Winning as a Self-Fulfilling Prophecy

They left without the photographer.

 

The bride was being consoled by her best friend, who was hoping to keep the makeup from liquefying.  The yacht was perfect, of course, and most of the bridesmaids were there as planned.  How dreamy – except now no pictures.  Well, the bride would make sure that the photographer never got another high-profile job.  And, to think, all the best families had raved about what a genius he is.

Two hours later, as they lay on the yacht’s sun deck in the warm tropical air, they heard the roar of twin diesels.  Looking up, there in the bow-sprit chair of a racing marlin boat was the photographer, Paul Barnett, snapping photos from a long telescopic lens.  James Bond with a camera.

But of course!  You don’t photograph the wedding party on the yacht itself; too close quarters. You shoot from a separate boat!  What a genius.

Let me tell you, the story from my brother Paul’s perspective sounds a lot different:  A desperate realization that you were told the wrong time; a frantic cab ride to the marina, only to see the yacht heading to sea; a search for a fast boat; a payoff to a nefarious badguy; the last-second idea to shoot from the bow-sprit chair strapped in like a marlin fisherman.  And then, of course, the usual self-assured act later on, as if to say “all part of the plan.”

Some people have a way of making things go right, no matter how badly they seem to be going wrong.  Why do winners seem to just keep winning?

Social scientists tell us that winners keep winning for several reasons.  First off, maybe they are just better.  But quality aside, we know that those with a reputation for past success tend to get disproportionate credit for future wins – the so-called “Matthew effect” described by the sociologist Robert K. Merton.  And of course the winners from the past tend to be in the right place to make things happen in the future, and have the connections and resources to make good on those opportunities. 

But there may be another reason that winners keep winning – a reason that is particularly useful to understand business leadership: The self-fulfilling prophecy.  Some people tend to be unrealistically optimistic, a view that sometimes makes itself come true.

The downside of unrealistic optimism is that you are out of touch, but the upside is that your outlook might trigger a self-fulfilling prophecy.  Steve Jobs was said to have been surrounded by a “reality distortion field,” in that he would believe in possibilities even when others saw them as unthinkable.  Of course, once Steve believed, then others would too – making his vision more likely to come true.

So-called “positive illusions” of this sort have been talked about by social psychologists for years in terms of mental health outcomes (see the work by Shelley Taylor and her colleagues).   But when they trigger the self-fulfilling prophecy, such illusions have the potential to increase chances of success.  As Andy Rachleff argues, winning helps a leader feel confident in future contests, thereby increasing their chances of winning.

Paul Barnett could not accept that he would fail.  So in a situation where others would throw up their hands and admit defeat, he kept scrambling.  Not letting the facts get in the way, the unrealistic optimist expends effort as if victory was within reach – which of course makes that victory more likely.  And with every victory, the optimist’s unrealistic view gets confirmed yet again.

The lesson for leadership is clear.  Of course we know that a well-informed decision is one that sees reality for what it is.  But leadership is so much more than correct calculation.  Especially in uncertain times, what the leader believes to be true may end up so through the self-fulfilling prophecy.

The classic statement of the self-fulfilling prophecy is by Robert K. Merton.

Metacompetition: Competing Over the Game to be Played

I fell for the shoe-shine huckster on Bourbon Street.  I was young, and my wife and I were all dressed up.  I could not resist the challenge, called out loudly to me amidst a large audience: “I bet I can tell you where you got your shoes!”  I hesitated and replied,  “Okay, where?”  Game over.  He shouted “On your feet!”, fell to his knees, spat on my shoes (with disrespect), and began to shine them furiously.  How did I end up standing with my pretty young wife in the middle of a laughing, half-drunk mob – as a wiry man gave me an unwanted, overpriced shoe shine?  He seemed to know I was asking myself that question.  Now with some pity in his eyes, he looked up at me and said “Never play another man’s game.”

Since then I remind myself of his message often: make sure you play the right game.  Common sense, I know.  Big men throw shotput; tall women shoot hoops; smart folks solve equations; tight bodies go to the beach.  Of course we each try to play the right game – and the same goes for companies.  That is what “business strategy” is all about.  But sometimes the game being played is unclear, and then we risk losing by playing the wrong game.

