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Published: November 22, 2011
 / Winter 2011 / Issue 65

 
 

Best Business Books 2011: Management

An evolutionary perspective means, as the book’s subtitle states, that success invariably begins with failure. Harford devotes his book to exploring the implications of this idea for organizations and individuals, illustrating his conclusions à la Malcolm Gladwell, with a wide-ranging collection of anecdotes that are often drawn from studies of dysfunctional economies and organizations.

The hero of the book, to whom the author continually returns, is Peter Palchinsky, a brilliant, stubborn, opinionated Russian engineer who was an economic advisor to the tsar and then to the Soviet government, before being executed by the Communists in 1929. His crime was that he saw too clearly that centralized control over economic development could not work, because it did not permit variation and selection — the critical processes of evolutionary adaptation.

Harford identifies three Palchinsky-esque principles for success: “first, seek out new ideas and try new things; second, when trying something new, do it on a scale where failure is survivable; third, seek out feedback and learn from your mistakes.” This sounds simple, but applying these principles is more difficult than it seems, as the author shows by tackling some of today’s major political, economic, and social challenges.

For instance, Harford uses the invasion of Iraq to demonstrate how a refusal to learn from mistakes and adapt led to a failure in the city of Tal Afar — a near-rout that was rescued from disaster only through an improvised experiment. The conductor of this experiment, which harnessed the efforts of the locals to expel the terrorists, was Colonel H.R. McMaster, another of Harford’s heroes and a veteran of the Vietnam War.

McMaster wrote a definitive examination of the failures of leadership in Vietnam, which showed how Lyndon Johnson and Robert McNamara had enforced a rigid hierarchy, insisted on unanimity, and put too much faith in the centralization of data and the use of quantitative methods for analysis. (Their story sounds eerily like the actions of the senior executives at GM that Bob Lutz describes.) It’s instructive, too, that in the process of winning over the local insurgents in Tal Afar, McMaster makes enemies of his superiors and is repeatedly passed over for promotion to brigadier general, an omission that was recently remedied by McMaster’s like-minded boss, General David Petraeus.

A short review cannot do justice to all the perspectives that Harford uses to illustrate the application of Palchinsky’s principles. He discusses how new ideas can be created, how to conduct experiments to tease out the webs of cause and effect, and the multiple ways in which leaders can profit by admitting failure and learning from experience. My only criticism is that at times Harford appears to regard variation as the opposite of standardization, with the implication that “uniformly high standards are not only impossible but undesirable.” Certainly this is true of mindless standardization for the sake of uniformity, but it is not true of the rigid but mindful standardization of approaches like the Toyota production system, where standards form the foundation of the controlled experiments that take place on the factory floor every hour of every day. Without such standardization, there can be no helpful variation. One feels sure that Peter Palchinsky would agree.

An Exciting Future

For much of the 20th century, American management was preoccupied with managing growth and the burgeoning scale of corporate operations. By and large, organizational solutions such as decentralization, functional specialization, and hierarchy were successful in meeting the challenge. Now that challenge has changed, and management, especially in the West, is engaged in a struggle to reinvent itself and its institutions.

Neoclassical economics, which provided managerial logic and legitimacy in the last century, is less and less relevant. It doesn’t answer questions about how to create value, for instance, and its assumptions of market equilibrium are unhelpful. In fact, for many companies, market failure is no longer an aberration, but a starting point and a source of opportunities.

 
 
 
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