Barrier

Barrier: The Ghost of the Politburo

by Gary Hamel - Visiting Professor at London Business School

October 18, 2010 at 1:58pm

3 Comments

5 Ratings:

Overall 4.4
Innovative 4.6
Detail 4.2

Contribution Summary

Summary

The process for resource allocation in too many organizations is highly centralized, creating a monopsony for new ideas within an organization, and favoring investment in projects that represent incremental deviation from the status quo

Moonshot(s)

Experiment more often, more cheaply

Description

Current resource allocation process is rooted in denial • This denial follows a very familiar pattern: o Disquieting developments are first dismissed as implausible or inconsequential o Inaction is rationalized on the grounds that such developments are aberrant and irremediable o Organization reluctantly attempts to mitigate impacts of development, but on a reactive basis o Ultimately some (but certainly not all) organizations confront reality, albeit typically after the damage has been done. • Propensity to disclaim disconcerting facts increases as one moves up the corporate hierarchy; decision makers become increasingly separated from the realities of the marketplace and as a result, they are unlikely to give much credence to such threats.

Illustration

Evolution of Music Download Market • Digital distribution model (i.e. downloading of MP3 files) was initially dismissed by the major music labels as technologically inferior and too complex for users. • Industry leaders did little to exploit the nascent market, justifying their inaction on the grounds that the new distribution model was based entirely on theft, while ignoring the fact that customers were actually seeking an alternative to purchasing music in the traditional album format. • When the music industry did finally react to the threat, they focused on defensive strategies, initiating well-publicized lawsuits against individuals and providers of enabling technology (see Napster, Real Networks). • This strategic error on the part of industry leaders allowed an outsider (Apple) to launch a pioneering music distribution model, and by the time the incumbents had recognized their error, Apple had grabbed a commanding share of the market.

Root Causes

• Key information is “filtered” before it reaches key decision makers • Existing compensation systems tend to penalize decisions that sacrifice current year earnings in return for future earnings.

Solution

• Dispatch senior executives on regular fact-finding missions to the “front lines,” be it visiting retailers or observing consumer focus groups • Remove financial disincentives for “self-cannibalization” (i.e. profits lost due to cannibalizing existing product lines are added back)

Credits

Gary Hamel

Input

Comments

Ellen Weber

October 18, 2010 at 4:48pm

Gary, I especially like the idea of senior execs on the front line for fact finding.That in itself could be another Hack as a way to motivate and inspire a cross pollination of ideas, ages, backgrounds, and departments.

It seems to me that a great question such as 'What if...?" with rewards or incentives for diversity of ideas, people, and proclivities, would work, if required. There could be a challenge of the best ideas applied across the organization, and published in the company's journal, for instance.

I'd also like to see multiple intelligences encouraged to draw from some of those who may share less, but possess unique skills. What did you have in mind to jumpstart this interesting initiative?

Raj Kumar

September 3, 2010 at 8:41am

Hello Gary,

I found this Barrier a great value-add but the end left me a bit unsatisfied. It did not add to the interminable check list of the good executive but it did enjoin the executive to get on his feet and MOVE IT. That is not a force from within; as advice coming from without it too has overtones of the Politburo!

Energy, Time and Volition are the key to sound management and their supply is presently constant while the demand has gone through the roof and is rising. I state this to emphasize:
a) Perhaps the real Barrier to management is on the Supply side. We need a powerful flow that carries the personnel in the right direction; and
b) Along with a change in supply new ways of using the supply may develop to achieve the need to MOVE IT for genuine Feedback.

In a way I am applying the moral of your music story to your recommendation: understand the essence and progress it with the emerging technology.

Regards,

Raj Kumar

Richard Melrose

July 23, 2010 at 8:07am

The appeal of the “do nothing alternative” (i.e. ignore the idea) often involves inertia more than denial. The rationalization goes something like this:

“This is what we do and what we have done for years, to the substantial satisfaction of our customers. We have industry and market standing and a respectable (enviable) competitive position."

"What do we have to gain by taking this initiative?”

That question typically elicits a perfunctory, inertia-driven “Not enough.” answer.

The question “What might we lose by not taking this initiative?” rarely gets adequate (any) consideration.

Not every change is an improvement but every improvement requires a change. Managements’ job requires entertaining change, in order to establish possibilities for improvement. Managements’ job also involves fostering experimentation to create low-cost learning opportunities that avoid mistakes and accelerate “changes for the better” (improvements).

Whenever inertia (the status quo) prevails, management is not doing its job.

In this context, management should respond to ideas by asking “What low-cost experiments might produce results that confirm and/or enhance the value of this idea? “What low-cost experiments might produce results that refute and/or diminish the value of this idea?

The Deming Cycle (PDCA: Plan, Do, Check, Act), in connection with straightforward necessity and sufficiency logic (i.e. “In order to ____ we must ___.” and “If ___ then ____.”), gives any organization a straightforward framework for conducting low-cost, high-value experiments, designed to produce actionable information for use in fact- and logic-based decision making about potentially promising ideas.

Everybody understands “if, then” and “in order to, we must” constructions. Accordingly, they understand the essence of proper experimental designs, fact substantiation and logic-based decisions. That makes for a fair and transparent process that encourages ideation and the systematic pursuit of change for the better.