People and companies often lose by playing the wrong game.  This happens, for instance, when people fail to get a job.  Several rounds of interviews end up in disappointment, and then you find out they were looking for someone with a sales background, or experience in C++, or geographic flexibility, or fluent Mandarin, or whatever.  At that point, you probably wondered why they did not make their criteria clear in the first place.  The problem is that in real life competitions, unlike board games or sports, the criteria for winning are often decided while the game is being played.  Inside the company, different people may favor hiring different kinds of people for a given job, and that debate is often taking place even as you are interviewing.  Once the dust settles, you find out you lost based on a criterion on which you never would have even tried to compete.  You lost the “metacompetition” – the competition over the game being played.  When you lose a metacompetition, you lose without ever really competing – like the fool on Bourbon Street playing another man’s game.

Metacompetitions decide the fates of people and companies all the time:    

-       If Facebook succeeds in a country, companies that produce Facebook apps suddenly “win” access to that market; metacompetitions between platforms determine the fates of applications.

·        If teaching comes to be valued more than research in a university, then professors skilled at teaching rise in prominence; metacompetitions between performance criteria determine professional status.

·       When CDMA-based technologies took off in the US, companies like QualComm that work on that standard prospered; metacompetitions between standards decide the fates of the firms that adopt (or reject) those standards.

·       When an oil spill raises concerns about the environment, consumers favor businesses with good environmental records; metacompetitions between beliefs determine the criteria we use to evaluate whether a firm is “good.”

·       If a particular organic foods certification becomes important to consumers, companies with that certification are favored; metacompetitions between certifications determines how the quality of firms is measured.

In all these examples, you could be the very best at what you do, but lose in the metacompetition over what criteria will matter.  On the other hand, you may win due to a metacompetition that protects you from fierce rivals who play a different game.

Great leaders pay attention to metacompetition.  They advocate the game they play well, promoting criteria on which they measure up.  By contrast, many failed leaders work hard at being the best at what they do, only to throw up their hands in dismay when they are not even allowed to compete.  These losers cannot understand why they lost, but they have neglected a fundamental responsibility of leadership.  It is not enough to play your game well.  In every market in every country, alternative “logics” vie for prominence.  Before you can win in competition, you must first win the metacompetition over the game being played.

Research on metacompetition appears in my book on the Red Queen.

Posing to Compete

I recall sitting in the Café Mediterranean, struggling to make sense of Das Kapital.  The upstairs seating area was good for such study, and for the occasional erudite discussion.  A quirky intellectual commented on my choice of reading, and the conversation was easy.  He was interesting – a physician who had majored in philosophy.  I did not know that was possible; pre-meds stay focused on grades, and you don’t do that writing essays on epistemology.  And then he muffed, mispronouncing Wittgenstein.  Why do you major in philosophy, if not to learn how to pronounce Wittgenstein?  Clearly he was not a philosophy major.  Probably he was not a doctor.  Maybe he was not even a guy.  The conversation was over; he was a poser.

Posers work hard to conform, because they know that people are well-tuned to detect fakes.  Growing up in San Diego, you knew the tourists because they were too perfect: Heishi beads, surfboard wax, mussed hair just so.  We locals spent a lot of time on the beach, but had not thought enough about the outfit. In my case: cutoffs that I actually cut off, no board, bad hair.  Idiosyncrasy implies authenticity, since posers pay so much attention to form.

In competition, posing can be effective.  We concentrate on how we dress when we apply for a job, because we’re posing and want to be seen as an appropriate choice.  Those who compete in mating contests work hard at how they present themselves on Facebook.  (Does he really prefer romantic comedies?)  Of course companies do this too – and sometimes to great effect.  You may remember when you found out that Sam Adams beer was not even brewed by the company that posed as its “brewer,” or when you realized that Häagen-Dazs ice cream was not from Europe.  But it must be admitted that these brands, posers though they may be, fool enough people to be strong competitors.

The downside of posing is that most anybody can do it.  In 2004 eBay declared it would dominate China, and entered by acquiring the then-leading Chinese firm EachNet.  By 2008 they had failed utterly – overtaken by authentic rival TaoBao.  What happened?  eBay “became Chinese” overnight through an acquisition, while TaoBao built something idiosyncratic from the ground up.  I was developing case studies in China back then, and recall that there was nothing distinctive about eBay’s China operation.  The problem with posing is that you may end up competing with the real thing.

Those who stick to their authentic identity are difficult to imitate.  If you go into any part of NetApp, a growing data storage company with operations worldwide, you will see the same organizational culture in action anywhere on earth: little regard for formal titles, open exchange of information, a shared sense of concern for the customer, and respect for well-intended action.  These norms are widespread at NetApp because the company hires and promotes with that culture in mind – a habit formed by its founders in its early days, and reinforced to this day by its leaders.  (Check out Tom Mendoza’s talks on this subject.)  Of course, that means the company’s growth needed to be mostly organic, rather than by acquisition. Such growth can be painful at times, and certainly slower than the sudden growth that comes with acquisition.  But most of us would prefer to grow steadily than to acquire and then fail.

