What do leaders need to be successful? What is creative conflict? And what about the Madonna effect? Oren Harari explains all to JACQUI WALKER.
Oren Harari, professor at the Graduate School of Business at the University of San Francisco and author of Break from the Pack: How to Compete in a Copycat Economy, talks to Jacqui Walker about what leaders need to be successful today, the Madonna effect and creative conflict in the workplace. Harari was in Australia to speak at a TEC event.
To listen to the lunch with Oren Harari, click here. To download this mp3 file and listen to it later, right-click this link and “Save target as…” to your computer (Macs; option-click).
Jacqui Walker: You’ve described the times we live in as unconventional, where globalisation and digitalisation of every aspect of the economy is a fact of life. How does this affect management and leadership, and how do managers become true leaders in this environment?
Oren Harari: Well I think the first thing they have to do is to realise exactly what you said. That we are living now in an economy — a world marketplace that really has an entirely new set of conditions and rules. You’ve got increasingly deregulated markets. You’ve got increasing globalisation. You’ve got increasing technological advances.
All of these act to continually create uncertainty and predictability havoc and chaos, but even more so what they tend to do is to create what I call a copycat economy.
If you put all of these factors together — deregulation, globalisation, technological advance — the marketplace has become much more transparent. It’s a lot easier to imitate everyone and products and services that used to be value adding become increasingly commoditised.
In that environment the leadership challenge is ‘how do I thrive?’ Not simply survive. To survive means you’re part of the pack. You’re doing what everyone else is doing. I think ultimately that’s a loser’s gambit. Especially if you’re in a small to medium sized business because if you can’t differentiate yourself.
If you can’t do something that the market is excited by, if you can’t do something that will thrill customers, then ultimately you are going to see your prices and margins start collapsing. You’re going to find it more difficult to maintain customer loyalty. Your profitability scores are, whatever metrics you use for profitability, are going to start getting pinched and what will happen is that ultimately you’ll start falling back.
I think the real challenge, especially for entrepreneurs, is to say: ‘What am I going to do to change the rules of the game?’ ‘What will I do to deviate from conventional wisdom and how do I put together the players, in-house people, the partnerships, the supply chains and the management thinking to actually move ahead in that quest?’
What sort of management thinking do you need in that environment?
Let me answer this in two ways. I use the three Cs, which I talk about in Break From the Pack: Curious, Cool and Crazy. And I need to explain that so it doesn’t sound like just a simplistic little kind of cheerleading thing, because it’s not. I’m being very deadly serious.
Curiosity. I look for leaders who demonstrate curiosity. By curiosity I mean they are constantly restless with the status quo. They’re always looking into the horizon at emerging trends. Trends that may not impact either top line or bottom line right now, but trends in new types of technologies, changes in demographics, changes in trade patterns, changes in sources of capital, changes in supply chain and so forth and say: ‘How can I capitalise on this?’ ‘How can I build new unexpected sort of value around that?’ ‘How can I cannibalise what I’m currently doing and move ahead to the next wave?’ That’s what curiosity’s about.
And the best leaders are not only themselves curious, they hire curious people. And that’s easier said than done, because a lot of times we like to hire folks who basically will say ‘yes sir, yes ma’am’ to us, and curious people are often a royal pain in the ass.
You’re likely to get some conflict in the workplace aren’t you?
Well that’s right, but when I go into an organisation that tells me we never have any conflict, I know the organisation is either dead or dying or they’re lying through their teeth because there’s always conflict.
The real question, does it get put on the table in a constructive way or does it emerge in passive aggressive or backstabbing or political gamesmanship. The key is to have constructive conflict where people are challenging each other, challenging current systems, challenging current partners, challenging current ways of dealing with customers, arguing all for the same goal.
Now when it gets to be dysfunctional conflict, if that’s what happens, yes I agree with you. That’s terrible, and that will kill a company, but yeah, you want curious people.
And again I have found that not only are leaders often not curious, they’re more concerned with circling their wagons to protect their existing cashflow or their existing sunk costs or their existing cash cows and existing products and so forth.
