Strategy. Innovation. Brand.
Did The Government Create The iPhone?
Government at its best.
I’ve enjoyed and admired Apple products since I got my first Macintosh in the mid-1980s. Apple products are intuitive; they’re designed for people rather than technologists. I think of the company as innovative and dynamic.
On the other hand, I often hear that our technology and pharmacy companies would be much more innovative if the government would just get out of the way. Critics claim that governments are meddlesome nuisances.
Not so, argues Mariana Mazzucato in her new book, The Entrepreneurial State. A professor at the University of Sussex, Mazzucato documents the government-funded research that enabled many of the great leaps forward in information technology and pharmaceuticals.
Mazzucato argues that the state is the true innovator, willing to invest in high-risk endeavors that can affect all aspects of society. By contrast, private companies are relatively non-innovative; they simply take the results of governmental research and commercialize them. In Mazzucato’s view, the government bears the risk while private companies take the profits.
In an extended example, Mazzucato analyzes Apple’s iPod, iPad, and iPhone and the technologies they incorporate. She identifies a dozen embedded technologies and traces the origin of each. In each case, the technology originated in government (or government-funded) projects.
Mazzucato documents government investments from around the world. For instance, we wouldn’t have the iPod if not for German and French investments in giant magnetoresistance (GMR) that enables tiny disk drives. In the United States, the multi-touch screen was developed at the University of Delaware (my alma mater) with funding from the NSF and the CIA.
Mazzucato argues that we do ourselves a disservice by denigrating governments as bumbling meddlers. Private companies invest for the short-term and are relatively risk averse. Governments can look much farther into the future and can accept much less sanguine risk/reward ratios. As I’ve argued before, governments can create fundamental platforms that many entrepreneurs can capitalize on.
Mazzucato struggles with but doesn’t quite resolve the fundamental issue of fairness. Should Apple pay the government back for all the technologies it has capitalized on? One view is that Apple already reimburses the government through taxes. However, the recent ruckus about Apple’s ability to avoid taxes suggests that the reimbursement may not be full or fair. Perhaps Mazzucato can develop a mechanism that will help reimburse governments adequately for fundamental breakthroughs.
As Mazzucato points out, we tend to tell only half the story. We point to the successes of private industry and the failures of the government. If half the story becomes the whole story, we will underfund government research and drive away talented researchers. We won’t take the big risks but only the incremental, short-term risks that private capital can afford. For all of us who love the iPhone, that would be a shame.
(Click here to watch Professor Mazzucato give a TEDx talk).
Gaming the Tripwire
We need to make a decision.
When you make a decision, you create a certain amount of inertia. Let’s say your company decides to pursue Option X. Just by making the decision, you’ve created a vested interest group – people who benefit from continued investment in Option X. They will lobby for Option X even if turns out to be a bad decision. They may also lobby against review processes that could reverse the decision.
To ensure that you review decisions adequately, Chip and Dan Heath recommend the use of tripwires. The tripwire sets conditions that require you to review your decision.
David Lee Roth, lead singer of Van Halen, used a particularly ingenious tripwire to determine if a venue had fulfilled its contractual obligations. As the Heaths point out, Van Halen’s “production design was astonishingly complex.” Lots of things could go wrong and, if they did, band members might be injured. Given the complexity, how could the band quickly tell if all the contractual obligations had been fulfilled?
Roth came up with a simple solution: in the midst of a complicated contract, Roth inserted a demand: a large bowl of M&Ms would be on hand with all the brown M&Ms removed. This was Van Halen’s tripwire. If the bowl of M&Ms was properly prepared, the band knew that the local managers had read the contract closely and had (most likely) done everything right. On the other hand, if a brown M&M appeared … well, it was time to throw a fit and double check everything. A brown M&M indicated that a critical decision needed to be made – should the show go on?
Tripwires are good ideas but they can be gamed. At my college, for instance, all male students had to take two years of military science (ROTC). We marched around in uniforms and learned the proper care and feeding of an M1 rifle.
Every month, officers from the local base inspected us. They paid particular attention to the cleanliness of our rifles. There was one part of the rifle – just below the barrel – that was especially hard to clean. We noticed that the officers always focused on that part of the rifle. If it was clean, they assumed that the rest of the rifle was also clean; there was no need to look further. It was a tripwire.
As soon as we cadets realized this, we cleaned only that part of the rifle. In fact, we had contests to see how dirty we could make the rest of the rifle without being found out. We learned that we could pass inspection with filthy rifles as long as that one small section was clean. We delighted in fooling our officers.
Tripwires are great ideas. They remind you that all decisions are temporary and need to be reviewed from time to time. They set conditions that trigger such reviews. But they’re not foolproof. If the people who support the decision figure out the tripwire, they may well try to game it. It’s up to you to figure out how the game works.
Seven Leadership Styles
Alchemist
I’ve often thought of leadership as the ability to motivate people to work together toward a common goal. My definition is not far from Dwight Eisenhower’s quote: “Leadership is getting people to do something because they want to do it.”
Of course, there are different tactics to use in different situations. I study rhetoric – the art and science of persuasion – because I find it very helpful in convincing people that they want to do something. I also like to lay out goals and make them clear as possible. I’m not much of a yeller but I can understand (intellectually at least) how yelling might be a good leadership tactic in some situations – like an emergency.
I hadn’t thought much beyond that, so it was good to rediscover a 2005 Harvard Business Review article titled “Seven Transformations of Leadership”. The authors, David Rooke and William Torbert, identify seven “action logics” that can help us understand what kind of leader we already are.
