Review: Competing for the Future

Posted on Nov 30, 2011 by sim

A colleague recommended an older book for me to read, Gary Hamel’s and C.K. Prahalad’s Competing for the Future – this was first published some 17 years ago, but seemed like an interesting book so I gave it a go. And it was a good thing that I did, as it turned out to be one of the better business books out there. It also turned out to be echoing (or, given its publishing date, preceding) familiar advice from some of my favorite authors like Jeffrey Pfeffer and Bob Sutton.

Despite its age, Competing for the Future translates very well to today. Understandably some of the examples mentioned are outdated, but that’s always the risk with example cases. One of the most important messages is to reward unorthodoxy – and exhorting the fact that it’s vital to be unorthodox – something that is still missed in most companies. A story from a big pharma company chairman illustrates it well, in that he regularly tracks down projects that were rejected long before they reached the board. Why?

I know that whatever we get to see at the board level is going to be pretty consistent with our existing model of the business. I’m looking for the projects that are a bit off the wall, that could change our model of the business.

Another point well worth heeding is that restructuring or acquisitions often don’t work, and that incessant downsizing is the equivalent of corporate anorexia. A company is surrendering today’s business if it gets smaller faster than it gets better, and surrendering tomorrow’s business when it gets better without becoming different. A related point that is also highlighted is that most companies are overmanaged and underled.

One eerily accurate prediction is made when talking about the music business. Remember, this was in 1994;

Now imagine a world in which there is a broadband, two-way communication into the home. You can call up on a screen the top 1,000 or 10,000 pieces of music – song-by-song, symphony-by-symphony, aria-by-aria. You can read what the critics have said about the particular selection and listen to a 90-second sample, to see if it suits your musical tastes. Once satisfied, you can have your chosen selections downloaded onto a digital recording device. At the end of the month, you get a bill. Take it a step further, and you can even imagine a “home juke box” where you could order up an evening’s music – personally customized, of course – to accompany a 1960s rock-and-roll party, a romantic dinner for two, or a backyard Tex-Mex barbeque. [..] Think what will happen to record stores as we know them – poof, they’re gone!

Sound familiar? The “music-by-theme” bit is still lacking a bit, but other than that detail, all of the above – and more – is delivered by Apple’s products, Spotify et al. Of course the book also has its share of predictions that didn’t pan out just as expected, but that’s the nature of innovation – win some, lose some. When searching for innovation, Hamel & Prahalad warn against being customer-led; customers are notoriously lacking in foresight, and by being customer-led you end up being a perpetual follower, and worse.

Overall, the book highlights many, many excellent points and gives great advice. It has its flaws, such as the outdated examples and a relatively shallow selection of example companies, but the advice offered is quite solid. Yet, after 20 years, at least 90% of the companies out there have not taken any of this advice, which is somewhat discouraging. Many points have also thereafter been successfully re-iterated and re-established in more recent best-selling business books by other authors. So what’s wrong? Do the people who have the power to change things – or feel they have the power to change things, as it’s rightly pointed out that revolutions don’t start from the top – in their company not read these, or just fail to act / follow through?

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Review: Seizing the White Space

Posted on Nov 17, 2011 by sim

In an effort to clear my to-read backlog before the year is over, I finished another business-oriented book; Seizing the White Space: Business Model Innovation for Growth and Renewal by Mark W. Johnson. It’s a pretty standard fair innovation business book, and it struck to me that positive reviews of books like this should really come after a long delay. This book was published in 2010, and it explicitly exhorts companies – quite rightly so – to not focus too much effort on identifying, let along fixating on, an exact business model too early in the course of implementing a new idea or a business model. It points out that

If you finalize a profit formula too early, or, worse, are compelled to conform financials to the core business’s profit formula, then when things change – as they inevitably will – you’ll end up making wrongheaded compromises.
[..]
Incubation should be focused on establishing profitability, but it’s critical not to put pressure on the project to reap revenues at any great pace until the acceleration stages and in many real cases, large-scale revenues won’t accrue until the transition stage [ed note: which takes place up to 8-10 years from launch].