The people that they hire and the people that report to them and the people that report to the next level are more concerned with looking right and not making waves and trying to read the boss’s mind and so forth. Rather than saying ‘if I was running this business what would I do’ — which doesn’t mean anarchy, it means raising the bar.
It means raising the bar in performance and saying ‘hey, I’ve hired you. Help me create new value for customers and help me create new kinds of products, new kinds of services and help me do the due diligence to demonstrate that we can execute it and monetise it.’
So that’s “curious”. What about “cool and crazy”?
Cool means that you’re willing to go on the edge. Cool means that you’re willing to be controversial. Cool means that you’re willing to do something that your competitors are pissed off at you about.
Let me tell you why I use that term. I’ve gone and I’ve given speeches. I get invited to give a lot of corporate speeches, let’s say to trade associations. You have all these competitors sitting in a room in a big hall and they have a three day conference. I’m sure you have them here.
Everyone’s really buddy buddy. They play golf together. They drink beer together. They all understand each other. They all speak the same language. They’re all in the same space. They’re all in the pack.
It’s when you’re doing something where your competitors are royally ticked off at because they know that you’re changing the rules of the game. For example in this last blog that I wrote on my website, harari.com, basically I talk about this company based in Perth called Neptune Marine Services.
Well if you’re a competitor of Neptune Marine Services and you’re providing engineering maintenance and diving services; you do welding you know, on oil rigs for example so you can compete with Neptune. And let’s say you’re all doing pretty much the same thing. One does a little bit, they tweak this, they tweak that. They adjust their price a little here, they add a little service there. You’re all in the same space.
But then suppose Neptune comes up with a new proprietary and patented technology that actually changes the rules in the game. In this case what they do is they have a technology that allows their customers to do dry welding under the water. In effect doing the kind of welding, the spot welding that has the same effect as if you basically dry docked a whole rig or ship. And fundamentally you now can make the service offering that will prevent competitors from coming in and saying ‘well we can do underwater wet welding which lasts only a few weeks at best, or we’ll do it but you’ve got to haul your rig out for a few weeks while we do the dry welding’. That’s changed the rules of the game. Do you think competitors are drinking beer with Neptune? I don’t think so. I think they’d be royally ticked off.
So is networking and spending time with your competitors possibly a distraction from what you should really be doing, and that is trying to be different?
Yes — and the key word is “possibly”. I’m not saying not to do it. I think it makes sense to join groups. To share, to get a sense of what the industry is about. To benchmark if someone is doing let’s say some certain quality processes, and that’s shared. I think that’s all very well and good. And potential partnerships. You may find someone whose thinking is as radical as you are. I think all of that is very good.
I think your key word is “possibly”. I think when you start getting too much immersed in that and too much immersed in how the industry operates, you’ve got a potentially severe problem. And what I show in my book frankly is what a lot of folks have demonstrated. That true, true innovations very often come from outsiders who are not weighted down by a lot of legacy and baggage.
For example I used to work with the music industry in the United States. Great business to be in, in the late 80s and early 90s. You made compact discs right? Once you signed the artist, once you cut the master, the marginal cost of production on these damned things was 20 cents. You sold it for $15 a pop and everyone was very cosy. You made huge margins. If you were a business leader you got to hang out with rockers. It was a wonderful business to be in, and then an outsider comes in.
Apple, Steve Jobs, that basically says: ‘Hmmm, look at all these lunatics sharing files on 28K modems or 56K modems. It’s growing in leaps and bounds. Let’s capitalise on this. Let’s build a business model around it. Let’s monetise it.’ The result is the iPod, which has been a phenomenal success, and the iTunes platform completely revolutionised the rules of the game.
The traditional music companies hate Steve Jobs, even though they work with him and they give him a lot of begrudging respect. But my point is, especially if you’re an entrepreneur, you cannot afford to think the same way that your current competitors do whether they are small or large. If you’re driving a car you cannot drive the car simply by looking at your side mirror and your rear view mirror. You do it occasionally to see what someone is doing, but you’ve got to look straight ahead.
