Heroism as an Interim Managerial Framework
Steve Lohr’s January 28, 2006 New York Times article on Microsoft’s Steve Ballmer http://www.nytimes.com/2007/01/28/business/yourmoney/28ballmer.html highlights the increasing reliance placed by large enterprises on change-agent heroics by their CEOs. Ballmer and his erstwhile P&G co-worker Jeffrey Immelt of GE are good examples. They both run huge and successful companies, and both face the ongoing challenge of turning these battleships rapidly enough to deal with the dynamics of the Information Age.
Asserting that “Microsoft….. has potentially much more to lose in the Internet age than other companies,“ Lohr quotes George F. Colony of Forrester Research:.
“This is every bit as disruptive for Microsoft as it is for others. The dilemma for Microsoft is that it is a prisoner of its business model, and the fact that it is a gilt-lined prison makes it brutally hard to change.
“One of the evolutionary laws of business is that success breeds failure; the tactics and habits of earlier triumphs so often leave companies — even the biggest, most profitable and most admired companies — unable to adapt.”
Ballmer puts it this way, “One of the biggest mistakes I’ve made over time is not wanting to nurture innovations where I either didn’t get the business model or we didn’t have it….I think we’ve shown more willingness to embrace new models than anyone else in the technology business,” he asserts. “Will it be good enough? Let’s see.”
Of course, it’s not enough to “embrace” a new business model – the real trick it to implement it, and then change it again, and again, and again as the environment twists, turns and lurches in unforeseen directions in unpredictable ways. That’s not easy. Business model innovators such as Dell and Sun are struggling with business model change issues right now. And IBM, Microsoft’s precursor as dominant player in the information industry, took almost a quarter of a century after unbundling software and services in 1968 to adopt a services business model. (This did not replace the old model, but co-existed with it as part ot IBM's decision to create and manage services as a separate Business Unit.) Why did it take so long to get there? Because IBM’s pre-1968 business model was capital intensive --- predicated on selling hardware with 80% gross margins and 30% profit margins, and on “giving away” software and non-maintenance services, which were considered marketing expenses. Its pricing and accounting systems allocated expenses across products, rather than assets across projects, so it was not possible to assess the profitability of individual service opportunities in terms of ROA. As a result, the idea of getting into a people-intensive business with 25% gross margins took 23 years to swallow...but never completely digest.
Reading Lohr’s article through a S&R lens evokes an image of executive superheroes grabbing hold of internal units and “torqueing” them to force unnatural acts---unnatural because typically these new models do not make sense in the legacy industrial age managerial framework. This framework is pervasive, more than a century old, efficiency oriented, and largely unexamined as a systematic frustrater of innovation. Managerial frameworks establish what makes institutional sense, and what doesn’t. And since business model innovations are disruptive, they don’t make sense in a paradigm predicated on efficiency. Introducing a new business model therefore requires an iron executive grip and persistent attention in order to warp behaviors in ways that are relentlessly discouraged by the current management system.
This can work, but not systematically or systemically, and it usually requires lower level heroes who know how to get around the management system or get away with ignoring it. Heroism is, in effect, an interim managerial framework used to bridge the gap between the old efficiency-centric and new effect-centric managerial frameworks such as Sense & Respond.
A S&R Role and Accountability design is both a strategy AND a business model, in that it specifies where to invest and how those investments relate to one another to produce value. Because of its modular nature, the R&A design can be reconfigured much more rapidly -- even instance by instance -- to adapt or replace a current business model.
Almost every manager knows about the shortening of product and service life cycles. Many recognize that the same thing is happening to strategy life cycles. Some are beginning to see that the half-life of business models is likewise becoming shorter and shorter. But how many realize that accommodating this reality in a systematic, non hero-dependent way implies changing the underlying managerial framework?
And how many CEO’s are heroic enough to take on that challenge?
[Original Posting 1-29-07, updated 2-10-07]
