The Fifth Discipline: The Art & Practice of the Learning Organization addresses the essentials of a healthy, growing organization. He asserts that when personal mastery, mental models, building shared vision, team learning, and systems thinking converge, a dynamic is unleashed to move any institution forward. For him, the often overlooked, fifth discipline is systems thinking.This million-copy author exposes learning disabilities that evolve in organizations. One of these disabilities is a culture whereby employees tend to see themselves limited to their positions. When asked, these workers describe their position, not the purpose of the organization. As such, vast segments of the organization contribute little toward the final product, thus limiting the knowledge-pool to a handful of managers, disconnected from the actual daily production.
Senge’s second disability is the belief that problems are externally caused. One part of the organization blames another part for its inability to function. Or each will blame an outside entity. As such, each intradepartmental solution is perceived as lacking.
Third, Senge claims that when we take a linear approach to problem-solving, the vogue notion of being “proactive,” is in fact reaction in disguise. To him, true proactivity comes from seeing how we contribute to our own problems. He notes a leading property and liability insurance company, whose management team decided to be “pro-active” because of the toll litigation was taking on company profits. They would not wait for significant lawsuits, but would pre-empt them.
When the team noted the likely fraction of cases that might be won, overhead costs, time cases would stay in litigation, etc., the team decided that they could not win enough cases to offset the costs. Their proactivity was in fact reacting to a single cause, leading to creating other problems.
Next, the author asserts that a learning disability is evidenced when an institution fixes on events to deal with problems. A school would demonstrate this disability, as conversations are regularly centered around enrollment, test results, who was hired or fired, new curricula competing schools announced, etc.
According to Senge, ‘Maladaption to gradually building threats to survival is so pervasive in systems studies of corporate failure that it has given rise to the parable of the “boiled frog.”’ The fifth learning disability of any organization is failure to see slow, gradual processes. To be able to do this, he asserts that leaders must slow down their frenetic pace and pay attention to the subtle as well as the dramatic.
The sixth learning disability is the delusion of learning from experience. He asserts that we each have a “learning horizon,” a breadth of vision in time and space within which we assess our effectiveness. This is similar to Vygotsky’s, “Zone of Proximal Learning.”
When our actions have consequences beyond our learning horizon, it becomes impossible to learn from experience. He says this is the core dilemma, “the most critical decisions made in organizations have systemwide consequences that stretch over years or decades.” So, any short-term fix may be temporary or spin-off other problems that will not be seen for years to come.
Another common problem is that management teams tend to spend their time fighting for turf, avoiding anything that will make them look bad personally, and pretending that everyone is behind the team’s collective strategy. To keep up the image of cohesion, they squelch disagreement, people with serious reservations avoid stating them publicly, and joint decisions are watered-down compromises reflecting what everyone can live with, or else reflecting one person’s view foisted on the group. If there is disagreement, it’s usually expressed in a manner that lays blame.
Management tends to find collective inquiry inherently threatening. Management schools tend to train them to never admit they do not know the answers.
From outlining the various learning pathologies, Senge focuses attention on the problem of organizations suffering from linearity, trying to implement cause-and-effect solutions to complex environments. He contends that “problems originate in basic ways of thinking and interacting, more than in peculiarities of organization structure and policy.”
He exemplifies this problem by a game designed at MIT, called the “beer game.” In the game, the complexities of forecasting supplies in a demand fluctuation are shown by the interactions between a retailer, wholesaler, and manufacturer. Because each leader thought in linear terms, failed to perceive the impact of delays as well as the interrelatedness of each part of the supply-chain, each business wound up with a glut of supplies and net loss of profit.
From this, the reader is to learn three things:
1. Structure Influences Behavior. When placed in the same system, people, however different, tend to produce similar results. By observing the patterns of behavior, one breaks the grip of short-term reactiveness.
2. Structure in Human Systems is Subtle. The structure in complex living systems means the basic interrelationships that control behavior, this includes how people make decisions, the operating policies whereby we translate perceptions, goals, rules, and norms into action.
3. Leverage Often Comes from New Ways of Thinking. Generative learning requires a conceptual framework of systemic thinking, the ability to discover structural causes of behavior.
The author expounds on seven archetypes (recurring patterns of structure) of systems thinking. Once leaders are able to observe the archetypes, they are freed from previously unseen forces and ultimately master the ability to work with them and change them.
Balancing Process with Delay – A person, group, or organization, acting toward a goal adjusts their behavior in response to delayed feedback. If they are not conscious of the delay, they end up taking more corrective action than needed, or just giving up because they cannot see that any progress is being made. The management principal is that in a sluggish system, aggressiveness produces instability. Either be patient or make the system more responsive.
Limits to Growth – As in Newtonian theory, every action has an equal opposite reaction, a process feeds on itself to produce a period of growth or expansion. Then the growth begins to slow, and eventually inexplicably comes to a halt, and may begin to decline. As per educational theorist, Kurt Lewin, the management principal is NOT to push harder, but remove or weaken the source of the limitation.
Shifting the Burden – A short-term “solution” is used to correct a problem, with immediate results. As this correction is used more and more, more fundamental long-term corrective measures are used less and less. Over time, the
Shifting the Burden to the Intervenor – This is when outside “intervenors” try to help solve problems. If outside help is needed, “helpers” should be strictly limited to a one-time intervention, or may be able to help people develop their own skills, resources, and infrastructure to be more capable in the future. The management principal is to “teach people to fish, rather than giving them fish.”
