus on people. Each time you get under a little stress, you're going to fall back to making a decision that affects what's measured.

You can attempt to push things in other directions and you might even succeed for a little while. But as long as you're traveling down a river of money, the river will always have its way.

Measuring the Right Thing

Yes, we have to eat to live. And breathe and everything else. You can go up Maslow's Hierarchy of Needs, and only "self-actualization" (discovering and becoming who you really are. I know that's vague, but it's about as far away from an exact science as you can get) gets you where you really want to go. For a company, "self-actualization" means that the company genuinely, truly is about its people.

What if every decision that a company made was based on the question "how will this improve the lives of our employees?" The fact that it is such a bizarre concept, that we have to work so hard to imagine it, tells us that "success is measured by money" is completely ingrained.

So the first thing we must do is stop making money the primary measure of success. Which is of course, crazy. Egads, it's an affront to everything that's capitalistic. Fortunately, I've had at least one experience with that kind of crazy: open-spaces conferences, where everyone shows up and invents and manages the conference on the spot, with no pre-planning. It's taken me numerous iterations before I've been able to get rid of the stage fright at the beginning of the conference ("this time no one will put up any sessions") because every single time it's been so much better than every eyes-forward, highly-pre-planned conference I've ever been to that it boggles my mind. And yet the ideas behind it are so far off the map that you're just certain it will fail.

What's interesting is that the core idea behind an open-spaces conference is that it's all about the attendees. The goal is that they create, moment-to-moment, the best conference experience possible, for them. The fact that open-spaces is a viral concept (people come to my conferences, see how it's done, then go home and create their own, then come back and tell me how easy and successful it was) tells me this idea has serious traction.

And the core idea that Peters and Waterman put forward is equally revolutionary: It's all about employees (although the term "employee" no longer sounds right in this context). So, voila, all we have to do is measure employee satisfaction and self-actualization and suchlike things, and we've changed the entire model of the business, just like that.

That's the snag. It's not so easy to measure. Or at least, measure in the same way that we've been measuring money in traditional business. What do you put in the spreadsheet cells for self-actualization? How do you calculate improvement?

What I experienced with open spaces was that you need to question the way you think about fundamental ideas. Really fundamental ideas, ones that, all your life, you're accustomed to thinking of as "facts." This gets very hard, because, well, they're facts, right? So you don't even think to question them, even though changing just one "fact" might be the key to everything.

In conferences, I think the key "fact" is "conference organizers must control everything." Like a factory, a conference is a product you create and deliver, all finished and shiny. When I started trying to reinvent conferences, I just tried to do the same thing, but with everything computerized as much as possible, just as Borders reinvented the bookstore by computerizing it from the ground up instead of as an afterthought. All that would have done, in my case, is to make the traditional conference more efficient, possibly reducing the staff to one person (me). But it wouldn't have done anything to change the concept of a conference. What changed it was changing the key fact to "attendees control everything." This means that attendees decide what's interesting to them, at that moment, to have discussions about. And if a discussion isn't the best thing that a particular attendee could be doing at that moment, there's the all-important "law of two feet." Everyone is encouraged to get up and go someplace else, to keep hunting until they find what works best for them.

This changes the picture so that measurement doesn't matter so much anymore. When your feedback consistently becomes something between "fantastic" and "the best conference I've ever been to" what does it matter whether you can attach numbers to it? In open spaces, the only failed session is one where no one shows up. But that's not so bad, because you know right away and you can go to another session. Or go talk with people over coffee. If someone leaves a session, that's because it isn't working for them. In fact, it's better that way. If you have a team and someone doesn't want to be there for some reason, the longer they remain the more it drags the energy of the team down. No one's happy and it's a big deal to change someone around to another team.

If the "right" goal for a company is "Get good people. Treat them well," as both Peters and Collins argue, then the most important metric for a company should be "are we attracting better and better people? Are those people having a better and better time here?" The most important event that should cause serious reflection should NOT be "our stock is down" but rather "someone is leaving the company because they are unhappy."