I’ll summarize the seven here – using Rooke and Torbert’s terminology – partially because I think they’re important but also because I want to refer back to them in future posts.
Opportunists – “characterized by mistrust, egocentrism, and manipulativeness”, their goal is to win in any way possible. Only 5% of leaders are deemed to be opportunists (thankfully).
Diplomats – “seeks to please higher-level colleagues while avoiding conflict.” They rarely rock the boat and comprise about 12% of leaders.
Experts – “try to exercise control by perfecting their knowledge … watertight thinking is extremely important.” Experts comprise the largest single group of leaders, about 38%.
Achievers — “create a positive work environment and focus … on deliverables, the downside is that their style often inhibits thinking outside the box.” About 30% of leaders are achievers.
Individualists – often seen as “wild cards” with “unique and unconventional ways of operating”. Yet they also “contribute unique practical value” and “communicate well with people who have other action logics.” They make up about 10% of leaders.
Strategists – “focus on organizational constraints and perceptions, which they treat as discussable and transformable.” They are “highly effective change agents” but account for only 4% of leaders.
Alchemists – are able to “renew or reinvent themselves in historically significant ways.” They have “an extraordinary capacity to deal simultaneously with many situations at multiple levels.” Rooke and Torbert identify Nelson Mandela as an exemplar of the alchemist, which may help explain why only 1% of leaders fit the category.
Slaying a Dragon
Ooops … you missed a spot.
I’ve always worked for challenger companies; we were second or third or fifth in our market segments. We were punching upward, trying to slay the dragon at the top.
I don’t know why I never worked for a category leader like IBM or SAP. It would have been good experience. I did notice, however, that executives who came to my companies from category leaders were never very successful. They were supposed to show us how big companies worked. But they didn’t understand how challenger companies worked. They knew how to punch downward but not upward.
So, how do you punch upward? The best answer comes from classical literature. Here are four examples:
David and Goliath – David was outgunned and outmuscled. All he had was a rock so he had to find a place – a small place – where a rock would be effective. It turns out the place was right in the middle of Goliath’s forehead.
Achilles – Thetis, Achilles’ Mom, bathed him in a secret sauce that made him invulnerable. When she dipped him, however, she held him by the heel so no sauce touched him there. Where did his enemies aim?
Siegfried – The hero of the Nibelungs, a German tribe, Siegfried killed a dragon and bathed in its blood. As you may know, bathing in a dragon’s blood makes you invulnerable. Unfortunately, a leaf fell from a tree and settled in the small of his back. No dragon’s blood touched him there. Guess what happened to Siegfried.
The Death Star in Star Wars – ok…it’s not classical literature but the Death Star is invulnerable. Well … there’s this one small spot … which Luke just happens to find.
I was struck that all four epics tell essentially the same story. All giants have a weakness. It’s small but very vulnerable. If you attack anywhere else, you’ll be repelled. If you attack everywhere, you’ll be repelled. Your only chance to win is to find the weak spot, concentrate on it, and don’t get distracted.
That’s just what we tried to do in our challenger companies. In one case, we decided that our competitor’s weakness was the inflexibility of their software. We stressed the supple, flexible nature of our systems. In another case, our competitor was far too complex. We stressed the simplicity of our solution and even invented a cartoon character to tout the difference. In both cases, we had a lot of success though we never actually slew the dragon.
I see many small companies today trying to do far too much. The secret of punching upward – of slaying the dragon – is to do less, not more.
Perverse Incentives
But is it for the right thing?
Let’s say I’m a successful sales rep at a business-to-business software company that’s trying to improve customer satisfaction. The company wants me to take good care of my customers, tell the truth, and make them feel loved.
At the same time, the company pays me based on how much software I sell each quarter. It’s in my best interest to sell as much as I can even if I have to stretch the truth a bit and promise more than I can deliver. Of course, stretching the truth and failing to deliver often result in lower customer satisfaction. So the company is incenting me to behave in ways that defeat its own objectives.
In Britain, this is known as the principal-agent problem. In this case, the principal is the company. I’m an agent acting on the company’s behalf. The problem is that the agent’s incentive (my commission) is different than the principal’s objective. We’re working at cross-purposes.
Paul Nutt and other American writers generally refer to this situation as a perverse incentive. According to Wikipedia, a perverse incentive”… has an unintended and undesirable result which is contrary to the interests of the incentive makers.”
Examples abound. We may strive for smaller government but we typically pay government managers based on how many employees they have, not on the profits they generate (since they generate no profits). We encourage orphanages to place children with families, but we pay subsidies based on how many children are in the orphanage.
The examples may sound bizarre but perverse incentives are all too easy to create. Nutt gives a particularly perverse example: the company that proclaims, “We will not accept failure.” While that may sound bold and brave, it sets up a perverse incentive.
Every company fails from time to time. When a failure occurs, it’s in the company’s best interest to analyze it, understand it, and use it as a teachable moment. But companies that don’t accept failure will never get a chance to do this. Employees associated with the failure will bury it as deeply as they can. Otherwise, they’ll get fired.
What should you do when you inevitably encounter a perverse incentive? The first thing is to make sure it’s known. Many times executives set lofty goals (“we will never fail”) without realizing just how perverse they are. Calling attention to perversity is a useful first step.
Second, it’s time to discuss alignment. We often think of alignment in terms of focusing on the same goal. That’s good but only if the incentives for achieving that goal are also aligned. A comprehensive and detailed review of incentives will help identify areas of misalignment. This is when a good HR department is worth its weight in gold.
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