Eroding Goals – This is where short-term solutions involve letting a long-term fundamental goal decline. The management principal is to hold to the vision.
Escalation – Two people, departments, or organizations each see their welfare as depending on a relative advantage over the other. The management principal is to find ways for mutual winning.
Success to be Successful – This is where two activities compete for limited support and resources. The more successful one becomes, the more support it gains, thereby starving the other. The management principal is to look for overarching goals for balanced achievement of both choices. In some cases, break or weaken the coupling between the two, so that they do not compete for the same limited resources.
Tragedy of the Commons – Individuals use a commonly available but limited resource solely on the basis of individual need. At first they are rewarded for using it. Eventually, they get diminishing returns, which causes them to intensify their efforts. Eventually, the resource is either significantly depleted, eroded, or entirely used up. The management principal is to manage the “commons,” either through educating everyone and creating forms of self-regulation and peer pressure, or through an official regulating mechanism, ideally designed by participants.
Fixes that Fail – A fix, effective in the short term, has unforeseen long-term consequences which may require even more use of the same fix. The management principal is to focus on the long-term. Disregard short-term fixes, or only use it to buy time to work on a long-term memory.
Growth and Underinvestment - Growth approaches a limit which can be eliminated or pushed into the future if the firm, or individual, invests in additional “capacity.” But the investment must be aggressive and sufficiently rapid to forestall reduced growth, or else it will never get made. Oftentimes, key goals are lowered to justify underinvestment. When this happens, there is a self-fulfilling prophecy where lower goals lead to lower expectations, which are then borne out by poor performance caused by underinvestment. The management principal is if there is a genuine potential for growth. Build capacity in advance of demand, as a strategy for creating demand. Hold the vision, especially as regards assessing key performance standards and evaluating whether capacity to meet potential demand is adequate.
The problem with this approach is that decisions by leaders often create different problems by solving others. If organizations are going to flourish, a complex strategy, based upon the proper assumptions is essential.
Senge says, to understand the most challenging managerial issues requires seeing the whole system that generates the issues. The key principle, called “principle of the system boundary,” is that the interactions that must be examined are those most important to the issue at hand regardless of parochial organizational boundaries. For him, what makes it difficult to implement is the way that most organizations are set up to keep people from seeing important interactions.
In mastering systems thinking, we give up the assumption that there is an individual, or individual agent, responsible. For example, managers frequently fail to appreciate the extent to which their own expectations influence subordinates’ performance. This creates a “Pygmalion effect,” whereby the teacher’s opinion of a student influences the behavior of that student. In systems thinking everyone shares responsibility for problems generated by a system, including the observer.
This hands-on application of chaos theory in organizations, claims that only by leaders going through a paradigm shift whereby they are able to view a tapestry of concurrent patterns simultaneously, are these leaders enabled to lead their organizations over these disabilities.
LAWS OF SYSTEMS THINKING
1. Today’s problems came from yesterday’s “solutions.”
2. In organizations, the harder you push, the harder the system pushes back. Called “compensating feedback,” well-intentioned interventions result in responses from the system that offset the benefit of the intervention.
3. Behavior grows better before it grows worse.
4. Errantly, leaders apply familiar solutions to problems, “sticking to what we know best,” which ultimately leads to the same results.
5. The cure can be worse than the disease. Ultimately leading to the demise of the company.
6. Faster is slower. All natural systems, from ecosystems to animals to organizations have intrinsically optimal rates of growth. This optimal rate is far less than the fastest possible growth. To artificially supercede the optimal growth itself creates inhibitors to growth.
7. Leaders must realize that cause and effect are not closely related in time and space. This is a major fallacy leading to wrong decision-making.
8. Small changes can produce big results, but the areas of highest leverage are often the least obvious.
9. Some of the knottiest dilemmas, when seen from the systems point of view, aren’t dilemmas at all. They are artifacts of “snapshot” rather than “process” thinking, and appear in a whole new light once you think consciously of change over time.
10. It is important to realize that systems have integrity. Their character depends on the whole.
11. There must be a culture that avoids blame, and scape-goating.
capabilities for the fundamental solution may atrophy or become disabled, leading to an even greater reliance on the symptomatic solution. The management principal is to focus on the fundamental solution. If a symptomatic solution is imperative, use it only to by time while working on the fundamental solution.
Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant is a persuasive call for schools and businesses to rethink their market strategies. W. Chan Kim & Renee Mauborgne (K&M), the co-authors and Harvard Business professors, contend that successful companies in the new economy are not those who continue to compete in the same markets that are already saturated with competition. Instead, they contend that success in the new millennium is acquired by those who create new market space by value-innovation.The authors use the metaphor of a blue ocean for virtually uncontested markets. The red ocean metaphor refers to the saturated, highly competitive markets that are replicating variations of the same product.
A red ocean strategy is focused on beating the competition, exploits existing demand, makes the value-cost tradeoff, and aligns the whole system of a firm’s activities with its strategic choice of differentiation OR low-cost.
The blue ocean strategy makes the competition irrelevant. It creates and captures new demand. It breaks the value-cost tradeoff. And, aligns the whole system of a firm’s activities in pursuit of differentiation AND low-cost.
Kim & Mauborgne’s research show that value-innovation is the cornerstone of a blue ocean strategy. For them, this is achieved when there is a simultaneous pursuit of both product differentiation and low cost.
The authors place equal emphasis on value and innovation. Value without innovation incrementally improves value, but is insufficient to make you attract a market. Innovation without value tends to be technology-driven or futuristic, but often shoots beyond what buyers are willing to pay for.
