Uncommon sense

Sep 30 2012 08:00
*Ian Mann

Uncommon Sense, Common Nonsense by Jules Goddard and Tony Eccles

THE book's focus is corporate performance and it identifies the difference between winners and losers as lying in what they believe. There are beliefs, prevalent in business, which are antiquated and harmful and yet are allowed to direct activity only because they are so commonly accepted.

This is the "common nonsense" of the title and why, the authors contend, there are so many poorly performing companies.

The "uncommon sense" of the title refers to the asymmetric knowledge a company possesses, that is the knowledge they have that others do not and that gives then the winning edge.

A strong strategy is always "uncommon sense". Strategy can never be the application of a formula and there are no generic strategies. 

As such a winning strategy is a unique understanding of the situation, it is a discovery. To quote the American biochemist, Szent-Gyorgy: "Discovery consists in seeing what everyone has seen and thinking what nobody has thought."

Clearly being different is not a guarantee of success, it is a necessary, if not a sufficient condition for success.

Think of strategy as a competitive sport or game where winning is never a function of playing the "right" way - there is no standard way of winning at chess. The point of the game is to test your intelligence in the clash with your opponents.

The default position of so many corporate strategies is the intention to be better than the competition, delivering higher quality goods or providing better service. The only result of this misunderstanding of what is required of a strategy would be the convergence to the same solutions from all the competitors.

Using the motor industry as an example, Goddard and Eccles point to two winning strategies, one based on the uniqueness of the product and the other based on the uniqueness of the manufacturing process.

Porsche is an example of a unique product with a high unit cost of production, but able to command a high unit price. Honda and Toyota are examples of unique manufacturing processes with low unit costs and low unit prices.

Both of these are winning strategies.

Stuck in the middle are the "plagiarists" Ford, GM, VW, with unit prices as low as Honda and Toyota, but with unit costs higher than Honda and Toyota, but not as high as Porsche. The plagiarists are always poorly performing companies.

This "stuck in the middle" position is favoured by CEOs who feel most comfortable with compliance, control and predictability.   

Goddard and Eccles note that the price these CEOs pay is always high as they are presiding over a failing firm.

It is the same group of CEOs who see "best practices" as an aspiration. Goddard and Eccles hold that this must be "the most value destroying idea to come out of business schools and management consultancies over the past 20 years".

All best practice can achieves is catching up with the herd. Toyota didn't outperform GM by emulating GM practices; it reinvented manufacturing.

The day that Google starts to take an interest in competency profiling or balanced scorecards is the day, the authors suggest, that you should sell their shares.

Just as there is the strategic "common nonsense", so too is there operational "common nonsense". An example is the widely held view that corporate winners are motivated by meeting a financial target, when in fact they are motivated by meeting a need.

This is a function on the oblique principle – you don't become happy by pursuing happiness, rather happiness ensues from the pursuit of noble matters.

Winners, they point out, have discovered that the best way to increase shareholder value is by satisfying a need and creating value for customers.

Similarly, financial measures of performance are a poor way to motivate employees. People go to work to express their talents, earn a living, socialise with colleagues, participate in interesting projects and, perhaps, make a difference in the world.

Winning organisations play to this by trying to fulfil not only these motives, but also the higher needs of their employees. This is the oblique way of ensuring compliance, diligence and passion.

What echoes through the book is the notion that success is about unique practices, not best practices. Strategy is that uncommon skill of staying one inventive step ahead so that the firm does not have to compete on efficiency.

When management's focus turns to "taking costs out" or "downsizing" instead of the wealth creating activities of innovation, differentiation and entrepreneurship, it is a sign they have lost their nerve or have run out of ideas.

The practice of management requires the focus on two conflicting matters – control and innovation. Where the emphasis lies should be determined by the current needs of the organisation.

Today, these are more likely to be the need for innovation rather than the need for control. Most firms are better at control than innovation.

There are tell-tale symptoms of a company's bias in favour of control rather than innovation, and the authors' description of these provides a fine illustration of the tone of the book:

 - Competitive benchmarking – plagiarism run riot;

 - Performance targets – insults for the conscientious;

 - Shared values – the extinction of individualism;

 - Balanced scorecards – the bureaucrat's revenge; and

 - Best practice – the recipe for formulaic sameness.

The book is a collection of contrarian views and innovative ideas, some of which are original. There are errors in their attribution of ideas and comments, but none detract from the value of this this easy to read book about running a corporation.

This is a valuable tool for both executives and managers.

Readability: Light --+-- Serious

Insights:    High -+--- Low

Practical:   High --+-- Low

 - Fin24

*Ian Mann of Gateways consults internationally on leadership and strategy.


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