Why Do Good Managers Set Bad Strategies?

An interesting confessional from the master of corporate strategy, the Five Forces guru Dr. Michael Porter.

“Errors in corporate strategy are often self-inflicted, and a singular focus on shareholder value is the “Bermuda Triangle” of strategy, according to Michael E. Porter, director of Harvard’s Institute for Strategy and Competitiveness.

These were two of the takeaways from a recent talk by Porter — titled “Why Do Good Managers Set Bad Strategies?” — offered as part of Wharton’s SEI Center Distinguished Lecture Series. During his remarks, Porter stressed that managers get into trouble when they attempt to compete head-on with other companies. No one wins that kind of struggle, he said. Instead, managers need to develop a clear strategy around their company’s unique place in the market.”

This is a significant change, if it makes a difference. Regardless of the different approaches to strategy, planning, and market development, the non-academic practice of strategy has grown up around Porter’s 1980’s work, which was an is hugely influential. The industry analysis, dominate your sector-based mindset that evolved under Five Forces grew into a set of practices that prevented managers from thinking creatively about internal resource development and product innovation. As long as large companies performed well and made money, and shareholders stayed on the train, there was no perceived need to reinvent strategy itself.

“When Porter started out studying strategy, he believed most strategic errors were caused by external factors, such as consumer trends or technological change. “But I have come to the realization after 25 to 30 years that many, if not most, strategic errors come from within. The company does it to itself.”

Innovation and knowledge-leverage strategies require developing a strong internal focus, according to the Penrose (1959) school of resource-based perspective, an empirical approach that enhances organizational capacities and learning, as opposed to theoretical market forces that are always imperfectly understood. A market must be understood, of course, but the strategic basis for action should be based on resources and practices that are unique and non-transferable or imitable.

How does the Penrose RBV orientation apply to design and innovation? Knowledge management scholars such as (Zack and yes, Jones) have argued that the development of knowledge practices is the primary source of innovation and competitive advantage. Product/service design and innovation are not measured by shareholder value – and we should not be led by outdated views of business strategy into taking guidance from such a singular corporate metric. Shareholder value leads to short-term thinking, which constrains innovation to the immediately doable. As a strategy, it puts the future of the firm in the hands of Wall Street investors, which is no strategy for success at all.

Three Dialogues in search of democracy

The New Democracy Workshop is an ongoing working group at U of Toronto consisting of new media and social democracy researchers. We held dialogues last week on personal healthcare and innovations in dialogue.

Peter Pennefather presented the basics of Collaborative Diagnostics. How medical procedure aimed at directing decisions about therapy should be explicitly democratic and how trends in the health care system to recognize patient autonomy may allow such a dialogical approach to emerge. Peter argues that when procedures and personal care records within the health care system become more transparent, the prospects for such an emergent democratic dialogue will be

I shared about our current thinking in dialogue practice, including Web-based applications in e-dialogue.  Working from a new presentation on structured dialogue, our method for democratic, consensus-based dialogic design based on social science and collaborative cognition is articulated. I presented a case for moving dialogue beyond the Understanding phase (“just listening”), illustrating the necessity for a democratic approach to social system design and action based on dialogue.

More on Dialogic Design at the Blogora (please visit and engage with us!)

Sources of Innovation & Invention

There’s this meme about innovation being spurred by the military and porn, that circulates around new media circles from time to time. I don’t know why it persists, because its so readily faslifiable. But it provokes people, because few are lukewarm about porn and war.

Clearly its true that  the porn industry are early adopters of media innovations, as “marketers” are continually looking to expand their distribution. But adoption is not innovation – it helps the diffusion of innovations occur. Likewise, the US military has a trillion dollars a year of US-debt-based income to throw at anything they like. While most of this cash is wasted forever, some ends up going toward experiments – most of which were already innovations being developed in university or private labs. There is occasional in-house investment yielding something more useful than a yet another fighter plane that will never see a dogfight. While the Internet is always mentioned as an outgrowth of DARPA-net, it is an example of improvised infrsaturcture rather than military innovation. The distributed architecture needed to survive multiple nuclear hits was co-opted by hippie university geeks in the 70’s for email and D&D. (Exhale – yes, THAT’s the innovation baby!)

