The Long Tail is the other half of the same chart we saw in an earlier Big Ideas article: the Pareto Principle. Vilfredo Pareto took an interest in the head of the chart, where a small number of people accounted for a huge proportion of wealth. In 2006, Chris Anderson published a book that looked at the huge number of products that form the remainder, when you exclude the few that account for the majority of sales.
Amazon lists more than 3 billion products across 11 marketplaces worldwide.
But most of their sales and revenue come from the top few highest performing goods in each category. A small number of books may sell thousands a month. But there are millions of books that rarely sell any in a given month… or year.
Like so many big ideas, Blue Ocean Strategy was not new when its founders conceived it. They just gave it a resonant name and started to flesh out the idea.
In this case, it was W Chan Kim and Renée Mauborgne. They gave their Blue Ocean Strategy concept a set of case studies to tempt new adopters, and some thinking tools to give them confidence. The result is an approach to developing new products and services with a 15-year track record.
If you’ve not yet encountered Blue Ocean Strategy and the concept of Value Innovation, it’s well worth exploring.
How can you be sure that your management team is balancing its attention across all the things that matter – rather than focusing solely on one thing: the money? The answer is that what gets measured gets managed. So you need to score yourself on a balanced scorecard.
That’s the insight that Robert Kaplan and David Norton gave us in a stand-out Harvard Business Review article, ‘Putting the Balanced Scorecard to Work‘. The article may date back to 1993, but it’s still one of HBR’s most-read must-read articles.
For hundreds of years, there has been little to challenge traditional hierarchies for their ability to organise at scale. Holacracy is doing just that.
It’s a form of Adhocracy, which we covered in an earlier article. But, whilst we are way past ‘peak adhocracy’, it seems that holacracy is is thriving.
Holacracy is a modern attempt to reform traditional hierarchies. It keeps the aspect of senior level overviews and subordinate focus. But it gives a far greater autonomy to individuals, and a more substantial decision authority to small teams at the focus of operations and change.
It’s often more honoured in the breach than in the observance. But, CSR (or Corporate Social Responsibility) has moved from a ‘nice to have’ add-on to being an obligation many of the world’s largest corporations are embracing.
Yet, while some do it with relish, others display more reticence. And it sometimes seems that no two of them have the same interpretation of what it means. After all, the centuries old profit motive is easy to define and straightforward to measure. But social responsibility… Is that about development, fairness, environmentalism, or what?
We know what the oldest profession is… And the second oldest. But up with them, dating back to the earliest times in human history is the business of retail.
When Ug sold an arrowhead to Og, he became a retailer. And when Ig bought goods from Ug to sell, rather than make them himself, he moved sales from the factory gate to the retail market.
We may not all work in retail, but I’m prepared to bet that every reader of this article has experienced it as a customer. It is so pervasive, that one has to wonder: do we really need an article about it?
Management literature is chock-full of books about the best companies and how to emulate them. Arguably the best of all these books is Tom Peters’ and Robert Waterman’s In Search of Excellence.
After 35 years, the book remains in print and, while some of its exemplars have not proved to show such enduring excellence, the ideas persist.
We have covered Tom Peters in some depth in an earlier Pocketblog. He was born in 1942 and went to Cornell University on a US Navy scholarship. He earned a bachelor’s degree in Civil Engineering and served for four years in the US Navy. Following that, he got a PhD in Organisational Behaviour from Stanford University.
In 1974, he joined US management consulting firm McKinsey in their San Fransisco office, quickly becoming a partner. There, he took on a major research project looking at the organisational and implementation aspects of companies, while colleagues in the New York office got the plum research project around strategy.
As Peter’s project matured, long-serving McKinsey colleague, Robert Waterman, became involved, and their work morphed into the McKinsey 7S Model and then into the book, In Search of Excellence.
Robert Waterman grew up in the US during the war and attended the Colorado School of Mines, where he graduated in 1958 with a Bachelor’s degree in Geophysics. He then went on to gain an MBA from Stanford University in 1961.
He joined McKinsey in 1964 and remained with the firm until 1985, leaving as a senior director and a member of the Firm’s Executive Committee. He working in Australia and the San Francisco office. It was in the latter that he met and started to work with Tom Peters on the project that would become the book, In Search of Excellence.
When Peters was fired from McKinsey for an article that was read as denigrating strategy in favour of operations and implementation, Waterman remained with the firm. Peters was granted 50 per cent of the royalties of the book the two were working on. McKinsey retained the 50per cent share for Waterman’s half.
Eventually, this hard line rankled and Waterman left the firm. He co-founded energy firm AES, and served on a number of corporate boards. Increasingly his non-executive roles focus on not-for-profits.
The McKinsey 7S Model
In researching ‘cool’ companies, Peter began to assemble a humanistic set of criteria for what made them work well. He was working against the paradigm of rigid strategic planning and financial focus. This theme would be picked up again ten years later by Kaplan and Norton.
Working with Waterman and Julien Phillips, they synthesised his findings into seven mutually interacting areas of business focus that need to be addressed and co-ordinated.
