Last week I showed a graphic that at its center had the words “the critical role of corporate culture.” Entrepreneurs need to grasp those words as the very core of the formation and development of their new business. You have a unique opportunity to build the culture you want, to build your team and the values you want your entire team to share. The company will develop its own culture if you do nothing, so it is better to intentionally form it and nurture it.
Last week I showed a graphic that at its center had the words “the critical role of corporate culture.” Entrepreneurs need to grasp those words as the very core of the formation and development of their new business. You have a unique opportunity to build the culture you want, to build your team and the values you want your entire team to share. The company will develop its own culture if you do nothing, so it is better to intentionally form it and nurture it.
For over a year now I have blogged here about the red flags flying about Travis Kalanick and Uber. Many investigative articles have been published over this time, in the New York Times and other publications, which have raised disturbing questions about Uber, Kalanick and some members of his team. The Board of Directors has finally taken action but it feels like its a day late and a dollar short. Why did it take so long? I have bluntly used the epithet that “Uber is Trump,” but now on reflection, it is more apt to describe Uber as Enron the sequel, and “deja vu all over again.” Remember the audio of two Enron electricity traders laughing about “screwing grandma?” That is Uber.
For over a year now I have blogged here about the red flags flying about Travis Kalanick and Uber. Many investigative articles have been published over this time, in the New York Times and other publications, which have raised disturbing questions about Uber, Kalanick and some members of his team. The Board of Directors has finally taken action but it feels like its a day late and a dollar short. Why did it take so long? I have bluntly used the epithet that “Uber is Trump,” but now on reflection, it is more apt to describe Uber as Enron the sequel, and “deja vu all over again.” Remember the audio of two Enron electricity traders laughing about “screwing grandma?” That is Uber.
So as the current management adage says, culture trumps strategy. This is not simply about the bad behavior of a few individuals and that eliminating them will solve Uber’s problems. The aggressive, confrontational business strategy is itself an integral and inextricable part of the problem. Some have said that Uber has a good business model and deserves to succeed. I dispute that. Jeremy Rifkin’s Third Industrial Revolution describes his vision for a new sharing economy. The book has been read by world leaders and praised for its insights into a bright new evolving economy. Uber and other companies like it have morphed the sharing economy into something ugly.
Uber morphed the sharing economy into “the gig economy,” epitomized by jobs without security or benefits, and the now viral video of Kalanick berating an Uber driver who was going bankrupt. SFGate also exposed the Uber operating strategy of psychologically manipulating drivers to work more hours than intended. The central principle of Kalanick’s business strategy is what he euphemistically describes as “principled confrontation.” Uber enters a market without following any existing rules or regulations, simultaneously entering into negotiations with municipalities which are typified by stalling tactics from Uber, and no intention to conclude an agreement. Uber’s goal is to take over the market by force, making any agreements with municipalities unnecessary. While pursuing its strong-arm goal, Uber has used a software tool, Greyball, to evade law enforcement. Uber is now under criminal investigation for the use of Greyball. Even the notion that Uber somehow improves traffic congestion has been debunked by a Northwestern University study commissioned by the San Francisco Transportation Authority which found that ride sharing has a heavy negative impact on San Francisco’s traffic congestion. See www.sfcta.org/TNCsToday
Uber is also facing a major lawsuit from Google for expropriating Google driverless car technology by hiring one of Google’s engineers. Uber has now fired the engineer in question, but the firing itself may be a circumstantial admission that its intent was to steal Google IP. In another case, nearly 200 Uber employees were encouraged to use fake ID, burner phones and credit cards to sabotage Lyft, by booking and then quickly canceling more than 5000 rides with Lyft. Then there is the matter of what can now only be described as pervasive sexual harassment within Uber. Adding to all of these issues, local communities have begun to resist Uber much more aggressively. In one example, a protest movement in Oakland is opposing Uber’s plan to open offices in Oakland. There are other examples dotted around the World. Finally, there is the unresolved matter of the status of Uber’s drivers as “independent contractors or employees” which is nearing a final decision in California state and federal courts.
Clearly, Uber’s business strategy is driven by its ugly corporate culture. Stepping back to consider the complete picture, Uber’s business strategy looks to me like a house of cards.
Those who know me and my blogs here know that I am a student of Harvard Business School professor John Kotter and his philosophy of leadership with humility at its core. Uber presents a leadership conundrum for me. I was interested to hear BackChannel journalist Jessi Hempel express the same point tonight on PBS Newshour. Uber obviously urgently needs to change its culture, yet without the wild aggressive culture defined by Kalanick, the question remains whether Uber can survive? It is not clear to me that humility could turn the Uber cultural battleship. There have also been a number of business articles suggesting that changing a corporate culture is far more challenging than changing a corporate strategy. So I am left to ponder Peter Drucker’s Four Quadrants of Managerial Behavior, and Quadrant Four’s “high task, low relationship” model for Uber. I learned this in Intel’s M Series management courses years ago. The course used the case study of the film “12 O’Clock High,” a demoralized B-17 bomber unit as its example. Gregory Peck arrives as the new unit commander and begins by “kicking ass and taking names.” A similar case would be George Patton’s arrival in North Africa to take command of a demoralized tank unit. My sense at the moment is the only best hope is that somehow an interim leader at Uber will have the latitude to take whatever actions he deems necessary to right the ship. Such a solution seems doubtful at the moment.
