What might explain these large differences in technology adoption rates among these countries? The OECD finds that several factors contribute. The costs of the technologies and telecommunications, for example, differ among countries depending on the degree of competition in each market. The costs that firms incur in making new technologies effective in the workplace also vary. These include the regulatory burden, the ease with which businesses can start up and shut down, and the cost of raising funds. But the employment system matters even more in explaining the U.S.–E.U. competitive divide, precisely because the successful adoption of new technologies is so disruptive to patterns of work. According to the OECD’s economists, there is a strong negative correlation between the level of employment protection in a country and the extent to which its businesses have invested in ICTs. The U.S. and U.K. are at one end of the diagonal, and France, Germany, and Italy are at the other.
The quality of management also plays a key part in the degree to which companies achieve productivity improvements from their ICT investments. In an echo of the New York Fed’s research, the OECD report says firms that get the most out of their investment in ICT were already making big gains in productivity and market share growth. What’s the source of their momentum? According to the report, it is innovative management and organizational adaptability. In contrast, firms that were less innovative and adaptable but invested just as much in ICT received low returns or no returns at all, because they were “attempting to compensate for poor overall performance.”
More business investment and better business organization and management may be the keys to New Economy–style economic growth. But savvy political management of job loss and income inequality is central to economic prospects — on both sides of the Atlantic. Although Europe certainly needs to catch up on growth, America needs to do more to ensure that as many people as possible benefit from the potential of the New Economy.
Reprint No. 05210
Diane Coyle (firstname.lastname@example.org) is an economic consultant, author, and visiting professor at the University of Manchester. Professor Coyle is a former economics editor at the Independent, and is a commentator on BBC radio. Her latest book is Sex, Drugs & Economics: An Unconventional Introduction to Economics (Texere, 2002).
Knowledge Review/Books in Brief
by David K. Hurst
You’re in Charge — Now What? The 8-Point Plan
By Thomas J. Neff and James M. Citrin
Crown Business, 2005
320 pages, $25.00
You never get a second chance to make a first impression, and nothing could be more important for an incoming CEO. In You’re in Charge, Thomas J. Neff and James M. Citrin, senior partners in the U.S. executive search firm Spencer Stuart, outline an eight-point plan for newly appointed organizational leaders. With a special emphasis on building credibility in the critical first 100 days (one CEO likens it to working with quick-drying cement), they lay out a plan of action for the next 100 days, and the periods beyond. Their conclusions are drawn from an in-depth study of 100 recent leadership transitions.
The authors’ “what to do” list sounds relatively simple: prepare during the “countdown” period, set and align expectations, shape the management team, craft a strategic agenda, start changing the culture, manage the board/boss, communicate well, and avoid major pitfalls. The challenge is that all these agenda items must be pursued at the same time. Thus, the “how-tos” in each of these areas, which depend entirely on the organization’s context, are complex to explain. The authors tackle this complexity by telling a number of stories featuring several new CEOs, including prominent executives like Jeffrey R. Immelt (GE) and James M. Kilts (Gillette), and describing the different ways they went about accomplishing key tasks.
The authors emphasize the need for new leaders to come into the organization with a strategic process rather than a strategic plan. They encourage leaders to listen rather than proclaim, and to focus on building the preconditions for change rather than trying to force change at a speedy pace. The pitfalls for CEOs of any tenure are well known, but the authors’ advice is especially applicable to new leaders. They warn: Don’t set unrealistic expectations, tardy decisions are as dangerous as premature ones, don’t be a know-it-all, don’t stick to past formulas that have worked for you, don’t surround yourself with yes-men or stifle dissent, don’t imagine that you are the lone savior of the business, don’t misread the true sources of power or pick the wrong battles, and never, ever disparage your predecessor.