Authentic companies fail too, of course.  A firm’s idiosyncratic approach to doing business may be dead wrong, in which case they will fail.  But to paraphrase Jeff Miller, they may be wrong, but at least they are not confused.  So a difficult choice needs to be made if you are growing a business.  Do you conform to the established recipes you see around you, or do you build what makes your company unique?  Posing is likely to be less risky – at least until you encounter the real thing.

The early work on posing and authenticity is in the classic works of Erving Goffman.  The must-read on authenticity and competition is the book by Hannan, Pólos, and Carroll.

The Right Place

Stories of success often feature somebody being in the right place at the right time.  Look back: Bill Gates building BASIC software for the Altair hobby computer, thereby getting to know the folks at IBM – and then accepting as a “side project” the job of getting their PC’s operating system to work.  Bell Labs scientists Arno Penzias and Robert Wilson measuring background radiation from space in an effort to improve microwave communications; then finding the evidence that would win them the Nobel Prize for the “Big Bang” theory.  Gordon Moore, Robert Noyce, and the others of the “traitorous eight” meeting at Shockley Labs in Mountain View, and from there forming Fairchild and the foundation of the Silicon Valley.  Great minds?  Yes, but there are many great minds.  In case after case, innovation explodes when such people find themselves in the right place at the right time.

Does this means innovations are just luck?  When you show up at work, are you in the right place?  Is it the right time?  In the lore of successes remembered, only in retrospect do we recognize the right place and time.  How can we see the right place and right time before the dots are connected?  If we could do that, then we could put ourselves there – and so improve our chances of getting lucky.

It turns out that the right place and right time tend to happen in a certain situation: At the crossroads.  Novel combinations of information happen at the crossroads, and in turn trigger both greater folly and greater genius.  Many a whiz-kid have met at the crossroads over the years.  More often than not these novel combinations have gone nowhere; but now and then you see Gates and IBM, or Penzias/Wilson and Bell Lab’s radiation project, or the group at Shockley labs.  And these meetings need not involve technology:  The crossroads have spawned great films, new approaches to banking, fusion cuisine, masterpieces of literature, new musical genre – the list goes on.  Every year my family and I raft the Rogue River, stopping to do yoga along the way.  Sounds strange, but this marvelous innovation resulted when the rafting guru Peter Fox met yoga master Susan Schneck.  Strange and beautiful combinations happen at the crossroads.

The obvious conclusion may seem to be “seek out the crossroads,” but beware.  Ugly things come from novelty, too.  The corner of Telegraph Avenue and Channing Way in Berkeley was a crossroad in 1977.  An angry man in a torn shirt waved his arms helter-skelter, hollering gibberish as he kicked a newspaper stand into the intersection.  The commotion drew some attention from the hippy bead-sellers and t-shirt vendors; even the scraggy-bearded students took notice.  Fittingly, the name of the newspaper in the broken stand was “Appeal to Reason.”  Oblivious to the racket, a blind tarot-card reader wearing a Scottish plaid stared upward as he shouted predictions to a freshman who had paid his 5 bucks:  “You are about to go through great change!” went the fortune, as his wrinkled old fingers probed the Brail card face up on the table.  Amazed at this clairvoyance, the student nodded open-jawed, “Yes, how did you know?!”  Berkeley in the 1970s was a crossroad, where novel combinations created oddities both masterful and awful.

Want to be at the right place at the right time?  Go to the crossroads.  You may discover genius, or not.  But you won’t end up doing, yet again, the predictable.

The seminal academic paper on innovation from the crossroads is by James March.

The Escalation of Bias

“I don’t care who does the electing, so long as I get to do the nominating.”  This gem often is attributed to Boss Tweed, the notorious American political manipulator.  In any competition, the surest way to win is to narrow down the list of those in the running.  If you are the only viable candidate, you’re in.  Competitions often are unfair, but restricting who can race to the top is especially important because it escalates bias to the highest levels.

The escalation of bias goes on every day the world over.  What you may not realize is that it happens especially when people think they are being fair.  Let me explain.

Slogans like “We are an equal opportunity employer” are seen in many companies, especially in the United States.  Although such slogans are not always lived up to, in many places things have improved compared to the past.  Although racism, sexism, and other forms of discrimination endure, in many industries we are seeing efforts to hire more fairly.  But what about promotion?