If open spaces are all about attendees, and this new kind of company is all about its members, then one way we can start this experiment is by mapping open-spaces concepts onto the company. As a first cut, a "session" becomes a "project." A session convener isn't necessarily the project manager, but gets things started and does a few basic things to keep it on track. People can move freely from one project to the next, and if a project loses all its people, then it's over (no judgment, it's just as long as that project needed/wanted/was able to go). And the goal is for the members of a company to have the best possible experience.

I'm just casting about for a first draft here, and taking shots in the dark. But my intuition is telling me, just as it did for conferences, that there's something very fundamental here, and if we can somehow change the way we think about the problem we can create companies that will be truly wonderful to work within. Or rather, to play within.

The Pesky Problem of Money

Obviously we can just say "money doesn't matter anymore, so we can just ignore it." That would be like saying "we don't want to think about breathing every second of the day so we'll just pretend air isn't important."

Like air, money is important -- but only when you don't have it. As long as there's enough, it isn't important to our day-to-day existence. We can think about other things and solve problems that are the real challenges to creating a product or service.

It's only when people try to optimize money and start playing brinkmanship with finances that we run into problems. In the name of more money, cubicles are created, and later crunched together. Tricks are played each quarter in order to produce profits and increase the stock price. Wall street rewards layoffs. It goes on and on. And the most important thing is to do everything possible to maximize profits, even when it puts the company in jeopardy (both short and long term). Indeed, once you go public that's your only job, that's your contract with the shareholders: you must maximize shareholder return or you can get sued. Is it any wonder that's all we measure?

As a starting idea I'll suggest something I learned from my father, who lived through the Great Depression and came out as a fairly frugal person. His philosophy is "don't spend it all." It sounds silly for me to say this -- except that the average savings rate in the U.S. is something like -3% (which means basically everyone is in debt). And the reason companies are always buying other companies despite the phenomenal failure rate of acquisitions is that they have to -- the money can't just sit there as a buffer for bad times, they've got to do things with it, and often risky things are considered better. There's another issue with publicly-held companies: if they have too much money in the bank and their stock price dips, it's possible for another company to swoop in and buy them for less than what they have in cash, and make a profit without doing anything to improve the company, often tearing it apart in the process (this is the logical conclusion of measuring everything as money). In a publicly-held company you must play it risky and spend most of your money.

As a consultant, I've always tried to spend a lot less than I bring in, because my choices are measured by the amount I have stashed. If there's more, then I can last longer without looking for a regular job. If the economy turns down, I have a better chance of weathering it without being forced to make fundamental (and probably uncomfortable) life changes.

If a company has the freedom to not spend all its money, then it can make more interesting choices. Money isn't eliminated from the picture, but it's greatly downgraded, which gives the company the opportunity to focus primarily on its members instead. And at that point the real experiment can start.

A few days after I originally posted this, Bill Maher wrote New Rule: Not Everything in America Has to Make a Profit. Coincidence? Or is it?


John Cowan

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Registered: Jul, 2006

Re: Inventing a New Kind of Business Posted: Jul 22, 2009 11:51 PM
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Not only are employees not assets, to an accountant they are liabilities -- people you owe money to. That's because people work in advance of their pay. It's also why Wall Street loves layoffs. For startups, employees are probably far and away the biggest liability you have.

For any conference, open-space or otherwise, there is someone paying the rent on the conference space. That person pwns the conference; it's hypocritical to claim otherwise.

Ling Wang

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Registered: Nov, 2007

Re: Inventing a New Kind of Business Posted: Jul 23, 2009 1:57 AM
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What about binding money to people?
If the company fires one , one take away his quota of money; if one voluntarily leaves the company, one take away part(30%) of his quota.
Then the company needs a healthy quota apportionment policy and a very judicious hiring department in the first place.

Ron Chan

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Registered: Jul, 2009

Re: Inventing a New Kind of Business Posted: Jul 23, 2009 5:26 AM
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"Like air, money is important -- but only when you don't have it. As long as there's enough, it isn't important to our day-to-day existence."
If this is the prevalent mindset, then these companies are planning to fail.
Lean and mean should be a consistent philosophy, and does not necessarily equate to people being treated badly.

