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Sunday, July 10, 2011

The Battle of the Business Models

Bob Lutz, noted "car guy" and former executive of various sales, marketing, operations and design functions at BMW, Ford, Chrysler and GM has a new book on the battle between the "car guys" (engineers) and "bean counters" (accountant / finance types) in American business. BusinessWeek (#1) and Time (#2) have both run short reviews of the book, unambiguously titled Car Guys vs. Bean Counters: The Battle for the Soul of American Business. Lutz writes from an obviously biased perspective and both magazine articles point out the tilt. However, there is a great deal of truth to Lutz' main point -- managing every aspect of a business with numbers and dollars as the only "truth" can be fatal to a company, an industry or even an economy. Interestingly, the Time story ends with this note:

Meanwhile, despite all the post-financial-crisis soul searching within the business community about the value of an M.B.A., schools are still churning them out. There are, and will be for the foreseeable future, a lot more bean counters than engineers in this country. But the same may soon be true in China, where the state plans to open 40 new graduate schools of business in the next few years. As Lutz puts it, "That's the best news I've heard in years."


So what are the essences of these two polar opposite extremes of management philosophy? The "bean counter" model (as Lutz might term it) is built around the assumption that key decision factors about a product or business a) can be determined, b) can be quantified, and c) can be folded and abstracted into ever more complicated models whose pieces can be farmed out to armies of middle managers to create and massage then feed up the chain for final decision making. By the time the numbers reach the top, no doubt via a artificially abbreviated 300 character email read on a BlackBerry on a golf course somewhere, the decisions would seem straightforward. "Hmmmm, A>B, I guess we'll do A."

The "car guy" model attempts to differentiate between purely operational / financial factors suitable for number crunching and specialization in middle management while critical "intangible" decisions about style, technology and risk are left to key players professing to have a battle-tested understanding of the entire business and market though that wisdom may not be independently verifiable. Looking in from the outside, the "car guy" approach might either appear akin to management by a all-seeing oracle or cult of personality (if the business does well) or management by the seat of the pants instead of hard numbers (if the business executes poorly).

Bob Lutz obviously views himself as a "car guy" -- as someone who could have saved Detroit if only the morons in finance had listened. The flaw in Lutz's thinking is that he WAS in Detroit when it was producing some of the worst products ever foisted on the public. Maybe a different "car guy" example might be more instructional.

At this point, there probably is no more famous and successful proponent of a "car guy" approach than Steve Jobs and Apple Computer. Given the positive press about Jobs, one might think Jobs single-handedly coded the upgrades to the latest Lion release of OSX or designed the retinal display of the latest iPhones. There's plenty of negative press about Jobs' management and communication styles as well but Apple's financial success operating within a fickle consumer electronics industry cannot be denied.

Is Steve Jobs really that good? Is he really that indispensable? Or is his success at Apple more of an indictment of the broken thinking of most executives about product development and operations? A few observations might make the case that Jobs' success and that of Apple isn't because they practice the "car guy" approach. Instead, Apple is succeeding because its entire management team is truly managing the business properly -- by financials where it's appropriate and by technical factors where it's appropriate.

In January 2011, during Jobs' health sabbatical, BusinessWeek ran a short story on the managers within Apple in the line to succeed Jobs at the head of Apple. (#3) The bio for each of the top players repeated or implied a common theme -- many could EASILY be the CEO at any other Fortune 500 company. Not just because of the sheer sex appeal of "Apple" on their resume but because THEY WERE THAT GOOD.

My reaction?

Well, DUH!

Each of these executives is doing well because a) they are top notch in their respective disciplines AND b) because each of those disciplines is operating TOGETHER with a larger strategy that honors the function each is there to perform. Apple doesn't execute perfectly on everything every time but it beats the normal 85% new product failure rate because that larger strategy internalized a few crucial lessons from the past:

CONSUMER PRODUCTS REQUIRE A COHERENT VISION -- There were and probably still are at least a dozen ways to make an MP3 player or smartphone. However, any single product cannot simply reflect the "average" of dozens / hundreds of individual decisions about technical details and human factors. This is true for virtually all complex products but it is especially true with consumer products. All of those internally inconsistent compromises are directly / viscerally experienced by the end user and when enough don't add up, the product becomes.... well, a Zune. Steve Jobs absolutely gets this. The entire Apple team knows this. They know there's no guarantee that a new product reflecting a single coherent vision will succeed but there is a VERY HIGH likelihood that a product whose requirements and design were assembled by committee will crash and burn in the marketplace.

DON'T WAIT FOR YOUR COMPETITORS TO CANNIBILIZE YOUR CASH COW, DO IT YOURSELF -- Someone WILL eventually figure out how to steal market share from your current cash cows. It's not a matter of IF, only WHEN. So if it's only a matter of WHEN, it's much smarter for you to influence that WHEN by doing it yourself and coming up with better products. You cement your reputation as being innovative and you reduce "brand churn" by training your customers to expect better things from you rather than the competition.

DO YOUR HOMEWORK -- Does anyone think Steve Jobs sits at his kitchen table watching his kids eating pancakes arbitrarily deciding on his own how the user interface in iTunes will be designed or exactly what the gestures should be in the iPhone interface with a coin toss? Apple has armies of people -- yes some of them engineers but also graphic designers, physiologists and psychologists -- who continually analyze the way humans interact with existing hardware and software and how they react to new ideas made possible by new hardware and software. Apple also understands the tradeoff between flexibility and "open platforms" and uniformity / consistency. Personally, I don't like the closed "app store" model for the iPhones and iPads but as someone who spends 50+ hours per week working with crappy, bloated business software for a day gig, I absolutely understand the attractiveness of Apple's streamlined but locked-down model for consumers who just don't care about details and want one-click installation of new toys.

SHUT YOUR MOUTH! -- Don't say A SINGLE WORD about a new product until serial number 0000001 is physically in a box, through the supply chain and ready to hit stores. Jobs was around in 1983 when the term "Osborne Effect" entered the American business vocabulary. The term stems from a period in which a leading maker of "luggable" computers was suffering a sales decline as their original model was being outgunned by the competition. The CEO and founder, Adam Osborne, attempted to right the ship by announcing the firm had a much better product for less coming in a few months. Alrighty then, said all of Osborne's potential customers and current dealers, we won't order any more of these current models, we'll sit tight and wait for the new ones. The firm literally turned off its own cash flow, telegraphed the price point of its new product months in advance, allowed competitors to plan for the new product and beat its price, THEN FAILED TO DELIVER THE PRODUCT ON TIME. Of course, Apple has realized another benefit from this strategy. When Apple DOES communicate anything about its products, it gains literally millions of dollars worth of free advertising as dozens of web and TV outlets re-run its product announcements as news.

Is this really any mystery to anyone? SHOULD it be a mystery to anyone? It apparently is to many of those with business school / bean-counter blinders.

Maybe this is a more effective way to frame the alternatives: Let a bunch of engineers and bean counters do their respective jobs and you might get Apple or Netflix. Let a bunch of bean counters control the engineering and you get General Motors attempting to sell the same garbage under five different brands. Let a bunch of engineers control the accounting and financials and you get Enron, AIG, Bear Stearns and wholesale securities fraud that wipes out trillions of dollars in nominal wealth and threatens the entire world economy.


#1) http://www.businessweek.com/magazine/book-review-car-guys-vs-bean-counters-by-bob-lutz-07072011_page_2.html

#2) http://www.time.com/time/magazine/article/0,9171,2081930,00.html

#3) http://www.businessweek.com/magazine/content/11_05/b4213006960578.htm