Joy at Work: A Revolutionary Approach to Fun on the Job
By Dennis W. Bakke
336 pages, $24.95
Joy at Work is the passionate autobiography of Dennis Bakke, former CEO of the global energy company AES. Until the energy industry was shaken up by the collapse of Enron, AES had been something of a corporate “poster company” for management writers — a company with a unique values-driven management style that had stellar financial results. Alas, such companies have the nasty habit of imploding just as their hagiographies are being written, and AES was no exception. It was sucked into the downdraft created by the Enron debacle; the stock price is still at levels last seen in the early 1990s.
Mr. Bakke makes clear, however, that his views on the role of values in management are independent of the corporation’s stock price. The benefits of his approach, he argues, accrue to the community as a whole, not necessarily to the organization that practices them. The values he espouses are those of servant leadership — humility, courage, love, passion, and integrity. They spring from his deep Christian convictions, but he makes a powerful argument, supported by the responses of AES employees around the world, that these are in fact universal human values. For management, the implication of this approach is a radical decentralization of decision making accompanied by the wide distribution of the information necessary for workers to make sound decisions at the lowest possible levels of the organization. Mr. Bakke’s ideal model is that of the self-regulating beehive, where individuals behave adaptively without reference to any central authority.
The challenge of living one’s values in every context is that it can make for rocky relationships with more pragmatic people, especially when the going gets rough. Every time AES suffered a setback, Mr. Bakke had to deal with directors and commentators who argued that it was the decentralized management approach that was responsible for the problems. In this respect, it would have been interesting to hear more about his working relationship with Roger Sant, with whom he cofounded AES in 1982. In the aftermath of Enron’s collapse, Mr. Bakke makes a spirited defense of his approach at AES, contending that it was three specific strategic decisions, not his management philosophy, that aggravated the company’s troubles. But, whatever the reasons, the “100-year flood” (his characterization of AES’s difficulties) cost him the confidence of his board and led to Mr. Bakke’s decision to retire from AES. Some might say he was a martyr for his cause.
Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
By W. Chan Kim and Renée Mauborgne
Harvard Business School Press, 2005
272 pages, $27.95
Can a business masterpiece be created using a paint-by-numbers kit? The answer provided by INSEAD professors W. Chan Kim and Renée Mauborgne in Blue Ocean Strategy is “yes.” The authors set out to provide practical frameworks and analytics for the systematic pursuit and capture of value in the emergent markets they call “blue oceans.” These are markets where demand is untapped and competition does not yet exist, whose pristine beauty is displayed in stark contrast to the murk and stagnation of their crowded red counterparts.
Although the blue ocean metaphor is evocative, the arguments in the book are less compelling. The authors examine the histories of the corporations they use as examples as if these organizations were themselves strategic actors. Thus the wildly successful entertainment company Cirque du Soleil is portrayed as analyzing, planning, deciding, and acting as if the company were an individual. This is harmless shorthand for casual discussion, but it is a hindrance to understanding the causal connections involved in navigating uncharted oceans. Could the Cirque really have substituted the systematic development and execution of strategy for the passionate, gloriously messy learning process it actually went through?
Such judgment generally surfaces retrospectively. As the Cirque’s creative director once said, “We intend to look back over the last 10 years to find where we are headed.” One questions whether the lessons to be drawn from this example, or the authors’ other ones, are really about strategizing, or whether they are more about learning and the evolution of successful ventures. In short, some readers may be concerned that the authors have confounded the question of why some enterprises succeed with the question of how they are created.
But although Blue Ocean Strategy may not help managers find truly undiscovered opportunities, the authors’ “strategic canvas” offers both a diagnostic framework and an action plan that invites managers to challenge the boundaries of their existing definitions of industries, customers, and markets by a combination of eliminating, reducing, raising, and creating the various ingredients that comprise a successful venture: the authors call the resulting profile a “value curve.”
Although they separate strategy formulation from implementation in the structure of the book, the authors warn against this split in practice, arguing that it leads to a lack of trust, commitment, and cooperation among employees. They outline a “fair process” of strategy formulation that calls for extensive field exploration and early involvement of those who will be implementing the strategy. In this way, a strong basis for effective execution is built in from the start.
