dispatches from the new world of work

Place Those Small Bets, Quickly!

Nothing goes so well with that first cup of coffee as having your biases confirmed!

In yesterday's Wall Street Journal ("In Search of Growth Leaders"), University of Virginia/Darden Graduate School of Business Prof Sean Carr, et al., lay out a growth model. There are, more or less, two flavors of companies:

The first sort, focused on avoiding downsides, treats customers "only as data," "manages risk through analysis," "places big bets, slowly," and frequently fails in new situations; alas, its rigidity and fearfulness increases through time in a vicious circle.

The second sort sees life as a "journey of learning." It treats customers "as people"—and constantly seeks new input through direct contact with those customers. The Type Two group "places small bets, quickly" and manages risk through hustle and an abiding bias for test-try-adjust-action. It is relatively more successful in novel situations—which in turn creates a virtuous circle through which a "growth mindset" becomes the raison d'être of the firm itself.

TP reaction: Amen.

Tom Peters posted this on 07/08/08.

Comments

My alternative summaries:

Sort One - Our stragtetic plan is our bible - We must avoid criticism at all costs.

Sort Two - Life is not a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in sideways, thoroughly used, totally worn out and loudly proclaiming ….... "F*#@, what a trip!"

Amen to sort 2 :-)

Posted by Trevor Gay at July 8, 2008 3:37 PM

Wait! Which companies have the highest returns over time? Because those will become the executives' models.

Posted by Tom Asacker at July 8, 2008 6:35 PM

Tom you have set us up again with a false premise or at least a simplistic look at the choices in business... If there is a dichotomy it is surely that there are people who fall into the following two categories 1) people - usually the leaders of the place - who work on the business... 2) people - usually the front liners of the place - who work in the business.... In most business those two dots are connected with a continuum and sometimes the bias favours one over the other... When you are Google and you have a strategy around 'free search' with a 'passive income model' that works independent of your R&D on future search issues like Google Health, etc then your bias automatically swings toward people who work in the business....

World business is at a different stage in the cycle and it seems there is a pressing need to work on strategies not people processes right now....

One global strategy that needs attention is our collective addiction to oil... Here is my take on how it might be looked at anew....

Some commentators in America are suggesting a tax regime that keeps the cost of crude oil at current prices even if they fall in the futures markets. The notion is simple. Set a floor for oil at say $US150 - it could be higher or lower - and when it rises above that level there is no tax implications. When and if the price of crude falls below $US 150 - as it is today - a tax is applied at the bowser to raise the 'actual cost' to consumers of this commodity back to the floor level.

Not a popular move I grant you. Is it a practical move given our need to move away from carbon based economic solutions in the global and local economies? Yes!

The argument about Climate Change is now a second order issue. The key issue is our addiction to oil. Oil is the foundation stone of our lives and economic well being unless, or until, we kick the carbon habit. Natural gas is a substitute for oil and so its addictive powers are rising as fast as its cost. Alternative sources of energy are good if we can ensure continued supply and distribution to sustain our current life style or consumption habits. The argument that moving away from oil to natural gas and then onto sun or wind power is fatally flawed unless we are prepared to ditch our contemporary mindsets, habits, and ways of thinking....

We are addicted to oil. It is a fact of life. We can give up this addiction or we can stay with it for a while longer. Either way our carbon addiction = higher prices......

Posted by Richard Lipscombe at July 8, 2008 8:28 PM

When did vicious "cycle" become vicious "circle".

It seems that no one uses "cycle" anymore. It's just one of all too many alterations to our language that even "professional broadcasters" come up with every day on almost every show. I don't think that they ever had a course in sentence structure at any time in their time in school.

Ah ... American English ... RIP!

Posted by Nick at July 9, 2008 12:37 AM

Hey, Tom. I thought you wrote somewhere that you'd given up coffee!

Posted by Mark Aldridge at July 9, 2008 1:51 AM

Well, the best organizations are the ones that:

> adapt to change swiftly
> hear what the customer / employees have to say
> can create “positive” impact through their product / service
> can live upto the expectations of shareholders / stakeholders (increase shareholder value over time)
> can behave in a socially responsible way
> have a strong ‘moat’

Posted by Sriram Kannan at July 9, 2008 4:58 AM

I'll never be an advisor to IBM or GE, but as for my tiny little company and my tiny little clients, we'll go for Type 2 until the cows come home. (Driven, one assumes, by a crazed Trevor Gay.)

Posted by Joel D Canfield at July 9, 2008 10:54 AM

Tom, I'm struck by how well this maps to Prof. Carol Dweck's description of the "fixed mindset" versus the "growth mindset" in her book Mindset.

Growth mindset types (think Tiger Woods, Twyla Tharp, Yo-Yo Ma) are always trying to figure out how to do something new, how to get better, how to tweak towards a closer approximation of perfection.

Fixed mindset types tend to try to defend what they already have & reinforce their own view of the world.

Posted by Tim Walker at July 9, 2008 12:39 PM

In general, a small-bets-quickly company will do much better at the internal development of executive talent than will a big-bets-infrequently company.

Some companies, though, are in businesses that seem by their very nature to be of the big-bets-infrequently type..think Boeing. Any thoughts on how they can compensate for this?

Posted by david foster at July 9, 2008 2:54 PM

I was giving a presentation recently called Take The Lid Off Your Creativity. The first point was "Take Risks." I pointed out how risk-averse our society is by challenging people to tabulate the amount of insurance they pay for on a monthly/annual basis. We won't use a step stool without a safety net anymore. I encouraged them to take risks for what they believed in.

I had a lady in attendance who protested much. She honestly couldn't see the value in taking risks. I was polite, but she blew my mind... and proved my point.

I love the principle of managing "risk through hustle and an abiding bias for test-try-adjust-action."

Thanks for the ammunition Tom!

P.S. The lady at my presentation? She works in the insurance industry. Go figure.

Posted by DUST!N at July 11, 2008 9:00 AM

Regarding Boeing: yes, they should make small bets. Why? Dig deeper to find out what comprises a small bet, and you'll discover that small bets are relative--they are a mechanism for eliminating unreasonable risk. My research finds that companies like Boeing can take advantage of relatively smaller bets to help control risks, while keeping their big bet nature intact. For more on how this works, see "How Small Bets are Valuable--even with Big Bet Business Models" in my September 2008 newsletter (came out September 27) at http://ezopandassociates.com/nwsltr200809.html.

Posted by Phyllis Ezop (Ezop and Associates-Winning Moves) at September 30, 2008 8:58 AM