The dominant focus of strategy work over the past 25 years has been on red ocean strategies. The result is increasingly skillful competition in red waters. Most managers can choose a strategic position of low cost or differentiation in this climate.
For these Harvard business professors, the time is critical for creating more blue ocean businesses. Accelerated technology has substantially improved productivity and allowed suppliers to produce an unprecedented array of products and services. The result is that in increasing numbers of industries supply exceeds demand.
Globalization compounds the situation. While supply is on the rise as global competition intensifies, there is no clear evidence of an increase in demand worldwide, and statistics even point to declin-ing populations in many developed markets.
This has caused an accelerated commoditization of products and services, increasing price wars, and shrinking profit margins. The authors affirm that recent industry-wide studies on major American brands confirm this trend.
They give many examples of companies who’ve created blue ocean opportunities. Compaq sold its computer company to HP, then created a blue ocean service company. Cirque du Soleil broke from the red ocean of circus entertainment to create an interactive, highly technology oriented show.Casella Wines created blue ocean market space by identifying the demand of buyers wanting a social drink, Yellow Tail, accessible to everyone. And, the list goes on and on.
Kim and Mauborgne identify 3-characteristics of a good strategy. First, they have focus. Second, divergence (product differentiation). Finally, they have a compelling tagline. Without these qualities, a company’s strategy will likely be muddled, undifferentiated, and hard to communicate with a high cost structure.
For example, Southwest Airlines is focused on speed, friendly service, and frequent point-to-point departures in mid-sized cities. They are divergent in that most industries at the time were hub-and-spoke systems. They have a compelling tag-line – “The speed of a plane at the price of a car – whenever you need it.”
These do not guarantee a blue ocean strategy, unless it is coupled with value curves that always stand apart from others in the same or competing industries.
The author’s contend, “when a company’s value curve lacks focus, its cost structure will tend to be high and its business model com-plex in implementation and execution. When it lacks divergence, a company’s strategy is a me-too, with no reason to stand apart in the marketplace. When it lacks a compelling tagline that speaks to buyers, it is likely to be internally driven or a classic example of innovation for innovation’s sake with no great commercial potential and no natural take-off capability (p. 42).”
To facilitate the process, the authors have designed a useful tool for all businesses, the strategy canvas. A strategy canvas visually orients the management team in what are the comparison values among competitive industries.
To begin the process of identifying blue ocean marketspace, the authors conceived of six paths to reconstruct market boundaries. They suggest that management teams do this by first looking across alternative industries. For example, to sort out their personal finances, people can buy and install financial software, hire a CPA, or simply use paper and pencil. These three are basically substitutes for the others.
Unlike these, alternatives have different functions and forms, but the same purpose. A restaurant has few physical or functional features as a cinema. One provides conversational and eating pleasure, the other visual entertainment. Despite the differences in form and function, both serve the same objective, to enjoy a night out.
In making every purchase decision, buyers implicitly weigh alternatives. Rarely do sellers think consciously about how their customers make tradeoffs across alternative industries.
For K & M, the strategic questions are, “What are the alternative industries to your industry? Why would buyers choose one alternative industry over another?” By focusing on the key factors that lead buyers to trade across alternatives and eliminating or reducing everything else, they create blue oceans.
One of the example of this is Jet Blue. The company saw only two major options for the flight customer – commercial or private. They identified a third option, whereby customers could buy 1/6th of an airplane, then get the comfort and convenience of a private plane with a cost competitive with the commercial industry.
The second path to reconstruct market boundaries is for the management team to look across strategic groups within industries. The oft-used strategy is to find differentiation within the same market. For example, Mercedes,BMW, and Jaguar will all try to find ways to differentiate their product, but will still appeal to the same luxury car buyer.
The authors used Curves as an example of a company who created blue ocean in the fitness industry. At first glance, the industry already looked saturated with the health clubs, sporting programs, and home fitness options. The founder wanted to know what made women trade up or down these options.
As a result, Curves targeted a large group of women who lacked the intrinsic motivation to continue a fitness program, needed group motivation, didn’t want to be seen by men while they are working out, and for whom time was at a premium.
Curves built blue ocean by expanding those strengths, and reducing or eliminating everything else. As a result, it is not competing directly with the other companies in the health industry, and is growing at an alarming rate.
The alternatives in education are few. They are home school, distance learning, private school (day, boarding, or therapeutic), or public school. However, the delivery systems providing the service are legion. The pressing question for looking outside the industry is, “What makes parents and students trade up or down these alternative industries?”
For the third path to reconstructing market boundaries, the authors argue that companies should look across the chain of buyers. Typically an industry will converge on a single buyer group. By challenging an industry’s conventional wisdom about which buyer group to target a blue ocean may be discovered. By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value.
As such Kim & Mauborgne call on leaders to ask the critical questions, “What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how could you unlock new value?”
The fourth path to reconstruct market boundaries is to look across complementary product and service offerings. The authors contend, the key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during, and after your product is used.
One of the companies the authors highlight is NABI, a Hungarian bus manufacturing company. For years, the industry competed on the premise that the lowest purchase price will win municipality bidding. As a result, the design, parts, etc., were driven down to shoddy manufacturing. NABIidentified that it was the cost of maintaining the buses that were of primary importance.
As a result, they were able to justify the increased cost by greatly increasing the design, parts, etc., to capitalize on future maintenance costs. As a result, they created blue ocean market space of $1 billion in orders, and is touted as one of the 30 most successful companies in the world.