This morning on NPR’s Morning Edition, Nina Kim interviewed the Director of the Markulla Center for Applied Ethics at Santa Clara University, Kirk Hansen. The Center is named for early Intel and Apple executive, Mike Markkula. Mr. Hansen said that “Uber will undoubtedly become one of the most important business case studies” to emerge from Silicon Valley. Hansen went on to point out that founders of startups are often not capable of taking the company to a mature large company, and that it may be necessary to remove or reassign the founder. In the case of Uber, this is impossible because Kalanick and his founder group have the majority of shares. This contrasts with most startups legal framework, where the investors or Board may hold the right to remove the founder in specific circumstances.
As a grey-haired Silicon Valley alumni, I am personally offended and outraged by what has happened at Uber. I am deeply ashamed. Over the years I have worked for some well-known SV companies, startups, VC firms, and my own consultancy. I have personal knowledge of things that happened that were not kosher, and I have been present in situations where the ethics were not the best, but nothing in my Silicon Valley experience rises to the level of Uber. Something has gone wildly out of control since my time with how we conduct ourselves in business, and it is now tarnishing the history and reputation of fifty years of Silicon Valley achievements. From my own personal experience working at one wildly successful company years ago, and after rewatching the Enron documentary video, “The Smartest Guys in the Room,” the answer is simple: too much money.
Source: Uber CEO Kalanick likely to take leave, SVP Michael out: source | Reuters
Uber Technologies Inc [UBER.UL] Chief Executive Travis Kalanick is likely to take a leave of absence from the troubled ride-hailing company, but no final decision has yet been made, according to a source familiar with the outcome of a Sunday board meeting.
Emil Michael, senior vice president, and a close Kalanick ally has left the company, the source said.
At the Sunday meeting, the company’s board adopted a series of recommendations from the law firm of former U.S Attorney General Eric Holder following a sprawling, multi-month investigation into Uber’s culture and practices, according to a board representative.
Uber will tell employees about the recommendations on Tuesday, said the representative, who declined to be identified.
The company is also adding a new independent director, Nestle executive, and Alibaba board member Wan Ling Martello, a company spokesman said.
Holder and his law firm were retained by Uber in February to investigate company practices after former Uber engineer Susan Fowler published a blog post detailing what she described as sexual harassment and a lack of a suitable response by senior managers.
The recommendations in Holder’s firm’s report place greater controls on spending, human resources and other areas where executives led by Kalanick have had a surprising amount of autonomy for a company with more than 12,000 employees, sources familiar with the matter said.
Kalanick and two allies on the board have voting control of the company. Kalanick’s forceful personality and enormous success with Uber to date, as well as his super-voting shares, have won him broad deference in the boardroom, according to the people familiar with the deliberations.
Any decision to take a leave of absence will ultimately be Kalanick’s, one source said.
The world’s most valuable venture-backed private company has found itself at a crossroads as its rough-and-tumble approach to local regulations and handling employees and drivers has led to a series of problems.
It is facing a criminal probe by the U.S. Department of Justice over its use of a software tool that helped its drivers evade local transportation regulators, sources have told Reuters.
Last week, Uber said it fired 20 staff after another law firm looked into 215 cases encompassing complaints of sexual harassment, discrimination, unprofessional behavior, bullying and other employee claims.
Even a temporary departure by Kalanick would be a shock for the Silicon Valley startup world, where company founders in recent years have enjoyed more autonomy and often become synonymous with their firms.
Uber’s image, culture, and practices have been largely defined by Kalanick’s brash approach, company insiders and investors previously told Reuters.
Uber board member Arianna Huffington said in March that Kalanick needed to change his leadership style from that of a “scrappy entrepreneur” to be more like a “leader of a major global company.” The board has been looking for a chief operating officer to help Kalanick run the company since March.
The debate over Kalanick’s future comes as he is also facing a personal trauma: His mother died last month in a boating accident, in which his father was also badly injured.
Michael, described by employees as Kalanick’s closest deputy, has been a recurring flashpoint for controversy at the company.
He once discussed hiring private investigators to probe the personal lives of reporters writing stories faulting the company. Kalanick disavowed and publicly criticized the comments.
Michael will be replaced as the company’s top business development executive by David Richter, currently an Uber vice president, the company spokesman said.
Alongside Uber’s management crisis, its self-driving car program is in jeopardy after a lawsuit from Alphabet Inc alleging trade secrets theft, and the company has suffered an exodus of top executives.
One Uber investor called the board’s decisions on Sunday a step in the right direction, giving Uber an “opportunity to reboot.”
UPDATE: KALANICK VIDEO SURFACES. Suffice to say, people are angry with Uber, and things aren’t getting better. This is actually deja vu all over again. We have seen this before in Silicon Valley. The hubris of a company founders or founders creates an ugly overly aggressive and unrestrained culture in its employees and before long things begin to unravel. This has been quietly observed at Uber for some time, and can be gleaned by its own actions as reported in the press. Now, new self-inflicted cracks are appearing. More than 200,000 people have deleted the UBER app off their smart phones in the past month. After former employee Susan Fowler Rigetti published a detailed blog post about the sexual harassment and discrimination she allegedly experienced at the company, people began deleting the ride sharing-app again. As more and more employees have spoken out about the alleged poor working conditions, Uber’s customer base is dwindling … and the company is getting desperate.
