Behind the extraordinary emergence of the BRIC countries as economic powers is a national industrial policy. In each case, the state has been a potent, and at times, creative force.

Behind the success of Brazil, Russia, India and China has been a state that has influenced the skills and capabilities acquired and developed by private industries.

It is important to understand that while the State supported companies in the BRICs, it refrained from being a fly on the wall of the R&D labs in those countries. In a variation of a phrase that many Canadians will recognize, “The State had no place in the labs or the boardrooms of the nation.”

That the state must know where to draw the line in its involvement in innovation was perhaps best encapsulated in the comments of an official in another, non-BRIC country that has startled the world with its innovation prowess. “The state cannot come and say from now on we will develop engines for helicopters; this is a complete dead end,” remarked Itzhak Yaakov, the former head of the Office of the Chief Scientist in Israel’s Ministry of Industry, Trade and Labour. “Successful industrial R&D comes from the people themselves. Therefore the problem of the state is to give the entrepreneurs who think they know what they are doing the ability to do so. …Good ideas have to come from the market, not from the state.” (Innovation and the State, Dan Breznitz, Yale University Press, 2007).

A wonderful (and whimsical) example of an entrepreneur who knew what he was doing is Alberto Alessi, and his eponymous company’s cone-shaped kettle, whose spout is topped by a little bird. Alessi’s stroke of genius was to call on the American architect, Michael Graves, to design the kettle. “We needed to do something completely new, to be radically innovative,” says Alessi in Design-Driven Innovation by Roberto Verganti, (Harvard Business Press, 2009). “To do so, we needed to find new talents, who had never practiced in this field before, who could create new languages.”

As both the public and private sectors in Canada struggle to agree on a strategy to promote and steer innovation, it is instructive to recall what were, only slightly arguably, the golden years of innovation in Canada, the 1970’s and 1980s. Then, the extraordinarily gifted scientists of what was then one of the world’s most prolific incubators of innovation, Bell Northern Research, revolutionized telephony by inventing the SL and DMS lines of digital phone switches.

Bell Northern Research (BNR) was lead by two remarkable men, Walter Light, who was the CEO of what was then called Northern Electric, and Donald Chisholm, who was the Director of BNR. In Peter C. Newman’s Nortel: Past, Present, Future, Walter Light described his management philosophy. “The most successful corporate leaders are content to provide the conceptualization of their corporations’ roles and provide the direction and thrust of future endeavours. Beyond that they hire the finest talent available, bring them on board, give them their trust, challenge them, comfort when they stumble and provide them with the widest opportunity to grow, innovate, succeed and challenge those below them.”

Many established global companies discount the need to innovate when competing in emerging markets. After all, innovation is expensive and risky. So, how can it make sense to spend heavily on an innovation for a market in which customers have so little money? Readers will find out just why it does make a lot of sense.

In March 2009, Logitech formed a special team with an urgent mission. The maker of computer peripherals, especially keyboards and mice, had been caught off-guard when consumers in China unexpectedly fell in love with a new mouse that was not Logitech’s. The company closely monitored its direct rivals, especially Microsoft, but this market insurgency was engineered by a Chinese company called Rapoo, at best a faint blip on Logitech’s radar screen.

When Logitech first noticed Rapoo’s mouse, the instinctive response was denial. Small companies had challenged Logitech before, and they usually went away. Within just a few months, however, the data were unambiguous. Logitech needed to respond. If it did not, it would find itself crippled in China, a lynchpin market in the company’s global growth strategy.

You may think that this storyline, in which a healthy multinational finds itself under siege from a developing world upstart, is unlikely or unusual. If so, think again. Thanks to the rising phenomenon of reverse innovation, we can expect that the scene that played out at Logitech will repeat itself in industry after industry.

Reverse innovation defined

A reverse innovation is any innovation that is adopted first in the developing world. To be clear: What makes an innovation a reverse innovation has nothing to do with where the innovators are, and it has nothing to do with where the companies are. It has only to do with where the customers are.

Historically, reverse innovation has been a rare phenomenon. In fact, the logic for innovations flowing downhill, from the rich world to the developing world, is natural and intuitive. After all, it is the richest customers in the richest countries that will always demand the newest technologies. In due time, the costs of new technologies come down, and incomes in the developing world rise. As a result, innovations trickle down. Right?

Be careful. The intuitive assumption that poor countries are engaged in a process of gradually catching up with the rich world has become toxic. It is a strategic blind spot that has the potential to sink an increasingly common aspiration: to generate high growth in the emerging economies. The assumption can even inflict long-term damage in home markets. That is because surprisingly often, reverse innovations defy gravity and flow uphill to the rich world. As a result, a defeat in a developing country half a world away can lead directly to a stinging blow in your own back yard.

To avoid this unsettling outcome, multinationals must shift gears. For decades, they have predominantly followed a simple global strategy. First, innovate for home markets. Then, export, with at most some minor modifications, to address local market needs.

This strategy worked well enough in the past, when the biggest export markets were other rich countries. It will not work well anymore. Global corporations must recognize that to win in emerging markets, they must innovate, not simply export. And, they must subsequently be prepared to migrate those innovations uphill, from the developing world to the rich world.

This is not a managerial challenge to be underestimated. It is at least loosely analogous to asking an automaker to move cars through the assembly line both forwards and backwards. Nonetheless, it is possible. That Logitech could be caught off-guard by Rapoo is a cautionary tale. The company’s quick recovery offers insight into what it takes for any company to make reverse innovation happen.

Why Chinese consumers wanted a different mouse

Somewhere along the way, the mouse lost its tail. Wireless mice are substantially more popular these days than the old tethered kind, and at the heart of the wireless mouse is the wireless chip. As it turns out, the chip technology determines some of the mouse’s most critical specifications. A mouse with a top-line wireless chip offers top-notch range, speed, and shielding. It can be used up to 300 feet from the computer, without any noticeable delay between mouse movement and movement on the screen, and with no risk of interference from other nearby wireless devices.

As of 2009, there were three wireless chip technologies commonly used in mice —27 MHz, 2.4 GHz, and Bluetooth. Around these technologies, Logitech had built a good, better, best product lineup. Consumers that chose the 27 MHz chip got a stripped-down mouse. But those that upgraded to 2.4 GHz or Bluetooth also stepped up on other mouse features. The better and best mice could work on more surfaces, were more programmable, had more ergonomic designs, and were easier to use. Logitech priced its good, better, and best mice at roughly $30, $50, and up to $150.

This product-line strategy worked well for Logitech. And, until Rapoo jolted Logitech into thinking twice, the company had interpreted its lackluster sales in China as nothing more than something to endure.

Logitech had a typical Western worldview. It believed that consumers were becoming more and more alike around the globe. If Chinese customers weren’t yet buying Logitech mice the way U.S. customers were, it could only be because of their higher price sensitivity. And that was something that could only be fixed in time, with cost reductions and with rising incomes.

But Rapoo understood something that Logitech did not: that Chinese customers “moused” differently. Critically, for millions of Chinese consumers, satellite or cable television was too pricey. As such, people hungry for evening video entertainment connected their PCs to their televisions and surfed Internet video sites. In such a setting, a mouse is not just a mouse, but also a remote control. When used this way, a mouse needs at least the “better” 2.4GHz chip. It needs the longer range, and, because so many Chinese live in cramped urban apartment buildings, it needs better shielding.

Rapoo also saw that as much as Chinese consumers needed a better chip, they did not like Logitech’s $50 price point. To get the price down, Rapoo designed a mouse that had the 2.4 GHz chip but none of the other functionality that Logitech had bundled with it. Consumers loved it.

The mouse may be a humble device, but the lesson from this mouse tale is profound. Developing world customers cannot simply be differentiated from rich world customers because they have less money. They also have unique needs. To win in emerging markets, you have to understand those needs, and innovate to meet them.

Five substantial needs gaps

In fact, the needs and opportunities in the developing world are so different from those in the rich world that the very first requirements for reverse innovation success are humility and curiosity. You must let go of what you’ve learned, what you’ve seen, and what has brought you the greatest successes. In fact, it is best to assume that you have just landed on Mars.

Yes, buyers in the developing world have less money — but that is only the obvious beginning. The differences run much deeper. In fact, there are at least five enormous gaps that separate needs in the rich world from those in the developing world: the performance gap, the infrastructure gap, the sustainability gap, the regulatory gap, and the preferences gap.

Performance Gap

Simply put, with fewer dollars in hand, buyers in the developing world are willing to accept lower performance. This sounds simple enough, but it is not as straightforward as it at first appears.

Consider a typical “good-better-best” rich-world product line. When global corporations headquartered in the rich world export to the developing world, the tendency is to focus just on the “good” offering, or perhaps even to water down the “good” offering a little bit further, from “good” to “fair,” to achieve the lowest possible price point.

This seems sensible enough on the surface. The problem is that a modest price cut — say, 10 percent — is not nearly enough to make a difference to mainstream customers in the developing world, who may have only one-tenth the income of buyers in the rich world.

Such low incomes, however, do not mean that developing world customers do not need innovative products. Indeed, what they need is radically reinvented designs that deliver at least decent performance at an ultra-low price. But there is no way to deliver 50 percent performance at a 15 percent price by diluting existing offerings. The only way to get there is to start from scratch, considering entirely new technologies.

Infrastructure Gap

In the rich world, most every citizen has access to modern transportation, communication, and energy systems, plus schools, hospitals, banks, courts, and more. In the developing world, most infrastructure is mostly still under construction.

This does not mean, however, that developing nations can only gradually catch up. Precisely because they are building from scratch, they can invest in the most modern technologies. Meanwhile, the rich world will only invest as existing infrastructure reaches replacement age, and, even then, will be constrained by the necessity to make any new systems compatible with what already exists. As a result, developing nations are hot, new construction markets, while rich nations are tepid maintain, repair, and replace markets.

The infrastructure gap, however, affects much more than infrastructure products and services. It affects any offering that relies on infrastructure — anything that plugs in, connects to a network, or moves from place to place, and more.

Rich world offerings are designed with the implicit assumption that they will be consumed by those with access to rich-world infrastructure. Logitech’s mouse was designed for use in the office, not in the living room, because people in the rich world still largely “consume” video entertainment via cable or satellite, with no mouse in sight.

Such offerings do not export well, so an innovation strategy is a must. New offerings must be designed with the developing world infrastructure in mind. In major cities, this may mean an enviable, next-generation infrastructure. In rural areas, it may mean no infrastructure at all. When GE designed an ultra-low-cost portable EKG machine for rural India, for example, one of the top considerations was long battery life.

Sustainability Gap

Worldwide, as the economy grows, the conflicts between economic vitality and environmental sustainability are likely to become more severe. That said, the pressures will not rise uniformly. In many cases, the intensity of sustainability issues are highest in the developing world.

Winning in emerging markets requires recognition of these differences. In certain cities in China, for example, air pollution problems are extreme. As such, it is hardly a surprise that China is poised to take the lead in electric cars.

Regulatory Gap

When regulations function appropriately, they eliminate business behavior that is at odds with societal good. They keep consumers safe and markets fair. That said, when regulations become too complex, captured by vested interests, or technologically out-of-date, they can become needless barriers to innovation.

Regulatory systems in the rich world are the result of decades of development while those in the developing world may be incomplete. Whether this is good or bad from a societal perspective is well beyond the scope of this paper, but the difference can make the developing world a more favorable environment for innovation in certain cases. Products and services designed around rich world regulations may become needlessly complex or expensive for developing world markets.

Preferences Gap

The world’s great diversity of tastes, preferences, rituals, and habits adds spice to international travel. It also sometimes makes it nearly impossible to achieve full potential in the emerging economies through a simple strategy of exporting existing offerings. PepsiCo, for example, is developing new snack foods, starting with a new base ingredient. Corn is not nearly so ubiquitous in India as lentils, so Pepsi is commercializing lentil-based chips.

Because of these five of enormous needs gaps, the commonplace strategy of trying to win in the emerging economies by making light adaptations of successful rich world offerings is inadequate. Reverse innovation is the antidote, and reverse innovation is clean-slate innovation. It starts with reassessing customer needs from scratch.

From clean slate needs assessments to success

Accurate diagnosis of customer needs, however, is only a beginning. It must be followed by two equally challenging tasks: clean-slate product design and clean-slate organizational design.

Established global corporations bring enormous assets to the innovation game. This is both their biggest advantage and their biggest liability. The temptation is to try to innovate on the cheap by leveraging too much of what already exists.

When Deere & Company set out to develop a tractor for the Indian market, it started with extensive market research to fully understand how tractors were used differently than they were in Deere’s home market, the United States. Without such a clean-slate needs assessment, the Deere team may have missed critical needs gaps, such as the reality that in India tractors often do double duty, both working the farm and providing family transportation.

From a clean-slate needs assessment, Deere moved on to designing a new tractor from the ground up. The company had designed so many tractors that the temptation to assemble a machine based on existing components from other Deere products must surely have been tremendous. But the Deere team did not fall into this trap.

The company started by gathering dozens of engineers for a design kick-off meeting. For every component, the engineers considered well-documented customer needs and proceeded with no assumptions. Was the best design an existing Deere design? Something close to what a local competitor had produced?  (Deere had disassembled several locally designed tractors and put all of the components on display for the meeting.) Or, was there a need to design something new from scratch? And, should Deere design and make the component itself or partner with another company?

This is what zero-based product design looks like. Through its careful clean-slate design process, the Deere team identified opportunities to differentiate itself in the Indian market through innovative clutch, steering, and braking designs.

That said, even the best work in assessing customer needs and designing solutions can fall short if it’s not coupled with zero-based organizational design. Teams responsible for developing and commercializing innovations in the rich world may excel when the task is innovating for home markets. But it is highly unlikely that the same teams can simultaneously deliver innovations for the developing world.

Instead, reverse innovation efforts require Local Growth Teams, which are purpose-built, from scratch, for the task at hand. When Logitech recognized that it was in danger of losing a critical market to Rapoo, its response was quick and effective. The company had a competing product on the market in just six months.

This could not have happened if Logitech relied on its existing product- development teams. Though these teams were effective at home, Logitech saw that these teams had biases and work processes that made them uniquely unqualified for the special challenge of innovating for China. So, the company instead commissioned a special team focused solely on the challenge of designing a mouse for the Chinese market. It tapped an experienced engineer to lead a team composed primarily of technologists from Taiwan or China who had a more intuitive understanding of the way Chinese customers used technology.