Now, let’s take a look at a few facts; first, Seizing the White Space is focused on creating and nurturing new business models, a vastly different undertaking from simply new products. Second, tangible profits from implementing a new business model are, according to the book and common sense, not apparent immediately – they may take years to materialize, as noted above. Now, I think it’s a given that most businesses really care mostly about (sustainable) profits. With those points, here’s the problem: the book was published some 18 months ago. 18 months is hardly enough time for even the fastest adopters of the advice therein to show any real, large-scale, sustainable benefits that come from following the advice laid out in the book. That is, there simply cannot be any real-world proof that these ideas work – yet the book has received rave reviews. Why?

It’s because of this revelation that I suddenly find myself hesitant in recommending it. That doesn’t mean it’s not filled with useful tools or sage advice – it is. Seizing the White Space presents useful frameworks that help in identifying opportunities and it provides many good examples of things done both right and wrong. Among some of the noteworthy points are:

  • Structure can unlock creativity; and of, course, improper structure can and often does inhibit it.
  • The profit formulas of online retailers are highlighted in a very positive light; the fact that they can make big profits on small mark-ups is impressive, but it begs the question of how much further can one improve from there once all suitable business is online? Going from a 40% markup of a department store to a 5% markup of an online-only establishment is a big efficiency improvement, but you can’t improve another 35 percentage points from there, now can you?
  • There’s a good point in noting that needs-based, or voice-of-the-customer analysis, is not sensible despite it sounding like a good idea. Instead of asking “What do you need?” from customers, companies should start asking – or actually rather than asking, observing and analyzing – “What are you trying to get done?”
  • Many books bring this point out, but it’s worth repeating because as many companies fail in that; one must keep idea / innovation incubation effort free of interference from the core [business] and the way it operates. Innovation cannot be managed per se, but it can and should be inspired, supported and encouraged.
  • Companies often falter in discontinuities; “When faced with industry discontinuities, many companies falter. Some fail to recognize the complicated external forces propelling the event, or if they do they’re unable to trace the implications correctly or completely. Others hold tightly to their old paradigms and try to adapt them gradually to meet the changed circumstances.” Sound familiar in, say, the mobile industry? :)

Another interesting point was the notion that the world of business has become pretty dynamic or chaotic, depending on your viewpoint. It’s pointed out that:

If ever there was a time that business could just execute year after year and achieve lasting success, it is long gone. [..] But there comes a time when established product lines fully mature, when process innovation reaches the upper thresholds of efficiency, and when new product development slows. Then companies face a looming shortfall – a growth gap – between their desired growth path and the growth that the existing business and envisioned adjacencies can deliver.

Of course, the above rhetoric has a deeply-embedded view that eternal growth is not only possible, but also desirable and indeed crucial for companies. Anyone who has read more than this post on my blog by now knows that I do not share that view. But let’s leave that argument aside – after all, it is possible for a single company or even an industry to keep growing even in the long-term, just not the whole economy as an aggregate.

Even though I can’t really recommend the book, due to reasons discussed above, I do not want to discourage reading it either. In the context of the traditional business paradigm, it certainly provides helpful frameworks and guidance to steer companies toward a more dynamic, responsive, less restricted future – and we all know business model innovation is sorely needed in many areas. Seizing the White Space is a good guide for accomplishing that, and certainly much better than doing nothing.

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Seeing the trees for the forest

Posted on Nov 6, 2011 by sim

Usually this phrase is used in reverse and figuratively, but this time I mean it like this and literally. The thing is that when I moved to Australia, I realized I can’t name most of the trees. As I love trees & plants and would want to teach all about them to our kids, this was not exactly an optimal situation. I could usually spot a tree belonging to the Eucalyptus genus and identify a handful – like birch, which I’d rather not see growing here as I’m allergic to birch pollen – but most were a complete mystery to call by anything more specific than “tree”.

So I set about to educate myself, and our kids, about the trees here. After some research, I concluded that the best book to do that with would be CSIRO’s publication Forest Trees of Australia by Boland et al. This is one massive text; at over 700 pages and 2+ kilograms in weight, it’s hardly a field guide – but it is, from what I can tell anyway, an extremely comprehensive text about trees in Australia. It begins with a short introduction covering the trees, climate, topography, soils, microbes, fire effects and other factors affecting trees here.