UPDATE: As if to underscore the point of this post, only days after the New York Times published the story below, Uber CEO Travis Kalanick was captured on an Uber driver’s dash cam, engaging in a heated argument with the Uber driver over lower pay that has driven the driver into bankruptcy. Kalanick has today issued a formal apology to all Uber employee’s saying that he needs to “grow up” and get “leadership” help.
See the video here: Kalanick Loses It With Uber Driver
Suffice to say, people are angry with Uber, and things aren’t getting better. This is actually deja vu all over again. We have seen this before in Silicon Valley. The hubris of a company founders or founders creates an ugly overly aggressive and unrestrained culture in its employees and before long things begin to unravel. This has been quietly observed at Uber for some time, and can be gleaned by its own actions as reported in the press. Now, new self-inflicted cracks are appearing. More than 200,000 people have deleted the UBER app off their smart phones in the past month. After former employee Susan Fowler Rigetti published a detailed blog post about the sexual harassment and discrimination she allegedly experienced at the company, people began deleting the ride sharing-app again. As more and more employees have spoken out about the alleged poor working conditions, Uber’s customer base is dwindling … and the company is getting desperate.
A few weeks ago, people boycotted the company after Uber provided rides at New York’s JFK airport during a taxi strike over President Donald Trump’s immigration ban. More than 200,000 people got rid of the Uber app and the #DeleteUber hashtag began trending on Twitter. Then, anger boiled again over Uber CEO Travis Kalanick’s position on Trump’s advisory board. He eventually quit the board.
SAN FRANCISCO — When new employees join Uber, they are asked to subscribe to 14 core company values, including making bold bets, being “obsessed” with the customer, and “always be hustlin’.” The ride-hailing service particularly emphasizes “meritocracy,” the idea that the best and brightest will rise to the top based on their efforts, even if it means stepping on toes to get there.
Those values have helped propel Uber to one of Silicon Valley’s biggest success stories. The company is valued at close to $70 billion by private investors and now operates in more than 70 countries.
Yet the focus on pushing for the best result has also fueled what current and former Uber employees describe as a Hobbesian environment at the company, in which workers are sometimes pitted against one another and where a blind eye is turned to infractions from top performers.
Interviews with more than 30 current and former Uber employees, as well as reviews of internal emails, chat logs and tape-recorded meetings, paint a picture of an often unrestrained workplace culture. Among the most egregious accusations from employees, who either witnessed or were subject to incidents and who asked to remain anonymous because of confidentiality agreements and fear of retaliation: One Uber manager groped female co-workers’ breasts at a company retreat in Las Vegas. A director shouted a homophobic slur at a subordinate during a heated confrontation in a meeting. Another manager threatened to beat an underperforming employee’s head in with a baseball bat.
Until this week, this culture was only whispered about in Silicon Valley. Then on Sunday, Susan Fowler, an engineer who left Uber in December, published a blog post about her time at the company. She detailed a history of discrimination and sexual harassment by her managers, which she said was shrugged off by Uber’s human resources department. Ms. Fowler said the culture was stoked — and even fostered — by those at the top of the company.
“It seemed like every manager was fighting their peers and attempting to undermine their direct supervisor so that they could have their direct supervisor’s job,” Ms. Fowler wrote. “No attempts were made by these managers to hide what they were doing: They boasted about it in meetings, told their direct reports about it, and the like.”
Travis Kalanick, Uber’s chief executive, has taken several steps since a former employee’s accusations of discrimination and sexual harassment by managers. CreditMarlene Awaad/Bloomberg
Her revelations have spurred hand-wringing over how unfriendly Silicon Valley workplaces can be to women and provoked an internal crisis at Uber. The company’s chief executive, Travis Kalanick, has opened an internal investigation into the accusations and has brought in the board member Arianna Huffington and the former attorney general Eric H. Holder Jr. to look into harassment issues and the human resources department.
To contain the fallout, Mr. Kalanick also began more disclosure. On Monday, he said that 15.1 percent of Uber’s engineering, product management and scientist roles were filled by women, and that those numbers had not changed substantively over the past year.
Mr. Kalanick also held a 90-minute all-hands meeting on Tuesday, during which he and other executives were besieged with dozens of questions and pleas from employees who were aghast at — or strongly identified with — Ms. Fowler’s story and demanded change.
In what was described by five attendees as an emotional moment, and according to a video of the meeting reviewed by The New York Times, Mr. Kalanick apologized to employees for leading the company and the culture to this point. “What I can promise you is that I will get better every day,” he said. “I can tell you that I am authentically and fully dedicated to getting to the bottom of this.”
Some Uber employees said Mr. Kalanick’s speedy efforts were positive. “I am pleased with how quickly Travis has responded to this,” Aimee Lucido, an Uber software engineer, wrote in a blog post. “We are better situated to handle this sort of problem than we have ever been in the past.”