The executive suite remains difficult to penetrate for women and minorities in the US, despite the greater fairness in hiring at lower levels.  In what feels like a “bait and switch,” we hire for diversity, only to stay with the same old bias when it comes to promotion.  This no doubt feels pretty unfair to those who might have merited a promotion, but were passed over because of a superficial characteristic like race or sex.  Yet the hidden effect is on the privileged, who then enjoy the escalation of bias.

To see why, consider what happens to someone in the traditionally favored group – white men in the case of the US.  For them, hiring equally and then promoting unequally escalates bias.  After all, when it comes to choosing the next boss, blessed are those who are surrounded by "unpromotables."  If race and sex matter for promotion, then the sure bet is to be the only white man in the running.  So it is that hiring policies meant to improve fairness, ironically, may be triggering the escalation of bias.

The escalation of bias operates in many walks of life: The law firm that hires for diversity, but then promotes to partner those who get on with the old boys.  The technology firm that boasts of a sex-blind and color-blind hiring process, run by a traditional-looking C-suite and board.  We even see it in global competitions among companies.  Firms are often allowed to enter another country to compete, only to find out once there that they have restricted access to government permits and the like.

In each of these situations, you get in through a fair process - but you move up through a biased one.  When we trigger the escalation of bias, the privileged dominate the race to the top.

Evidence of this kind of effect triggered by hiring temporary workers is reported in my paper with Anne Miner.

Not Invented Here

A local practiced his English on me while we were standing at a busy Shanghai intersection.  He was not dressed very well, but as we spoke he kept flashing his fancy phone.  So I commented, “Nice phone, but not so nice your clothes.”  He held up his hand and said “No problem.” Continuing to speak slowly, he explained, “First the phone. Then a car.” Looking to the distance - no doubt thinking of a better neighborhood - he went on, “Then a house. Then a wife.”  This man had a plan.  But notice that the plan had no place for a desktop computer.

We may be sharing the same technologies around the world, but the way we use them is very different.  Take the computer.  We all know that smart handheld devices are encroaching on the computer.  But in the developing world, many are skipping the path we followed in the developed world.  Especially among the young generation, the mobile device – not the desktop - may be the must-have access point to the world’s information.  Consequently, many of the business models of the developing world will be different, too.

But what about the widespread view that we are becoming one big global economy?  Technology, information and products move worldwide.  From the developed world, it seems like our approach to business is being copied by everyone else.  “Convergence,” some have called it – where the developing world plays “catch up.”  We can each think of examples of convergence; just name your favorite global brand.  But there is an opposing trend going on – one harder to see from the developed world: New, innovative business models are emerging from the developing world, based on logics that would not have been discovered in the developed world.

For example, I told a friend of mine, who knows a lot about success in the silicon valley, that I am studying MercadoLibre.  “Ah,” he said, “The eBay copycat.”  What could I say?  In fact, the company that once was a South American version of eBay is nothing like that now.  14 years into its life, MercadoLibre has evolved in response to the unique circumstances of Latin America.  Latin American companies needing an internet channel turned to MercadoLibre.  Customers without credit cards found MercadoLibre’s payment backbone, MercadoPago.  (And, MercadoPago, meanwhile, looks nothing like eBay’s PayPal.)  As it evolved, MercadoLibre developed innovative services perfect for the Latin American context - from escrow services to alternative money transfer systems.  In short, MercadoLibre may have started out like eBay, but today they have evolved their own business model.  MercadoLibre fits its Latin American markets.  Although Marcos Galperin, its founder, went to Stanford, the business evolved into something that could not have been invented in the silicon valley.

In industry after industry, worldwide, new business models are taking shape that could not have been invented here.  The ecotourism lodges run by Rainforest Expeditions in Peru balance the interests of the local population, the environment, and the need to do business in ways unknown in developed countries. The internet-based mass education and training systems run by Educomp are successful worldwide.  Notably, the company started in India where it initially developed the capability to create and deliver online curriculum in that context.  Those capabilities allowed it to outcompete its rivals from the developed world.  Large scale production and export of ceramic products by RAK Ceramics of Ras-al-Khaimah takes advantage of the resource endowments and location of this company in the UAE.  The innovative mobile payments company M-Pesa in Kenya allows customers to transfer money, pay bills, and even access microfinance without involving a traditional bank – an attractive business logic where banks are suspect.  The list goes on.  Such companies are not playing “catch up” with the developed world.  Rather, they are evolving their own business logics, in response to the unique characteristics of their own environments.