The bulk of the text consists of species descriptions, over 300 of them, each species with two pages. The left-hand page contains the common names and botanical names, related species, climate where the species lives, map of its distribution, descriptions of the bark, leaves, cones, fruits, wood etc – interestingly including points about forestry uses, such as durability, wood density and common uses. The page on the right-hand side has a dozen or so pictures of the tree bark, leaves, fruits, flowers etc. Unfortunately the vast majority of the photos in the book are black-and-white, but the photos are extremely clear and come with size guides.

Towards the end of the book there is an extensive glossary and the usual references & an index. Due to its heft, it’s a book that I will likely never read every page of, but it is absolutely fascinating reading. For example, I did not know that the Mountain Ash (Eucalyptus regnans) here is, at up to 100m in height, the second-largest tree species in the world, only exceeded in height by the California redwoods.

Another revelation that the book brought with it is that there are lots of different species of trees here, many of which look very similar to each other. This makes accurate identification somewhat painful. There are a total of approximately 30 tree species in Finland – over here, just the eucalyptus genus has over 700 species. Given time, I am sure I will learn to identify some of the most common ones, but all of them? Forget it. Never going to happen. While a more compact field guide may come in handy at some point (the most compact of them all, the Leafsnap app by Columbia University, doesn’t really work well here), the Forest Trees of Australia is an indispensable reference loaded with fascinating information.

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Review: The Limits of Business Development and Economic Growth

Posted on Nov 2, 2011 by sim

I recently finished reading Mats Larsson’s book “The Limits of Business Development and Economic Growth“, a book that’s somewhat closer to my day job for a change. To sort of jump to a conclusion, it’s a great book in its own right that I can warmly recommend and one that I’ll get to in just a second, but the most interesting insight I gained by reading it was not thanks to this book alone. It was that there are now at least three or four distinct lines of highly credible analysis, all of which come to a similar conclusion. Whether you look at the world from a limited-resources perspective, from the purely economic debt-laden economies perspective or by analyzing some simple, fundamental limits of business development as this book does, all signs point convincingly to economic growth of the world coming to an end, and doing so soon. This, for a world running and highly dependent on the current financial system which is only stable when growing, presents huge challenges on a scale that the world has never faced before.

It’s important to point out that this book in all its analysis completely omits worrying about possible resource constraints; some readers, who don’t share the limited resources-view will find this refreshing, others like myself will wonder how some people can be so blind to them. What one thinks about the omissions, however, is not important as the arguments in the book stand on their own. One of the central arguments in the book is basically that there must be an infinite number of new opportunities or the market can’t drive the economy forever – it is noted that the opportunities may not in fact be infinite, and that we already appear to be reaching the limits of business development in some areas. What is the limit, one may ask? A very simple one that applies to many, if not most, industries: one cannot produce goods at lower than no cost and faster than in no time. Larsson is very careful not to claim that everything has been invented, but it’s hard to argue with the point that the need for investments, which the economic growth depends on, will be lower in the future as as the law of diminishing returns sets in. It it also argued that we have, in the past, mainly made existing activities more efficient and invented few genuinely new activities.

An interesting note is that as efficiency improves and people place more emphasis on lower costs the average profitability of companies declines, providing there is “healthy” competition. This is, in fact, dangerous:

As we will see below, the economy needs companies that earn good profits, and in order to do this, companies need to be able to develop skills that lead to sustainable competitive advantage. The reason for this is that profitable companies are the ones that drive investments and economic growth in the economy, which is a very important role indeed. If average profitability declines, because it is becoming more and more difficult to develop sustainable competitive advantages, we will find that investments will decline, which would endanger future economic growth.

Some other interesting points include:

  • The difficulty of identifying industries that need more people in the future, which leads to suggestions of either big structural changes needed or permanent large unemployment
  • Identifying some absolute hard limits to product usage and consumption (such as caloric intake limits, time limits etc)
  • Companies achieve superior profits through being different, but there is a strong drive is to implement systems that increase similarity

All in all, the prospects of wide-based economic growth in the long term look pretty grim. As a potential cure to the situation, The Limits of Business Development and Economic Growth offers two new sources of growth. The first is has to do with secondary qualities and making people aware of them; environmentally friendly products fall into this category when customers are willing to pay a premium for products produced by responsible companies. In order to “scale up” the secondary qualities-focus, people need to realize their consumption patterns have created the current system, and that consumption pattern changes can radically alter the system.