In education, complementary products and services include; textbook designers and publishers, curriculum designers, research centers, regional support centers, consultants, tutoring services, testing centers, technology delivery and support companies, facilities designers, manufacturers, finance providers, distributors of all kinds, et al. These all play critical roles in the educational delivery system. To create a blue ocean market, management must look across this terrain for burgeoning opportunities, and create value-innovation.
The fifth path to reconstruct market boundaries calls for the management team to look across functional or emotional appeal to buyers. The key questions are, “Does your industry compete on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it emotional?”
The sixth path is to look across time. Here the authors assert that key insights into blue ocean strategy rarely come from projecting the trend itself. Instead, they arise from business insights into how the trend will change value to customers and impact the company’s business model.
For example, Apple observed the flood of illegal music file sharing that began in the 1990s with Nap-ster, etc. While the music industry fought to stop the cannibalizing of CDs, illegal digital music down-loading continued to grow.Apple, on the other hand, developed the iPod and iTunes, to capitalize on this ever-increasing demand.
The authors then press us to con-sider, “What trends have a high probability of impacting your in-dustry, are irreversible, and are evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up unprecedented customer utility?”
The authors challenge managers that once they have reframed the market terrain, conceive of new market space by focusing on the big picture, rather than the numbers.
To do this, they offer a few tools. The management team should draw up a strategy canvas. They must first avoid the common mistake of discussing changes in strategy before resolving differences about the current state. Then, there must be an accurate assessment of what are the competitive factors.
Step 2 and 3 are conventional marketing strategies. Send a team into the field, putting managers face-to-face with how people use or don’t use their products or services. K & M contend that a company should never outsource its eyes. Next, conduct a meeting of stakeholders broken into groups who go through a vetting process to identify the critical value curves.
Step 4 is to create visual communication. K & M suggests showing before and after strategy canvases, explaining what needs to be eliminated, reduced, raised, and created to pursue a blue ocean.
Next, the authors convey that a major error on the part of company leaders is, they concentrate most of their marketing information on current and ex-customers. They rarely interact with noncustomers. Noncustomers tend to offer far more insight into how to unlock and grow a blue ocean than relatively content existing customers.
K & M contend that to create new demand, and thus blue oceans, managers have to understand the terrain of the noncustomer. These actually fall into three tiers. The 1st tier is those noncustomers closest to your market. They are rare buyers, who only purchase out of absolute necessity from you. They are waiting to jump ship at the first opportunity. However, if provided a leap in value, not only would they stay, but also their frequency of purchases would multiply.
A success in attracting 1st tiers was Pret A Manger. They created blue ocean demand when they discovered that the sit-down restaurant industry continued on a steady decline because noncustomers now wanted healthier food, faster, and as cheap.
The 2nd tier is those who have seen what you offer, but refuse to use it. These refuse because either they find the product unacceptable or cannot afford it. To address these issues, Callaway Golf created the Big Bertha golf club and unleashed a blue ocean of new golf enthusiasts, as they found that country clubbers had rejected golf because it was too hard to consistently hit the ball.
The 3rd tier is farthest from your market. They are noncustomers who have never thought of your market’s offerings as an option. They are unexplored because their needs and the business opportunities associated with them have somehow always been linked with other markets.
To market education, the Academy should find out how our noncustomers view us. What are the critical needs these respective tiers have, and what business opportunities are available in addressing those needs.
To begin the process of implementing a blue ocean market plan, the authors conceived of what they term a “four quadrant framework.”
What to eliminate, reduce, raise, and create. When a company’s value curve lacks focus, its cost structure will tend to be high. It will try to do too many things, many that have no impact on the bottom line whatsoever.
The management team must first identify the things that need to be eliminated. Other aspects of the business need to be reduced. There may be a whole support system that needs to be outsourced.
Managers should reduce the part of the business that isn’t providing sufficient impact to the overall value of the company to warrant the size of the investment. For example, the authors noted Casella Wines reduced wine complexity, range, and vineyard prestige. While at the same time, they raised prices verses budget wines, and retail store involvement.
Cirque du Soleil reduced fun and humor, thrill and danger, in exchange for raising a unique venue by creating a cogent theme, refined environment, multiple productions, and artistic music and dance.
Thus both companies created a thoroughly unique product, thus blue ocean marketspace. In other words, they now had a product where there was little to no competition or substitute goods, with significant value innovation.
The last major section of the book, entitled Executing Blue Ocean Strategy, provides a blueprint for implementing the strategies detailed in the book. This section alone is worth the price of the book.
Published one time for exclusively educational purposes. Resource for the compendium provided by Blue Ocean Strategy by W. Chan Kim & Renee Mauborgne (Harvard Business School Press, Boston, MASS, 2005).
In this New York Times’ Best Seller, Thomas Friedman argues that there has been a fundamental shift in both global macro- and micro-economic structures. Using an array of examples making this shift, he warns those who have failed to recognize the course change.Friedman believes the world is flat in the sense that the competitive playing fields between industrial and emerging markets are leveling. He recounts many companies in India and China that are becoming part of global complex supply chains through a process called outsourcing. He recalls seeing such major American companies as Dell, AOL, and Microsft using Indian teleoperators by the hundreds of thousands, paid much cheaper than if done in the U.S.