As chief executive, Mr. Kalanick has long set the tone for Uber. Under him, Uber has taken a pugnacious approach to business, flouting local laws and criticizing competitors in a race to expand as quickly as possible. Mr. Kalanick, 40, has made pointed displays of ego: In a GQ article in 2014, he referred to Uber as “Boob-er” because of how the company helped him attract women.
That tone has been echoed in Uber’s workplace. At least two former Uber workers said they had notified Thuan Pham, the company’s chief technical officer, of workplace harassment at the hands of managers and colleagues in 2016. One also emailed Mr. Kalanick.
Uber also faces at least three lawsuits in at least two countries from former employees alleging sexual harassment or verbal abuse at the hands of managers, according to legal documents reviewed by The Times. Other current and former employees said they were considering legal action against the company.
Liane Hornsey, Uber’s chief human resources officer, said in a statement, “We are totally committed to healing wounds of the past and building a better workplace culture for everyone.”
While Uber is now the dominant ride-hailing company in the United States, and is rapidly growing in South America, India and other countries, its explosive growth has come at a cost internally. As Uber hired more employees, its internal politics became more convoluted. Getting ahead, employees said, often involved undermining departmental leaders or colleagues.
Workers like Ms. Fowler who went to human resources with their problems said they were often left stranded. She and a half-dozen others said human resources often made excuses for top performers because of their ability to improve the health of the business. Occasionally, problematic managers who were the subject of numerous complaints were shuffled around different regions; firings were less common.
One group appeared immune to internal scrutiny, the current and former employees said. Members of the group, called the A-Team and composed of executives who were personally close to Mr. Kalanick, were shielded from much accountability over their actions.
One member of the A-Team was Emil Michael, senior vice president for business, who was caught up in a public scandal over comments he made in 2014 about digging into the private lives of journalists who opposed the company. Mr. Kalanick defended Mr. Michael, saying he believed Mr. Michael could learn from his mistakes.
Uber’s aggressive workplace culture spilled out at a global all-hands meeting in late 2015 in Las Vegas, where the company hired Beyoncé to perform at the rooftop bar of the Palms Hotel. Between bouts of drinking and gambling, Uber employees used cocaine in the bathrooms at private parties, said three attendees, and a manager groped several female employees. (The manager was terminated within 12 hours.) One employee hijacked a private shuttle bus, filled it with friends and took it for a joy ride, the attendees said.
At the Las Vegas outing, Mr. Kalanick also held a companywide lecture reviewing Uber’s 14 core values, the attendees said. During the lecture, Mr. Kalanick pulled onstage employees who he believed exemplified each of the values. One of those was Mr. Michael.
Since Ms. Fowler’s blog post, several Uber employees have said they are considering leaving the company. Some are waiting until their equity compensation from Uber, which is restricted stock units, is vested. Others said they had started sending résumés to competitors.
Still other employees said they were hopeful that Uber could change. Mr. Kalanick has promised to deliver a diversity report to better detail the number of women and minorities who work at Uber, and the company is holding listening sessions with employees.
At the Tuesday all-hands meeting, Ms. Huffington, the Uber board member, also vowed that the company would make another change. According to attendees and video of the meeting, Ms. Huffington said there would no longer be hiring of “brilliant jerks.”
With good intentions, and also a good dose of Facebook business strategy to expand its base of users, Mark Zuckerberg has struck out to promote Free Basics, a free limited Internet for the poor in less developed countries sponsored by Facebook and its local telecommunications partners. While on the face of it Free Basics would seem to have merit, Zuckerberg has run into a wall of opposition. On close inspection of the details, Facebook’s problem, despite all of its global corporate sophistication, appears to be naïveté about the foreign markets it is trying to enter. It is possible to argue that Zuckerberg and Facebook have the best of intentions and sound arguments. But the best of intentions and sound arguments mean nothing if the key element lacking is a clear understanding of the current foreign market, and the crucial need to adapt to it or fail. Zuckerberg could have looked no further back than 2013 for clues to why he has failed.
All Facebook CEO Mark Zuckerberg wants to do is make the world a better place for his new daughter. While he’s technically on paternity leave, he couldn’t sit idly by as India attempts to halt Internet.org, Facebook’s initiative to provide free but limited internet to the developing world.E
Last week, the Times of India reported that the country’s telecom regulatory body had asked Facebook’s partner, wireless carrier Reliance, to cease the Internet.org service as it determines whether operators should be able to price their services based on content. Responding to criticisms of the program, Zuckerberg penned an op-ed published Dec. 28 in the English-language daily. In it, he expressed annoyance that India is debating net neutrality—a principle dictating that telecom operators provide people with equal access to the internet—as the country struggles to connect its citizens to the internet.
Four senior executives from the Belfast office of international accountancy firm KPMG have been arrested on tax evasion charges. KPMG acknowledged in a press release that four of its top executives in Northern Ireland were arrested Wednesday.
Reported by The Financial Times (UK), CBC News and the Guardian (UK), November 27, 2015
Four senior executives from the Belfast office of international accountancy firm KPMG have been arrested on tax evasion charges.
Read more: KPMG Calls In Outsider In Northern Ireland Tax Fraud Investigation
Read more: KPMG Offshore Tax Sham Deceived Tax Authorities CRA Alleges
Read more: KPMG Tax Sham Used By At Least 25 Wealthy Canadians Document Says
KPMG acknowledged in a press release that four of its top executives in Northern Ireland were arrested Wednesday.