It is true that we are a small world geographically, but globalization is increasing variety when it comes to business models.  These varied approaches to business reflect the various logics of the world’s very different markets, technologies, cultures, and institutions.  The countries of the world are logic laboratories, giving rise to new kinds of businesses that never could have been invented in the Silicon Valley, New York, or London.  Business leaders would do well to ditch the illusion of convergence.  Wake up to see the business innovations blossoming worldwide, reflecting the logics of other places, successful precisely because they were not invented here.


The importance of differences across the world economy is studied by Pankaj Ghemewat.  Research on differences in local and global competition is featured in my paper with Dave McKendrick.

The Slow-Incumbent Myth

You probably believe in the slow-incumbent myth: Successful, established businesses are too slow to adopt new innovations.  As the story goes, success at a well-honed strategy leaves companies blind to the value of new, disruptive innovations until it is too late.  And I bet you can name examples: Kodak, DEC, etc.  In the 1980s and 1990s, many thorough studies supported this idea, finding that large and old organizations are slow to change.  (I myself wrote some of that research.)  Nowadays the idea is entrenched in the form of Clay Christensen’s Innovator’s Dilemma – a book that I routinely assign to my students.

So what’s the problem?  Looking again at the evidence, it appears we may be wrong.  If you focus on successful incumbents – not just all established firms – the pattern is very different.  With success, leaders are often more willing to innovate – even when such innovations take them into markets where they are ill prepared to compete.  The problem is “success bias”:  We misread our success at one game, and so readily launch into another – whether our organization is suited for that business or not.

Let’s revisit those examples.  Kodak, in fact, was the first mover in digital cameras, and it held an early lead in that market.  (Take a look at a new paper on the digital camera revolution by Jesper Sørensen and Mi Feng.)  Kodak even made the digital cameras sold by other firms trying to be in that market.  The problem was not Kodak’s ability to innovate.  At work was the poor fit of its organization to the digital business, so once in the new market it failed.  If anything, Kodak was too willing to change, given how ill-prepared it was for the new market.

Same with the minicomputer firms like DEC.  They are often held out as the poster-child for resisting a disruption.  We know that the microcomputer (the personal computer) cut the legs off of the market for minicomputers (powerful mid-range computers and servers) starting in the 1980s.  At that time, the cutting edge of the computer industry – the real “hackers” – were the minicomputer manufacturers like Data General and DEC that flourished from the 1960s through the 1980s.  They were scrappy, imaginative rebels compared to the monoliths of the mainframe computer business.  The secret to their success was imaginative design, since they relied on the architecture of the entire system for performance.  And, as Tracy Kidder romanticized in his novel Soul of a New Machine, they were passionate about getting products out into the market.  That book documented the tale of the cult-like Data General, and its creation of the Eclipse MV/8000 minicomputer that launched in 1980.

Technology writers, decades later, would describe these innovative firms as unable to change.  The slow-incumbent myth:  These successful, established firms did not see the microcomputer coming, since they were wed to the technologies and designs of the old market that they knew well.

Not true.

The real story is that the most successful minicomputer companies made the transition to the personal computer very quickly – but once there they were ill-suited organizationally.  Success bias was at work yet again.  For instance, Data General released its first microcomputer in 1981 – the same year as IBM.  And DEC – another legendary champion of the minicomputer era – entered with the “rainbow” in 1982.  These fast-moving firms had no problem innovating. They could and did.  Their problem was that everything else about their organizations was well tuned to their traditional market.  They innovated in the PC market very quickly, and then they failed there at a very high rate.

We want to believe in the slow-incumbent myth, so we dismiss the early moves by incumbents as half-hearted.  But look again at the evidence.  Successful incumbents are often very innovative – too innovative for their own good, in fact.  What is going on in these cases is success bias.  When business leaders win, they infer from victory an exaggerated sense of their own ability to win.  So they are overly eager to enter into new competitions – even ones where they are not well suited to play.  In fact, their very success in the earlier business is evidence that they are well-honed to an earlier strategy - yet it is that earlier success that makes them especially willing to move into the new competition.

The lesson for leaders?  Technological innovation is a start, but only a start.  Success in a new market then requires aligning your organization with the new market.  Product-market fit hinges on organizational alignment, and in new markets that alignment needs to be discovered whether you are a start up or a high-flyer from an earlier era.

The theory behind success bias among managers is in this paper by Jerker Denrell, and evidence linking success bias with failure is in my paper with Elizabeth Pontikes.

When Beliefs Compete

In January 1981, James Watt became the Secretary of the Interior of the United States.  President Ronald Reagan’s choice of the controversial, pro-development Watt sent tremors through the environmental movement.   The press was abuzz with the possibilities: stationing MX missiles in the Great Basin, opening up the California coast to oil and gas exploration, limiting the reach of the Endangered Species Act, and the like.  For environmentalists, 1981 was their darkest hour.