Friedman begins in Bangalore, India, where he is surrounded by advertisements of American companies, such as; Pizza Hut, Epson, HP and Texas Instruments. Next, he encounters Indian business people working for American companies, with American accents and names. A visit to Infosys Technologies Ltd leaves Friedman in wonder at the massive conferencing system they have created that allows people from around the globe to congregate and collaborate in one giant room via technology.
As Friedman travels through Japan, China, and back to America, he demonstrates various examples of outsourcing and its impact, positive and negative, on the players involved.
In chapter 2, Friedman accentuates ten factors that led to globalization, the first being the falling of the Berlin Wall, which tipped the balance of power towards democratic free markets.
A second influence is identified as the launch of Internet. Browsers empowered everyone, and placed global information at the fingertips of the common man.
Next he claims that workflow software and standards enabled applications to talk to each other, thus facilitating the decline of closed, proprietary technology.
The development of open-source: self-organizing, collaborative communities evolved, enabling people to network across continents. This produced the likes of Linux, Firefox, Apache, etc.
Friedman’s fifth force was outsourcing, acquiring outside specialists and labor. With the new technology, outsourcing is possible by both small companies and individuals as well. In fact, he asserts it is essential in the new economy.
Friedman then contends that offshoring is a major contributor toward globalization. Companies send manufacturing to the best, fastest, and least expensive He uses the Chinese sector as a prime example of how developing countries are forced to try to keep up with their low cost solutions, resulting in better quality and cheaper products being produced worldwide.
Friedman’s seventh factor is the advent of fast, efficient, and effective supply chaining to deliver products from anywhere. His prime example is that of Wal-Mart, becoming the largest company in the world (detailed in Chapter 14).
In Friedman’s view, the eighth globalizing force is insourcing. This involves outside businesses working within the company. He underscores the rapid success of both UPS and Fedex, who don't just deliver packages – they now do logistics for businesses.
The ninth influence to globalization is what he calls in-forming. Such web search companies as Google and Yahoo deliver information quickly and effectively, anywhere, to anyone.
To round out his list, Friedman examines digital, mobile, personal, and the virtual. He credits the capacity of available, instant, worldwide, high-speed communications, whereby knowledge-work can be delivered fast from anywhere.
According to Friedman, when all of these merged, intellectual capital could be delivered from anywhere. It could be disaggregated, delivered, distributed, produced and put back together again. This brought whole new degrees of freedom to the way work is done.
The author insists that this confluence is as revolutionary as Gutenberg’s printing press. The availability of software and broadband Internet has leveled the landscape. It has created a “flat" political, economic, and cultural playing field allowing the powerless to pursue wealth, provided they have the skills, infrastructure and drive to do it.
Friedman explains what the "flat world" means to companies, communities, and individuals, and how societies can adapt. The future will not resemble the past. According to him, outsourcing is inevitable won't be held at bay. To succeed in the future, individuals and companies must develop strategies that fit global realities.
Chapter 3 underscores “triple convergence.” Friedman explains that a synergy has been created, resulting in a paradigm shift in the way business is conducted. The convergence includes:
1. The creation of a global, web-enabled playing field that allows multiple forms of collaboration, the sharing of knowledge and work, without regard to distance or geography, and soon even language.
2. Global companies lose physical limitations. Employees are now a vast, global pool of specialists, arranged according to needs.
3. New opportunities are created for individuals to compete against anyone, anywhere in the world using the new, "flat" rules.
Friedman points out that if we believe globalization is something “out there,” we are grossly mistaken – it is in our schools, companies, and institutions. The shift has resulted in old org-charts becoming quickly outdated. Inside and outside the company, jobs are being outsourced around town and around the world.
Friedman’s essential message is that "flattening" poses both a threat and progress. Not only to survive, but thrive in the new environment, Americans must embrace the new reality and adapt to the new business terrain. Those who are not good enough to compete in this different kind of business climate will be sitting out, watching others.
Friedman says that to compete, American’s need better education, pervasive high-speed broadband connections, and more globally aware government policies.
Connecting all the knowledge pools of the world means that we are on the cusp of an incredible period of innovation. Since almost everyone now has the tools to participate in innovation, there is no longer any need for anyone to immigrate to the industrialized world.
In chapter 4, Friedman examines the blurring boundaries between companies and workers, relationships between communities, and the businesses that operate within them. He gives multiple examples how individuals and small companies are empowered to compete with large ones, such that identities become harder to define. The traditional roles of consumer, employee, citizen, taxpayer and shareholder have become blurred and intertwined.
In chapter 5, Friedman concludes that erecting borders would be detrimental to our goals and that Americans must be prepared to compete globally. He encourages better education and training, as Americans now compete not only with each other, but with the most brilliant minds around the globe. He identifies the workers that will suffer, as those unable to keep ahead of the globalization trend. Then offers large-scale remedies to this problem. He asserts in the new economy, workers must adapt to changing market forces and specialize in niches.
In chapter 6, Friedman addresses on what education should be focused, in training the next generation. He identifies broad categories of workers, “untouchables,” who will have job security in the flat world. In summary, he holds the workforce of the future must be able to find niches of labor. The market doesn't just expand, it becomes more complex. It produces more and more niches, and in those niches you're not competing against the whole world. You may be competing against one other company or yourself.
Friedman asserts that viable workers need to be able to adapt and move horizontally. This increases their value, as they wear multiple hats. And if they are laid off because other ways were discovered of how to do their job cheaper or more efficiently, they'll be that much more marketable somewhere else.