The other, perhaps surprisingly, is introducing complementary local currencies. Complementary local currencies are monetary systems that are not based on the “traditional” fractional reserve banking and, as the term implies, local to typically a community, city or a region. They have been previously used successfully in times of high unemployment, can also work in large scale (Switzerland has 80,000 people using a WIR system and in France, 25% of the people use complementary currencies at least occasionally) and many are already in existence. There are many types of local currencies with LETS (Local Exchange Trading System) schemes probably the most popular ones. Importantly, local currencies also make the monetary system much more resilient.

And resiliency is something that the world economy desperately needs; writing before the GFC(s) hit, Larsson points out:

The global economic system and the national currency systems that are linked to it, which most economists believe to be sufficient to guard society against economic instability, have shown a number of weaknesses in the past. [...] Yet we are doing almost nothing to try to investigate the possible weaknesses or limits that this system has, or how these weaknesses can be removed or how the system can be strengthened. Our belief in the economic system seems anomalous in the light of its track-record and it may lead our thought more in the direction of religious worship than in the direction of scientific analysis. Economists sometimes defend the existing national currency system and its virtues unquestioningly in the same way that fundamentalist religious leaders defend their beliefs. It is difficult and disturbing to try to ask important questions and only be offered the answers of economic doctrine and hypotheses that are weakly supported by experience.

Some criticism

The book starts perhaps a little bit slow, some examples are a bit outdated and there is too much repetition of some core hypothesis. These are relatively minor shortcomings and as noted, more recent examples only serve to strengthen the case, not weaken it. Partly due to its age, the book misses some key developments – for example, when talking about production optimization, it misses the trend of 3D printing for distributed manufacturing as perhaps the final step in efficiency gains as it eliminates transport time delays for certain goods. It’s also interesting to see that as the book was written in 2004, it goes into talking about print-on-demand in some length and does not even begin to take into account the e-books, which now make most print-on-demand schemes seem woefully outdated. These understandable misses do not, however, make the core arguments any less convincing, quite the contrary. With e-books, the delivery time really cannot be further improved from “immediate”, and the cost of delivery is practically zero.

Books are looking like a good example of advanced transition into e-business (Larsson provides an e-business development model), and it’s important to note that as a whole this transition and efficiencies it brought did not drive economic growth; cutting costs to drive profits is not a sustainable basis for growth and thanks to the success of online orders and more recently e-books, bookstores are a quickly disappearing feature of the physical cities. E-business, when it becomes mature, reduces resource usage and optimizes the system and in the end only serves to reduce economic activity when the transition is fully completed.

In Conclusion

I would highly recommend the book, but like I pointed at the beginning, the most remarkable thing I learned from it is not solely due to this book by itself – the book is more like another piece to what is forming to be a rather alarming puzzle. It is very interesting and somewhat disconcerting how an increasing number of different lines of highly credible and logical analysis come to essentially the same conclusion: that economic growth is coming to an end, and that massive changes will result from that. Larsson’s suggestions for finding economic growth in novel areas and ways, such as secondary qualities, proper support of small businesses and local currencies, may go some way of softening the landing for at least some industries – I would, however, be more skeptical that it could prevent growth from stopping, taking all the other challenges into account. But I would agree with Bernard Lietaer, whose work Larsson references, in that the “Official Future” scenario of the business-as-usual type for the future of our economies is, by far, the least probable alternative future.

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Review: Edible Forest Gardens, vol 1: Ecological Vision and Theory for Temperate Climate Permaculture

Posted on Oct 22, 2011 by sim

The two-volume Edible Forest Gardens by Dave Jacke and Eric Toensmeier is the last directly permaculture-related work on my reading list for now; I gather I have amassed enough knowledge on the topic for the time being after these two final books; it’s then time to do some thinking and action before further reading. This two-volume text is topically split with most of the theory in this first volume what this review is about – titled Ecological Vision and Theory for Temperate-Climate Permaculture and more practical things in the second volume, titled Ecological Design And Practice For Temperate-Climate Permaculture

One important thing to note is that despite the name, these books are not about creating “forests” per se, but mimicking the interconnectdness, sustainability and resilience of forests. It’s not about organic agriculture either; organic agriculture attempts to move agriculture toward the ‘nature’ end of the agriculture-nature continuum, maintaining high yields while reducing negative characteristics such as high rate of nutrient flux, high fragility, low resilience, low biodiversity, high amount of management effort required, high amounts of waste & pollution produced etc. Forest gardening, on the other hand, starts at nature’s end and attempts to increase yields while maintaining all of nature’s desirable characteristics (typically the opposites of that list).