When reverse innovations travel full circle

The emerging economies have the world’s highest projected economic growth rates by a wide margin. The possibility of missing out on such growth should be more than enough to compel many of today’s multinationals to tackle the challenge of reverse innovation. And, again, the full implications of standing aside while others tackle the reverse innovation challenge are even more consequential. Failure abroad can lead to failure at home.

Innovations migrate uphill whenever there is a trend that closes a needs gaps. It is not hard to see how this can happen. The performance gap closes when new technologies designed for the developing world improve. A 50 percent solution at a 15 percent price may not attract much interest in the rich world when launched. Over time, however, a 50 percent solution improves to 60 percent solution, and then a 70 percent solution, and at some point the rich world becomes very interested. In cases in which the developing world has leapfrogged ahead, the infrastructure gap closes as rich world infrastructure reaches replacement age and is modernized. The sustainability gap closes as the intensity of sustainability challenges rises worldwide. The regulatory gap can close when rich world regulations are revised to accommodate new technologies. And, social trends can close preferences gaps. Consider that Chicken Tikka Masala is now the number one fast food in the United Kingdom!

Innovation is expensive and risky. As such, it is hardly surprising that many established global companies discount the need to innovate when competing in emerging markets. How can it make sense to spend heavily on an innovation for a market in which customers have so little money?

Because in an ever lengthening list of industries, it is the only way to win.

What matters most in creating and sustaining innovation is building and strengthening interdependent links amongst ecosystem players, or building an ecosystem. Readers of this article will learn not only how to build an ecosystem, but also how to manage one so that all the partners in the ecosystem profit from the innovation.

What determines innovation success? In recent years, we learned that it is not necessarily the underlying technology or the innovation’s value proposition. More and more, we came to realize that the innovation ecosystem, the interdependent partner network needed to generate, develop and deliver a technology-based or business-model innovation can be the ultimate defining factor. With the source of differentiation shifting from the innovative technology core to the partner network, business leaders must now understand how to build and play their innovation ecosystem.

Examples abound. The iPhone’s success has probably more to do with its ecosystem of content producers and consumers than to its hardware, looks or appealing browsing features. Illustrating the interdependency aspect of ecosystems, application developers also are better off choosing this particular ecosystem as opposed to another one because of the guaranteed customer potential it offers. Also, as an example of how a car-applicable modular technological innovation could become a new market disruption, the electrical car will remain a green niche solution or we will keep on driving hybrid cars until we have a reliable, omnipresent electricity-providing ‘fuel’ station network

Nor is the network phenomenon only visible in technology-intensive industries. Nestlé’s Nespresso’s initial success was achieved thanks to its differentiating, architectural inspired innovation  — bringing professional coffee-machine quality to the home environment. However, its sustained leadership in pioneering this newly discovered market segment of at-home quality coffee consumers has probably more to do with the customer intimacy created by its customer ‘club’ concept, than by the soon-to-expire patents for the coffee-capsule technology. The Nespresso club is an ecosystem that creates the effect of belonging, a source of stickiness tying in customers through constant product renewal, personalized choice and swift Internet-based direct delivery.

Managing the innovation ecosystem

Considering their importance, we need to ask how we ought to manage innovation ecosystems. The open-innovation perspective in management literature taught us that corporate innovation strategy-making should be seen more and more in an interconnected world. However, viewing the corporate network as an ecosystem requires more than connecting the innovation funnel to the outside world, monetizing unused IP in high-tech, or big pharmaceuticals tapping into cash-strapped but idea-rich biotech ventures. Instead, the ecosystem perspective recognizes that what matters most in creating and sustaining innovation is building and strengthening interdependent links amongst ecosystem players. Moreover, ecosystem management is not just about plotting the network of partners and stakeholders relevant to the innovation. It’s about designing and executing a complex systems strategy so that innovation success with key partners sets in motion a chain of success that is transmitted to the other partners in the ecosystem, for the ultimate benefit of the innovation and the ecosystem as a whole.

The platform-based, high-tech industry — think the Internet, software, semiconductors, high-tech systems and the like — was the first to adapt the biological ecosystem. Most if not all of the literature to date on managing ecosystems focuses on this adaptation. However, the reader will agree with me that managing a retail or banking ecosystem should be quite different from managing an Intel semiconductor or Pfizer’s pharmaceutical ecosystem. Both corporations go about managing the idea conversion cycle differently; from idea generation, converting the idea into a product or service-based solution, having the innovation adopted by the markets, which then again becomes a source of new ideas. I think that all industries can benefit from thinking in terms of ecosystems when designing an innovation strategy for corporate growth and renewal. As we will see, banks and pharmaceutical companies have differently shaped ecosystems that support the competitive strategy of ecosystem players in very different ways.

Following the idea conversion cycle, I will distinguish among the three types of ecosystems that a company can typically build around its innovations; science-based, technology-based, and service-based. In the following sections I will discuss how value is created and captured for each type of ecosystem, and how this influences the shape –the types of ecosystem players and the relationships that typically govern their collaborations–they take and some of the business models they typically use to monetize their innovations.

Science-based ecosystems

Science-based ecosystems are geared towards the front-end of the idea-conversion cycle. Value is created and captured by building critical mass when pushing the scientific frontier in an applied field. Semiconductors and the life sciences, the latter encompassing pharmaceuticals, biotech and medical devices provide examples.

Pharma needs critical mass to feed its high-attrition development pipelines, a reality rightly caused by the very stringent pass criteria society has established for new drugs. But pharma is unable to provide the needed critical mass alone, in house, and its ecosystem becomes composed of biotech companies with whom it enters into joint development and licensing deals to capture value. A breakthrough technological trend in this ecosystem was the shift towards better disease understanding after the cracking of the human genome. This made personalized medicine approaches feasible. The breakthrough also broadened the variety of organizations in the ecosystem to include bioinformatics companies enabling ‘in-silico’ or computer-based, drug-model testing, and academia, which unraveled the disease mechanisms that provide the starting point for targeted drug discovery.

In semiconductors, value is created in ‘More Moore’ research projects that beat Moore’s law, that states that computational power will double every 18 months for the time to come. Surfing on the trend towards more mobile and smaller devices, research attention gradually shifts towards reducing the need for battery capacity. Following the emerging Koomey’s law, battery capacity needed for a fixed amount of computational power will fall by half every 1.6 years, making it possible for devices to run on ambient energy like light, vibration or heat. Building the critical mass for solving this problem is reached through partnerships with universities, in arrangements like Intel’s ‘Lablet’ approach, where academics and Intel scientists are put together in a very free- experimentation environment. Another approach to building critical mass is IMEC’s Industrial Affiliation Program (IIAP), in which the huge research costs and risks that transcend the capabilities of individual partners are shared to jointly develop next-generation semiconductor technologies. (IMEC is the Leuven, Belgium-based microelectronics and nanotechnology research organization). This potentially also happens in ‘More than Moore’ domains like Nanotech for Health, where nanotechnology and life sciences ecosystems merge into one new enriched ecosystem.

To achieve the all-important critical mass, science-based ecosystems consist of research partnerships amongst universities, small front-end players like biotech companies or design houses, large pharmaceutical or semiconductor companies that provide the funding and complementary know-how to convert the ideas of the smaller players, scale them up and take them to market. Ecosystem-shaping decisions include collaboration agreements with academia. Intel’s Lablets are a case in point. Set up as experimentation spaces where academic and Intel scientists meet, the space allows the two groups to explore new technological fields. As soon as a marketable idea emerges it is taken out of the Lablet and potentially incubated using corporate venture funds or transferred to one of Intel’s business units. In life sciences, the functional division of idea generation and idea exploitation amongst biotech and pharmaceuticals has given rise to markets for technology, where bio-techs license their immature ideas to pharma by setting up co-development and co-marketing deals. Milestone payments and royalties guide the conversion of the innovative idea into a business.

Overall, the shape of a science-based ecosystem is geared towards accessing potentially disruptive ideas. Defensive use of patents is essential to ensure transparency in an ecosystem that thrives on technology-market transactions that build intellectual property.

Technology-based ecosystems

Technology-based ecosystems focus on idea conversion and innovation adoption. To create value, they should leverage the power of collaboration by connecting with suppliers and companies in complimentary businesses, and stimulate the fast adoption of innovation. Example ecosystems include consumer electronics, high-tech, automobiles, and machinery.

Combining existing technologies often drives innovation in these industries, something which can lead to new market disruptions. Nintendo’s Wii, quickly followed suit by Microsoft Kinect, are good examples. Neither gaming nor remote motion-sensing technology was new to the world at Wii’s conception. However, it was the combination of the two technologies that led to a new market disruption, seducing non-gamers to interact with the gaming platform in a completely new way. The automobile sector, where the combination of electronics and mechanics that delivers cleaner engines and intelligent driver interfaces, provides another example of such market-changing innovation.

Fast ecosystem building is a necessity, mainly to compensate for the poor protection provided by patents in these industries. To build fast, partnerships are crucial. For example, let’s do a thought experiment. Imagine launching a smart refrigerator, one that can sense what products go in and out so it can keep inventory for you and provide you with stock keeping information so it can inform you, based on your past consumption behavior, when to order new goods. Because you’re not going to use a barcode scanner each time you take food in and out your fridge, food packages will need to be equipped with RFID (Radio-Frequency Identification) technology – an electromagnetic technology that sends information from a tag attached to the food package to a sensor integrated into the fridge. Imagine that you have invented this scanning and inventory-solution technology. How do you manage its fast adoption, and through which partnerships? Refrigerator companies would not be the prime target as they would be interested only in promoting this to end consumers if there would be an obvious demand. Also, you’re facing a market with network externalities, while products need to be RFID-tagged, which is not yet the case. And as long as there are no tagged products, your innovation is of no use. So how do you build this emerging ecosystem around your innovative technology that, let’s face it, can be easily copied because it’s a combination of various existing hardware and software components brought together in an innovative solution?

My view is that the only way to do this is to form an alliance with a retailer that has the power, and potentially the interest to leverage the emerging smart refrigerator ecosystem, simply because it is in their interest to do so. Retailers are the only ones in the ecosystem who have the buying power to force food companies to RFID-tag their products, which you need, otherwise you don’t have a solution. Why would they do it? Well, maybe they can be convinced to offer their customers a package consisting of a sensor they can put on their fridge with a connection to an application on their mobile or home computers that can generate a grocery list. This could be part of a customer intimacy strategy they might use to differentiate themselves from competing retailers.

The key lesson in this story is that to build an emerging technology-based ecosystem, one needs to focus on the interdependency between partners, on knowing who is able and willing to leverage its position for the benefit of your technology. Managing fast adoption has more to do with understanding and playing the ecosystem than it has to do with differentiating product features.

To summarize, the shape of a technology-based ecosystem is predominantly oriented towards making connections between suppliers and complementary firms in an integrator or federator business model. Integrators like consumer goods manufacturers connect to suppliers, sometimes tapping into their ideas by using crowdsourcing, potentially creating value from technology combinations. Federators like smartphone manufacturers manage an ecosystem of content providers. Others build an ecosystem of retailers, food packagers and RFID tag and sensor providers to federate a smart refrigerator solution. Intellectual property in the form of patents is used more to facilitate collaboration through cross licensing than for defensive reasons.

Service-based ecosystems

Service-based ecosystems are oriented towards solution adoption. Their key role is to provide for asset optimization. Bank and insurance companies, engineering firms and consultancies, but also retail, utilities and contract manufacturing can be seen as industries that build this type of ecosystem around the services they provide.

In general, service companies don’t have research & development departments. They do have manufacturing, or a service operation and a client base. Innovation serves to optimize these assets. Take banks or insurance companies as an example. They have room to innovate their IT-enabled customer-facing or internal processes. Mobile payment solutions or bank cards providing customers with access to all of their financial information, including their frequent flyer miles, are more than process innovations. They enhance the customer experience and potentially provide the financial institution with a differentiating advantage that goes beyond cost-efficiency. To make this happen they will have to have access to an ecosystem of process and data analytics specialists who can map their processes and tap their customer base for innovative ideas.

KLM provides an example of a utility innovating by investing in pilot-training simulator companies or in innovative luggage-tagging technology companies. Or SNCF, the French railroad company taking an equity stake in a small car-pooling service firm potentially providing travelers with door-to-door services, or in a firm that makes electric vehicles available at stations thus differentiating rail from other means of transport in the near future. Both provide examples of service companies that optimize and differentiate their key asset, KLM’s flight operation and SNCF’s train-based system, by investing in their larger transportation (technology) ecosystems.

Retailers’ key asset is their customer base. Innovation for them is geared towards better understanding their customers better and personalized responses to their needs. Data analytics, providing for more refined segmentation or crowd-sourcing are functions that their ecosystems should facilitate. Probably the most appealing example of the latter is provided by Amazon’s highly personalized product announcements, triggered by your past buying behavior or their automatic invitations to review published books.

So, the shape of service-based companies’ ecosystems is oriented towards technology suppliers and customers. Customers are managed so that they will remain in the community the service-based company has created for them. Think the Nespresso example. Technology suppliers are used as the source or enablers of innovative ideas; data analytics providers understanding banking clients, or process analytics providers optimizing manufacturing processes, or, finally, the shipyards for marine engineering and dredging companies to co-design their new ships. In these ecosystems, while predominantly dealing with architectural innovations, the role of IP for innovation protection is very limited. Instead, speed of adoption is essential.

I hope I have given managers in a variety of industries a handle that will enable them to think in terms of developing and managing ecosystems to support the generation, conversion, and delivery of their innovations. The three ecosystem shapes depicted should be seen as ideal forms. Mixed shapes do exist.

Hence, in life sciences we see examples of science-based and technology-based ecosystems merging. The move from drug-based therapies to healthcare solutions consisting of drugs being complemented with adherence-enhancing electronics is a case in point. Or Lego, the famous Danish plastic building blocks company. It provides a perfect example of a merged, service-and technology-based ecosystem with its use of customer crowdsourcing, but also with its toy robotics platforms developed with the help of MIT. As these examples illustrate, a well managed ecosystem can serve as a much needed spark for innovation-based growth.

There may perhaps not be any better example of the dictum that necessity is the mother of invention than can be found in India. Whether it is a refrigerator, ECG device or an automobile, Indian engineers have brought innovative products to market by designing them outside-in. They have looked not only at the needs of the market, but also at what the market can spend. Readers interested in learning how to design more with less will find valuable lessons in this article.