Or was it?  In the wake of Watt’s appointment, enraged environmentalists signed up to social movement organizations in numbers.  The Sacramento Bee (4/23/2001) quoted a Sierra Club official remembering that time: “You couldn’t process the memberships fast enough. We basically added 100,000 members.”  That organization’s roster surged past 200,000 members in 1981, reaching 325,000 members the following year.  Clearly nobody in the environmental movement was happy about James Watt, but his appointment triggered a rally of support for their cause.

A strange exception? No. It turns out that when beliefs compete, opposition is vital.  A powerful opponent makes clear your own reason for being.  There is little need for the Women’s Christian Temperance Union in Salt Lake City – the Mecca of America’s Mormon population.  But in places where breweries and distilleries abound, temperance organizations have prospered.  When beliefs compete, opposition strengthens identity.

In the marketplace of beliefs, the real competition is between the purists and pragmatists in the same camp.  Once speaking to group of environmentalists, I asked who would be willing to work with Wal-Mart if this would help the environment.  Half the room raised their hands, much to the surprise of the other half.  A low buzz of consternation could be heard.  “We need to get something done,” said a pragmatist.  “Greenwashing,” replied a purist.  When beliefs compete, the purists put a premium on their legitimate identity.  The pragmatists opt for effectiveness, and in so doing call their own legitimacy into question.

The competition between pragmatism and purity is more than personal; it shapes how organizations develop.  For years, in many places small food cooperatives were the place to go for organic produce – often locally grown.  Powered by pragmatists, this movement became so successful that now even mass retailers sell organic products.  Good news?  Not to the purists, who have seen the small cooperatives close down in the shadow of the superstores.  How much simpler were the days of pure opposites – of local food cooperatives standing in opposition to “industrial” food stores.  In the marketplace of beliefs, compromise triggers a competition between purists and pragmatists.

Competition over beliefs is a leadership challenge: should you be pure or effective?  If you compromise, you get things done.  But by compromising you also blur the lines, calling into question your legitimacy.  The effective environmentalist is accused of selling out.  The pragmatic conservative is sanctioned for being inauthentic.  Yet it is those who compromise who get things done.  Here is your tough choice as a leader in the marketplace of beliefs: Are you pure or pragmatic?


Academic research on "oppositional identity" can be found in the work of Glenn Carroll and his colleagues.

The Big "Why?"

Do you work for a big company?  If so, try this: The next time you attend a meeting, ask yourself whether you can tell what business you are in by the content of the meeting.  Is there any connection between what is being talked about in the meeting and the actual customers of the business?  If not – and often there is no connection – look around the table.  Does anyone in the room, you included, know a customer?  If not, do you at least know someone who knows a customer?  It may come as a shock, but most people in big companies do not interact with customers.  After all, as a company grows, the number of relationships inside the company increases much faster than the number of customer-contact positions.  This mathematical fact is akin to the "square-cube" law first observed by Galileo (albeit not talking about companies).  And this fact leads to a problem: Most of us do not know why we go to work.

When you work directly with customers, as is the case for people in small companies, or for salespeople in big companies, you know why you go to work.  But for the rest of us – those who do not deal directly with customers – why do we work?  You can probably answer the small “why?” question.  Maybe you help run the information technology system that the company uses to keep track of its people.  That’s important.  We can’t get paid without your work on the IT system.  That is the small “why” question and it is usually easy to answer.  But try answering the big “why?” question.  If you quit today, would the mission of the company be harmed?  Why does your work matter, really matter, for the company?  This question is very hard to answer for most people in big organizations, since they are so removed from the customer.  They know why they come to work, but they don’t know why that work matters.

Unable to answer the big “why?” we end up instead measuring things that we do, in an attempt to show that our work matters.  This leads to various maladies, such as calling a lot of meetings.  We want to make progress, so we call a meeting.  Because meetings are measurable, and attendance at meetings also is measurable, calling meetings is a way to feel like something is getting done.  Did you go to the meeting?  You can’t make the meeting!?  Were you invited to the meeting?  Even our calendar software is designed to enable meetings, wherein we can see when others do not yet have a meeting.  Maybe we’ll set up a regular weekly meeting, or even a daily meeting.  But why?  Odds are, you have sometimes missed a meeting, or wished you could miss a meeting, because you wanted to actually get work done.  Yet your absence would be measured, so you go.  Of course, meetings can be useful; but in big organizations far too many meetings are called, since they are a measurable substitute for knowing the big “why?”