Garima Parakh

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Re: Inventing a New Kind of Business Posted: Jul 23, 2009 10:03 AM
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Very philosophical article. I have always fought with saving/spending dilemma myself. If the focus is always on saving money, how do you know when to spend on non-essential tasks like investing in research or at a personal level, studying further. Sometimes companies need to take calculated risks, otherwise they can never grow.

robert young

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Registered: Sep, 2003

Re: Inventing a New Kind of Business Posted: Jul 23, 2009 1:45 PM
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Oh golly, a post not about Fine Language du jour ;-) Yum.

While I agree on the whole, there are some problems.

>> As long as there's enough

Gotcha. In Sweden, the saying goes (at least according to a 60 Minutes piece) "there's enough for everyone". Which is likely true, factually. In the Blood Red USofA, enough doesn't exist. This country was built by slave labor (in the 17th, 18th, and 19th centuries) on land stolen by force from its inhabitants. (And some wonder why Zionists consider us hypocrites with regard to Israel.) We are about 5% of the planet's population, but consume 24% of its resources.

I do agree, however, that for those of us (me and you ??) who have gotten to or near the top of Maslow; yes, we know when enough has been reached. More significantly, we know that because money has ceased to measure gratification. How one teaches, or coerces, others to that understanding is the conundrum. How could an assembly line worker (and even much of coding in practice is assembly line work) make that transition? Hasn't happened yet.


>> you must maximize shareholder return or you can get sued

The easiest way around that is to change the law. Only those who purchase shares at a Public Offering have voting or dividend rights. Thus, trading is not prohibited, but only capital gains are realized through trading. Bad founders/managers would not be rewarded; they could sell their shares, but lose control to those who hold. The very act of selling would be read as a sign of Bad Things to Come without clear evidence otherwise. Cashing out is difficult. Dilution with secondary offerings is risky. Responsibility which cannot be shed focuses the mind.

High capital gains would accrue to well run, long term management, since only such corporations would find buyers for the shares. Short term (hedge, mutual, venture) funds would no longer have sway. Shares may be inherited, since corporations can outlive humans. Over time what would the corporations look like? Founders (globally) continue to control those corporations which survive. Bad corporations fail fast, since bad founder/managers will have sufficient control to ruin the business quickly. Creative destruction of capital (I forget who said that; Schumpeter?) is swift and sure.


>> the reason companies are always buying other companies ... is that they have to

Absolutely not true. The reasons are two (principally): to gain market share (monopoly/monopsony powers), and lack of creative energy to make a better mouse trap with retained earnings. Remember, corporations are not *compelled* to retain or spend earnings. They can return them to shareholders as dividends. That this isn't done is another sign of rot in American business. The concentration of economic power we've seen since Reagan is the same syndrome as mono-culture in Operating Systems and inbred animals (human and otherwise).


>> In a publicly-held company you must play it risky and spend most of your money.

Again, wrong. Buying your competitors is the *least* risky thing to do; you aren't stretching anything but span of control. You aren't figuring out a better mouse trap. You aren't growing the current business by doing it better; it's not unheard of for a weak player to buy a strong player just because the weaker has better access to outside capital. Doing it stupid in software companies results mostly from the perpetrators viewing developers as *assets* which can be moved around like drill presses.

>> the average savings rate in the U.S. is something like -3% (which means basically everyone is in debt)

This "fact" is a direct result of the Reaganite plan (and was not historically true until then): convince most Americans that their neighbor was the bad American. He started with PATCO, and with the help of Bush I and Gingrich, set out to concentrate wealth into fewer and fewer hands. This happened. When he started the top 1% of Americans took 8% of income. Now 1% takes 22%. In that time median income fell. Yet, until the recent collapse, the economy kept running.

That happened, especially since Gingrich, because Americans lived off of the unearned capital gains of housing. Consumption continued. The Laffer argument that supply creates its own demand (a stalking horse for wealth transfer from the many to the few) is laughable: if it were true, neither recession nor depression could occur since capitalists would continue to produce at ever declining prices. Never happens, of course. Capitalists only produce to fill *actual* demand. And there can be *actual* demand only if citizens have cash to spend. It's the distribution, stupid.


>> If a company has the freedom to not spend all its money, then it can make more interesting choices. Money isn't eliminated from the picture, but it's greatly downgraded, which gives the company the opportunity to focus primarily on its members instead. And at that point the real experiment can start.