With a vision of mass manufacturing ‘the People’s Car’, Tata Motors set out to design the least expensive production car in the world for under Rupees 100,000 (around $ 2,000).  When it was launched in late 2009, it made headlines around the globe; the Nano was heralded a new breed of transportation. Since then, sales of the Tata Nano have been disappointing, leading many observers to brand it as a failure.

Is the Tata Nano a success or a failure? Did they get the price point wrong? Will it ever really sell outside India? Questions such as these seem — to us — to miss the real story behind innovations like the Nano, GE’s portable ECG machine developed in India, or the ChotuKool (a cheap replacement for a refrigerator targeted to rural Indian consumers).  However interesting each of these innovations might be, (or even how much money these particular products may lose or make), it is of much more fundamental interest to recognize the revolution in product-design philosophy that they embody. Carlos Ghoshn, who heads Renault-Nissan, is credited with coining the term frugal engineering, to signify achieving more with fewer resources. Others have described similar ideas under terms such as reverse innovation, Gandhian innovation or even “Indo-vation.” Whatever the term, the real story behind the Nano is a radically new product-design philosophy and a new approach to innovation. (See article on Reverse Innovation elsewhere in this issue).

Global leadership in an industry is often linked to having demanding domestic market consumers. It is so partially because Japanese consumers are extremely demanding when it comes to electronics, German consumers for automobiles, Americans for fast food products, and French and Italian consumers for fashion, so much so, in fact, that one observes leading companies in these industries from the vantage point of their respective countries and the needs of their respective markets.

A similar dynamic is alive and well in India. Innovation is a direct response to meeting the needs of Indian marketplace, where consumers are both demanding as well as budget constrained.  According to Guillermo Wille, former Managing Director at GE India, “the beauty of the Indian market is that it pushes you in a corner…it demands everything in the world, but cheaper and smaller.”

In our research, we found that India was building a capability for frugal engineering. Given that this appears to be a practice that is taking root in China and other emerging markets, we conducted extensive research on frugal engineering. We discovered many examples that in turn led us to identify six underlying principles or pillars on which such frugal engineering efforts often seem to rest. We describe these principles in this article.

1. Robustness

India is a harsh environment in terms of the huge variances that occur in operating conditions in that country. Such a setting affects the priorities that drive product development and innovation. This means not just extremes of temperature, but an erratic supply of electricity and peak-load ratios unheard of in the West.

Nokia has gained a dominant share of the Indian market and has hired more people there than in any other country except for its home base of Finland. Each of Nokia’s three Indian R&D centres is an integral part of the firm’s global R&D infrastructure. Product features developed for the Indian market include a dust-proof keypad and face, a torchlight, and nonslip sides for a better grip during humidity, the bane of the monsoon season. It is quite conceivable that these are features that a Finnish inventor in stable, cool Nordic conditions might never imagine.

2. Portability

Space constraints and the need to transport products to rural areas over poor transportation links highlight the importance of portability in India. Small and lightweight become highly desirable product attributes. Think again of the MAC 400i ECG, and consider the miniaturization efforts that are necessary to achieve this kind of portability in a product class that typically ascribes no value at all to portability.

3. Defeaturing

Defeaturing consists of feature rationalization, or “ditching the junk DNA” that tends to accumulate in products over time. With Indian consumers, firms can avoid implementing features that do little to enhance the actual product. Siemens supports its innovation efforts in India with a billion-euro investment devoted entirely to developing and adapting products for the local market. Currently, Siemens employs seventeen thousand people who work on 42 products that eventually will be sold in India and exported to other markets. Most of the prototypes are developed and held in strict secrecy, but leaks hint at the possibility of solar-powered X-ray machines, fetal heart monitors, steam turbines, and road traffic management systems. The CEO of Siemens, Peter Löscher, alluded to the potential: “These products require a different kind of innovation. What counts here is simplicity, not sophistication.”¹

4. Leapfrog technology

It may seem a contradiction, but some infrastructure gaps in India have positively affected Indian innovation: they have forced entrepreneurs and companies to adopt technologies that make relying on existing infrastructure (creaking and unreliable as it is in many ways) simply irrelevant. Indian engineers have invented a battery-powered, ultra-low-cost refrigerator resistant to power cuts; an automatic teller machine for rural areas; and even a flour mill powered by a scooter. People in the West, with its constant access to electricity, have little motivation to pursue such innovations. The Indian mobile phone industry is the poster child for leapfrogging over infrastructural constraints. A limited fixed-line infrastructure created an opportunity for mobile phones to reach many more people. Mobile telephony is also relatively cheap, sharable, and easily repaired. And thus, a new frontier of global innovation opened in India.

5. Megascale production

With its massive population, India has market segments that if captured, can help firms drive costs down so that they can produce on a massive scale—megaproduction. The costs of component manufacturing for the Nano, for alternative energy products, or for mobile handsets in India, similarly reflect the scale at which these products can be produced. The health sector in India is another example, where having one billion plus potential patients leads to process revolutions that lower the costs dramatically compared to prevailing world prices. The low-cost cataract operations performed at the Aravind Eye Hospital are a prime example of this.

6. Service Ecosystems

The conventional wisdom in marketing is that reaching demanding cost targets requires low variability, or a one-size-fits-all mentality. Selling large volumes requires that a product appeal to multiple segments, each with slightly different needs. Displaying innovative thinking, Indian firms resolve the dilemma by using efficient service ecosystems. While these ecosystems achieve low costs, they also highlight product features and thus broaden the product’s appeal. Today, it is easy to see a plethora of small repair shops and other businesses that have mushroomed around population centres in India. The use of these service ecosystems—which comprise not just parts and repair but financing as well—can help firms enlarge their product markets. For example, Selco, which designs simple, low-cost systems that combine solar panels and storage batteries, has installed solar lighting systems in 100,000 homes in rural southern India. A two-light home system can cost around $200, or 10,000 rupees—expensive, considering that the company’s customers earn less than half that in a month. So Selco assembled an aggressive financing package with various local rural banks that provide financing to 85 percent of Selco customers; the repayment rate for solar loans is about 90 percent. In addition, service support personnel visit customers once every three months during the first year to ensure that the system is working properly and to collect batteries for recycling.

For companies in emerging markets, developing innovative products and launching them across the world, especially for end consumers, powerfully enhances corporate reputation and brand equity. However, as NASA’s space program demonstrates, when the focus is on exploring the frontiers of science without a budget constraint, the United States is unmatched in its innovation capabilities. Therefore, it is not surprising that the majority of the Nobel prizes awarded for science go to academics at U.S. universities doing basic research. Such basic research develops new knowledge, which may or may not have any immediate real world applications. It is often curiosity driven and funded by university or government grants in order to build the long-term competitive advantage of the country. It is hoped that over time, some percentage of this new knowledge created will result in breakthrough products and services. India, and even China, despite the latter’s intense focus to do so, cannot easily compete with developed countries in this domain in the foreseeable future.

Bells and whistles vs. the unadorned, stripped down

Let us now turn to innovation that is made with the intention of generating a profit, as is the case with new product development by companies. As an example, consider the iPad, which caused as great a frenzy as any new product one can remember in recent times.² One million iPads sold in the first 28 days after the launch, requiring the international launch to be delayed because Apple was unable to keep up with the demand in the United States.  Interestingly, the iPad was not a new product developed based on careful market research. Rather it was dreamt up by Apple to satisfy unarticulated needs of consumers. Buyers in the United States had to pay $499 for the basic version of the iPad. Most probably, these eager buyers already owned a $1,000-plus laptop computer and a $100-plus mobile smart phone. In addition, the ongoing cost of connecting all of these devices to the Internet would have easily amounted to $100 or more per month. The point is that, again, the West is excellent at developing iPad-type innovative products that ignite the desire to purchase in rich (relative to a global scale). Indian and Chinese companies struggle to find an advantage in launching such end products for consumers who are so far away in physical, economic, emotional and experiential terms from their domestic markets.

In contrast to this iPad universe of rich consumers in the developed world, consider the larger but much different world of budget constrained consumers of India and other emerging markets. Here the mobile phone is the device of choice for billions of consumers. With 5 billion mobile subscriptions worldwide, more people have access to the cell phone than to a clean toilet. In India, telecom companies like Bharti Airtel and Reliance routinely sell handsets for less than $25. These cheap handsets are then connected to the network with no ongoing monthly charges. One-cent-a-minute phone calls across India, one-cent text messages, and cheap access to the web open up a world of possibilities. Notwithstanding that they have the cheapest mobile phone tariffs in the world, Indian telecom companies have earned huge profits.

Contrasting the iPad with the cheap mobile phone services demonstrates that the developed world and the emerging markets have moved on different trajectories. The developed world’s innovators are building for an ever-expanding bandwidth network and spiralling toward fancier, costlier, more network-hungry and status-giving devices. In contrast, emerging market innovators are constantly seeking new uses for the cheap and basic mobile phone, which are used for banking, weather forecasts, market reports, and finding employment. And the developed world’s domestic demand for ever-sleeker, faster, fancier devices makes it harder for them to innovate for the larger, much-less affluent world outside, one still dominated by frugal wants. It is in this domain where Indian innovation can make a difference.

Best practices in frugal engineering are unlikely to be found in a textbook. It is up to sophisticated Indian engineers and managers in companies to create a set of standards, a body of knowledge, and a community of practitioners around the concept, as it has been created for quality management or the Toyota production system. Policy makers in India can help encourage research and training in codified frugal-engineering practices, once these have developed sufficiently. A well-developed body of frugal engineering practices that can be applied to meet the needs of budget-constrained consumers is the ultimate gift of the Nano, not merely the offer of a car with a less than 100,000-rupee price tag. 

¹ James Lamont, The Age of Indovation Dawns,” Financial Times, 15 June, 2010

² Anand Giridharidas, Innovation without bells and whistles, International Herald Tribune, 10 April 2010, p. 2

One of the best business books of 2011 has some excellent and original advice for business executives. This IBJ regular contributor distills the advice into seven suggestions.

The executive’s job is straightforward:  judge situations and make decisions; execute; evaluate progress; make adjustments; learn from your mistakes.  These are intensely cerebral activities.  Good executives are good thinkers.  The difference in outcomes between rigorous and sloppy executive thinking is usually like night and day.

Enter Daniel Kahneman with a new book:  Thinking, Fast and Slow (Doubleday Canada, 2011).  Open your mind to Kahneman and you will be on your way to being a better executive.  There is a lot going on in the executive’s head that the executive may not be entirely aware of that profoundly affects performance.

Daniel Kahneman is Eugene Higgins Professor of Psychology Emeritus at Princeton University.  He is the recipient of the 2002 Nobel Prize in Economic Sciences for his work on judgment and decision-making with Amos Tversky.  Kahneman points out that Tversky would have shared his Nobel Prize had he not died in 1996.

            Here are some reasons for executives to invest time in Kahneman:

First, judgment and decision-making are the executive’s bread and butter.  Thinking, Fast and Slow is a trip through a lifetime of research in judgment and decision-making by one of the world’s preeminent scholars.  When a brilliant scholar puts a lifetime into studying your bread and butter, you are likely to be well rewarded for taking a serious look.

This is the scholar speaking directly to the reader about his life’s work, not an interpretation through a journalist or other intermediary.  Included as appendices to the book are two articles by Kahneman and Tversky that executives will find interesting, in that they connect the original scholarship with the Nobel Prize with the wide-ranging insights of the book.

Second, you will learn and appreciate that not all thinking is the same.  Kahneman distinguishes between fast thinking and slow thinking.  Fast thinking is immediate, automatic and intuitive; slow thinking is deliberate, effortful and controlled.  It seems obvious that the more important the executive decision, the more slow thinking should be brought to bear, though that is not always what happens in the executive suite.  Fast thinking dominates our day-to-day life and works well most of the time. But when it doesn’t, things can go very badly, very quickly.

It takes discipline to slow down as the stakes and complexity rise, and understanding that your brain has fast and slow speeds may bring some of that discipline.  Merely saying “It’s time to slow things down” may help.  Because slow thinking is not automatic, it needs to be willfully engaged.

Slow thinking is the thinking Thomas J. Watson, the builder of IBM from 1914 until his death in 1956, was surely talking about in his famous quote, “All the problems of the world could be settled easily if men were only willing to think.  The trouble is that men very often resort to all sorts of devices in order not to think, because thinking is such hard work.”

Getting people to actively “THINK” so obsessed Watson that he had the word plastered on walls and desks all over IBM.  I expect Watson would have been a big fan of Kahneman.

Third, you will get insight into how your brain can play tricks on you.  You will meet the availability bias, which is the tendency to rely on readily available information in making judgments and decisions, not the information you actually need.  You will meet the anchoring bias, where the presentation of essentially any number conditions what we think a particular quantity should be, without ever having seriously thought about it.  You will meet the representativeness bias which makes us stereotype when we should be considering and measuring.  You will meet the confirmation bias where we make up our mind quickly on something and then in the analysis phase only select information that confirms our initial view.  A trip through these and other biases will be a real eye opener for many executives.

Fourth, executives often rely on the forecasts of experts like financial professionals, economists and political scientists.  The forecasts of these experts can amount to a tyranny.  If things go wrong it can prove calamitous to have overridden all those expert years of training, experience and scholarship and instead relied on your own amateur analysis and intuition.

Read Kahneman and you will never view the forecasts of experts the same again.  Suffice it to say they do not cover themselves in glory.  But Kahneman is charitable.  Forecasters are not wrong just because of how they think; they are wrong because the world is not predictable.  A healthy but respectful cynicism about experts is a good quality in executives and Kahneman will rev that up.

Fifth, every executive should take to heart Kahneman’s insights into the difference between luck and skill.  A recurring theme of the book is the huge role that luck, or the lack of it, plays in outcomes.  Skill should not be confused with “regression to the mean,” where uncertain activities like running a business can depart from the average and then return to the average on their own.  Reward systems will work best that make an effort to distinguish lucky performance from skilled performance.

Knowing when you are successful because you are lucky as opposed to skilled will make you a better executive; and a more humble, and probably better, person.  Just thinking about luck versus skill is a start.  An old financial market adage runs “don’t confuse a bull market with your own genius.”

Sixth, risk runs through everything an executive does.  Kahneman is splendid on risk and how your mind processes it.