Great leaders help their people understand the big “why?”  Such leaders make it their business to help their people see the link between what they do at work and what the organization is trying to get done.  Do you tell a technician that they need to come in this weekend, and leave it at that?  It would be better to add a small explanation.  Explain why.  How is that person’s work connected to the organization’s reason for existence?  Perhaps the technician needs to come in because their support will enable an engineer to serve a customer.  Although the customer will never know the technician, the technician should at least know how her work was important.  That is the big why – and well-run organizations are filled with people who can answer that question.


For more on this topic, see the book by Amabile and Kramer.

Search Enables Authenticity

Some people become accountants because they want a secure job.  There is much to be said for pragmatism; better to be an employed accountant than a wanna-be actor.  But is that the right comparison?  Here is the issue:  Somewhere tonight, maybe around 3 AM, some guy will be laying awake thinking about accounting.  He lives and breathes accounting; it occupies his thinking even in his spare time.  If things get competitive for accountants, he is going to dominate.  His rivals are acting like accountants; he is the real thing.

Competitive advantage goes to the authentic.  Their job is their avocation.  They would do it, if need be, without pay.  The authentic persist at getting through the tough parts of their vocation.  They ponder it during the quiet times, so the magic of insight makes their work more creative.  The surfer out on a cold morning; the writer typing away when she should be sleeping.  Such people will take their vocation as far as it can be taken.  By contrast, those who merely pose will not.  As in the old adage “you cannot coach passion,” no amount of posturing can outdo authentic dedication.

The practical reader is objecting at this point, noting that there is a big economic difference between being an authentic accountant and an authentic surfer.  This contrast brings to mind a corollary adage: “Every person has a special gift.”  As each of us grew up, we searched for that gift – the activity that seemed authentic to us.  Our parents hoped that it might also be an activity that pays.  How fortunate is the authentic accountant!  His passion lines up well with economic gain.  Meanwhile there goes the authentic musician, waiting on the accountant as he dines.  Don’t get me wrong; I love the arts and admire the authentic artists.  But though all of us may have a gift, some gifts pay better than others.

Does this mean that only some of us can follow our calling?  That depends on how long we search.  I remember being young and broke, going to an interview for an internal auditor job at a bank.  The bankers who interviewed me were enthusiastic; they were authentic bankers.  I did my best to pose as a banker, but as often happens to posers I was found out.  The bankers asked me for a “writing sample.”  I showed them my poetry.  It was not to be.

My failed attempt to be a banker left me broke still, but the upside was that I kept searching.  Life is a “sequential search” process.  We search, one by one, trying to match our gifts with the opportunities of the world.  When we settle on an occupation, we also stop our search.  If we stop the search at the first pragmatic job, then we are posing - and will surely be out-competed by the authentic.  But if we keep searching, we increase the chances of matching our gifts with opportunity.  Of course not all jobs pay the same.  But better to keep searching for a way to remain authentic, than to settle early for mediocrity.  Search enables authenticity.

The same is true for organizations.  Many follow market research, trying to act like a company that fits an attractive market.  You see such posers often: the mass producer that poses as a traditional craft brewer, or a retail store that requires its employees to act like they are your home-town friend.  I recall when the Stanford Bookstore first felt competition from Amazon, and in response considered becoming an online bookseller.  Of course, that was not to be.  Like people, organizations that posture lose when they go head-to-head against an authentic rival.

The better approach is to start by asking “what do we do well?” and then searching to see how that fits the opportunities of the world.  Organizations that do this will have failures along the way, but with enough search they have a chance to find product-market fit.  For organizations, like people, search enables authenticity.

For an academic treatment of the sequential search strategy, see Levinthal and March’s paper.

The Senators' Sons Problem

Imagine you have to take a test in a room along with 50 other people.  I will administer the test, and it will be objective – perhaps just straightforward math problems – and I will grade it anonymously.  A very valuable prize goes to each test taker who makes it into the top 5% among the people taking the exam, silently and independently, in the same room with you.  You do have a choice, however.  You can take the exam in either of two identical rooms, each of which contains the same number of test takers.  The only difference between the rooms is the criterion used to select the other test takers.  Individuals chosen based on academic merit are in one room.  The other room is filled with senators’ sons.  Against which group would you prefer to compete?

I have noticed that people prefer to compete against the senators’ sons.  Presumably, privileged though they may be, the senators' sons are easier rivals than a group chosen according to their ability.  People seem to feel uncomfortable giving this answer in a public setting, perhaps because someone there might be a senator’s son and could take offense (although he may not understand the insult).  But keep in mind that we prefer to compete against the senators’ sons not because we think that they all are weak performers.  Any one senator's son might be quite sharp.  Rather, our intuition is that the privileged group is weaker on average than the average of the merit-based group.  This is the senators’ sons problem: Privilege and merit sometimes are negatively correlated.  But why?