McLuhan in 1964 envisioned – in principal – all that’s happening now. Nearly 50 years ago, Understanding Media (extensions of Man) gave us a framework for seeing into all the variations of He wrote about “disruptive innovation” and tossed the phrase like it was a well-accepted notion THEN. Rogers had just published the Diffusion of Innovations in 1962. So now we (every 10 years or so) reinvent innovation as if we invented it. So why does the innovation meme stick, rather than, say, invention or even intervention? (Because its so fuzzy that it means whatever we mean it to mean?)

I say this because we deploy “innovation” to create meanings without defining what we mean. There seem to be few commonly accepted meanings of innovation (and none that I know that would restrict breakthrough inventions to fear, death and sex). These are perhaps indicative of our current economies. Did the Wright Brothers conceive of the warplane? (They were bicycle makers.) It took 30 years before cars were used in battle. Take a look at Forbe’s Top 85 innovations from 1959 – 1971, a fertile time for things that eventually made it big.  Forbes 85

My favorite example of innovation – is that of Solon’s Athenian democracy was invented to solve debt slavery, who was able to imagine and then sell to landowners a truly better world for Athenians, after the ruination of Draconian Athens. In today’s world we need a social innovator like Solon again.

Why the Crowd has no Wisdom

Before I even got this post out of the box, the thesis was pushed into international publication by the Boston Globe’s Alex Beam : Alex takes Wikipedia to task, for good reason, but then ties it back to the problem – we are trusting in the wisdom of crowds when we have no evidence that crowds are “wise.” They are not even smart. In fact, my mother thought pretty low of the crowd. Given the Internet Age, we have elevated busy bloggers to philosopher king status now. Beam reminds in My Sticky Wiki how lucky we are Wikipedia works at all. Given his (and my) recent experiences::

“Wikipedia has had plenty of bad publicity lately. Allow me to bring you up to date. Last month, Middlebury College’s history department banned the use of Wikipedia citations in exams or papers, because an error about Japanese history — since corrected — showed up in several exams. Last week, a prominent, pseudonymous Wiki contributor lionized by The New Yorker as a tenured professor of religion turned out to be … a 24-year- old who used the book “Catholicism for Dummies” to write and edit entries.

The proverbial bottom line is that the theoretical underpinning of Wikipedia, the fashionable notion of “crowdsourcing,” or “the wisdom of crowds,” is nonsense. There is no wisdom in crowds. The crowd drinks Coke. The crowd elects George Bush or — God forbid — John Kerry. The crowd accepts authority unquestioningly, especially when it’s dressed up as a “cool” new information source. So who would you rather have write your encyclopedia entries? Bertrand Russell, T.H. Huxley, and Benedetto Croce, who wrote for the Britannica? Or … EssJay?

Well enough. Wikipedia is an information ecology that begs for real knowledge problems. Use with caution. Colbert’s Wikiality is a great example. Stephen publicly games Wikipedia to kind of prove how people can change a media’s representation of reality. (Have you checked on the African elephants lately? Read the histories to see how much activity happens over a given time.)

None of this is wisdom. There is no agreement that this is so. Wisdom can be considered an emergent pattern of meaning from participants in a dedicated search for meaning and guidance. Collective wisdom emerges from a dialogic engagement among observers that have actually pondered a situation. We can facilitate collective wisdom (see Dialogic Design), but a collection of knowledgeable observers, on the Net or any other media, does not “create” wisdom automatically. It appears we require an equilibrium of both intent (will) and emergence (listening for patterns).

We may be taking a meaningful divergence toward a new function of knowledge management, that aims at eliciting the wisdom from a situation. The context of that situation, rather than personal knowledge, then prevails. Where knowledge is the entry fee we pay to generate wisdom from the group, it is not the outcome of the group. More knowledge is not what we need, even validated and tangible knowledge drawn from tacit holdings of smart people.

“Knowledge” often suggests.that we will privilege the knowing, experience, and rationalization of persuasive individuals within a group. Some potential clients see dialogic design in this way right away – they think the idea is to draw forth the best ideas and use a no-gaming process to winnow the wheat from chaff. Instead, we are seeking the emergence of a true group wisdom that was not possible or available in any other setting. Wisdom is beyond what we don’t know (DK) that we know – its the DK that we DK but that has tremendous capacity for motivation and meaning.

This is not anything like Suroweicki’s Wisdom of Crowds. The problem with the Wisdom of the Crowd notion is that it is not wisdom at all – it is social sentiment only, and the best you can achieve is popularity. Wisdom comes from learning, exchange, and emergence in a smaller group dedicated to learning and acting in a common domain. Perhaps this has not been made clear enough in the centuries before …