In chapter 7, Friedman explores the educational requirements needed to survive in the flattened world. He stresses the importance of self-learning and learning to learn. He recommends building right-brain (creative, aesthetic) skills, or those that cannot be duplicated by a computer, and explores different vehicles to higher learning, including music.
Next, the author uses multiple examples of a complacency as paralyzing as the Sputnik crises, where America’s children are being left behind other nations in their performance of math and science. He contends there is a perfect storm that could lead to America falling behind in innovation, science and technology.
In a call to action, chapter 9, Friedman says that much of our problem boils down to three gaps: a decline in relative ambition, a numbers gap in science and engineering, and an education gap. Certainly one of the motivations in outsourcing is to access better skills. In 2001, India graduated one million more from college than we, and they speak English. China now has 6 times the number of graduate students majoring in engineering than the U.S., and it takes 15 years to train a good engineer.
His call is for us to wake up before we fall too far behind. As a nation, we should have to do our homework and run faster, because there are millions of internationals starving for our jobs.
What makes all this significant is that now some 3-billion people from Asia and elsewhere don’t have to leave home to participate. Even if his claim of such a broadening is exaggerated, at least 10% of these are now active. That’s twice the current U.S. workforce. Competitive motivations are at work, as some nations are in a race to the top. Thus there are no guarantees that America or the West will continue to lead the way.
In chapter 11, Friedman gives many examples of companies that are willing to change. These are more likely to do things than have things done to them.
There is commoditization in a wide range of industries, where everything is the same and supply is plentiful. Clients are flooded with options. Each company is driven to be more creative and innovative, or risk falling behind. Through this business model, globalization forces the big to act small. Companies must be willing to collaborate and focus on niche markets, outsourcing non-essentials. The best companies use outsourcing as a method of growth, not to shrink their workforce. Outsourcing allows them to provide more and better services.
In the chapters 10, 12-15, Friedman recognizes the disempowered, for which the new progress has yet to occur. He examines disadvantaged groups, and the forces that keep them from moving forward. For him, disempowered people are those who live in areas touched by the flattening of the world but lack the means to benefit from it. For example, in India only 2% of the entire population are involved in high-tech and manufacturing for export sectors, the rest in abject poverty.
The author makes a compelling argument that globalization is seen by many as Americanization, creating a backlash by those who felt they would be steamrolled and homogenized into being mini-Americans.
But as new forms of communication and innovation create a global platform for sharing work, entertainment, and opinion, Friedman argues that globalization serves more to enrich and preserve culture than to destroy it, as each person is given their own voice and vehicle of expression. The bad will always be there with the good. As humanitarians and businesses connect online to share ideas, so do terrorists and predators.
Finally, Friedman argues that two countries invested in a business together by being part of the same global supply-chain are less likely to go to war. Case in point, Asia, as opposed to much of the Middle East, has become more stable because they are part of many supply chains and therefore more interested in doing good business.
What should we do in the light of this new era of globalization?
Rule #1: When the world goes flat—and you are feeling flattened- don’t try to build walls.
Rule #2: And the small shall act big. … One way small companies flourish in the flat world is being quick to take advantage of all the new tools for collaboration to reach farther, faster, wider, and deeper.
Rule #3: And the big shall act small. … One way that big companies flourish in the flat world is by enabling their customers to act really big.
Rule #4: The best companies are the best collaborators. In the flat world, more and more business will be done through collaborations within and between companies. The next value creation—whether in technology, marketing, biomedicine, or manufacturing—are becoming so complex that no single firm is going to be able to master them alone.
Rule #5: In a flat world, the best companies stay healthy by getting regular chest X-rays and then selling the results to their clients.
Rule #6: The best companies outsource to innovate faster and more cheaply in order to grow larger, gain market share and hire more and different specialists.
Rule #7: Outsourcing isn’t just for Benedict Arnolds. It’s also for idealists.
Published one time for exclusively educational purposes. Resource for the compendium provided by The World is Flat by Thomas Friedman (Farrar, Straus and Giroux, 2005).
In this book, the author studied hundreds of the top companies in the country, and contends that there are predictors that make a company move from being merely a good company, to one that is great.First, Collins notes that turning around the fortunes of a company rely heavily upon its leadership. These leaders are not characterized by charisma and “salesmanship.” Instead, uniformly, the leaders of great companies are characterized by humility. They quickly give credit to others for successes, but when failure looms, they are just as prompt to claim, “I am responsible.” These leaders are ambitious for the cause, the organization, the work, not self-promoters. Beyond this, they have an iron-will to make it happen.
The decisions of the leaders of great companies inspire others primarily via inspired standards—excellence, hard work, sacrifice, and integrity—not with an inspiring public persona. They are noted for the long-term greatness of the company, not “quick fixes.”
What Collins calls, “Level 5 Leadership,” creates a culture that values substance over style, integrity over personality, and results over intentions. The leadership team dialogues and debates in search of the best answer (not for the sake of looking smart or winning a point) up until the point of decision. Once a decision is made, members of the team unify behind the decision to ensure success— even those who disagreed with the decision.
The great company cultivates leaders who have all levels in the Level 5 hierarchy; highly capable individuals, strong contributing team members, competent managers, effective leaders, and Level 5 executives.
Part 1: First Who, Then What
Collins uses a metaphor of a bus to make his point. He accentuates five ideas.First, it is imperative to get the right people on the bus. Second, the great company gets the right people in the right seats. Third, it is equally important to get the wrong people off the bus. Fourth, developing people to take sit in bigger seats. Last, plan to pass the seats on to the right people, when vacated.