Trees certainly play a role here, but are not the only plants of relevance – and you do not need acres and acres of land to implement the ideas. Instead the book specifically focuses on smaller-scale solutions and systems, often making the designs more applicable to real life than those in Mollison’s Permaculture Designers Manual that I recently read & reviewed (it should, however, also be pointed that this book covers a much narrower scope, but does so in more detail and with more up-to-date information).

To begin with, Edible Forest Gardens lays out some reasons why we should start radically re-thinking our food production; to mention just one interesting point is that when fossil fuel usage is included, traditional industrial agriculture often has a negative net energy production. That alone should ring some serious alarm bells.

The book covers a large number of fascinating details about soil structure and soil life (and how critically important it is to healthy ecosystems), social structure of forests and many other things. It also provides an overview to four perspectives on vegetation dynamics, starting with how the traditional linear succession and climax model and how it is not exactly true (I vaguely remember this linear succession model from school), then introducing three other theories; progressive succession to shifting-mosaic steady state, patch dynamics and a unified old field theory.

Previously I mentioned that quantifying yields is one aspect lacking in many permaculture materials; these books do provide some data on typical yields in different ecosystems; it’s interesting to note, for example, that agricultural land yields around 3000 kcal/m2/year, whereas temperate forests yield almost twice that and tropical forests and swamps even more in terms of raw net primary productivity (NPP). Nevertheless, more work on this area is still needed.

The text, while firmly under the permaculture umbrella, introduces only some permaculture principles (and omits others). Included are things such as polycultures and guilds, the latter which is defined here as “groups of species that partition resources or create networks of mutual support” – probably the tightest and best description of it I have seen so far.

In the sustainability discourse, there continues to be much talk and debate about suburbs and their fate. Many argue that suburbs cannot be maintained when fossil fuels become scarce and expensive (like argued in the documentary “End of suburbia“), while others quite convincingly claim we simply can’t afford to just abandon them either. This book takes a view that probably best aligns with my own thinking (and also aligns well with the permaculture edict of “the problem is the solution”) – that despite being generally poorly suited to dealing with energy decline, suburbs actually represent one of the best opportunities for sustainable design and living.

“There are more people with a little bit of land in these habitats than in any other. In the cities, people have far fewer opportunities to connect with any semblance of the natural world, much less to be self-supporting in any major way. Rural areas have too few people for high productivity without machinery driven by fossil fuels.”

There is no question that ultra-commutes, particularly with cars, will become difficult to maintain, but suburbs can provide a good basis for relocalization – and with good communication technology infrastructure, it should be possible for most knowledge-workers (those who primarily commute to begin with) to work remotely. This transition is probably easier in places like Melbourne where many suburbs are already relatively lively places filled with services and small local merchants, as opposed to many US suburbs where there is no local service-infrastructure and the little there is are shopping centers or strip malls.

The book ends with a “Top 100″ species list, their growth environments (zones, sunlight preference), size, what they produce etc. There are also comprehensive reference and publications lists and a glossary at the end.

Much of this book is theory. Theory, for many people can be rather boring, which brings me to one of the best aspects of this book; it is very professionally written, well laid out with clear illustrations and in general is a joy to read. Mollison, for example, can at times be a bit rambling, but happily this work does not suffer from such superficial annoyances. The polished, well-researched presentation of interesting material makes Edible Forest Gardens yet another recommended book, but naturally only if you find the topic somewhat interesting.

I have a lot of books on my reading list right now, so getting to the Vol 2 of this great work may take some time. Nevertheless I’m really looking forward to that after the fascinating background in this first volume – next up, however, will be some more business and innovation-oriented books related to my day job.

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