That freedom already exists. However, given the B-School MBA culture which infects corporate America, it is virtually ignored. Ben & Jerry is the only exception which springs to mind. Beyond that, there are (and have been for decades) employee owned companies. A number of steel companies became such during the collapse of the industry. Most didn't fair any better or treat the workers much better.

In any case, there is nothing preventing companies from always seeking to make better mouse traps or return profits to holders. It's just easier, more fun for managers (I'm not a Neanderthal, but I play one in the corner office), and more profitable in the short term, to consume one's competitors. For those near the bottom of Maslow, cannibalizing The Other is the highest calling.

Andrew Badstubner

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Re: Inventing a New Kind of Business Posted: Jul 23, 2009 1:47 PM
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I think you missed the point on self actualization. Most people that feel fulfilled in their lives feel that way because they are making a difference in the world, not because they are serving themselves.

It is much the same with companies. If the company is solely focused on it own improvement, the people within are either already very selfish or they are bound to become that way. Most of the companies that are listed as "great places to work" have solid community involvement programs. Their employees feel good about working for a firm that sponsors their efforts to make a difference in the world around them. When their external community gets wind of this culture, it also becomes a powerful recruiting tool. And that opens up many doors for the company to select people (and it will) to continue its culture and make it stronger.

Not such "new" ideas, but we seem to be better at having the courage to create places to work like this.

John Atwood

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Re: Inventing a New Kind of Business Posted: Jul 23, 2009 5:31 PM
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Hello Bruce,

I greatly enjoyed this post. I'm currently reading "Createing a World Without Poverty, Social Business and the Future of Capitalism" by Muhammad Yunus. The idea of a Social Business is a business that focuses on goals other than making the most profit.

James Twain

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Re: Inventing a New Kind of Business Posted: Jul 23, 2009 7:45 PM
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The largest dairy company out there is Fronterra. This is a farmer's owned company in New Zealand. Frontera was started to allow these farmers to sell theyr milk overseas and it obviously does it very well. Recently, to maximize the profits Fronterra asked to be allowed to get milk from other suppliers, not only NZ farmers. Of course this would make the owners richer, but not all NZ farmers own shares in Fronterra (only about 11000 people). In theory Fronterra could decide to buy all the milk form outside Ne Zealand if it's cheaper. So looking to maximize the profits this company could turn against it's very owners... :) The farmers(shareholders) didn't aggree with Fronterra on this scenario so far. :)
A couple of year ago, Bill Gates said the companies should find something else to replace profit as the main motivation for doing business in order for the world to become a better place...

Dave Quick

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Re: Inventing a New Kind of Business Posted: Jul 25, 2009 12:06 AM
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This is an excellent topic and I think you are asking some really interesting questions here.

What would be the difference between the kind of company you envision and a typical open source project?

Daniel Will-Harris

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Re: Inventing a New Kind of Business Posted: Jul 26, 2009 10:57 PM
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Thanks for another thoughtful piece, Bruce.

Here's my reponse on my blog:

Focus on the Customer through Design and Emotion

http://frickingenius.blogspot.com/2009/07/in-response-to-httpwww.html

Darko Latkovic

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Registered: Jul, 2009

Re: Inventing a New Kind of Business Posted: Jul 30, 2009 2:21 AM
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> A couple of year ago, Bill Gates said the companies should find something else to replace profit as the main motivation for doing business in order for the world to become a better place...

Well, I'd find it more credible if he said that 20-something years ago - before he made all those billions :-)

Eric Gillespie

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Re: Inventing a New Kind of Business Posted: Sep 27, 2009 6:48 AM
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> The largest dairy company out there is Fronterra. This is
> a farmer's owned company in New Zealand.

While that's correct, the company is called Fonterra. And yes, I live in New Zealand. It's because of Fonterra that the country who makes the damn milk now pays three times what we paid before!

> A couple of year ago, Bill Gates said the companies should
> find something else to replace profit as the main
> motivation for doing business in order for the world to
> become a better place...

Hah! You gotta be kidding me! He is definitely in a minority.
Sorry this reply's so late, I only just saw it.

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