Finally, executives are forever negotiating something and every negotiation implies an opponent on the other side of the table.  Knowing your opponent is key to good negotiating.  Kahneman’s insights into thinking apply not only to your thinking but the thinking of those across the table from you, which cannot help but be useful.  This reminds one of Sun Tzu in the Art of War.  “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

Executives are always thinking but they probably don’t think much about how they think.  Daniel Kahneman has written a book that will make you think about thinking.  It is a tune-up on thinking.  There is a lot of value here.  Read it!  But don’t read it fast!

The executive’s job is straightforward:  judge situations and make decisions; execute; evaluate progress; make adjustments; learn from your mistakes.  These are intensely cerebral activities.  Good executives are good thinkers.  The difference in outcomes between rigorous and sloppy executive thinking is usually like night and day.

            Enter Daniel Kahneman with a new book:  Thinking, Fast and Slow (Doubleday Canada, 2011).  Open your mind to Kahneman and you will be on your way to being a better executive.  There is a lot going on in the executive’s head that the executive may not be entirely aware of that profoundly affects performance.

            Daniel Kahneman is Eugene Higgins Professor of Psychology Emeritus at Princeton University.  He is the recipient of the 2002 Nobel Prize in Economic Sciences for his work on judgment and decision-making with Amos Tversky.  Kahneman points out that Tversky would have shared his Nobel Prize had he not died in 1996.

            Here are some reasons for executives to invest time in Kahneman:

            First, judgment and decision-making are the executive’s bread and butter.  Thinking, Fast and Slow is a trip through a lifetime of research in judgment and decision-making by one of the world’s preeminent scholars.  When a brilliant scholar puts a lifetime into studying your bread and butter, you are likely to be well rewarded for taking a serious look.

            This is the scholar speaking directly to the reader about his life’s work, not an interpretation through a journalist or other intermediary.  Included as appendices to the book are two articles by Kahneman and Tversky that executives will find interesting, in that they connect the original scholarship with the Nobel Prize with the wide-ranging insights of the book.

            Second, you will learn and appreciate that not all thinking is the same.  Kahneman distinguishes between fast thinking and slow thinking.  Fast thinking is immediate, automatic and intuitive; slow thinking is deliberate, effortful and controlled.  It seems obvious that the more important the executive decision, the more slow thinking should be brought to bear, though that is not always what happens in the executive suite.  Fast thinking dominates our day-to-day life and works well most of the time. But when it doesn’t, things can go very badly, very quickly.

            It takes discipline to slow down as the stakes and complexity rise, and understanding that your brain has fast and slow speeds may bring some of that discipline.  Merely saying “It’s time to slow things down” may help.  Because slow thinking is not automatic, it needs to be willfully engaged.

            Slow thinking is the thinking Thomas J. Watson, the builder of IBM from 1914 until his death in 1956, was surely talking about in his famous quote, “All the problems of the world could be settled easily if men were only willing to think.  The trouble is that men very often resort to all sorts of devices in order not to think, because thinking is such hard work.”

            Getting people to actively “THINK” so obsessed Watson that he had the word plastered on walls and desks all over IBM.  I expect Watson would have been a big fan of Kahneman.

            Third, you will get insight into how your brain can play tricks on you.  You will meet the availability bias, which is the tendency to rely on readily available information in making judgments and decisions, not the information you actually need.  You will meet the anchoring bias, where the presentation of essentially any number conditions what we think a particular quantity should be, without ever having seriously thought about it.  You will meet the representativeness bias which makes us stereotype when we should be considering and measuring.  You will meet the confirmation bias where we make up our mind quickly on something and then in the analysis phase only select information that confirms our initial view.  A trip through these and other biases will be a real eye opener for many executives.

            Fourth, executives often rely on the forecasts of experts like financial professionals, economists and political scientists.  The forecasts of these experts can amount to a tyranny.  If things go wrong it can prove calamitous to have overridden all those expert years of training, experience and scholarship and instead relied on your own amateur analysis and intuition.

            Read Kahneman and you will never view the forecasts of experts the same again.  Suffice it to say they do not cover themselves in glory.  But Kahneman is charitable.  Forecasters are not wrong just because of how they think; they are wrong because the world is not predictable.  A healthy but respectful cynicism about experts is a good quality in executives and Kahneman will rev that up.

            Fifth, every executive should take to heart Kahneman’s insights into the difference between luck and skill.  A recurring theme of the book is the huge role that luck, or the lack of it, plays in outcomes.  Skill should not be confused with “regression to the mean,” where uncertain activities like running a business can depart from the average and then return to the average on their own.  Reward systems will work best that make an effort to distinguish lucky performance from skilled performance.

            Knowing when you are successful because you are lucky as opposed to skilled will make you a better executive; and a more humble, and probably better, person.  Just thinking about luck versus skill is a start.  An old financial market adage runs “don’t confuse a bull market with your own genius.”

            Sixth, risk runs through everything an executive does.  Kahneman is splendid on risk and how your mind processes it.

            Finally, executives are forever negotiating something and every negotiation implies an opponent on the other side of the table.  Knowing your opponent is key to good negotiating.  Kahneman’s insights into thinking apply not only to your thinking but the thinking of those across the table from you, which cannot help but be useful.  This reminds one of Sun Tzu in the Art of War.  “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

            Executives are always thinking but they probably don’t think much about how they think.  Daniel Kahneman has written a book that will make you think about thinking.  It is a tune-up on thinking.  There is a lot of value here.  Read it!  But don’t read it fast!

In the first few months of a business, an entrepreneur is likely to face challenges that, if not managed properly, may well sabotage the new venture. Imagine the confidence of that entrepreneur, however, if he or she could have the advice of others who have already met those challenges on the road to their own success. Readers and would-be entrepreneurs will find that advice in this article.

Entrepreneurs who start businesses armed only with ideas and a rough plan – rather than a structured organization backed with capital, talented employees and a full stock of products – face a multitude of unique challenges.

As a result, these entrepreneurial business owners often have colourful and illuminating war stories of survival – especially from their early years. Sometimes they make their way via trial and error, sometimes with luck, but usually it is through perseverance. And while they are happy to share their stories, most end up doing so only with friends and family. Entrepreneurs don’t often get the opportunity to reach a broader audience, or indeed enlighten other businesspeople who might really benefit from their wisdom and experience.

In KPMG Enterprise’s book, “That’ll Never Work,” we collected 19 such stories from Canadian entrepreneurs; those men and women who took their vague idea, turned it into a winning one and built a workable business structure around it. Perhaps most impressive is the fact that all 19 have also been able to do the near impossible: keep their business intact and thriving for years, or even decades.

This article describes valuable lessons on how to grow a business with limited resources, even during uncertain economic times. Using anecdotes, it will illustrate how budding entrepreneurs can approach six common business challenges they might face on the road to long-term success. The six are:

Working “on” the business, rather than “in” the business

Financing is key

Staying on top of receivables—when your customers stop answering the phone

The advantage of working with family in your business

Tapping the expertise of trusted advisers

The importance of understanding risk and innovation

1. Working “on” the business, rather than “in” the business

Some owners can get mired in the details. They become so heavily immersed in managing all aspects of their company’s day-to-day operations that there isn’t time for anything else. Clearly, careful management is critical to business success, but taken to an extreme it sometimes impedes owners from realizing their long-term vision. For some, clarity and perspective come with a step back and a bit of introspection.

Jory Lamb, president and CEO of software company VistaVu Solutions, went through the most critical time in the history of his business between 1999 and 2000.

After leaving a promising career as an accountant, Jory Lamb had learned so many lessons about running his own business the hard way. He had put thousands of hours into just staying afloat when cash flow was tight. Exhausted and mentally defeated, he did something not many in his situation would do; he took a vacation.

“I went away for six weeks, which is a huge amount of time for someone with a company that is technically insolvent. My family loaned me enough money to cover the bills for six weeks. It was love money. I took this money and I said to the people working for me, “You work with our creditors and make sure that the payments get made. These are the dates. Please, just make sure it happens.”

I went to Australia, where I had a lot of “windshield time.” I took buses, backpacked, and just kind of followed the countryside. And I read like a madman, searching for an answer to my many questions. One of the books I read was The E-Myth by Michael Gerber, which asked whether you planned to work in your business or on your business.

I remember I was in Townsville and there was this huge cyclone. It washed out the road and the bus was stuck. We couldn’t go back or forward, and I had nothing but time on this bus. I remember thinking right at this point, “If it’s going to be, it’s up to me.” I had to decide I was not ready to quit. I needed to pull myself back up and make this thing work. I needed to listen. I needed to learn. At that moment, everything changed. A light went on…

I wrote out a plan, communicated it, and got focused. As a business, we were building a bit of everything, always scrambling. What we needed to do was build a few things well. We shed work we were doing just a bit of but weren’t good at, and all of a sudden it started to make a huge difference.

But I had to stand on the precipice. If we hadn’t faced bankruptcy I think somehow, some way, I would have rationalized bobbing along, not really making a good living, not really performing well as a company. Somehow that would have continued to be acceptable and I wouldn’t have had to go out and sell and do the things I wasn’t enjoying as much. But there was no choice. It was a great thing.”

Though he almost learned this lesson too late, Lamb’s decision to step back, gain some perspective and re-focus his energies on a more precise set of tasks and goals saved his business.

2. Financing is key

Stephen McIntosh, owner of Factory Optical/Optiks International/EyecandyOptiks, started his business in the summer of 1999 with, as he describes it, “considerable opportunity for failure.” He had a $30,000 debit balance at his bank and owed legal counsel $20,000 for having helped him complete his acquisition of some existing facilities and employees. He also owed his vendor $30,000 for the working capital left in the company and the assets he was buying.

But, during this incredibly challenging period, he managed to stick to his guns during a standoff with his new bank, making sure he negotiated the right deal.

“During the purchase I was trying to establish banking facilities in Regina by telephone from London [Ontario]. After securing the private equity funding necessary to fund the purchase of the company, we needed an operating facility to finance working capital. I was referred to a very young and inexperienced banker in Regina who pleaded our case to his adjudication group, but the result was an authorization of only half the monies I required, subject to the personal guarantees of my 17 equity investors.

This was a true deal breaker; it would have fundamentally undermined the spirit of equity investing. After all, I had gone out and pleaded, begged, and borrowed from friends and family, and it had taken 17 people to reach the $560,000 purchase price for the company, in consideration of which I provided them a 49 per cent collective interest.

As an alternative, this young banker allowed me to rewrite the credit application myself, and we were provided double the original funding requested with no personal guarantees to speak of. We were now capitalized to go forward.

McIntosh’s determination paid off and 12 years later his business has grown from one to 17 stores and from $500K to $20 million, with a plan to reach $30 million over the next couple of years.

McIntosh’s refusal to accept the bank’s initial offer and to return to secure the required financing allowed the company to execute on its business plan, ultimately becoming the successful business it is today.

3. Staying on top of receivables—when your customers stop answering the phone

There’s a fine line between reminding someone periodically of an overdue payment and harassing them, and it pays to know the difference. However, when capital funding is scarce, waiting is sometimes not an option.

For Henry Neels and Gerhard Rauch, owners and co-founders of Helton Industries, overhead door hardware manufacturers, this was the case early on. Thankfully, they quickly managed to find at least one creative way of getting paid:

“One of the most important things we learned early on was to stay on top of our receivables. The longer they were outstanding, the harder it was to collect them. We paid special attention to this issue because we had seen slow-paying customers put plenty of small companies out of business over the years.

To ensure we got paid, we invoiced promptly and made sure our customers adhered to our terms.

Sometimes we’d have to call. And sometimes they weren’t in. So, knowing their vehicles, and seeing them parked in their lot, we just kind of dropped by without an invitation. Then we’d threaten to stay until we got a cheque. I think many of these customers respected our fortitude. In many cases these cheques were already made out and in the bottom drawer. They were just holding them as long as they could. The squeaky wheel gets the grease.”

Anyone can identify with this story, which appears amusing on the surface, but illustrates a deadly serious lesson for any business person building a company: There’s no point in trying to stay polite to customers with overdue bills when you’re strapped for cash; without their money, which you need to continue operating, you will soon enough end up with neither a business nor customers.

4. The advantage of working with family in your business

Though the mantra of “family is family and business is business” was drilled into the Price boys by their father from an early age, Ray Price, president of Sunterra Group, admits that for some families this is easier said than done. But, he says, he and four brothers (another brother and a sister are not actively involved in the business) have always found a way to work together successfully at Sunterra.

“One of the most important lessons you learn growing up on a family farm in Western Canada is that when something needs doing, you do it. My five brothers, one sister, and I would split up the work, get out on the farm, and get it done.”

But when Sunterra started out in the pork production business in 1970, Ray`s brother Glen was actually reluctant to get involved. He and his family spent time talking about it, examining the difficulties and challenges associated with family businesses. Ultimately, he came around. Today, Glen is the president of Sunterra Markets. Meanwhile, Dave is the chairman of the board, Doug is on the board and has a cattle operation providing beef for Sunterra Markets and Art is chair of the executive committee.

“My brothers and I have always managed to get along… But I know in my own case, I worked in the same 10-foot-by-15-foot office as my dad for about five years when I first started out. He smoked and I didn’t, and it just about drove me nuts. But that’s just part of growing up in a big family—you put up with some of those things.

[My brother] Dave and I have worked side by side for the past 31 years. We’ve always tended to take on different roles. We can rely on each other. Glen has been responsible for Sunterra Markets since the start in 1990 and, while we might have discussions and the odd argument, I know he is the expert. It doesn’t stop me from telling him what I think, but at the end of the day we trust each other to make good decisions.”

It’s clear that the level of trust between the Price brothers is high, but so is their awareness of both the strengths and weaknesses of the others. In fact, this awareness and the closeness between them is a business advantage. And they certainly understand the unique — and sometimes sensitive – nature of the typical family business:

“About 10 years ago we had to sit down and have a serious discussion about how the third generation would be brought into the Sunterra Group. Part of our mission was to make them aware of the trials they would face if they joined. We also wanted to lay down some ground rules. For one, they would have to work from the ground up, and they wouldn’t receive special treatment. If they wanted a job, they would have to apply for it. The one thing we warned them about is that no matter what, people will think they were hired because they’re related. This perception means they will have to prove their worthiness. Each of us has had to prove our value, and it’s the same for them.”