“Pending further information and enquiry, we can confirm that four partners in our Belfast office are on administrative leave. As the matter is ongoing, KPMG is not in a position to make any further comments at this stage,” the company said in a news release.
The four men who were charged and released are:
From left to right: Eamonn Donaghy, Paul Holloway, Tom Alexander (not arrested or implicated), and Jon D’Arcy of KPMG Northern Ireland. Arthur O’Brien is not shown.
New criminal offences that allow charges against people who help clients with tax evasion came into effect in the U.K. last March.
The Financial Times reports, “The arrests are the latest blow to Northern Ireland’s tightknit business community, which has been hit by a scandal surrounding the £1.2bn sale of a portfolio of property loans to Cerberus, a US private equity company. This year allegations emerged that some Northern Ireland politicians stood to gain from a £7m “fixer’s fee” linked to that deal.
The purchase of the loans is the subject of criminal investigations in the UK and the US.
As well as working together at KPMG, the four men are investors in a property company called JEAP Ltd. The company is registered in County Down and has a trading address at 17 College Square East in Belfast — the same address as KPMG. They are listed as JEAP’s directors and shareholders and its articles of association describe its purpose as “to engage in property development activities.”
It is not clear if the arrests are linked to the activities of that company. Property development was a popular investment among professionals on both sides of the border during Ireland’s property boom, which ended in 2008 when the global financial crisis hit.
An island-wide collapse in property prices triggered Ireland’s financial and banking crisis from 2008 to 2010, which reverberated almost as loudly in Northern Ireland as it did in the Republic. Many investors lost heavily in the crash.
The arrests of four such senior staff is a blow to KPMG’s presence in Northern Ireland. Its operations in Belfast are among the biggest of any professional services firm. It is understood that senior staff from the Dublin office have been sent north to ensure the office is able to carry out its day-to-day functions.” End
Meanwhile in Canada, KPMG is fighting the Canadian Revenue Agency over tax arrangements that allegedly hide money for wealthy clients.
The CRA alleges KPMG has used “deceptive practices” that hide the money of wealthy clients in Canada..
In February 2013, a federal court judge ordered KPMG to turn over a list of multimillionaire clients who placed their fortunes in an Isle of Man tax shelter scheme created by the accountancy firm. KPMG is fighting that court order and has yet to identify the wealthy people involved.
The case is scheduled to return to court in 2016.
Legal action against the firm for violations of tax laws and links to tax shelters have been mounting in recent years.
Files leaked from Luxembourg earlier this year show KPMG among the advisers of some multinationals who have successfully shifted money to the low-tax region.
In 2005, the firm paid fines in the U.S. of $456 million US for creating illegal tax shelters to help rich clients avoid tax.
I am a strong believer in strategic focus, however I have also personally experienced a case where an “openness” to opportunism turned the enterprise from a pedestrian company to a Silicon Valley legend. Ascend Communications was “focused” on ISDN based video conferencing with an OEM agreement with AT&T. However, AT&T came to Ascend and asked if it could solve a much bigger problem…dial-up access to the Internet over the voice switches was overloading them. 90 days later, Ascend delivered the solution, and the rest is Silicon Valley legend. The Ascend MAX became the global industry standard for dial-up Internet access, and the company the most successful SV company in 1996. So it always pays to keep your eyes and ears open.
I am a strong believer in strategic focus, however I have also personally experienced a case where an “openness” to opportunism turned the enterprise from a pedestrian company to a Silicon Valley legend. Ascend Communications was “focused” on ISDN based video conferencing with an OEM agreement with AT&T. However, AT&T came to Ascend and asked if it could solve a much bigger problem…dial-up access to the Internet over the voice switches was overloading them. 90 days later, Ascend delivered the solution, and the rest is Silicon Valley legend. The Ascend MAX became the global industry standard for dial-up Internet access, and the company the most successful SV company in 1996. So it always pays to keep your eyes and ears open.
I spoke with contributor Don Sull, who teaches strategy at MIT and the London Business School, about the tension between scholars who put sustainable competitive advantage at the center of strategy and those who argue that some industries are changing too quickly to allow for sustained performance. Here’s our edited conversation:
Who’s right — the “sustainable advantage” traditionalists or the “transient advantage” challengers?
They both have something useful to say. Let’s borrow some language from political philosophy and think in terms of thesis, antithesis, and synthesis.
Okay – what’s the thesis?
Start with Michael Porter. His most brilliant insight was that companies compete on a bundle of connected, mutually reinforcing activities and resources. That bundle allows the company to create value in a way that can’t be imitated. (Ikea, for example, has figured out how to get customers to pay more than you might expect for furniture that they have to assemble themselves…thus keeping IKEA’s costs low. There’s a very sophisticated, interlocking set of choices behind the advantage they’ve created.) The people who came along later and talked about competing on competencies and resources – these are all extensions of Porter’s thinking. So that’s sustainable strategy.
It’s trendy to say that sustainable competitive advantage is dead. Empirically, this is simply not true. Microsoft is in the supposedly volatile technology sector. They’ve missed almost every technological breakthrough of the past decade — and yet they earned $237 billion in operating income from 2001 to 2013 working off a strategy that was in place in the mid-1990s. It’s easy to get caught up in the hype. Sustainability still matters.