Built for Growth: Expanding Your Business Around the Corner or Across the Globe
By Arthur Rubinfeld and Collins Hemingway
Wharton School Publishing, 2005
368 pages, $25.95
If you’ve ever considered opening or investing in a retail startup, you really should take a look at Built for Growth. Author Arthur Rubinfeld is a consultant who was formerly executive vice president of store development at Starbucks. Under his guidance, the coffee chain grew from 100 stores to nearly 4,000 worldwide. He has used his considerable expertise to create an excellent handbook for retail store development, aided by an expert writer, Collins Hemingway (coauthor of Bill Gates’s Business @ the Speed of Thought).
The authors structure their discussion around familiar aspects of retailing — planning, execution, location, and innovation. Although most of the concepts in the book are not particularly new, what is impressive is the in-depth discussion and integration of these elements, which can come only from people with true expertise. The authors suggest that today there are only three viable positions for retailers: exclusive specialty retailers such as Williams-Sonoma and Tiffany & Company; targeted lifestyle retailers like Starbucks and Banana Republic, and price/value retailers such as Wal-Mart and Costco.
Once you have chosen a position, the authors maintain, successful retailing has more to do with selling experiences than products, and the touchstones for powerful experiences come from the core values and purposes of the venture. These values and purposes are derived from the repeated distillation of the firm’s mission until the essences — things that are special and specific about the firm’s offerings — appear. These essences must then be expressed in every aspect of what the firm does: location, design, presentation, decor, merchandising, and so on.
If the intention is to grow the concept, this is the time when modularity must be built in — plug-and-play designs that can be used to express the essences in a wide variety of physical situations. Mr. Rubinfeld describes how he created a multifunctional “skunkworks” at Starbucks to create in-house store prototypes that embodied the coffee vendor’s touchstones of earth, fire, water, and air.
In addition to stressing the theatricality and sensuality critical to powerful experiences, the authors devote considerable time to the nuts and bolts of selecting real estate, negotiating with landlords, and other nitty-gritty details of retailing. Like a fine retail store, the book is a meticulous blend of conceptual clarity and bone-deep experience.
Deep Smarts: How to Cultivate and Transfer Enduring Business Wisdom
By Dorothy Leonard and Walter Swap
Harvard Business School Press, 2005
288 pages, $29.95
Dorothy Leonard is the William J. Abernathy Professor of Business Administration emerita at the Harvard Business School and Walter Swap is professor of psychology emeritus at Tufts University. In Deep Smarts, this wife-and-husband team examine the way experienced entrepreneurs succeed in transferring “deep smarts” (known formally as tacit knowledge) to business neophytes. They were studying startup companies in Silicon Valley and other entrepreneurial hot spots in 2000–2001 when the dot-com bust gave them a natural before-and-after situation as they tried to assess whether, and if so how, business novices could acquire the expertise to become apprentices, journeymen, and — ultimately — masters of their craft.
The book is built on an academic 2x2 matrix: One axis distinguishes between the acquisition of deep smarts and the shaping of that intelligence; the other axis contrasts the internal and external influences on intelligence. The nine chapters take the reader on a circular journey, from building of knowledge to its framing and filtering, and finally to transferring that knowledge from expert to novices so that they can achieve mastery.
Deep smarts are acquired through experience rather than formal teaching, and in any complex field it can take as long as 10 years to develop an expert. The challenge for both managers and teachers of business is how to accelerate this process. Many try to do so by using simulations to compress both space and time and to allow safe experimentation. But good simulations are hard to find and often omit crucial dimensions — car designers still build clay models despite the advances in computer-assisted design, because nothing but clay supplies that sensual relationship between designer and car. If only we had “clay models” of organizations to augment our business cases.
Rigorous academic frameworks that allow broad generalizations are usually hostile to the narrative structures that best convey the content-specific advice desired by managers. Although the authors try to address this problem with short sections on the “Implications for Managers,” and summary bullets at the end of every chapter, Deep Smarts is not a smooth read. Perhaps this is the fate of any book that extols the value of learning through experience!