While consumers and business leaders may attach some kind of mystical quality to a family business, such businesses come with many benefits.  When properly established to harness the unique family attributes into a business with open links of communication – coupled with clearly defined ground rules and expectations – a family business can become a sustainable competitive advantage, dominating in its markets and continuing on for many generations.

5. Tapping the expertise of trusted advisers

Entrepreneurs often require a steady hand to guide them, but they rarely realize it. Not only do most of the entrepreneurs in “That’ll Never Work” admit to wanting to know how to make the right decision every time, many said at one time they believed their employees in fact expected them to be all-knowing.

As Natalie Macaulay, partner and UK managing director of leadership consultants Emerge Learning puts it:

“There’s a difference between leadership and management. Often, leaders move up through the ranks, through what Emerge Learning calls individual contributor roles. They become experts in something and suddenly they find themselves at the helm as leader. One of the first steps they must take to become an engaging leader is to get rid of the notion that they’re supposed to know all the answers. In fact, they need to accept they will never have all of the answers. From there it’s about personal growth and helping leaders to be comfortable in their own skin, because you can’t lead a team if you have insecurities about your own performance.”

Most of the entrepreneurs in the book cited the need for one or several mentors, consultants or executives with broader business expertise than they had. They recognized—sometimes just in time—that they needed the perspective of someone who had witnessed more of the ebb-and-flow nature of business.

Trying to know everything is not only impossible, it’s exhausting, and detrimental to the business. While it may be scary to admit a need to defer to other experts inside or outside the company, it is an essential skill for any businessperson.

6. The importance of understanding risk and innovation

Don’t let risk stall or sabotage growth or the business. Ensure you have contingency plans in place in order to mitigate it.

The following lesson from Charlie Spiring, vice chairman and director, National Bank Financial Wealth Management, attempts to illustrate how to prosper, even in high risk situations:

“Always give yourself more room in your balance sheet than you think it’s going to take.

Most entrepreneurs tend to underestimate how long it takes to bring a product to market, while overestimating revenue. You need to be realistic with your projections and you need to maintain a solid balance sheet so you’re ready for surprises.

One of the greatest lessons in history came from Bill Gates. Today, most people think of him as the richest man in the world, but there was a time when he was a small business owner and his biggest client didn’t pay him for eight or nine months. He actually came within two or three months of not making it. Bill Gates now keeps a hoard of cash on hand. He learned a lot from the scary balance sheet and he got through it. However, he came close to disaster in the beginning. Can you imagine the world being rewritten without Microsoft?

Another lesson: You can’t operate in neutral.

You’ve either got your foot on the accelerator or you’re going backwards. You have to have an adaptive instinct to keep moving ahead in business, to create innovative products, and to keep finding new things. That was another great skill of our team…. We listened when our customers asked for something new, for variations on our offerings, or for other ways of achieving goals. We’d often take a financial product from another country and re-engineer it for the Canadian market. A lot of times, our successes were born out of sheer market sense.”

Entrepreneurs spur employment, increase the business tax base, and offer services and products that have an immeasurable impact on our country’s economy—and our importance on the global stage. Canada’s future prosperity is inextricably tied to their success.

Let’s hope a few budding businesspeople will be able to make use of these lessons to successfully join their ranks.

Share your story

Now that you’ve had the chance to learn from the entrepreneurs featured in That’ll Never Work, here’s your opportunity to reciprocate by sharing your own business journey – for possible inclusion in the next edition. Visit www.thatllneverwork.ca and tell us your business story of perseverance.

That’ll Never Work and other lessons for entrepreneurs will be the topic of an upcoming panel discussion on entrepreneurship. The discussion is the next presentation in the Ivey Idea Forum.

Changes in the marketplace, if not monitored, can cause serious losses in profit, market share, and in stakeholders’ confidence. Such was the case with one of the most celebrated American companies, Hershey’s. When the company failed to keep its ear to the ground and eye on the ball it lost touch with consumers and retailers. A shift in the company’s focus and a re-alignment of its divisions rescued the company and restored its luster, market share and profit. As this author describes, its example is an important one for managers.

Thanks to an unlikely – and historically unprecedented — combination of improved productivity and flat-to-declining global demand, businesses now find themselves operating in a world in which supply chain re-engineering has made them more efficient than ever before. Yet finding demand to absorb the supply being generated is a growing challenge.

This stunning turnabout has affected companies both large and small, new and old, and marginal enterprises and corporate icons with a long history of success. Almost no one has been spared, even Hershey’s, the iconic and storied chocolate company.

Hershey’s history

Founded in 1909 by Milton Hershey and his wife, Catherine, the now $5-billion company virtually invented modern candy – and in the United States, at least, is all-but synonymous with the word “chocolate.” Hershey bars and kisses, KitKat bars, Reese’s, Twizzlers and Ice breakers have been household names for decades.

Moreover, Hershey’s enjoyed consistently strong growth for many years, holding or increasing market share in all of its businesses, and buoyed by people’s love of chocolate that has held steady in both good times and bad. And the company had become so efficient at supply chain management, production and distribution that for more than a decade it had consistently added new variations in products, pricing and packaging that captured ever greater real estate on store shelves.

In other words, by almost any traditional measure, Hershey’s should have been enjoying some of the best years in its long history.

But despite all of these positive indicators, Hershey’s senior management had a growing sense that something wasn’t right with the company. For example, many of Hershey’s recent strategic initiatives, especially the company’s shift to focus on pack types rather than on brands and product proliferation, had not produced the desired results. Worse, by creating a significant number of new SKUs based on pack types and flavor extensions, Hershey’s approach was beginning to run counter to the stated desire of many retail customers to simplify the shelf by reducing product complexity.

External challenges

Recalled J.P. Bilbrey, president of Hershey’s North America “After years of growth and success, we had hit a difficult period. Senior management was not aligned in how we were going to compete — and our results weren’t as good as we would have liked them to be. While we had great brands, we had largely operated in a push mode.” It was becoming apparent to the men and women who ran Hershey’s that in a changed marketplace, the old and proven rules for success were no longer working.

The Hershey’s team decided to investigate what was going wrong — and just as important, to identify and assess the key forces and factors impacting the confection category in the new marketplace. The team would then determine what the implications were for Hershey’s and how the company could drive profitable growth in a changing marketplace.

The team found three major external issues that were limiting Hershey’s success:

1.      Hershey’s most important retailers and competitors had entered a phase of significant consolidation that was changing influence within the category. The era of small, independent stores was over- the power now lay with retail chains.

2.     Consumers were not embracing the increased flavor varieties from Hershey’s Brands.

3.     Hershey’s emphasis on pack type was being trumped by competitors’ emphasis on brands.

These external challenges could not be ignored. But they could be identified, understood, and then managed as part of Hershey’s overall strategic re-orientation.

What could be addressed most directly and immediately, were certain areas inside the company whose practices no longer fit the changed competitive reality. And the most important of these – as underscored by Bilbrey’s comment, was alignment. Both research and employee surveys quickly revealed that Hershey’s senior management was not aligned in their beliefs about how the company should compete in the future, and those often- contradictory views had begun to become evident across Hershey’s operations.

This confusion had led, almost directly, to the rapid expansion of Hershey’s SKUs. Marketing had not responded to retailers’ growing need for lower inventories, better use of shelf space, and less product and packaging complexity. In fact marketing was still driving Hershey to add new pack types and flavor proliferations for its classic brands.

The company’s own history of success was making the problem worse. Hershey’s supply-driven approach had worked so well over the previous two decades that it had been years since Hershey had felt the need to assess consumer demand for its products. Demand was just there, waiting to purchase almost anything Hershey could put in its distribution channel.

But now the rules had changed – and Hershey needed to change as well.

Hershey was still a strong, multi-billion dollar company. Moreover, it had faced far more challenging periods of competitive and economic pressure in its century-long history and had survived them all, in large part because of Hershey’s vaunted reservoirs of employee morale and pride. Best of all, the company and its new leadership were confident that once consumer Demand was understood, Hershey’s iconic great Brands would once again continuously increase their share of profitable Demand.

At last: consumer demand gets a second look

Given the changing marketplace and its prowess in managing the supply chain, Hershey began to systematically investigate every aspect of its “Demand Chain”, all while keeping its current and highly developed Supply Chain Management system in place. Hershey management chose this strategy based on its belief that any improved understanding it gained about demand would be used to modify and optimize the company’s supply operations, not replace them.

This demand-side investigation uncovered a number of surprises. For example, when the company looked at itself through the eyes of consumers and retailers, it saw not the exciting array of products and packaging it imagined for its offers, but a bewildering sea of choices on the store shelf. Hershey’s offerings had morphed into a confusing tangle: a single brand, such as Hershey Kisses, had potentially dozens of SKUs featuring different types of chocolate (milk chocolate, dark chocolate, white chocolate or combinations), different fillings (caramel, peanut butter, truffle, plain), different flavors (orange, mint, cherry), and with or without nuts. Adding to the complexity, each of these Kiss types could come in a wide array of pack types, including different foil wrappers, different packages (bags, boxes) and different sizes (10 ounces, half pound, one pound).

As one can imagine, many of these products were not aligned with consumer demand. At the same time retailers were unhappy about carrying ever-more inventory. Then, inevitably, Hershey resorted to special promotions and deep discounts. But this merely substituted short-term gain for long-term solutions. Hershey had added significant cost and complexity to its Supply Chain in order to create tailored products that had ultimately failed to produce their expected price premiums. It was not the category knowledge and leadership retailers had come to expect from Hershey This was obviously not the direction in which the company wanted to go.

Recalled Bilbrey, “In retrospect, all of these issues converged at the perfect time for Hershey’s, because it gave us the courage to act. We needed to go from a supply-driven approach to a demand-driven, consumer-focused one. Our existing model was simply not sustainable. We needed to move from push to pull. Of course, that’s easy to say, but much harder to do.”

Once the magnitude and nature of the problem had been identified, the next step was to develop a deep understanding of Hershey’s (and, in fact, all confectionary) consumers in all of their variations in desires, needs and tastes. This meant the construction of a Demand Landscape that not only encompassed all of these consumer groups, but also identified the pockets of high profit demand — “Demand Profit Pools.”

This new Demand Landscape gave the entire Hershey team for the first time a shared understanding of the total potential opportunity for the company — and where to focus its resources and attention.

Most exciting of all, the Demand Landscape made clear that Hershey could access billions of dollars opportunities across the confectionary landscape in the U.S. The opportunity was clear. Now that management knew which consumers carried the high profit Demand, it had a clear vision for how to manage its supply of iconic Brands and great products to capture that Demand.

Where was this opportunity? The Demand Landscape identified a single Demand Profit Pool, Engaged Exploring Munchers, which would prove to be a critical discovery for Hershey. Understanding more than competitors about the demand of Engaged Exploring Munchers, — a group of consumers who love candy and are willing to pay more for their favorite treats — would give Hershey’s the competitive edge it needed to win with them.

Ultimately, constructing a Demand Landscape and then identifying its most attractive Demand Profit Pools is a futile exercise if the company doesn’t use that new knowledge to rethink its own competitive strategy. That is, Hershey’s needed to devise a brand new Thesis for Winning. This Thesis would show how and why Hershey would beat the competition — and the role each part of the organization would play in achieving that success.

Hershey’s new Thesis for Winning would focus on the transition from their traditional supply-driven approach to the market to a new demand-driven model for success. Hershey would understand more about the unique demands of the most attractive Demand Profit Pools for candy, especially the Engaged Exploring Munchers, and would re-align the entire business to serve that demand profitably. To implement its new Thesis for Winning, Hershey now had to develop a single internal Mental Model across the organization to show everyone in the company how the organization works and their role within it. A Mental Model is the way great companies teach their executives, managers and employees to internalize the Thesis for Winning – so that on a day-to-day basis they can independently make important business decisions congruent with that Thesis.

Said Bilbrey, “An important part of making the Mental Model work was that every member of the Hershey Executive team, our leadership group, was involved in all phases of the work. Once we made the commitment to a Demand Business Model, we were “all in.” By creating a sense of participation across our entire leadership team, we were also creating missionaries who would go back to their own respective functional organizations and talk about the changes that were taking place on how we would run Hershey as a company.

“Because of the Mental Model approach, we have achieved a level of collaboration that we’ve never seen before.”

And so the process began. Not surprisingly, with the spadework done, the process went smoothly. For example, it was now clear to everyone that Hershey could no longer win by pushing more variations of supply into the market and by focusing on pack types. Instead, the path forward would be to focus on those Engaged Exploring Munchers, fulfill their desires — and to leverage and build upon Hershey’s powerful and iconic brands.

Said Bilbrey, “Building a single Mental Model across our organization showed everyone in the organization how it works and how they fit in. The business case for our Mental Model was very clear and compelling. The first managers to apply the new approach to their businesses saw the results and became zealots who helped others internally adopt it. We were very decisive in creating one way forward.”

Meanwhile, Hershey also began sharing this new demand model — what it entitled “Insight Driven Performance” — with its strategic partners, its customers. “They got it immediately,” recalled Bilbrey, “It’s so intuitive that a collaborative approach is better for all parties. The idea of collaboration is important, but where everybody gets enthusiastic is when they understand that we’re converting both the retailer’s data and Hershey’s into a single operating system. That’s when the lights really go on. We used to talk about one activity or promotion at a time — now that we’ve got an operating system, each of our activities is just another app. It’s easy to understand and it’s easy to see the advantages.”

The results of Hershey’s transition to a demand-driven business model have been beyond expectations. At the February 2010 meeting of the Consumer Analysts Group of New York (CAGNY), Hershey CEO Dave West announced that the company had generated record cash flows in 2009 of $1.066 billion. That was more than double its 2008 cash flow and 35 percent higher than the company’s previous record cash flow of $788 million in 2004.

West told the assembled analysts that the transformation Hershey had just gone through constituted a “fundamental re-grounding in the consumer.” Hershey, West said, now knows:

•  Who its consumers are — their demands, motivations and demographics;
•  Why they buy — their demand by profit pool and the need states they experience;
•  What they buy  — a detailed understanding of the brands, tastes and textures and pack types consumers most prefer;
•  Where and how they buy — shopper missions and channel preferences; and
•  When they consume: The key usage occasions for confectionary.

“The implications of all of this have been really profound,” says 
Bilbrey. “Our new approach has strengthened our Brands, lowered inventories, reduced

 SKUs, reduced complexity, created tremendous efficiencies and generated greater cash flow. I’ve never seen a jump in performance like this before.”