When confronted with any problem or opportunity, great companies have a natural habit of translating the decision from a “what” question (“what should we do?”) into a “who” decision (“who would be the right person to take responsibility for this?”). A significant portion of their time is spent in one form or another with people decisions: getting the right people on the bus, getting the right people in the right seats, getting the wrong people off the bus, developing people into bigger seats, planning for succession, etc.
These companies have a disciplined, systematic process for improving their success at getting the right people on the bus. With each passing year, the percentage of people decisions that turn out good versus bad continues to rise.
Part 2: Confront the Brutal Facts
Great companies create a climate where the truth is heard. When things go wrong, they conduct autopsies without “blame.” They seek to understand underlying root causes, rather than pin the blame on an individual. Their leaders ask a lot of questions, rather than just making statements, thereby creating a climate of vibrant dialogue and debate about the brutal facts. Their leaders do not allow their charisma or force of personality to inhibit people from bringing forth the brutal facts—even if those brutal facts run contrary to the views held by those leaders. People in the culture of great companies are never penalized for bringing forth the brutal facts.
Great companies acquire important data and make excellent use of data, metrics, and hard tangible evidence to assess external threats and internal weakness. They make particularly good use of trend lines (to see where we are declining) and comparative statistics (to see where we are falling behind others) to discover and highlight brutal facts. When people advance a point of view or make an argument, they expect them to marshal evidence, facts, and rigorous thinking to back up their argument. “It is my opinion” does not qualify as an acceptable argument in the great companies. When someone has a gut instinct that “something is just wrong, “ they pay attention; instincts can be good early warning systems. But they don’t just stop there: they then conduct a disciplined, fact-based assessment of the situation.
Great companies embrace the “Stockdale Paradox.” When facing difficult times, they never hold out false hopes soon to be swept away by events. They are not unrealistic optimists who die of a broken heart when their belief that “it will be better tomorrow” gets continually shattered on the rocks of reality. Despite whatever brutal facts they face, great companies have an unwavering faith that they can and will prevail in the end. They believe that greatness is not primarily a function of circumstance; it is first and foremost a function of conscious choice—and discipline.
Part 3: The Hedgehog Concept
Another prominent metaphor used by Collins is “The Hedgehog Concept.” First, if forced to choose between describing them as foxes (crafty creatures that know many things) or hedgehogs (simpler creatures that know one big thing), great companies weigh in with the hedgehogs.
They keep it simple. They have a simple, coherent strategic concept that they pursue with relentless consistency. If they have multiple options for how to accomplish an objective, they almost always pick the simplest option that will work. In other words, at each fork of the road, they tend toward the path of simplicity, rather than complexity.
Great companies have a deep understanding of what Collins called the three circles. 1) what we can be passionate about, 2) what we can be the best in world at, and 3) what best drives our economic or resource engine.
Great companies understand that nothing great can be accomplished without passion, and they limit their primary arenas of activity to those for which they have great passion. They also know what they can be the best in the world at. This encapsulates what a company (school) can do better than any other institution on the planet.
Great companies understand what best drives their economic or resource engine.If they are a for-profit business, they have identified their one economic denominator—profit per X—that has the most significant impact on their economics. If they are a social sector organization, they know how best to improve their total resource engine, so that they can spend less time worrying about money and more time fulfilling their mission.
Finally, he says that the great company acts with understanding, not bravado. They believe that great results come about by a series of good decisions—actions taken with understanding, not bravado—accumulated one on top of another, in line with their Hedgehog Concept. They confront the brutal facts of what they can—and equally cannot—become the best in the world at, and they do not allow bravado to obscure the truth.
Part 4: A Culture of Discipline
Great companies have the discipline to say “No thank you” to big opportunities that do not fit within their Hedgehog Concept. A “once-in-a-lifetime opportunity” is irrelevant if it is the wrong opportunity. They never lurch after growth for growth’s sake; they grow consistently within their Hedgehog, period. They are willing to jettison their core competencies and largest lines of business if they cannot be the best in the world at them. They make excellent use of “Stop Doing” lists.
A cornerstone of the great companies’ culture is the idea of freedom and responsibility within a framework: so long as people stay within the wide bounds of the framework, they have an immense amount of freedom to innovate, achieve and contribute. People in this system understand that they do not have “jobs”— they have responsibilities—and they grasp the distinction between just doing assigned tasks and taking full responsibility for the results of their efforts. We can answer the question for each significant activity, “Who is the one person responsible?” Their culture is a productive blend of dualities, such as: freedom and responsibility, discipline and entrepreneurship, rigor and creativity, financial control and innovative spirit, focused Hedgehog and adaptable.
Great companies manage the system, not the people. They do not spend a lot of time motivating their people; they recruit self-motivated people, and provide an
environment that does not de-motivate them. They do not spend a lot of time disciplining their people; they recruit self-disciplined people, and then manage the system, not the people.
Great companies avoid bureaucracy that imposes unnecessary rules on self-motivated and self-disciplined people. If they have the right people, they don’t need a lot of rules.
Great companies practice extreme commitment. In their culture, people go to extremes to fulfill their commitments and deliver results, bordering at times on fanaticism. They are equally disciplined in good times as in bad times. They never allow prosperity to make them complacent.
Part 5: The Flywheel not the Doom Loop
The next metaphor used by Collins is that of the Flywheel and Doom Loop. For Collins, each great company builds cumulative momentum. They understand that building greatness never happens in one fell swoop—that there is no single defining action, no one killer innovation, no seminal acquisition, no breakthrough technology, no savior on a white horse, no wrenching revolution that can by itself bring about sustained greatness. Instead, they build greatness by a cumulative process—step by step, action by action, day by day, week by week,
year by year—turn by turn of the flywheel.