But there are plenty of businesses that appeared to be unassailable at one time that turned out to be vulnerable.
Right, which brings us to our antithesis. Another group of people had a key insight – let’s call it the opportunistic view – which is that another way to create economic value is to seize a new opportunity. Firms often use an innovative technology or a new business model to seize the new opportunity and they typically disrupt someone else’s business in the process. So this view is often associated with innovation or disruption. The core, however, is creating value by seizing new opportunities.
It’s easy for people in academia to take rhetorical shots at each other over this divide. But by and large managers understand that they need to do both things – create a difficult-to-imitate competitive position, but also seize new opportunities, find new ways to compete.
That raises a key question — how do you balance the two needs?
Here’s where we get to the synthesis. There have been several important insights. Michael Tushman and Charles O’Reilly introduced the idea of ambidexterity. It’s incredibly difficult for a company to both exploit an existing advantage and explore a new one. So it makes sense for one business unit to focus on the incumbent business and for a mostly separate unit to create a new business — with both units answering to the same corporate head. There’s a lot of good evidence that this approach works.
Another approach is to run a portfolio of businesses. GE, Johnson & Johnson, and Samsung all do this successfully. Over time, you move into new businesses and out of older ones. A good chunk of the economy runs this way. When done well, it works.
HBR ran an article by Todd Zenger recently that was interesting, claiming that you can use your mutually reinforcing system of activities and resources as a platform to catch new opportunities. He has a nice analysis of how Disney does this. It’s similar to what Chris Zook and James Allen have said about adjacencies: you find opportunities that fit your core.
Then there’s the horizons view – which is a very practical approach. It says that you focus some resources on sustaining your business, some on incremental change, and some on disruptive businesses. LEGO is a great example. The CEO has 100 people working on the core business, 20 or so on a slightly wider range of opportunities, and fewer than a dozen on innovations that could fundamentally disrupt the company’s business model.
The corporate change literature fits in here, too, though it gets away from the strategy/innovation debate. These are the people who claim that Polaroid should have seen what was coming and turned itself around. But this is incredibly difficult to do if you are running a single, focused business. I won’t say nobody’s done it. But a lot more have failed than succeeded.
The bottom line, then?
The key to success in today’s volatile markets is strategic opportunism, which allows firms to seize opportunities that are consistent with the bundle of resources and capabilities that sustain their profits.
Reblogged from TechCrunch
Editor’s note: Bill Aulet is the managing director of the Martin Trust Center for MIT Entrepreneurship and a senior lecturer at the MIT Sloan School of Management. He is the author of the recently released book, Disciplined Entrepreneurship: 24 Steps to a Successful Startup.
I used to think corporate culture didn’t matter. Discussion of vision, mission and values was for people who couldn’t build product or sell it! We had work to do and this MBA BS was getting in the way!
And then my first company failed.
Cambridge Decision Dynamics did not fail because we didn’t have a great technology or a great product or customers. It failed as a sustainable, scalable organization because we had no meaningful purpose to create team unity to fight through the tough times. Now the company sits comfortably in a perpetual state of what I like to call “deep stealth mode.”
Compare this to the rapidly growing company Eventbrite that I visited recently with some of my students. Eventbrite enables event planners to manage ticket sales and RSVPs online, and its users have sold over $2 billion in tickets.
There was palpable energy and excitement in the air when we stepped in the door. Dozens of neatly parked bicycles spanned a row next to the smiling receptionist. The employee who gave us a tour proudly showed off their conference rooms named after big events that they had helped their customers pull off, including “Promunism,” which was a Communist-themed high school prom. That room had a conspicuous red rotary phone for the emergencies that might come up in planning such a large event, a clear and visible sign linking the company to its customers in a positive manner.
A minute later, we walked by a whiteboard with the prompt “Home to me is…” that was covered with enthusiastic employee suggestions.
Being from New York, I am inherently skeptical about worlds of happiness and cohesion. But it all made sense when our host, VP of marketing, former MIT student, and single-digit-number employee Tamara Mendelsohn, came striding in the room, beaming with pride and energy, to discuss how Eventbrite went from just a few employees to hundreds and became a model of success for others in Northern California.
There was a lot of technical advice on primary market research and marketing techniques to drive market traction, but by far the most interesting part was about how the founders and the leaders of the company had consciously “engineered the company’s culture.” At first, she explained, the primary focus was testing for humility during the hiring process, and they had a checklist to enforce their “no assholes” rule. But they quickly realized they needed to do more.
As the company grew, they wanted to keep the same GSD (Get Stuff Done) attitude across the company and not let their company turn into “just another company.” This was tricky, but because the founders and employees were deeply committed to this attitude, they developed the following solution: “You can’t complain here,” Tamara explained. “If you see something wrong, you must fix it. We say it is a great opportunity to come up with a solution, and this is where many of our best programs have come from. Anything can be changed. We aren’t victim to anyone. We own the culture.”
It is no accident that such a strong culture has produced such a successful company. Event planners have enough to worry about without their ticket-sales software having problems – it needs to just work. When we have used the tool for our center’s events, we have found both a good feature set but also a super-responsive technical support team that has us covered when we screw up or don’t understand certain features. When Tamara explained Eventbrite’s culture to us, it made sense to me why their support team was so on point.
