Guilds, Teams, And Networks

I’ve been Executive in Residence at Babson College since January. As Fall creeps up on New England (You’re beautiful, but can you please stay away for a little longer?) and students return, my thoughts are a continent away, at two other campuses: The California Institute of Technology and the Apple campus in Cupertino.

This summer, I learnt of a Caltech lore: When Apple visits Caltech to recruit undergraduates in computer science, it brings an open checkbook. Even unreasonable salary expectations don’t preclude the hiring of those whom it likes. Initially, the story seemed inconsequential.

Then, a few days ago, Steve Jobs resigned his position as Apple’s CEO. Apple’s iconic co-founder has reportedly lived a decidedly iconoclastic life, at least in comparison with those of the CEOs of most global companies. He dropped out of college, but living on friends’ sofas, continued to attend classes he liked. So exposed to calligraphy, he incorporated a range of fonts, not just Pica and Elite, on the original Macs. He then dropped out altogether went to an ashram in India, from where he returned a Buddhist. He embraced counter-culture and reportedly regards his doing so a critical formative experience. In short, as a young man, he was the complete antithesis of the people that Apple is seemingly hiring at Caltech.

I am not begrudging the Caltech seniors, particularly those who have worked diligently, their high-paying jobs! Nevertheless, the juxtaposition of these events raised in my mind a critical question for Apple and a more general one for businesses and academia. The roots of these questions lie in an amazing interview Jobs gave to Wired magazine in 1996, before he returned to Apple. In part, he said:

“Some people think design means how it looks. But of course, if you dig deeper, it’s really how it works. The design of the Mac wasn’t what it looked like, although that was part of it. Primarily, it was how it worked. To design something really well, you have to get it. You have to really grok what it’s all about. It takes a passionate commitment to really thoroughly understand something, chew it up, not just quickly swallow it. Most people don’t take the time to do that.

(Jobs probably used the word grok very deliberately; if you don’t grok it, read Robert Heinlein’s Stranger in a Strange Land.)

“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people.

“Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have.”

I wonder if those responsible for on-campus hiring at Apple have grokked this interview. People have long debated Apple’s ability to create lifestyle-altering experiences in a post-Jobs era. A die-hard Apple fan, I had no doubts it could – if it institutionalized Jobs’ perspective on design. (I call this making of the “private knowledge of an individual the public knowledge of many” organizational learning.) However, if Caltech’s lore is true (and broadly representative), Jobs’ insights haven’t become organizational. This won’t be a problem tomorrow, but will be when the individuals so hired rise to managerial positions. Will they prize staff who lack deep knowledge but who, by virtue of their life experiences and broad knowledge, can connect seemingly unconnectable dots?

More broadly, in a world that prizes “deep, micro-knowledge” more than “broad, macro-knowledge,” how do we produce great designers, managers, and indeed, leaders? How do we ensure people are, in Jobs’ words, “able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people.”

I am not arrogant enough to believe I have the answer, but will leave you with a proposal. For college students, I’d make a “semester abroad” a requirement, not an option. And an American going to Western Europe (or vice versa) wouldn’t count.

What do you think?

Peruse any forum on business and sooner or later, you will find a discussion on the value of metric-based performance appraisals. Almost inevitably, you will also find a reference, attributed or not, to Lord Kelvin’s famous dictum, “If you can not measure it, you can not improve it.” (Here’s one example: Metrics, metrics, metrics. “If you don’t measure it, it won’t happen.”) Finally, you’ll also probably note that the discussion’s initiator heavily favors measuring. In my example, the next lines read, “Do you believe that every department/function and employee should have measurable goals? Can you share your successes?” Quite possibly, because of this aphorism, Lord Kelvin is better known to managers than physicsts.

Now consider Albert Einstein. True, he wasn’t a “Lord”, but surely his various other achievements compensate for this deficiency? He said, “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” As managers and students of management, if we must turn to physicists for insights, can we not cite him with equally often? We don’t and this is sad, for we need this particular insight very, very badly. Consider just two examples:

In a world in which most businesses rely on others for core products and services, as a manager you rely on work done by people you don’t know, who work for other companies with different goals, cultures, and risk tolerances. Here, you have two choices: You can base your hopes for a mutually beneficial relationship on tightly structured, measurable Service Level Agreements that your teams of lawyers can help enforce. Or, recognizing that if you have to rely on lawyers to enforce the relationship, you can’t possibly succeed at it, you could choose to invest in building a a level of mutual trust (which you could never measure) which would smooth the imperfections of your “good enough” SLA.