In Search of Excellence evolved from unstructured research into a two-day, 700-slide seminar that Peters gave in Germany, to Siemens. Invited to do the same for PepsiCo, Peters was requested to trim down and focus his presentation. The result was eight key lessons he drew from his research.
These eight lessons were to become the core eight chapters of In Search of Excellence:
A bias for action
‘Getting on with doing the job’. Rapid decision-making unhampered by bureaucracy. This has since morphed into the concept of ‘Agility’.
Close to the customer
Trying to serve each customer as an individual. This has since become business orthodoxy.
Autonomy and entrepreneurship
Each part of the business acts as an entrepreneurial centre, rather than as a part of a machine. This creates greater innovation. Now, of course, entrepreneurialism is part of the zeitgeist.
Productivity through people
Individual contributors are the source of quality. Peters and Waterman were fundamentally in the humanist management tradition.
The 7-S framework started with shared vales. These need to guide everyday practice.
Stick to the knitting
Stay with the business that you know; your core competencies. Diversification carries big risks.
Simple form, lean staff
Some of the best companies have small headquarters and simple process. What company or public authority has escaped the ‘Lean’ revolution?
Simultaneous loose-tight properties
Centralised values, but autonomous operational choices combine the stability of a large organisation with the adaptability of a small one. Many start-ups are seeing the same challenge as they grow, from the opposite direction to Peters’ and Waterman’s large corporations.
After the Search
Both Peters and Waterman followed up the book with their own takes on what next and, in particular, addressing the shortcomings of their earlier research. But apart from one fascinating interview, I don’t think they have worked together since the two or three years of touring, following the release of their book.
That’s a shame. Two remarkable minds came together and, arguably, each did their best work in collaboration with the other.
Take two electrical engineers. Put one into a management consulting role and the other into academia. Mix them up, and what do you get?
Yes, it is a trick question. Robert Kaplan and David Norton developed a powerful business strategy and performance measurement tool. Indeed, it’s a tool all managers should be aware of and understand: The Balanced Scorecard.
Robert Kaplan was born in 1940 and studied Electrical Engineering at MIT, gaining a BS and then an MS, before moving to Cornell, to take a PhD in Operations research.
He started his academic career directly afterwards, moving to Carnegie Mellon’s Tepper School of Business in 1968. He remained there until 1983, serving as Dean of the school from 1977.
In 1984, Kaplan moved to the Harvard Business School, to take up the chair as Marvin Bower Professor of Leadership Development, which he now holds emeritus.
In 1987, Kaplan, along with William Bruns, first defined Activity Based Costing. It was to become a widely used methodology for gaining control of strategic revenue expenditure in industry. Ironically, it only started to lose ground when a new, more broadly-based approach started to gain popularity.
David Norton was born in 1941. He too studied Electrical Engineering, at Worcester Polytechnic Institute. He moved to the Florida Institute of Technology for an MS in Operations Research, and then to Florida State University for an MBA. He also gained a PhD from Harvard Business School.
Norton’s career was in consultancy, cofounding Nolan Norton & Co in 1975, and serving as president until it was acquired in 1987 by KPMG Peat Marwick. He became a partner, but shortly after the publication of Balanced Scorecard—Measures that Drive Performance‘ in 1992, he founded a new business to promote consulting with the Balanced Scorecard at its heart.
The Balanced Scorecard
We’ve covered the Balanced Scorecard before. But let’s revisit it in some more detail.The idea supposedly came from a conversation David Norton had on a golf course with IBM Executive, John Thompson. Thompson reportedly observed that he needed a scorecard, like the one they used in golf, for running his company.
In a variant metaphor, Kaplan and Norton suggest that it would be an unsafe airplane that had just one gauge in its cockpit. So the idea was born for a scorecard that looks at the business from multiple perspectives. Initially, it is four:
Internal Business Perspective
Organisational capacity and learning Perspective
Together, the key measures (or KPIs – Key Performance Indicators) under the headings articulate the organisation’s strategic priorities.
The Origins of the Balanced Scorecard
The original idea, however, tracks back to Art Schneiderman in 1987. He went on to work on a research project with Kaplan, and Norton’s firm Nolan Norton. This collaboration led to the publication by Kaplan and Norton in 1992, and their subsequent 1996 book, The Balanced Scorecard: Translating Strategy into Action. It’s now out of print and available only second hand or in digital editions.
The broad approach to implementing a balanced scorecard is:
Make sure you have a clear vision and strategy
Find the performance categories that best link your vision and strategy to success (Here are some different examples: service standards, thought leadership, marketing activity, performance management, internal morale)
For each perspective, define a small number of objectives that support your vision and strategy
Develop standards or ways to measure progress and build simple systems to monitor and communicate performance against each perspective
Spread the word throughout your organisation that these measures will drive your reward and promotion mechanisms
Monitor performance and compare it with your objectives
Take action to bring performance in line with your objectives
The Legacy of the Balanced Scorecard
As a tool for controlling a business, the balanced scorecard tracks back to Taylorist Scientific Management. However, its flexibility allows managers to monitor and therefore control the measures they choose.