As we talk about in our classes (and credit to Peter Drucker who had the original quote which we have modified), “culture eats strategy for breakfast, technology for lunch, and products for dinner, and soon thereafter everything else too.” Why? Because company culture, a concept pioneered by Edgar Schein, is the operationalizing of an organization’s values. Culture guides employee decisions about both technical business decisions and how they interact with others. Good culture creates an internal coherence in actions taken by a very diverse group of employees.
Some may believe that culture cannot be “engineered,” and that it just happens. It is true that culture happens whether you want it to or not. It is the DNA of the company and is in large part created by the founders – not by their words so much as their actions. So the very decision to not try to create a corporate culture, or worse, to not have company values, is in fact your choice of what culture will prevail – and not for the better.
Should this have been a surprise to me? No, because for over a decade in the 1980s and early 1990s, I worked for IBM when it was the most respected, profitable and rapidly growing company in the world. From day one of training (training which lasted often for two years), the company made clear the importance of their trio of core values: respect for the individual, superlative customer service, and the pursuit of excellence in all tasks. It was this fervent adherence to these core values – through the training, the monthly communications, the performance-appraisal system, the role models, and ultimately every decision we made –that made us great.
In my later years there, I had seen a distinction erosion of management’s commitment and adherence to these values. Leaders started to cut corners on these to achieve short-term objectives, as they felt less confident in their position and felt it was more important to deliver short-term results. It was this ambiguity about these values that contributed so mightily to the fall of IBM, which led to the installment of Lou Gerstner as CEO.
As he worked to turn around the business, he came to a deeper understanding of the issue, which he voiced himself at the end of his tenure: “I came to see in my time at IBM that culture isn’t just one aspect of the game – it is the game. In the end an organization is nothing more than the collective capacity of its people to create value.”
While IBM is a large company, this pattern is true as well for the world of startups I now operate in — especially startups that want to scale. My colleague, Paul English, built a unique culture at Kayak that was the foundation of that company’s success. The founders created a system where their company culture of excellence and productivity was created from the hiring process through to operations. Meetings where decisions were to be made were to have no more than three people because then people were wasting their time. This created a culture of action and accountability while trading off consensus.
This culture does not work for all people and all companies but they made no apologies for it at Kayak and pursued it consistently. It was reinforced daily by practices ranging from Paul’s behavior, to size of conference rooms to the incentive system. The result of these efforts was that the company’s revenue per employee was $1.25 million, which was more than double the industry average. In June 2013, Kayak was purchased for $1.8 billion byPriceline.com.
Another example is a company called Dyn, which is based in Manchester, N.H. This company performs the crucial but unglamorous work of creating, managing and improving the plumbing of the Internet for users. The company’s founders believed deeply that they needed to have a strong culture. Aligning with what will create value for their customers, they focused on creating an environment that was exceptional at allowing people to be honest about their mistakes, driving them to rectify them, and then celebrate and immortalize the technical efforts that brought the solutions to life.
Again this culture was brought to life by the real estate, the way visitors were handled, the actions of the company leaders and their highly visible movie posters. An example of a movie poster is shown below. In this case, the customer had a broken workflow for registering new domains, so the employees worked on a solution that made it so easy “even your parents can figure it out.” The company then invested in creating the poster below and then having the team sign the poster. It is now permanently and prominently hung in their headquarters. It is no surprise to me that Dyn has grown from 53 employees in 2011 to 300 employees today and is considered a huge success story in an unconventional location.
Every company, especially startups, will experience random events that will help or hurt. It is impossible to fully anticipate these events ahead of time. That’s not the question. The question is how your organization will react to the series of inevitable unknown and random events.
A strong product plan is great, but it also takes strong culture to handle potentially adverse scenarios in a positive way. A positive culture like Eventbrite’s takes what would be an inherently fragile human system and makes it anti-fragile (i.e. it gets stronger with random events), to use the concept that Nassim Nicholas Taleb describes in his books. The unpredictable world of a fast-growing startup, and the daily decisions that must be made in response, tend to make the venture stronger rather than weaker or more confused.
So count me among the completely converted. When I talk to entrepreneurs now, before I get too carried away with the idea, I want to probe them about their vision, mission and values. Ideas are cheap – and tasty too. Culture eats them even before its pre-breakfast morning run.
This is another on my series on industry analysis. The recent University of Ottawa study on the demise of Nortel Networks, tells us what many of us already knew. The most important constructive criticism of this study is that it should have been done years ago. The Nortel collapse was followed by a surprisingly similar scenario at RIM, now Blackberry. Mike Lazaridis, who served as RIM’s co-CEO along with Jim Balsillie until January, 2012, are generally considered to have failed to respond adequately to the market encroachments of Apple’s iPhone and Google’s Android phones, as Blackberry’s market share plummeted. I recently showed my undergrad and graduate strategy students a video of a Charlie Rose interview with John Chambers, CEO of Cisco Systems. Chambers emphasized the acceleration of the Adizes corporate life cycle, in many cases to less than ten years, and the need for constant reinvention to survive in this challenging and rapidly changingnew world.