A framed copy of the report now adorns the wall of his office. At the heart of Hershey’s success is the internal alignment created by its Mental Model. Today, everyone within Hershey is committed to the idea that you must align internally in order to win externally.

Contrary to what seems to be the current practice advocated by the Project Management Institute (PMI) and others, project management processes must also consider how to engage employees from the beginning so that they come to see any initiative as their own, and not simply as something to be done because they are told. Readers will find constructive guidance in this article.

What’s wrong with project management training?

In the management and organizational literature, it has been demonstrated time and time again that effective change management and leadership significantly influence the success rates of organizational initiatives. Nonetheless, I have noticed for a number of years now that IT management and workers, who are instrumental in implementing change initiatives, and the Project Management Institute (PMI), confine their thinking about “change management” primarily to two areas – change control and change advisory boards. There seems to be, with few exceptions, little appreciation of the need to integrate technical and social issues when potential project managers (PM) are trained. This is surprising given that all knowledge areas in the Project Management Body of Knowledge (PMBOK) address in one way or another the attempt to control change (Project Management Institute [2004]. A guide to the Project Management Body of Knowledge [PMBOK Guide] [3rd ed.]. Newtown Square, PA: PMI Publications). This article will discuss the training of project managers must address both technical and social issues.

Training project managers

The PMI is one of a few influential training organizations that qualifies Project Managers globally; it is the pre-eminent certification institute in North America. However, while it recognizes some issues of Human Resource Management — such as communications and team building, it does not address these issues in a substantive way. Also, it practically ignores organizational change. Instead, the emphasis in training is on areas such as risk removal, ensuring optimal process performance and the delivery of project deliverables. Clearly, the PMI offers a model that is prescriptive in nature.

A complementary project management model, one endorsed by the UK government and used extensively internationally is PRINCE2 (PRojects IN Controlled Environments 2), which is administered by the Association of Project Managers Group (APMG). Similar observations can be made about PRINCE2, although APMG’s explicit advocacy of Agile Project Management (APM) is accompanied by a more direct acknowledgment of the need to include social system concerns. For instance, to some extent, APM ostensibly focuses on people development, self-management and self-discipline, participatory decision-making, customer focus and less bureaucracy. However, there has been little research evaluating the degree to which these areas are focused on in practice.

Currently, the PMI, in its PMBOK, recognizes 42 processes that fall into five basic process groups and nine knowledge areas, and that are typical of almost all projects.

The five process groups are:

1. Initiating
2. Planning
3. Executing
4. Monitoring and Controlling
5. Closing

The nine knowledge areas are:

1. Project Integration Management
2. Project Scope Management
3. Project Time Management
4. Project Cost Management
5. Project Quality Management
6. Project Human Resource Management
7. Project Communications Management
8. Project Risk Management
9. Project Procurement Management

What about organizational change?

Since Project Human Resources Management appears as one of the knowledge areas, one might expect organizational change management to fall under it. But this is not the case. Included under this rubric are four processes: human resource planning, acquisition of team members, development of the project team, and team management. None of these refers in any fashion to organizational change, and none of the remaining five process groups or eight knowledge areas addresses it. One might also expect change control to be included, as it is a concerted effort to coordinate changes across all knowledge areas, and falls under the rubric project integration management. It also drives project scope, schedule, cost, quality, risk, and procurement. But again, no such luck

This change process above addresses requests to change some aspect of the project that might impact one or more areas of project management that have been placed under change control. Change Requests may affect one or several of the following:

• the work to be done or in progress (scope, solution definition, deliverable definition, etc.),

• the project schedule,

• the project cost,

• the project risk or complexity level,

• the quality of the project deliverables,

• project contract administration,

• customer satisfaction (i.e., client, sponsor, stakeholder, end user)

Proper project management

Nonetheless, project implementation success is about more than the mechanics of project-integration management and of the process groups and knowledge areas. Contrary to what seems to be the current practice advocated by PMI and others, project management processes must also consider how to engage employees from the beginning, so that they come to see any initiative as their own, and not simply as something to be done because they have been told to do so.

John Kotter, an emeritus professor at Harvard Business School, has stated clearly that the focus of change leadership is on crafting a vision and aligning and motivating people affected by the change, so that they are prepared to support and adopt it. Harvey Kolodny, an emeritus professor at the Rotman School of Management at the University of Toronto, has recognized the necessity to integrate the practice of change management with project management. He has indicated that the successful implementation of major managerial innovations (e.g., customer-centric restructuring, six sigma and the likes), which are critical to the survival of organizations, seldom makes effective use of the interchange between project management and change management, even though it relies on both.

Project management and change management use different terminology and different methodologies. Their respective proponents are found in different parts of the organization and have different functional and educational backgrounds. Kotter has said that organizations should benefit from a synthesis of the two approaches, but that they are not benefitting. As a result, significant opportunities for learning between the two approaches are being lost.

Employee adoption

The Standish Group and Gartner, organizations that track Information Technology (IT) and other project implementations globally, have clearly stated that a significant contributor to information systems (IS)/information technology (IT)/information management (IM) project failures is overlooking the need to address employee adoption and resistance jointly. Whether or not a project is successful has much to do with whether or not employees adopt the inevitable changes that are advocated. And such adoption is a function of how much resistance users may have to the changes in work.

The degree to which employees are expected to comply with the wishes of management and remain uninvolved affects the magnitude of employee resistance. Thus, resistance can be influenced by the presence or absence of involvement in decision-making. These are issues that are always explicitly handled by effective organizational change mana

management (OCM), yet many project teams do not include such a resource or focus. In fact, too many organizations, when forming their project teams, make the incorrect assumption that project managers (PMs) and/or business analysts (BAs) will handle OCM. But these people have far too many other responsibilities to be able to devote the necessary time and energy to do an effective job at OCM. And with all due respect to their capabilities, they cannot possibly have sufficient knowledge of, and experience with, OCM as do those of us who have dealt with it consistently throughout our careers.

In 2010, I asked a PMI representative why they fail to at least highlight the importance of OCM in successful project implementation. The answer I received was distressing: I was told that information on organizational change was considered out of scope! The assumption seems to be that if all technical and management details are attended to, implementation will be successful. But nothing could be further from the truth!

An article integrating results of 49 studies on major change projects showed that complex initiatives fail 67 – 81 percent of the time (King, S. & Peterson, L. [2007]. How effective leaders achieve success in critical change initiatives, Part 2: Why change leadership must transcend project management for complex initiatives to be successful. Healthcare Quarterly, 10(2), 72-75). Change projects fail because of organizational resistance almost twice as often as they do because of any technical issue, including poor project management. It appears almost irresponsible to convey a message that says that focusing on the steps of the project management process is sufficient to ensure success.

Of late, a few organizations have begun to integrate organization change and project management to, and the people and organizational orientation of change management. They have begun to appreciate that the discipline and methodology of project management can be integrated with the forward visioning, commitment building and attention to people and culture of change management. They seem to be more aware that success in project management is as much about creating ownership and shared meaning as it is about following the process steps. They seem to appreciate that project managers cannot ignore the effect organizational changes may have on project outcomes. Moreover, the management literature is replete with examples of project failures that have been a direct consequence of not attending to organizational change issues. If IS/IT is intended to improve not only organizational cohesion, but also to decentralize functionality, project managers must understand that the needs of users change constantly, making continuous attention to change absolutely necessary. Project management needs to consider the entire lifecycle of a system, to extend its thinking beyond design and development.

An analysis of attempts to institute a new distributed learning system (DLS) at RMIT University in Melbourne, Australia demonstrated clearly that judging the success of projects in an organization cannot be limited solely to the efficiency of the project management processes employed.  After three and a half years, the technological system and its maintenance were part of ongoing operations, but change management continued. Helping staff and students effectively use the system, assisting teaching staff to become consistent users of the online learning environment, production of multimedia learning objects, overcoming resistance to using unfamiliar processes and technology, and so on all require mentoring and explicit change support (Kenny, J. [2003]. Effective project management for strategic innovation and change in an organizational context. Project Management Journal, 34(2), 43 – 53).

In a survey of 50 recruitment sites soliciting for contract resources for IT and other projects, I discovered that a number of recruiters and organizations sought people who had OCM experience. However, it was a particular kind of experience. That is, they said that someone on their project teams must be certified in Prosci’s ADKAR process (Awareness, Desire, Knowledge, Ability, Reinforcement). Prosci, a private research and training firm established in 1994 and located in Loveland, Colorado, describes itself as the leader in business process design and change management research, and as the world’s largest provider of change management and reengineering toolkits and benchmarking information. The ADKAR model reflects what Prosci believes are the building blocks for individual change. It was developed based on analysis of research data from over 900 organizations over a 10-year period.

In 2006, Prosci released the first complete text on the ADKAR model in Jeff Hiatt’s book ADKAR: a model for change in business, government and our community. Prosci’s own research shows that problems with the “people dimension” of change are the most commonly cited reasons for project failures. But interestingly, ADKAR focuses on process instead of people, and more distressingly, fails to consider change to be a complex, systemic phenomenon that involves the interdependence of a multiplicity of variables. Moreover, ADKAR fails to make the distinction between individual (psychological) change and organizational change. While there are overlaps, organizational change relies on an understanding of group processes and behaviour, which are not explained by a sole focus on individual dynamics.

Certification in ADKAR through Prosci may be adequate as a first step to gaining competence in facilitating organizational change, though it is dangerous to assume that what is a three-day certification course provides one with sufficient tools and experience to effectively deal with project change management. Moreover, to say that the project resource MUST be Prosci-certified, as some recruiters/organizations have done, is outrageous. It is a hopeless simplification of a complex issue, and serves to minimize careers worth of knowledge and experience about change management and change leadership that is possessed by change and OD consultants, who for one reason or another have not been seen as adequate or worthy enough for inclusion on project teams.

Both IT and the PMI must widen their thinking to acknowledge the existence and importance of OCM in project success. Too many organizations persist in a more than 40 year old belief that technology trumps everything. As we have seen, it surely does not.

Ansoff’s Matrix, Porter’s Five Forces competitive analyses and Drucker’s Management By Objectives are 3 of the best known and most frequently applied management concepts. But are these vaunted concepts, incubated and given meaning in a relatively calm and predictable economic environment, valid in today’s much harsher and turbulent climate. Readers will find the answer in this article.

The problem

The management problem-solving market today is awash with prescriptive remedies. A myriad of solutions attend to almost every conceivable management ill. There is something for behavioral ills, more for restructuring maladies, and even more for strategy failures. The scope is wide and broad. Many, if not the majority, of those prescriptions are rooted in decades-old conceptual frameworks that have were developed by “gurus” as a response to pressing events and encroaching problems.

Time, however, passed by and many — a great many — of those frameworks began to lose luster and outlive their usefulness. Some have actually come to imperil organizational survival, induced by ill fit and blurred function. All this at a time of unusual environmental turbulence and unprecedented change in business and government structures, policies and strategies.

This article reviews three of the most-quoted management concepts in the area of strategy and in terms of their usefulness in today’s management environment. They are examined in terms of their intrinsic value and present-day relevance. The analysis deals with the most prized conceptual frameworks of Ansoff, Porter and Drucker i.e.: Ansoff’s Product Mission Matrix, Porter’s Five Forces Framework and Drucker’s Management By Objectives. Those are examined in terms of their absolute benefit, relevance to today’s management environment and the potential hazards inherent in their unquestioned endorsement.

The article relies on a very wide volume of work on strategy and strategic thinking, as well as on a contemporary analysis of business and economic conditions.

The choice:  Ansoff, Drucker and Porter.

If inclusion in the academic business curricula is a criterion, three names would top every list of management scholars: Igor Ansoff, Peter Drucker and Michael Porter. They represent three schools of thought and three time spans (with a measure of overlap here and there). Igor Ansoff’s pioneering work on corporate strategy dates to the 60’s and represented, at that point in time, the nearest thing to a breakthrough. Drucker’s work first appeared in the mid-fifties and introduced a collection of fresh insights into the working of corporate management. Porter’s work on competitive strategy first appeared in 1980 and constituted a landmark in terms of strategic thinking within a competitive environment. All three were heroes in their time. They provided bright and innovative conceptual frameworks that addressed core management issues of the era, and that proved viable. Their legacy endured for decades and their thinking survived time horizons, regime changes and environmental turmoil. They penetrated functional walls, management strata and geographical barriers.

However, dramatic economic events of the past few years began to cast a shadow over the magic touch of some of these individuals and their concepts. Emerging problems at country, industry and company levels assumed new dimensions, and represented a serious deviation from– if not refutations of — the conventions of the 70’s, 80’s, 90’s and even the first decade of this new century.

The near collapse of capital markets, sudden implosion of national economies, astronomic growth of national and individual debts, quick collapse of corporate structures, and the desperate search for genuine leadership are problems that defied conventional wisdoms. They induced a questioning of the effectiveness of yesterday’s concepts and whether they are of any use today. A creeping feeling began to take hold – that we need a new set of paradigms and gurus to go with them.

Igor Ansoff’s Product-mission Matrix

Igor Ansoff is one of the earliest, if not the earliest, thinkers and authors who saw strategy as a social science, and strategic management as the prime focus of corporate performance. His work pulled together various ideas and disparate strands of thought, giving a new coherence and discipline to the concept he described as strategic planning. Ansoff’s 1965 book on corporate strategy (Ansoff, 1965) is the first management work to focus solely on the subject. It could be regarded as the prime and most elaborate construct for strategic management. Although it started with a simple aim, “to produce a resource-allocation pattern that will offer the best potential for meeting the firm’s objectives”, it soon revealed some of the key fundamentals of the concept. The book, and subsequent Ansoff’s works, contained key elements of strategic thinking, including the division of decision-making into the strategic (focused on products and markets); the administrative (organizational and resource allocating), or the operating (budgeting and directly managing). It also introduced fundamental conceptual premises of strategy as product-market scope, growth vector, competitive advantage, gap analysis, capability, synergy, environmental turbulence and silent signals (Ansoff, 1975, 1980).

Ansoff ‘s pioneering work laid a strong foundation for several later writers to build upon, including, among others, Michael Porter and competitive strategy (Porter, 1980) and Gary Hamel and C K Prahalad, who introduced the concepts of core competence and strategic intent (Hamel G and Prahalad C K , 1989, and Hamel G and Prahalad C K, 1990).