Behind the senators sons’ problem is a process known as “selection”.  In most contests, you have to qualify in order to play – as when people try to get into a school or a company, or when firms vie to get into markets or to do business in different countries.  Criteria have to be set up to select who gets in to these contests and who does not.  When merit is the criterion, those who play must be capable.  When some other criterion is used, such as privilege (as in the case of senators’ sons), then for them being capable is optional.  And when merit is optional, average levels of merit will be lower.

In real life, both merit and privilege together decide who gets to play.  If you lack privilege, you better be good.  If you lack merit, but are well connected, then you may be able to play too.  In situations like this, merit and privilege are negatively correlated: The senators’ sons problem.  So if you see someone succeed despite lacking connections, club memberships, and fancy titles, they must be good at what they do.  Similarly, if a foreign company excels despite government policies favoring domestic firms, then the foreign firm must be impressive.  The same process happens in entrepreneurship, too.  Big, established firms rely on their reputation to get business, while start-ups have to prove that they are capable.  Consequently, most start-ups fail; those that survive are then especially competitive.  In each of these examples, those who make it without privilege had to be good.

I think we all realize that the senators’ sons problem is at work in many areas of life, which is why so many people try to deny their own privileged backgrounds.  How we all wish we were a “self-made” man.  I sometimes hear college graduates cynically dismiss the value of their degree, saying that it was really all about playing golf or what have you.  People who claim this are really wanting to say “I’m no senator’s son.”  After all, if our degree did not give us an edge, then we must be really capable.  So here is the question for you and your organization.  How much do you rely on privilege to win in your markets?  How much of your performance is based on merit?  And, inside your organization, do you reward privilege or merit?  In my view, great leaders create systems that reward merit.

For an academic study showing how this idea plays a role in competition, see  my paper on compensatory fitness.   

The Partnership Fallacy

Remember doing group projects in school?  Typically your teacher would partner you up with students who had different skills.  Maybe a good writer would be matched with someone who knew math, for instance.   In theory, you would each teach the other; the group project would get done, and everyone would learn.  But what really happened?  Perhaps pushed for time, at some point everyone in the group realized that the job needed to get done.  And if you wanted to do well, this meant dividing labor.  You broke down the project into parts, as in the well-known "divide and conquer" algorithm pictured here, and each of you took on the part that you understood best.  In the end, the project was a success – but the math person did even less writing, and the writer again avoided math.  So goes the partnership fallacy:  We partner up hoping to improve our weaknesses, only to divide labor and so make our weaknesses even worse.

Business leaders often fall victim to the partnership fallacy.  For example, it may be hard to believe today, but in the early 1990s Apple Computer (as it was then called) was widely known to be bad at making small devices.  The company’s earliest attempts to make small computers had flopped.  Meanwhile, Sony stood out as the worldwide leader in making cool, miniaturized electronics.  So Apple’s leaders decided to form a partnership with Sony.  The idea was for Apple to learn about miniaturization while producing a laptop computer.  History says that the alliance succeeded, because it created the first “Powerbook” computers.  But in terms of learning, the alliance was a failure.  Case studies at the time reported that deadlines kicked in, and pushed the two companies to each stay focused on what they did best.  In particular, Sony took care of miniaturization, with very little day-to-day contact between Sony and Apple engineers.  In the end, they got the job done – but Apple emerged without learning Sony’s miniaturization magic.

What’s more, often partnerships fail even to accomplish their stated goal, never mind learning.  If you have much experience, you can probably name an example or two of failed partnerships.  Business leaders typically allow these arrangements to fizzle out without much fanfare.  Combining firms through merger and acquisition suffers this problem, too.  We talk a good story about “synergy” and “learning” and “1+1>2”, but the evidence shows that combining firms typically increases only the variance in performance (not the level of performance as promised by “synergies”).  

The lesson: Partnerships are not a substitute for learning by doing.  Partnerships sound great during a planning session.  After all, who can argue with the idea of bringing in somebody who already knows what you need to learn?  But ask yourself, how did they come to know?  Odds are, they learned the old-fashioned way: by doing.  Effective leaders understand how organizations learn, so they avoid the partnership fallacy.  Partner if you must, but don’t fool yourself that this is a great way for your organization to learn.


For a thorough academic study highlighting the value of organic learning and growth, read my book on competition.