It's been a while since we posted here because of all the craziness surrounding the launch of our book, The Power of Pull, but we are happy to announce that we're going to be resuming a regular schedule of postings to build on the themes in our book. We thought we would kick off our new postings by summarizing some of the ideas from Pull that resonated the most in our many conversations from the last few months. from The Power of Pull.
The Red Queen was optimistic. Nearly everybody in management is familiar with the Red Queen effect, taken from Lewis Carroll's Through the Looking Glass: this is the notion that "It takes all the running you can do, to keep in the same place."
It turns out the Red Queen represents an optimistic view of the world. Despite long-term increases in labor productivity, the average return on assets (ROA) of US companies has steadily fallen to almost one quarter of what it was in 1965. We're running faster, but still losing ground. There is no sign of this long-term erosion flattening out, much less turning around.
The conclusion is inescapable: our management practices and corporate institutions are fundamentally broken. The good news, if you can call it that, is that this isn't sustainable for much longer: the trend line on ROA approaches zero in 2020. If you believe that markets spur innovation, however, it does bring up a conundrum: Why haven't companies yet figured out how to compete more successfully? One reason is because...
Value ain't where it used to be. Competition is not only intensifying (pdf), it's changing the source of value creation from stocks to flows of knowledge, and the means for value creation from push to pull. These changes require such fundamental shifts in mindset and approach that most executives are unable to make the leap from their current ways of seeing and doing. Thus their companies remain mired on the downward slope of performance.
Asia is the new global center of innovation. But some companies and executives are figuring it out. The bad news for the US is that these leading-edge companies and executives tend to be in China and India. Westerners generally have a narrow view of innovation, limiting it to breakthrough technology and product innovations. We need to expand beyond product, process, and even the management innovation called for by Gary Hamel to a broader notion of institutional innovation, which redefines roles and relationships across large numbers of institutions.
Where is institutional innovation most advanced? In China's open production and design models and in India's open distribution models. We've written about both of them before. Unfortunately, the concept of institutional innovation — as yet anyway — is all but invisible to most Western executives.
The collaboration curve supplants the experience curve. We may, for the first time, have an opportunity to turn diminishing returns performance improvement into increasing returns.
The BCG experience curve is one of the most enduring ideas in business. Unfortunately, it's characterized by diminishing returns: The more experience accumulated in a specific industry, the longer it takes to get the next increment of performance improvement. As competitive intensity rises, these diminishing returns are a serious obstacle to performance.
As it becomes increasingly possible to scale the number of connections and interactions between participants in a given environment, however, a new kind of performance curve is emerging: the collaboration curve. This is characterized by increasing returns: the more participants — and interactions between those participants — you add to a carefully designed and nurtured environment, the more the rate of performance improvement accelerates.
The collaboration curve helps explain the rise of network-centric efforts ranging from open source software development to "crowdsourcing" to "creation spaces." In nearly all of these group efforts, rapid leaps in performance improvement arise as participants get better faster by working with others. The evidence for the collaboration curve is still admittedly fragmentary, but one place to look for it is in the online game World of Warcraft.
The "Dilbert Paradox" holds the key. Companies will not be able to fully harness the potential of collaboration curves until they resolve the Dilbert Paradox.
Here's the paradox. Ask CEOs about their top priorities and inevitably they will cite talent as one of their top priorities. If this is the case, how do we explain the enormous popularity of Dilbert and The Office, which so eloquently describe the stultifying effect of our work environments on talent?
In part, the paradox arises because executives tend to focus on talent acquisition and retention, but do not invest much time on talent development throughout the firm. When they think about talent development, they spend time designing training programs rather than re-thinking the work environment to accelerate talent development. If they took on-the-job talent development seriously, they would reassess all aspects of the firm - strategy, operations, organization and information technology platforms - to find ways to foster even more rapid talent development.
Passion is everything. Management can only do so much. All of us are responsible at a personal level, too — for reintegrating our passion into our profession. What is passion? More than simple satisfaction, passion is when people discover the work that motivates them to achieve their potential by seeking extreme performance improvement. Their job becomes more than a mode of income.
Yet our survey in the 2009 Shift Index showed that passion levels are low across all US industries. In most of them there are fewer than 20 percent of employees that say they are passionate about their work--and no industries have more than 25% that say so. Furthermore, passion levels are inversely related to the size of the employer: the larger the company, the lower the passion levels.
Why is passion so important? Because it drives a questing disposition that is essential to employee performance as they react to the inevitable unexpected challenges today's work environment presents. It also drives more connection. Our Shift Index found that passionate workers participate much more actively in knowledge flows that are the new key to value creation. If you can help make your employees more passionate, you can create value in today's economy.
Book writing has many purposes, but surely among the most important is to spark conversation, and maybe even controversy. What did we get right? More importantly, where did we go wrong? What can we do to sharpen and refine these propositions?