One of Ansoff’s pioneering contributions could possibly be his Matrix, known as the “Product-mission Matrix.”  It was featured in a 1957 article (Ansoff, 1957) and came to provide a framework for strategy formulation under conditions of dynamic environmental turbulence. It presumed a number of strategic shifts in the face of a changing environment. These included market penetration, market development, product development and diversification. While market penetration sought an increase in existing product-market share, market and product development hoped to identify new markets for existing products and new products for existing markets. Diversification facilitated the introduction of new products to new markets. A firm could follow one or more of those strategies simultaneously, with diversification requiring an enhanced and adjusted resource base.

Ansoff’s construct of environmental discontinuities, silent signals, strategic surprises, strategy alternatives and anticipatory strategic behavior render his matrix a powerful tool for strategy formulation and strategy risk assessment in the 80’s and 90’s. It is reasonable to ask if this construct is valid under the exceptional business and economic conditions of today.

To answer this question let us consider the following three cases:

The first is the Chinese government’s decision to grant a product- replacement and product-upgrade premiums to buyers of consumer durables, including automotives, in an attempt to stimulate domestic demand and replace the rapidly contracting American and West European export volumes. This constituted a market penetration strategy (China view, 2009).

The second example is the decision by the United States government to support product innovation in the solar energy industry. A product and market development strategy was pursued by the Obama administration in order to create an American industry leadership in that industry.

The third example is Gillette’s one-billion-dollar investment in the development of the Mach razors (The New Yorker, 1998). This constituted a product- and market-development strategy taken to an extreme, perhaps. In all cases, a classic strategic move along the lines of Ansoff’s product–mission matrix was undertaken. Direct reference to the matrix might have not been that visible but the thinking contours of the concept are there.  Ansoff’s matrix is alive and well. There is a simple logic to it that renders it versatile and adoptable. It is as relevant in today’s turbulent environment as it was at the time of its introduction.

Michel Porter’s Five-Forces Framework

Michael Porter is a prolific writer and an acknowledged management thinker. He has authored several landmark works on competitive advantage, competitive strategy and competitive positioning, with Competitive Strategy (Porter, 1980) and Competitive Advantage (Porter, 1985) as the most cited and recognized. Their significance lies in, among other things, the introduction of the “five forces,” “generic strategy,” and “value chain” as the major analytical frameworks of the competitive positioning paradigm.

The five forces framework (Porter, 1980) allows a firm to assess both the attraction (potential profitability) of its industry and its competitive position within that industry by evaluating five forces: the strength of the threat of new entrants to the industry; the threat of substitute products; the power of buyers or customers; the power of suppliers (to firms in the industry); and the degree and nature of rivalry among businesses in the industry. The potential for a firm to be profitable, accordingly, is severely challenged — if not eliminated – by increased competition, lower barriers to entry, a large number of substitutes, and increased bargaining power of customers and suppliers. These forces, according to Porter, could induce an organization to develop a generic competitive strategy of differentiation or cost leadership, one that is capable of delivering superior performance through an appropriate configuration and coordination of its value chain. (Porter, 1985).

Porter referred to innovation, government, and complementary products and services as “factors” that affect the five forces (Porter, 1979).

Porter’s work was universally applauded as innovative and applied. But, serious structural flaws were observed from the early days, nevertheless. There was the lack of pertinent definitions of industry, competition and competitive advantage (Meyer R, Volbeerda H, 1997). There were also the questionable underlying assumptions of the model, including the assumption that buyers, competitors, and suppliers are unrelated and do not interact and collude, that the source of value is structural advantage (creating barriers to entry), and that uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior.

These flaws, however, are of another time. Just how does the five-force concept fare under the adverse corporate and market conditions of today?

One of the most serious flaws in Porter s analysis, in this author’s view, is the marginal attention paid to capital markets and the profound impact such markets would have on the scope, reach and impact of the five forces. Capital markets have undergone radical change (Farrell et al, 2008) since Porter’s early writing, and there was, it goes without saying, no way for him to anticipate such enormous changes. Let us recall, however, that Porter’s work and publication of Competitive Advantage (Porter, 1985) ran parallel to key economic events such as Reagan’s economic policy initiatives, including deregulation (Boskin, 1987) and the financial product, process and institution innovation that ensued. A shadow investment industry emerged with powerful structured-finance instruments and equally powerful investment institutions to match (El Namaki, 2010). Monetary policies stimulated leveraged acquisition. Emboldened investment institutions such as private equity and sovereign wealth funds enhanced mergers and acquisitions. The result of all of this activity was a new genre of strategies and a different pattern of strategic behavior, a behavior that embodies, among other things, capital markets as the underlying trigger of strategic moves (private equity industry); ruthless restructuring such as the road to survival (General Motors);  concentration as the medium for strategic competitive advantage (Gillette) and  predictable exit (Kodak).
This behaviour has altered the very premises of the five forces. Corporate strategy changed color and texture by assuming a capital-market base for decisions and a capital-market speed for outcomes. The potency of the five forces today is undermined by capital-market impact on the performance of all five. Capital markets impact entry (variable investor strategies); capital markets influence substitutions (fluctuating R and D outlays); capital markets shape supplier configuration (high concentration, enhanced merger and acquisition, constrained credit); capital markets shape buyer conditions (high concentration, enhanced merger and acquisition, constrained credit), and capital markets shape rivalry.

The five-force model needs a radical adjustment if it is to continue to be of use today.

Peter Ducker’s Management By Objectives

Peter Drucker made significant contributions to management thinking and wrote extensively on novel issues ranging from management by objectives to managing oneself. Drucker’s books included The Practice of Management (1954), Management Challenges for the 21st Century (1999), and The Essential Drucker. (2001).

One of his prime contributions is his Management By Objectives (MBO) concept or the process of participative setting of objectives and monitoring progress towards these objectives. The term “management by objectives” was first quoted in his 1954 book, The Practice of Management, where he argued that participative goal setting should permeate the entire organization, inducing a balance of needs and goals, rather than subordinating an institution to a single value. Employee participation in goal setting ensures, according to Drucker, motivation, communication, coordination, commitment and clarity of goals. The ensuing measurement and comparison of outputs ensures this.

Though innovative at the time of its introduction, MBO gradually lost its relevance.

MBO belongs to another era, an era of relative environmental continuity, which allows for an uninterrupted formulation of strategies, goals, capacities and resources. This straightforward and linear formulation is not valid in today’s volatile environment. Setting corporate goals is a challenge under the systemic hazards of country debt default and industry credit squeeze. Business organizations are struggling with ways of managing a future economic landscape characterized by uncertainty and shifting balances. The smooth rhythm of an MBO exercise seems remote and distant within corporations facing the harsh market and performance realities as those of Lehman Brothers, General Motors or, for that matter, Kodak.

Objectives formulated in Drucker’s mode are, moreover, intents whose fulfillment is dependent upon what one may term the “knowing – doing gap,” or the gap between knowing what could be done, the objective, and the consequent actions (Sutton, 2000). This gap arises when barriers such as fear, internal competition, corporate culture, and faulty performance measures take hold. Output measurements often wind up overemphasizing control, as opposed to fostering creativity (Krueger, 1994)

MBO belongs to yesteryear and a substitute that accommodates today’s realities is needed.

Lessons

One is inclined to draw a few lessons from the above analysis. The first and possibly the most important is how to learn to deal with the still prevailing resort to some of the fading concepts in business teaching and consulting. Many of the less effective concepts continue to form the backbone of MBA and other business education programs in many an institution, despite the obvious limitations referred to above. This prevails on a global scale and regardless of specific or situational conditions. A review and adjustment of those curricula is needed.

Another lesson is the slow pace of innovative research or research that leads to the design of novel instruments that respond to the new business and societal frameworks. The entire area of strategy formulation, competitive strategies and objective-driven, business performance require a radical adjustment, one that takes into consideration the strategic role of government; the changing strategies of public finance; the shorter term of corporate strategic focus; the shifting rational for merger and acquisition; the strategic dimension of industry concentration; the impact of non-Western cultures on global strategic behavior, as well as many other factors. Responsive instruments could guide the process of strategy formulation within those arenas just as Porter’s Five Forces once did more than three decades ago.

References

1.     Sloan, Alfred P. (1964), McDonald, John, ed.,  My Years with General Motors, Garden City,

2.    Ansoff Corporate strategy New York: McGraw Hill, 1965

3.    Ansoff From strategic planning to strategic management (with Roger P DeClerck and Robert L Hayes) New York: John Wiley/Interscience, 1975 ,
4.    Ansoff   Strategic management London: MacMillan, 1979

5.    Ansoff, H. I. (1980), “Strategic Issue Management”, Strategic Management

Journal, vol. 1, pp. 131–148.

6.    Ansoff Implanting strategic management Englewood Cliffs, NJ: Prentice Hall, 1984

7.    Ansoff The new corporate strategy New York: Wiley, 1988 (Revised edition of Corporate strategy)
8.    Ansoff, H. I. (1980), “Strategic Issue Management”, Strategic Management
Journal, vol. 1, pp. 131–148.

9.    Porter, Michael E. (1980), Competitive strategy: Techniques for analyzing industries and competitors (New York: Free Press).

10.    Michael Porter, from competitive advantage to corporate strategy, HBR, May June 1987

11.    Hamel G and, C K Prahalad (1989) “Strategic Intent”, Harvard Business Review.

12.    Hamel and, C K Prahalad (1990) “The Core Competence of the Corporation”, Harvard Business Review
13.    El namaki m s s, China has done especially well, Contact 2010.

14.    Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980.

15.    Porter, M.E. (1979) How Competitive Forces Shape Strategy, Harvard Business Review, March/April 1979.

16.     Boskin M J. (1987) Reagan and the US Economy. The Successes, Failures, and Unfinished Agenda, ICEG.

17.    Farrell D, Fölster C, and Lund S (2008), Long-term trends in the global capital markets, Mckinsey
18.    Abu Dhabi to inject $ 5.7b into Citigroup, China Daily, Nov 28,2007

19.    Mckinzey, the new dynamics of managing the corporate portfolio, no 23 Sept 2007).

20.    El namaki M, Dangerous innovation, Culture and innovations (South Korea), June 2010
21.    “Investors still find products appealing”, Financial Times. May 9, 2010

22.    Julia Hanna, “Risky Business with Structured Finance” , Working Knowledge

Working Paper January 20, 2009

23.    Mckinzey, the new dynamics of managing the corporate portfolio, no 23 Sept 2007).

24.    Ron Meyer, Henk Volbeerda. Porter on corporate strategy, F A J van den Bosch and A P de Man (Eds) Perspectives on Strategy 25-33 © 1997 Kluwer Academic Publishers

25.    “Managing Strategic Surprise by Response to Weak Signals”, California

Management Review, vol. XVIII no. 2, pp. 21–33.

26.    Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008.

27.    Michael Porter, Nicholas Argyres, Anita M. McGahan, “An Interview with Michael Porter”, The Academy of Management Executive 16:2:44  at JSTOR

28.    Michael E. Porter. “The Five Competitive Forces that Shape Strategy”,  Harvard Business Review, January, 2008, p.86-104.

29.    Ansoff, H. I. (1975), “Managing Strategic Surprise by Response to Weak Signals”, California Management Review, vol. XVIII no. 2, pp. 21–33.

30.    Kevin P. Coyne and Somu Subramaniam, The McKinsey Quarterly, 1996, Number 4, pp. 14-25

31.    Michael E. Porter. “The Five Competitive Forces that Shape Strategy”,  Harvard Business Review, January, 2008
32.    H, Sutton R the knowing doing gap, Harvard Business School Press, 2000

33.    Drucker P, (1973) Management: Tasks, Responsibilities, Practices.

34.    Drucker P, (2001)The Essential Drucker”

35.    Drucker P, (1954), The Practice of Management.

36.    Krueger, D, “Strategic Management and Management by Objectives”, Small Business Advancement National Center, 1994
37.    The billion dollar blade, Newyorker,06/15/1998_

38.    China to increase subsidy for auto, home appliance replacements, China view , 19.05.2009

Introspection and reflection have never been appreciated for their ability to steady a leader’s hand. In the past few years, however, practitioners and consultants have come to appreciate the importance of looking within. This article seeks to guide the reader to an understanding of  the power, potential and value of reflection as a key to maximizing their odyssey and being better prepared to thrive in an ever-complex world of leadership.

Leadership as a journey

Few may compare their leadership journey to that of Odysseus and his ten-year homeward wanderings after the fall of Troy—The Odyssey.  However, most leaders will acknowledge that their journey has to-date been full of experiences, marked by challenges as well as intellectual and affective activities clarify…what intellectual activities; a more commercial term for “affective activities”, which have created the opportunity for developing a new understanding and appreciation of life, humanity, their organization and of their own self.

The key to garnering the most out of one’s “odyssey” is the willingness to explore the experiences and challenges, to turn the events into learning [i] and then to actively convert learning’s into an opportunity to grow and discover oneself.

The question is then how to best explore?  How to leverage the learning’s and the experiences?  In life and especially in the life of those who choose to lead, there inevitably will be adventures, painful events, joys, sorrows, victories and defeats.  To do more than survive and with the intent to thrive from the inevitable challenges leaders face, they must consciously make the choice to reflect—to delve deeply into their experiences to extract the greatest value possible and ensure their odyssey becomes an epic they are proud to share.

This article seeks to guide the reader into understanding the power, potential and value of reflection as a key to maximizing their odyssey and being better prepared to thrive in an ever- complex world of leadership.

Daudelin (1996, 39[ii]) provides a definition of reflection that explicitly captures its relation to learning, “Reflection is the process of stepping back from an experience to ponder, carefully and persistently, its meaning to the self through the development of inferences; learning is the creation of meaning from past or current events that serves as a guide for future behaviour.” This definition suggests that reflection is integral to learning, when learning is defined as making sense of past experience in order to affect and understand future experience.

The art of “reflection” appears to be at risk of extinction however, in a world of instant communication and just- in- time  delivery.  The question for modern-day leaders is to consider the consequence of losing the capacity for reflection.  After all, when flying by the seat of one’s pants is the norm, and having the time to think through the next decision, let alone get a bathroom break is an anomaly in the hallowed halls of leadership… how can one truly strive to improve the very essence of who they are?  

Without taking the time to reflect, to reach down deep and to understand and address their strengths and weaknesses, the moment that defines a leader in the newspaper, in a blog, in the immortal annals of the web… and more importantly in the memories of those they lead and those whom they are accountable … may not be the moment they would choose or the ones they are most proud off.