What’s the “crazy” element?
The crazy element is very simply this. What you’re prepared to do are things that the conventional wisdom says is crazy. It’s crazy. It’s crazy to build an iPod network. It’s crazy to invest in underwater spot welding — I mean it’s impossible to do this sort of stuff. It’s crazy for Toyota to invest in the hybrid technology before the market demands it.
It’s crazy if you’re Starbucks to put together an environment where you can charge $4 for a cup of coffee. I mean that’s all nutty. But it’s a disciplined lunacy. See I’m on the board of directors of some software start-ups and the only way they’re going to attract capital and the only way they’ll attract customers is if they can demonstrate two things.
Number one, what they’re doing is perceived of as crazy. Number two there’s a discipline to that crazy. They can demonstrate through a business plan and through their organisation that they can execute this thing. They will be able to execute this thing and they will be able to monetise it.
I call it disciplined lunacy, but the point is, you’ve got to think crazy and be willing to have people point the finger at you and say what you’re doing is lunatic, impossible. You’re out of your mind, and you smile and you say ‘Yep, that’s my badge of honour.’
What are the questions that you ask yourself to make sure that you are curious, cool and crazy?
Well there’s a variety of questions, but it’s interesting. I’m going to just answer you appropriately. This may surprise you but in one of my chapters I talk about two musicians who do this on a regular basis. Madonna and Willie Nelson, and without boring you with any of the details, but let me tell you this.
I know a number of businesses, by the way, who follow what I call the Madonna effect. As you know Madonna changes herself on a regular basis right? So if you were to emulate Madonna’s business tactics here is what you’d be doing:
Those are some of the questions you could ask and on a more formal basis there’s a model I develop in the book called the EMBER model, and when I work with my clients when we look at strategic decisions, any sort of important decisions whether it’s personnel or marketing or product or supply chain or acquisition, what have you, we say it has to fit what I call the EMBER model.
E: does it make us Extraordinary. That is does it allow us to dominate a certain element of the marketplace. You know that Neptune company that I spoke about, it’s a tiny company. It’s under $5 million. But it’s growing in leaps and bounds and they expect within a year or two it will be $70 million and with a price earnings multiple of over 14. And from then on it will grow exponentially if it keeps on dominating that one element of the market. OK. So that’s the first thing.
Next M: does it Matter to customers. That’s critical. You can do all the cool things in the world that you want but if your customers don’t care or they don’t think that it’s worth paying extra for, then all you’re doing is exciting employees. Well it’s not to excite employees, but that’s not what your company’s about. Employees have to be excited about creating excitement for customers because that’s what it’s all about. And I suspect that some of the analysts that I’ve done research on agree with me, this Neptune company yeah, customers, of course they’re excited. Wouldn’t you be excited? I mean if you didn’t have to dry dock your rig, would you pay a little extra? Hell yes. So does it matter; yes.
Next, does it Break new ground. That’s the B.
Next does the organisation perpetually Evolve. In other words whatever the decision you’re doing, is there a component in there that you’re evolving to the next generation’s stuff. The Apple iPod didn’t stay the same. It moved from the traditional Apple to the mini iPod to the entirely new chip, new fabrication Nano iPod, and from then it’s moved to the iPhone and from then I know it’s going to move to the iTV. Is there a constant evolvement?
And finally R: Is it Real. Can you demonstrate that you can execute it? That you can execute it efficiently and most important, is it profitable. Don’t talk to me only about improving revenues. Don’t talk to me about improving market share. Don’t talk to me about improving your exposure in the newspapers. Don’t talk to me about improving your social responsibility score. Blah blah blah.
All these things are wonderful, but at the end of the day, I don’t care if you measure it in terms of net income or EBITDA or in terms of return on invested capital or cash flow. Cash flow is real important. But at the end of the day, is it profitable and can you make some sort of assessment as to when.
Doesn’t have to be tomorrow, but can you make the case that it will be profitable. Whether you’re talking about the Madonna effect or the EMBER model, if a small and growing business keeps that in mind, I think it will be critical to their success.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