How about innovation? How many of the greatest products or services you use today (or those that were used in the past) were created in workplaces that operated under the philosophy, “If you don’t measure it, it won’t happen?” Some of the most innovative workplaces of the world have long given employees free “off the clock” time and free resources – and benefited from the results of the unmeasured, untracked tinkering they did.

One and even two generations ago, the doyen of quality, Edward Deming, tried to use statistics to convince managers that measuring the performance of individuals often made no sense. Most weren’t willing to consider this advice. Now they need to follow it more than they did then. (And no, Google’s recent efforts, to which I will devote a separate post soon, doesn’t obviate this opinion.)


Metrics and measures have a place in business, just not a central one. A manager who firmly ascribes to “If you don’t measure it, it won’t happen” will most likely make sure only one thing will definitely happen: he/she will be outperformed by those who understand that at the very least, not all statements about physics should be applied to management, and more correctly, management is most definitely not physics.

The tumultuous crowds that brought down a dictator in Egypt had an unintended impact far from their homeland: they drowned out – rightfully! – the announcement of a strategic partnership between Nokia and Microsoft. I admire the Nokia I researched; yet I acknowledge it is currently in deep trouble. I have long disdained Microsoft for its product quality and its reliance on monopolistic power instead of innovation (sole exceptions: Xbox and Kinect; and yes, I admit that Office 2011 for the Mac is far better than iWorks!). So, what do I think of this alliance?

A key “prerequisite” question is: Do I still believe the ideas in The Spider’s Strategy? Absolutely! Toyota’s “unexpected acceleration” fiasco and its resultant recalls of millions of cars didn’t discredit Lean Enterprise. Why then, should Nokia’s recent challenges discredit Networked Organizations? Indeed, Nokia got into trouble because in the key area of product innovation, it stopped applying the ideas that powered its 17% compounded annual organic growth rate (in revenues and operating profits) from 1995 to 2006.

Nokia violated a subtle rule embedded in my third Design Principle, “Value and nurture organizational learning.” It used to learn rapidly by setting seemingly impossible targets that demanded the periodic reinvention its business model. Simultanneouly, to keep control, it insisted its managers follow a “no surprises” policy. This brilliant rule is the proverbial knife’s edge. Balance well, and you can pull off miracles. Tilt toward “big risk” and you can lose your shirt. Tilt toward “no suprises” and you will bring innovation to a screeching halt. As it grew, Nokia made the mistake many other large companies have: it tilted toward “no surprises.” So, unlike Apple, it didn’t build a network of complementary product makers to buttress its proprietary Symbian software. Unlike Google, it didn’t attract a different type of sustaining network by making Symbian open source – until it was too late.

The alliance with Microsoft was in the cards from the day Nokia’s Board appointed Stephen Elop CEO. Nokia’s press release spoke of a strategy to “build a new global mobile ecosystem” with Windows Phone software at its core; “capture volume and value growth to connect ‘the next billion’ to the Internet in developing growth markets;” and make “focused investments in next-generation disruptive technologies.”

The second element – a continued focus on markets like India and China – is an key, though the notoriously developed-world-focused financial analysts may not care. Apple has ignored these markets and Windows still has a true monopoly among operating systems. These facts, plus Nokia’s still dominant marketshare there, give the alliance a strong base on which it can build; Nokia can instantly create volume for the Windows Phone and a seemless integration with Wintel computers may give it an edge over low cost Chinese phone makers. At the very least, this element will buy the alliance time; at best, the “next billion” is a huge market. That’s where the first element is also critical.

To bring the alliance value, the goal of building a mobile ecosystem must truly assimilate the lesson of a recent The New York Times story about a start-up company that hoped to build a business around enabling group dates. The founders noted that the site’s users were mostly South or East Asians, but filed that fact away as “Interesting, but Unimportant.” Success came only when they reluctantly acknowledged that group dating wouldn’t fly in the US and shifted their focus to India. The world, as Thomas Freidman said, is flat. But that doesn’t mean people’s needs are the same everywhere. That’s why the word “global” in the language of this strategic element is troubling. Its use may seduce financial analysts, but unless an ecosystem to specific markets, it won’t amount to a hill of beans. At one time Nokia knew this lesson; it had had anthropologists in Indian villages whose work strengthened its market position there. Does it still remember that lesson and can it convince a monopoly to learn it too?

The third element is critical for the long term and most troubling: Will two companies who haven’t created any disruptive technology recently be able to do so in the near future? Nokia’s Chairman Jorma Ollila had championed the Networked Organization philosophy and as CEO, had managed its phenomenal growth. I could make a cogent case that he and the Board had no choice but to create the alliance with Microsoft. (Which would explain why they pursued Mr. Elop in the first place.) Now, he must ensure that Mr. