Internet, changes and business models

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Today, I listened to a great podcast from Planet Money dealing with the effects the internet is having over the music industry. In the podcast, they present Jonathan Coulton, who is making about half a million dollars per year just selling his music online with no label to support him. The discussion focuses on whether this is replicable and what it means for the music internet.

While I enjoyed the podcast immensely, I did finish with a bitter taste of disappointment. The story is told well and its hero, Coulton, is really relatable. However, I found the commentaries to be a bit simplistic from both side of the argument. Especially, the very shallow argument doubting whether Coultion’s story means a change for the music industry. I was expecting a bit more from a podcast dealing with economics.  At least three truly interesting economic issues have not been covered:

  • Distribution of wealth. In the “label model”, few artists and a few labels (and executives) made a lot of money. Do we prefer to have a few mega-artists making a lot of money or do we prefer many niche artists making reasonable sums? This is a microcosm of this bigger economic question (not only in the US). How can the internet affect the distribution of wealth?
  • Efficiency. I think the “Coultron model” makes more sense. Economics is about efficient use of resources. Are big labels using money to efficiently make art? No. Because of huge transactions costs. The labels, were (maybe still are), essentially a cartel or monopoly.  Monopolistic entities are (usually) not the best way to manage resources. What kind of economics is driving this change?
  • Death of The middle-men. The music industry is an example of industries that relied on middle-men and are slowly dying (see also newspapers, publishing and the movie industry). When transaction costs are almost zero and everybody is reachable, there is no need for a “power of scale” middle-man. Just check out “gapingvoid.com” or “the domino project”. As the story illustrates, there is a need for a new, smaller, savvy middle-men that will help artists focus on their art while taking care of some of the administrative stuff. What about them?

These are all issues to think about relating to the changes the internet is brining to business and economic models. The change is here. It keeps developing. You don’t have to be in the music business to be affected. It affects all of us. Isn’t it time we started realizing that? The question is what are we (as societies and individuals) are going to do with the opportunities it presents?

Elad

The rules of using and wielding power in management

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A few weeks ago I finished reading the Jennifer Fallon’s third Epic Fantasy book from the Hythrun Chronicles Wolfblade Trilogy. One of the characters in the book is a deformed slave dwarf that has to survive using his wits. He finds himself in a position of power, responsible for the education of the royal family, teaching the children about using and wielding power. He has a set of rules that he makes the children learn by heart and they appear in different parts of the book. I finally found a list of all 30 of them online. I want to talk about three that I particularly liked while reading the book and that I think might apply to management.

1. Have a reason other than the pursuit of power, for pursuing it: you can substitute this with money or fame or whatever else you like. The wonderful and powerful concept of Obliquity. Of true purpose. This idea somehow resonated in the last few books I read (Good Business and Change to Strange) and in a philosophy course I am taking. The answer to the question – what are we here for? – must be convincing. If it is, the rest will come naturally.

2. Accept what you cannot change — change that which is unacceptable: When I first read the sentence I had to stop and re-read it. And then again. It describes wonderfully the balance of contradictions I talk about in my philosophy page:

F. Scott Fitzgerald famously said that “the true test of a first-rate mind is the ability to hold two contradictory ideas at the same time”. Thus, don’t forget:

Good enough is not good enough. Beware of the fallacy of the average and the allure of mediocrity. Going safe is the riskiest thing you could do.

But, at the same time.

Don’t let the great be the enemy of the good. Be willing to fail miserably and then fail again. Fail better.

The more I read and think about issues like business, education and personal growth I come to the same conclusion. It is about balancing two extremes. Conformity on one side and uniqueness and rareness on the other side.  Or in other words, between accepting what you cannot change and changing what you cannot accept.

11. Do the unexpected – this seems banal and even cliché, however, it really connects to the last point. In order to do the unexpected you have to create expectations. In order for this advice to work well, you have to create expectations and then break them. How does this concept apply to business strategy or to employees’ motivation? Unexpectedness can be a powerful tool.

What do you think? Are these ideas implementable for managers?

Elad

Change is hard – behavior change – not so much!

This amazing slide deck on the 10 top mistakes in behavior change from Stanford University’s Persuasive Tech Lab is important both for personal use and managerial use. It reminds of a many of the concepts so skillfully described in Switch: How to Change Things When Change Is Hard. I thought I take a few and try to elaborate questions for managers of people:

1. Relying on will-power for long-term change: I know it happened to me before as a team leader. We sat together, analyzed our past behaviors and agreed we have to change a behavior. “OK”, we said together “Next time, we will just be more aware and do this thing. No excuses”. The problem is, that the behavior we wanted did not go unpracticed because of lack of motivation or a disagreement about its importance. Will-power if not enough. You and your team should ask yourselves: What is the practical way to make sure this will happen assuming we all lack will-power.

2. Attempting big leaps instead of baby changes: I love this one. Many time out of a truthful desire to make an impact, we set a grandiose plan to change everything. Change is hard. It takes time. Creating new habits require emotional strength. People can only focus on so much. Sit with your team and deiced on a gradual plan with milestones. Just like an avalanche – start small in order to finish big. The small things matter – big time.

7. Believing that information leads to action: This one took me a long time to learn and I still struggle with it from time to time. As quoted in The 7 Triggers to Yes: The New Science Behind Influencing People’s Decisions – “We are not thinking machines that feel. We are feeling machines that think”. Just because people are presented with the information does not mean they will change the behavior. You have to pierce through the veil of indifference. Ask yourself – is the problem in my team lack of information? Many times, you will discover they have all the information, they just don’t care enough.

Elad

 

Gary Hamel, #Capitalism, #Censorship and resistance to change

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I read a great article by Gary Hamel the other day titled: Capitalism is Dead. Long Live Capitalism. Every time I read one of his articles, I am amazed to see how he is able to write everything I think about just better and with more compelling examples.

Here is my favorite quote:

I am an ardent supporter of capitalism—but I also understand that while individuals have inalienable, God-given rights, corporations do not. Society can demand of corporations what it likes. That’s why self-serving beliefs are also, ultimately, self-limiting.

Of course, as consumers and citizens, we must acknowledge that companies can’t remedy every social ill or deliver every social benefit. We must also face up to our own schizophrenia. We can’t expect companies to behave responsibly if we blithely abandon our own principles to save a buck.

I wrote in the comments to the article. For some reason, my comment still does not appear on the site. Maybe I am being censored. Well, in the age of the internet, I don’t need the Wall Street Journal to publish my comment. I can do it myself. Time to adapt. Below is what I wrote.

Seth Godin wrote a while back: “And almost without exception, organizations are run by people who want to protect the old business, not develop the new one”. Larry Lessig has repeated this lesson many times: “1. Creativity and innovation always build on the past. 2. The past always tries to control the creativity that builds on it.  3. Free societies enable the future by limiting the past.  4. Ours is less and less a free society“ (See more on this issue here: http://tinyurl.com/3yr6wcd).

Gary is absolutely on the point. While Capitalism, in its current form, has done much good for society, we start to see its limitations as the world progresses. The problem is, like any faith or religion, Capitalism tries to protect itself by becoming more fundamentalist and more resistant to change. When religions start to behave like that, you know the end is near or you are approaching dark ages. Instead, Capitalism should be developing with the times. This is hasn’t been happening enough. This last crisis and other processes the world is going through is a great opportunity to start changing that and raising question marks regarding some of Capitalism’s assumptions and we can all make it better.

One example: Shareholder value. As I have written elsewhere (see: http://tinyurl.com/3xekuut), this concept needs a wide redefinition, aligned with some of the ideas Hamel is writing about here in this post. Unless we act and make sure that concepts and ideologies go through evolution and do not stagnate, we have nobody to complain to, but to ourselves.

Elad

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Effectiveness vs. Efficiency

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Take a deep breath. I am back, with a long one!

A post I wrote a few weeks ago (“The efficient, but less effective, way”), and a comment by one of the readers (thanks Jono), started me on a long path of thinking about the issues of Effectiveness vs. efficiency.

Now I know that this debate is not a new one. Every decision is some kind of tradeoff between the two and people are totally aware of that. And then again, are they?

Like many things in life, to a certain extent, we can’t do both. We can focus on one and do it very well and do a little of the second one. In I think in the last century and especially in the last couple of decades, our society has focused more on of efficiency than on effectiveness. And one of the reasons for that is that we don’t fully appreciate the philosophical differences between the two. Look at these definitions from dictionary.com:

ef·fi·cien·cy –noun,plural-cies.

1. the state or quality of being efficient; competency in performance.
2. accomplishment of or ability to accomplish a job with a minimum expenditure of time and effort: The assembly line increased industry’s efficiency.
3. the ratio of the work done or energy developed by a machine, engine, etc., to the energy supplied to it, usually expressed as a percentage.

ef·fec·tive –adjective

1. adequate to accomplish a purpose; producing the intended or expected result: effective teaching methods; effective steps toward peace.
2. actually in operation or in force; functioning: The law becomes effective at midnight.
3. producing a deep or vivid impression; striking: an effective photograph.

What the definitions don’t tell us is the focus. Efficiency is about marginal improvements. We take the current situation and try to make it better. To make the most of what we have. To do better with what we have. And that is a very useful skill. But it rarely leads to huge leaps. And it rarely breaks the boarders and provides levels of performance we haven’t thought possible. Effectiveness, on the other hand is about change. Is about finding a better fit to our goal. It is making something work better, not in the margins, but in the core of its being. It is about finding the right solutions to the right questions. If you make something more effective, you are changing the way it works, re-inventing it (maybe a bit more similar to term Efficacious). And you are focused on the long-term effects.