Exploring Your Odyssey

Leadership is an odyssey, and the fact is that today’s leaders could gain much from a reinvigorated interest in, and a commitment to, further exploring their own odyssey—to choose to reflect on all the aspects of who they are—the good, the bad and the ugly.  Without doing so, leaders play a game of chance… and risk not being prepared for all that leadership may throw their way. 

In the spirit of “The Odyssey”, and in the spirit of learning from those who have come before, leaders should recall the days of ancient Greece, when the country was not defaulting on loans, but systematically taking over the known world.

The  era of Ancient Greece was a time when mankind was discovering the need for, and value of, self awareness, when lessons were shared through stories and embodied in myth, and the reflections of great men about the nature and the essence of being human, of being leaders and heroes, were immortalized in legend.  Leaders of today, in the little time they have, can speed up their learning by tapping into some of the examples in this rich period in history.

The consequence of not reflecting

“Reflection is the process of stepping back from an experience to ponder, carefully and persistently, its meaning to the self through the development of inferences; learning is the creation of meaning from past or current events that serves as a guide for future behaviour.” 1

This definition suggests that reflection is integral to learning, when learning is defined as making sense of past experience in order to affect and understand future experience.

Without taking the time to reflect, to reach down deep and to understand and address their strengths and weaknesses, the moment that defines a leader — in a newspaper or blog or on     the web… and more importantly in the memories of those they lead and those to whom they are accountable– may not be the moment a leader would choose or those of which he or she is most proud.

Achilles’ fatal flaw

The legend of Achilles as half human, half god—much like, some may say, leaders of today juggling the demands thrown their way—offers a starting point for considering the value of reflection.

When Achilles was born, his mother, in an effort to make him immortal, took Achilles to the River Styx and dipped him into the magic waters, holding him by one heel. It was this heel, untouched by the waters of the Styx, that became the one vulnerable point on Achilles’ body.[iii]

When he grew up, Achilles heard a prophecy. He could choose to live quietly and without fame or honour, but live a long time and die in his own bed, an old man with only the love of his family. Or, he could choose to be famous in his lifetime and remembered for all time. If he chose the latter, however, he would have to pay the ultimate price. He would have to die young. 

Achilles went on to be the hero of many battles, and of course, the Trojan War.  Ironically and perhaps sadly, it was the lacklustre and unlikely hero of the battle — Paris, Prince of Troy, who struck an arrow into Achilles’ heel, the near-immortal one’s weak spot.

The part of the legend that is less familiar in the modern age is this: In the Odyssey, Homer wrote that when Odysseus later visited the land of the dead and saw the spirit of Achilles in the underworld, he asked him what it was like, being dead. Achilles answered that he would rather be a landless field hand, and alive, than be the king of the dead.  In the end, and in retrospect, Achilles perhaps recognized, as many of us have taken from the story, that it was his pride –not his heel — that was his greatest weakness, his fatal flaw.[iv]

A few lesson’s from Achilles’ tale for leaders and their Odyssey:

• Leaders of today aren’t perfect — they should figure out their fatal flaw and take action to correct it.
• If a leader doesn’t know or accept his/her fatal flaw, be warned.  Ignorance is no bliss.  In the end, without such knowledge, leaders will be unable to defend themselves when the unexpected happens. 
• Leaders today are not immortal.  To learn to pace is critical; meteoric rises are most often followed by equally dramatic falls. 
• Achilles’ tale illustrates the fact that the greatest threat to a leader can come from unexpected sources or situations, not the boardroom.
• You can’t take something back. Be thoughtful before you make the big decisions.  Once a decision has been made, there’s no turning back. You will be left to face the consequences.

Now, let’s explore the lesson that hubris hurts everyone.

Hubris hurts everyone

Another legend that can spark our urge to learn is the story of a particular man, a leader of men whose lack of self awareness led to disaster.  In Greek mythology, Ajax is described as a small man, but one who moved swiftly and had great skill with a spear. He fought valiantly as well in the Trojan War and was momentarily crowned a hero.   But after the great battle, he ended up angering the goddess Athena by assaulting the maiden Cassandra and dragging her from the temple.  [v]

Athena was angry and saw to it that Ajax’s entire fleet was shipwrecked during its voyage back home.  The story continues that Ajax alone had the immense good luck to be rescued by Poseidon, the sea god. But, instead of thanking Poseidon, Ajax gloated about his invincibility. Supremely arrogant, he pronounced himself victorious against the will of a goddess.  To the Greeks, this was undisguised hubris. Poseidon, thoroughly unimpressed, reacted by drowning Ajax and sending him to a watery grave along with his men.For ancient Greeks, hubris was unnecessary and unforgivable.  They believed unchecked arrogance led to irrational acts, acts that ultimately drag not only the hero (or the leader) toward tragedy but that would affect society as a whole.  Is there a lesson for us? 

Lessons for Today’s Leaders

When today’s leaders display hubris, they imperil not only their own lives, but those of everyone dependent on them. Just consider Kenneth Lay at Enron and John Meriwether at Long-Term Capital Management. Should we remind ourselves, as did the ancient Greeks, that hubris causes irreversible damage??  

What about greed or the hunger for power.  What about looking the other way to keep the right people happy?   Think “fatal flaw.” And what about not being willing to shake things up for fear of being shaken out?  What happens when a leader believes he or she is untouchable, or that the end justifies any means? Does such behaviour also have the potential to drown leaders and their organizations?

Look no further than recent headlines, where several CEOs have been de-throned or forced to “de-robe” for not paying attention to their fatal flaws… the downside of  being themselves. Just consider Tony Hayward’s ungracious, ill-advised and non-leaderly blunder —pontificating about his own lost personal life during a national and arguably global crisis.  There was Time Inc.’s Jack Griffin who was forced out after less than six months on the job due to a widespread feeling that his arrogant and brusque management style conflicted with the company’s corporate culture. 5   And of course, among the many lessons from the News Corp. scandal…Rupert Murdoch exemplified a leader who, because of the magnitude of his organization, approached his critics as though they had no right to question him or his actions.    Labelled an “Empire CEO,” Murdoch exemplifies the leader who becomes so comfortable in their own world that they lose their connection to reality and truly believe that they are untouchable and invincible.

Let’s look at world events, where we see characters like Berlusconi, Khadafy, and Hussein.   These are men whose sense of personal importance and grandeur has left indelible scars on the people they ruled and on the history … and future of their countries.

Forget politics… there are plenty of lessons from leaders in all walks of life, in all form of business succumbing to their fatal flaw and choosing to put “me before we.” 

Look at a popular sports icon —  Joe Paterno — who after decades of being worshipped was held accountable for not leading when it really mattered… not what happened on the football field or during a game but in a change room. He had the chance to truly make a difference, to use his power and authority to help, to stand up and lead despite the potential cost to him and his organization of doing the right thing. 

Now imagine that someone had asked the late Mr. Paterno what he would have done had he been advised, say about a year ago, of an alleged child molestation situation.  Do you think he would have said, “I’ll keep it quiet to protect the institution, protect the Penn State brand, and protect my buddy, myself?”  Of course not.  We all know the “right” answer in a case like this. In fact most of us know the right answer when presented with a case in a class or a boardroom, in a controlled environment.  But as a leader, the point to keep in mind is that you can find yourself in unexpected, unreal situations,  situations that are sometimes so intense, fast paced or complex that without even thinking we succumb to our fatal flaw (s). We act according to our nature and our instinct.  We are, after all, human.

The leaders I’ve mentioned have lost their lives, their jobs, their credibility and most importantly,  the honour and the trust others placed in them to lead.  This quote from a sports journalist  writing about the Penn State situation and the individuals who played a role in “keeping things quiet” says so much about what leaders have to lose…

 “…he may have fulfilled his legal obligation by passing what he saw on to his boss, but he’ll never be able to look his own players or recruits in the eye again and honestly say he’s always looking out for their best interests.”

Leaders are Human

The harsh reality is that, in most cases, a leader’s demise is not the result of a force of nature or a particular corporate culture.  The ultimate fall from grace does not come at the hands of a foe or dark power. Rather a leader’s fall comes at his or her own hands. Their fall is due to their principle weakness, their fatal flaw — their Achilles heel. It comes because leaders didn’t have the time or take the time to learn the about the most important thing — themselves.

Leaders must consider that while they may accomplish the super human, the reality is that they are only human.  And, under pressure, leaders must know what they are capable of doing. Those who chose to lead chose to be under a microscope, to be questioned and challenged in public, to be a target of those who have other ideas and other plans for them, for their organizations.

Personalize the Discussion

Have you ever taken the time to ask the people closest to you how you react when confronted?  How you act and treat people when you are mad?  Do you know what you look like when “you lose it?”

Do you know what you look like, act like when you are frustrated, when you’ve lost respect or interest?   Do you know what you look like or behave like when you are caught off guard and confused? Lied to?

How about when you are out of control?  It may not happen often… but in the world of YouTube… it needs to happen just once.

It’s not about bringing a 360 feedback form to your dinner table or the lunch room. It’s about taking the time to reflect on yourself, talking to people who want you to succeed, the people who will be brutally honest, asking them face-to-face and engaging in what could be a defining conversation in your leadership journey… in your Odyssey.

Take a Look

To perform a simple exercise, pick up a mirror and take a look at yourself.  Take a pencil and write down the word or words that define your fatal flaw?  Do  you know what your fatal flaw is?  Can you name it?  Do you want to?  Hubris, ego, greed, fear of failure, insecurity, sensitivity or the lack of it, pride, conflict— do you love it too much, hide from it?   Can you confront your flaw?  Are you confident that one day, in one way, it won’t confront you?

A Fix?

In a July 11, 2011 article in CEO.com, “Finding and Fixing Your Achilles’ Heel,” author Cheryl Straus Einhorn describes 8 different types of CEOs and outlines their strengths and weaknesses like 2 sides of the same coin.  The author then focuses on what leaders and their advisers should be aware of, the positive and negative attributes of any top decision maker at an organization. She offers “fixes” for the various Achilles or fatal flaws.  Readers are encouraged to consider what they can glean for their own Odyssey…

1. The Iconoclast

   … the entrepreneur or visionary who is successful while breaking conventional rules.   Think Facebook CEO Mark Zuckerberg. The Achilles heel, some would say, is the risk of mixing up the cavalier and the creative.  The fatal flaw can lead to long- term failure without the discipline to sustain an organization.

2. The Celebrity

   . The high-profile executive with a flashy personal style, which is often synonymous with an ability to self-destruct. Ego can bring fame, and blindly drive the individual and the organization downward. 

3. The Cult CEO

   A leader who embodies the spirit—and therefore the brand—of the company he or she leads.  At the top of the list were Apple’s Steve Jobs and Martha Stewart.  Given their strength of personality, will and conviction, they can single-handedly deliver greatness — or crater their company.   

4. The Daredevil

   : This is the leader who takes both personal and company risks that may seem audacious, and attract marvel and awe — but that go wrong or too far– and tarnishes the reputation of the individual and the company.  A good, high profile example is Eliot Spitzer, once thought of as New York’s most fearless enforcer.

5. The Executor

   is the individual who puts business results before people.

6. The Father figure

   . Think of the late Dave Thomas of Wendy’s and Warren Buffett of Berkshire Hathaway. This type of leader is often also the company’s founder, and tends to lead in a paternalistic manner.  This is a strength and a weakness, which incorporates the  fatal flaw of being the “center” to such an extent that that succession is ignored.

7. The Globalist

   runs a multinational company with operations in many countries.  These leaders often mismanage local issues and rarely acknowledge it — until it’s too late.   Power, Position, Pride.  
   Think Toyota — a company known for great customer service was slow to respond to charges of “dangerous” safety defects. CEO Akio Toyoda was charged with “dragging his feet” and being “safety deaf” by the U.S. Transportation Secretary, Ray LaHood.
   British Petroleum’s CEO Tony Hayward proved to be the wrong spokesperson for the tragedy in the Gulf.   He lacked self-awareness, which he revealed by making statement such as, “Apollo 13 did not stop the space program.” Or, “The Air France flight that fell out of the sky off the coast of Brazil did not stop the aviation industry.”

8. The Plain Vanilla CEO

   is the quintessential company man or woman, not flashy. Their avoidance of the media and anything glitzy is balanced by their unparalleled focus on what’s going on inside and delivering results. While there is little downside to having this kind of CEO, their Achilles heel can be exposed in times of crisis when their lack of external relationships and charisma leave the organization without a known and trusted spokesperson. The “fix” offered includes considering identifying a face in the organization that fills that role or training subject-matter experts. The other option is to get the CEO to acknowledge their weakness and have them invest in training and practice! The “fix” offered for this Achilles Heel could include having a Number 2 on the ground to address the issues and be the local face.   This is a tough message for the global leader, but a critical one delivered by those charged with overseeing the company’s responsibility for making sure that there is a Number 2.

Leaders choose to invest much in their attire, education and persona.  The greatest investment, however, is often overlooked — the investment in the essence of the person that is reflected in the mirror every day.  The reality is that if truthful, leaders will admit that some part or parts of that reflection may in fact give them reason for concern or pause.   Exploring one’s odyssey proactively, and with openness and candour, can be the difference maker, especially in a world where vulnerabilities become known around the globe in seconds. Taking the time to face and work on your Achilles Heel can be a make or break undertaking.

It takes a brave person, a true leader, to look in the mirror and say “That’s something I have to watch.” Or “That’s something I have to work on.”  AND then choose to commit and take the steps on the path to self awareness.

It’s Your Odyssey… make the choice to reflect and venture on the path toward self awareness.

1 Daudelin, M. W. 1996. “Learning from experience through reflection. Organizational Dynamics 24(3): 36-48.

2 http://www.mythencyclopedia.com/A-Am/Achilles.html

3 http://ancienthistory.about.com/od/trojanwarinlit/a/OdysseyXI.htm

4 http://en.wikipedia.org/wiki/Ajax_the_Lesser.

5. http://www.ceo.com/media_type/blogs/ceos-finding-and-fixing-your-achilles-heel/

  i) http://www.mythencyclopedia.com/A-Am/Achilles.html
  ii) http://ancienthistory.about.com/od/trojanwarinlit/a/OdysseyXI.htm
  iii)http://en.wikipedia.org/wiki/Ajax_the_Lesser