They are relentlessly consistent over time. When examining their behavior, one word that comes to mind is consistency—consistency of purpose, consistency of values, consistency of purpose, consistency of high standards, consistency of people, and so forth. Their success derives from a whole bunch of interlocking pieces that reinforce one another, consistently applied over a long period of time. They have immense flexibility and adapt well to change—but always within the context of a coherent Hedgehog Concept.
Great companies create alignment by results, not hoopla. They tend to undersell themselves, and then delightfully surprise by blowing people away with their actual results.
They never pump up our reputation with a sales job (“buy into our future”) to compensate for lack of results. They do not “sell visions” to fire people up or take a programmatic or hoopla-laden approach to alignment. They understand that when people begin to feel the magic of momentum—when they feel the flywheel increase speed—is when most people line up to throw their shoulders against the wheel and push.
Great companies avoid the Doom Loop. They do not succumb to the lazy, undisciplined search for a single silver bullet solution—be it a new program, a motivational event, a sexy technology, a big acquisition, or a savior CEO. They do not build from 0 to 100 rotations in the flywheel, then stop, lurch in a new direction, lose their momentum and start anew. They have the discipline to turn the flywheel from 0 to 100, 100 to a thousand, a thousand to a million, a million to a billion turns—and to not go 0 to 100, 0 to 100, 0 to 100, lurching from new program to new program. If a new technology advances their product, they become a pioneer in its application; if a new technology does not fit, they don’t worry too much about it—and certainly don’t lurch about in fearful frantic reaction.
Part 6: Preserve the Core/ Stimulate Progress
Collins contends that great companies articulate a core guiding philosophy—core values and a reason for being that goes beyond just making money.According to him, they have a passionately-held set of core values that they adhere to, no matter how much the world
changes around them. They are honest about what their core values actually are. They don’t worry about what outsiders think of their values; they are for internal guidance, not marketing. If these core values were to become a competitive disadvantage at some point in the future, they would still hold them. They have an enduring purpose or mission—a reason for being—that that goes beyond just
Great companies change and improve everything except your core values.They practice the “Genius of the And”—continuity and change, values and results, cohesion and autonomy, endurance and urgency, and so forth. They are clear on the difference between their core values (which should never change) as distinct from their operating practices, cultural norms, goals, strategies, and tactics (which should remain open for change). While they hold their core values constant, they stimulate progress—change, improvement, innovation, and renewal—in the operating practices, cultural norms, goals, strategies and tactics that surround the core values.
Great companies understand that if their list of core values is too long, they are very likely confusing core values with practices and aspirations; theyhave no more than six values that they consider to be truly core.
Great companies have built a culture that so consistently reinforces their core values that those who do not share the values are ejected like a virus, or they become so uncomfortable that they self-eject. They promote leaders who live the core values; those who repeatedly breach their values never make it far or last long in their culture. They are so consistent with their values that if every conversation, every decision, every action were videotaped, people watching the tape would be astounded by their consistency and passion for living to their values.
No matter how much they achieve, they never feel comfortable or feel that they’ve arrived. Great companies are obsessively focused on their shortcomings—on what they could do better; the term “productively neurotic” describes their culture well.
Great companies achieve BHAGs—big hairy audacious goals. They have a remarkable success rate at achieving their BHAGs (big hairy audacious goals). They rarely fall short of the extreme standards of achievement they set for themselves. They understand the difference between a 10-to-25 year BHAG—which is like a huge mountain to climb--
and 5-year intermediate objectives, which are like base camps on the way to the top of the mountain.
They have a 10-to-25 year BHAG in place, which they have broken down into base-camp objectives. Their BHAGs are set with understanding, not bravado—in direct alignment with the three circles of the Hedgehog Concept.
Part 7: Clock Building not Time Telling
Another metaphor used by Collins is that of clock-building. For him, great companies build a system that can be great beyond any single leader or great idea. Their chief leader is a clock-builder, not just a time teller—he or she is building a system that can prosper beyond his or her presence. Their chief leader is building a great team of strong individuals, rather than acting as a “genius with 1000 helpers” on whom everything depends.
If any individual leader were to disappear tomorrow, their discipline would remain as strong as ever. They have built a culture of discipline, as distinct from having a larger-than-life disciplinarian at the helm. They hold their leaders accountable for the success of their successors.
Great companies create catalytic mechanisms. They have red flag mechanisms that bring brutal facts to their attention, and force them to confront those facts, no matter how uncomfortable. They set in place powerful mechanisms that stimulate progress—mechanisms designed to force them to continually improve. Their mechanisms are designed so that people who hold power—and who might want to ignore the brutal facts—cannot easily subvert the mechanisms.
Great companies manage for the quarter century. No matter what short-term pressures they face—Wall Street, financial distress, No Child Left Behind, pressure for a winning season—they build for long-term greatness; they manage not for the quarter, but for the quarter century. Their leaders measure their own success as much by how their organization performs in the hands of a successor as by how it fares during their own personal reign.
Resources for the construction of the summary provided by Good to Great by Jim Collins (New York: HarperBusiness, 2001. 320 pages, 9 chapters.), and the Diagnostic Tool at the Jim Collins website at http://www.jimcollins.com/pdf/Diagnostic%20Tool.pdf.