Efficiency is a closed-world concept. You work with what you know and have and “minimize damages”. And as a closed-world concept, it has its disadvantages.  Justin Fox pointed out one of them on HBR.org:

At one level this is much more efficient than the old system. The spreads are smaller, so investors are getting a better deal, right? Well, not if the system also becomes much more fragile, and susceptible to sudden collapses. Over the past three decades our financial system has become vastly more complex in terms of technology and diversity of available financial products. By some measures it has become more efficient — trading commissions have certainly come down. But it has also become more prone to crisis and (maybe) collapse. Efficiency (and this is an argument borrowed from Taleb) breeds fragility.

And Tony Schwartz makes a related point on the same blog:

But is it good news? Is more, bigger, faster for longer necessarily better?

Americans already put in more hours than workers in any country in the world – and that doesn’t include the uncounted shadow work that technology makes possible after the regular workday ends.

Here’s the bigger point. Just as you’ll eventually go broke if you make constant withdrawals from your bank account without offsetting deposits, you will also ultimately burn yourself out if you spend too much energy too continuously at work without sufficient renewal.

Michael Watkins and Umair Haque both make similar points on the HBR.org blog.

Big, simplified example? The focus of the last few years was on more money. A lot of efficient ways to make more money. Were they effective? We all know that answer to that question.

Now, I am not saying that efficiency is a bad thing. That couldn’t be more wrong. Every young MBA student struggling with the concepts of strategy will tell you that you have to keep cutting costs, systematically, never-endingly. You have to improve your business and do it in the best way you can. Otherwise the competition will. I am just saying the emphasis is wrong. Because if you can’t do both all the time at a high level, you must have priorities. And while focusing you priorities on efficiency leads to all the aforementioned problems, focusing on effectiveness, while it is harder, is the real promise of the future.

By now you must be wondering how all of this is related to the subject of this blog. I talk about management of people and how to foster relationships, reduce rules and create an environment of autonomy, mastery and purpose. There is no doubt that all of these practices are effective. You don’t have to trust me about it. There are years of research to prove these things. The problem with these things is that if you look at them from the efficiency point of you, they seem inefficient. “What, I have to sit with my employee for an hour and a half and talk to him? Who has the time???” These are complaints I hear from people when I discuss some of these issues with them. “In the fast paced reality, there in not enough time to practice all these ’soft skills’ best practices”, people tell me. And apparently, I am not the only contemplating about these issues. Look at what Bob Sutton writes in his blog:

…the difference between good and bad bosses, it made me realize that — although good bosses are concerned about using their time well, and especially, making sure not to waste their people’s time — that they tend to think and act as if it is more important to do things as well as possible than to do things as quickly as possible.  Indeed, some of the work bosses I can think of always seemed to be focused on finishing whatever they are doing at the moment so they can get on to the next thing.  The result, unfortunately, is that they spend their days rushing around, doing one thing after another badly.

And I saw similar things said in Susan Scott’s book, Fierce Leadership: A Bold Alternative to the Worst:

Physicians who don’t get sued take a little more time – three minutes more than physicians who do get sued. And it was the quality of the physician-patient conversation, how the doctor talked with their patients – notice with, not to their patients – that made the difference. Patients like doctors who really listen, draw their patients out (tell me more about that), and answer their questions fully. Those three extra minutes and how they were used were the differentiator. In the blink of three minutes the patient felt seen, heard, understood, valued, and respected. You don’t get that in every doctor’s office. Or in every executive’s office.

Yes. These doctors are not as efficient (they will see fewer patients per day) but they are much more effective. Sometimes we need to slow down to speed up.

What is your bias? When the priorities are on the table, which one do you consistently prefer – efficiency or effectiveness?

Elad

What can we learn from “Pay for grades”

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In addition to my fascination with management of people I am almost as equally fascinated by education. I find many similarities between the subjects (as I mentioned in the past – see here and here) as both subjects remain a mystery although they have been practiced in a professional rigorous way for more than a century. That is why I particularly enjoyed reading the article from Time Magazine titled: Pay for Grades: Should Kids Be Bribed to Do Well in School?.

While the article raises a controversial issue about paying kids to make them learn which I must admit I am not too happy about, I admire the fact that the researchers actually went out and tried this approach in real life setting. As the article suggests, you learn some amazing things when you do that, some of them unexpected. The fact that we have moral reservation about issues should not stop us from exploring them, when we are already facing a system that is failing (for a different perspective on the last issue see Dan Ariely’s take).

However, in this blog, I want to point out two interesting quotes from the article that I think have just as much relevance to the management world as to the education world. Here is the first one:

We tend to assume that kids (and adults) know how to achieve success. If they don’t get there, it’s for lack of effort — or talent. Sometimes that’s true. But a lot of the time, people are just flying blind. John List, an economist at the University of Chicago, has noticed the disconnect in his own education experiments. He explains the problem to me this way: “I could ask you to solve a third-order linear partial differential equation,” he says. “A what?” I ask. “A third-order linear partial differential equation,” he says. “I could offer you a million dollars to solve it. And you can’t do it.” (He’s right. I can’t.) For some kids, doing better on a geometry test is like solving a third-order linear partial differential equation, no matter the incentive.

We have a tendency to focus on results and outcomes. And that is usually a good thing. Just by measuring outcomes, we can sometimes create a sense of positive competition that drives these results. Sometimes it is simple – because people know what to do, they just need a little nudge of fun to drive them to excel. However, when things go wrong and we don’t see the desired outcomes we tend to be fixed on the outcomes. And then we assume things.

“These workers are not motivated. They are not working hard. They are slackers. After all I have done for them and all I offer them; they still don’t give me the results I want.”

All that is well and good, but it is not very helpful. Assumptions don’t take us anywhere and in case of relationships, they are wrong most of the time. As the article points out you can offer these kids a lot of money, but you probably won’t see results. This is what Paul Herbert calls Energized Incompetence:

Take five people who never have played basketball, put them on the court and tell them if they win the game they receive $1 million dollars each. I’m sure you’ll get a lot of activity. Heck, it would be real fun to just watch the mayhem. But the chances of success are slim and none … Motivation isn’t just creating energy – it’s creating directed energy.

In Switch: How to Change Things When Change Is Hard, the writers claim that one of the most effective ways to create change is to explain what are the critical steps needed in order to create that change. It is not enough to say what the change is but we need to chip out the behavioral steps that will lead to the new results. Because sometimes people can’t find the way. And this connects directly to the second quote from the article:

Kids may respond better to rewards for specific actions because there is less risk of failure. They can control their attendance; they cannot necessarily control their test scores. The key, then, may be to teach kids to control more overall — to encourage them to act as if they can indeed control everything, and reward that effort above and beyond the actual outcome.

The funny thing is, that when you give people access to steps that they were missing, they find new exciting ways to accomplish the goal in a better way than you could have imagined. It is a delicate balance between allowing autonomy and offering support.

What are you asking you employees to do? Are these things under their control? Are your rewards directed to results or to the right behaviors?

Elad

Decision tools

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This is the third post in a series of post I am writing after reading Blink: The Power of Thinking Without Thinking by Malcolm Gladwell (for former post see 1, 2).

One of the sentences that struck me as the most important in Blink comes from the afterword. This is it:

The key to good decision-making is not knowledge. It is understanding. We are swimming in the former. We are desperately lacking the latter.

This sentence is built upon a number of stories in the book (and connects to other writings by Gladwell about the perils of too much information). One of the leading stories it refers to is the story of how Cook County Hospital improved the decision-making of its doctors by telling them to focus only on three pieces of information in the entire sea of details they had about patient in order to make a decision whether he was a risk for heart attack. Even though all doctors felt that this was the wrong way to go, as they were ignoring precious information, it turned out that by focusing only on three issues, doctors made much better decisions that not only saved money, but more importantly, saved lives.

I have written before about the dangers of using the information and measurements we have just because we have them. As we continue to develop in terms of technology, we will have more and more data and information. As Gladwell says in Blink:

We take it, as a given, that the more information decision makers have, the better off they are. If the specialist we are seeing says she needs to do more tests or examine us in more detail, few of us think that’s a bad idea… extra information isn’t actually an advantage at all; that, in fact, you need to know very little to find the underlying signature of a complex phenomenon.

In my mind this connects perfectly with the idea of Vital Signs. This is what I wrote almost a year and a half ago:

I believe the challenge of managers in the next few years, especially in the more subtle fields that are hard to measure will be to create the right vital signs.

I am I the process of reading Switch: How to Change Things When Change Is Hard by the Heath brothers and one of the main concepts of the book is about scripting change. They describe the importance of making people aware of the basic decision principles to guide their specific behavior. They give example of major changes accomplished by ordinary people who harnessed the power of simplifying the decision-making. How? By creating scripted concepts that help decide what is important and what is not.

Reading Blink and Switch just strengthened my understanding of this concept. People are cognitive misers. They are not able and do not want to deal with large amounts of information. As Blink (and Switch) show, when they are faced with so much information it actually affects their judgment, usually in a negative way. The most successful people are not going to be those who can master and absorb large amounts of information. It will be those who will know how to distill this information into a few major signs that help guide decision-making. Thus, our rule as managers is to find the vital signs and make them crystal clear. We need to make sure that we are tackling the right issue. Not lack of information. Lack of decision tools.

Elad