Former Nortel CEO John Roth
Former RIM CEO, Jim Balsillie
This is another on my series on industry analysis. The recent University of Ottawa study on the demise of Nortel Networks, tells us what many of us already knew. The researchers should be congratulated for their work and their conclusions, in what is an important case study of Canadian corporate mismanagement, which will help Canadian business avoid a deja vu. But many of us in the high tech industry already knew the answer in our guts. The most important constructive criticism of this study is that it should have been done years ago. The Nortel collapse was followed by a surprisingly similar scenario at RIM, now Blackberry. Mike Lazaridis, who served as RIM’s co-CEO along with Jim Balsillie until January, 2012, are generally considered to have failed to respond adequately to the market encroachments of Apple’s iPhone and Google’s Android phones, as Blackberry’s market share plummeted. There seems to be a pattern here for students of Canadian innovation and management. I recently showed my undergrad and graduate strategy students a video of a very recent Charlie Rose interview with John Chambers, CEO of Cisco Systems. In that interview Chambers emphasized the acceleration of the Adizes corporate life cycle, in many cases to less than ten years, and the need for constant reinvention to survive in this challenging and rapidly changingnew world. This is now also true about the teaching of Information Technology to management students and to all undergraduate students for that matter.
Cisco System’s CEO, John Chambers discusses the acceleration of the corporate life cycle: Chambers Interview
Read more: Management in the Brave New World
Read more: Strategic inflection points: when companies lose their way
TECHNOLOGY
The Globe and Mail
Published Monday, Mar. 17 2014, 2:16 PM EDT
Last updated Tuesday, Mar. 18 2014, 7:16 AM EDT
The collapse of telecommunications giant Nortel Networks Corp. was caused by “a culture of arrogance and even hubris” that led to numerous management errors and weakened the firm’s ability to adapt to changing customer needs in a fast-paced industry, according to a new in-depth analysis of the company’s final decade of operations.
A University of Ottawa team of professors, led by lead researcher Jonathan Calof, released a detailed analysis Monday of Nortel’s failure, outlining a litany of complex factors that caused Nortel’s collapse in 2009, when the firm filed for bankruptcy protection and was disbanded.
The report is based on three years of research and dozens of interviews with former employees, executives and top customers to try to understand what went wrong at the company. The project was launched after former chief executive officer Jean Monty approached the research team and offered to contribute to the financing of the project.
The study concludes that Nortel lacked the internal “resilience” to cope with a changing external marketplace, and missed key opportunities between 2002 and 2006 to retrench as it struggled to survive. In the end, customers said they could not stick with Nortel as a “black cloud” formed over the company, raising doubts about its long-term future.
Prof. Calof said in a release Monday that the findings are “more than a Nortel story” and present broader lessons about preventing further failures of large companies in Canada.
“It’s our hope that this research will aid in educating tomorrow’s leaders,” he said.
The report says Nortel in its early days was a model of deep technological expertise through its Bell Northern Research (BNR) laboratories and its strong connection to customers, enabling the company to maintain a “first-mover” advantage in many markets. At its peak in 2000, Nortel was Canada’s largest public company, accounting for a third for the value of the S&P/TSX composite index, and employed more than 93,000 people worldwide.
But the authors concluded that Nortel’s growing dominance in its markets in the 1990s “led to a culture of arrogance and even hubris combined with lax financial discipline. Nortel’s rigid culture played a defining role in the company’s inability to react to industry changes.”
While Nortel doubled its revenue between 1997 and 2000 through a spree of expensive acquisitions – and tripled its share price in the same period – the company lost focus on profitability and was in a “precarious position” when the market for technology companies crashed in 2001, the report says. The report says its acquisition spree was a “complete departure” from Nortel’s established skills base and from its tradition of developing its own products.
“This approach proved to be a failure because ill-chosen and poorly integrated acquisitions defocused and overcomplicated the organization,” it concludes. “The company’s high cost structure and lack of financial discipline eventually led to financial ratios that were among the worst in the industry.”
The company also made a series of poor product-related decisions in the same period, including deepening its focus on the declining market for land-line technology and in the increasingly competitive optical market, while missing opportunities in the exploding wireless technology market, where it once had an early lead.
The researchers also concluded that Nortel made operational mistakes, including dismantling the centralized research and development platform from BNR “that was culturally and structurally optimized to create, innovate and develop telecommunications products using co-operative teams.”
From the era of John Roth’s leadership as CEO in the late 1990s onward, “it was felt by many R&D staff that management rarely listened to the engineers and that, when they did, they did not appear to understand.”
In the same era, Nortel gave more power to individual business teams, “which resulted in increased internal politics and fruitless competition.”
The report also says Nortel could have solved its problems in 2002 by retrenching and selling business units, but missed the opportunity, and again missed an opportunity in 2005 and 2006 to sell units and retrench in key business sectors.
“As difficult as it is to consciously reduce the size of a business by selling units, this study concludes that, in the case of Nortel, this option may have been the best and only alternative.
In this presentation, I briefly summarize tactical and strategic marketing and their inherent tension, then evaluate traditional and emerging new alternatives in the sales development process, focusing on strategic marketing control and coordination. The presentation should enable you to better understand how to optimize the coordination of sales performance with a strategic marketing plan.
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