the conglomerate structure forced managers to think of their firms as a collection of financial assets, where the goal was to allocate capital efficiently, rather than as makers of specific products, where the goal was to maximize quality and long-term market share…. The leveraged-buyout boom produced a whole generation of finance tycoons—the Michael Milkens of the world—whose ability to value corporate assets was far more important than their ability to run them.

These issues are especially pertinent to the context of software, given that legacy code is rarely re-written, but instead forms a platform upon which new systems are built. With such an approach, today’s developers bear the consequences of design decisions made long ago. Unfortunately, the first designers of a system often have different objectives from those that follow, especially if the system is successful and therefore long lasting. While early designers may place a premium on speed and performance, later designers may value reliability and maintainability. Rarely can all these objectives be met by the same design.

Hamel attempts to turn management on its head and following Gibson’s advice that “the future is already here – it’s just not evenly distributed”, he looks for signs of the future in innovative companies.

The major problem with the book is that it’s written like a journalist article one might see in Business Week and not like a well-researched book. Like a review in Amazon mentioned this book is a mix of Drucker (good) and Tom Peters (bad!). It presents the cases of companies like Whole Foods, Google, W.L. Gore as well as the terrific work of Ricardo Semler at Semco. Although, these case studies are interesting, the problem is that they are presented as just-so stories without analysis.

After presenting the cases, Hamel attempts to answer the 6 challenges of management:

1. Democracy of Ideas – modeled after the Web and Wikis
2. Amplifying Human Imagination – give your employees the right data and tools
3. Dynamically Reallocating Resources – decentralize R&D
4. Aggregating Collective Wisdom – create a prediction market (and use the brilliant  askmarkets for the job!)
5. Minimizing the Drag of Old Mental Models – adopt OSS organizational models
6. Giving Everyone the Chance to Opt In – Google’s 20% rule, Linden Labs task list

Often the real problem for an established company is not a dearth of ideas, but management processes and practices that favor “more of the same” over “new and different” (p.216):

If you start with the simplest scenario where nothing goes wrong (sunny-day) then you can rapidly walk the whole process. You can add complexity as you need to….This approach really opens up the discussion as you are talking to people in the language they relate to. You get to see the true degree of variation required of the process which allows for more robust solutions.

Takeouchi, H., Osono, E., Shimizu, H. (2008) The Contradictions that Drive Toyota’s Success. Harvard Business Review, June 2008.

1. Gravity wins
2. Strategies Die
3. Change Happens

Just to add some arguments to the debate: on the first point I remember a quote by a P&G executive that to keep the growth rate expected by shareholders they needed to create equivalent of a brand the size of “Tide” every year – a nearly impossible feat! Also, it is just natural that huge corporations will underperform due to the inherent complexity that size brings: the only reason this does not happen everywhere is when there is a huge moat (to quote Buffet) that protects the company’s uniqueness. This is where we get to the second point of Hamel’s argument – a strategy does not a permanent moat build! It doesn’t matter how good the strategy is – most times it can be copied by a hungry competitor. As Hamel says:

Over the past few decades, product- and technology-based advantages have become more fleeting. At the same time, the correlation between current and future earnings performance has become progressively weaker.

Is there a way out of this vicious circle? Can companies escape senescence? I don’t know, but the solution surely isn’t applying the latest buzzword, or copying the latest successful company as some gurus will have you believe: after all, today’s Nintendo will be tomorrow’s Sony!

Also, Miles was on a trajectory, pushing the boundaries of bebop toward greater complexity in the music. He had a fantastic band, so nobody could take this trajectory where he and his band could. But when he jumped to the next S-curve, he actually turned around 180 degrees and went the opposite direction, toward simplicity—simplicity that empowered and freed his players to improvise and create, rather than pushing them to the limits of their technical mastery. He gave them some slack to work with, and asked them to do unusual things with it. It’s interesting to think about and look at examples of companies that have the will to turn 180 degrees, of course, but also there are probably business benefits in relying on radical simplicity to free and empower employees in a similar way.

So, should management be based on financial measurements and indicators, or on extensive, detailed knowledge of the company’s operations? At this time, the first approach is far more popular due to the success of ABC and Balanced Scorecard books:

In time, this teaching contributed to the modern obsession in business with ‘looking good’ by the numbers,” writes Professor Johnson, “no matter what damage [it] does to the underlying system of relationships that sustain any human organization.”

“Managing Our Way to Economic Decline,” by the Harvard Business School’s William J. Abernathy and Robert H. Hayes, the article was the first of a series of broadsides against the tenets of financially oriented management. American companies that lived by the numbers, said the article, were dying by the numbers; they were shutting down profitable product lines because they looked costly on paper, and were making themselves unnecessarily vulnerable to competition from Japan.

“The problem with managing by data,” Professor Johnson says, “is that it creates a mind-set that leads people to pay less attention to the day-to-day particulars of work.”

Personally, I am really torn between the two views. I really believe that ABC costing is a powerful tool, that can enhance profitability by exposing inefficiencies, and unprofitable products. On the other hand it gives you the illusion of being in control of things that are quite remote from what the measures can actually tell you (especially Balanced Scorecard). This reductionistic view is inherently short-sighted, and dangerous especially the effects it has in the management culture of a company.

This is not a problem with Balanced Scorecard only, but with any reductionist goal-directed system: initially there may be some benefits, but eventually people will game the system and “goals will go wild” (Ordonez et al., 2009).

Breakdown of the iPod30GB retail price (Linden et al, 2007)

Apart from the apparent simplification (the authors considered the iPod as a single gadget, rather than as an iPod+iTunes ecosystem), the message is clear: innovative concepts, executed right create value. Guess which of the two is harder!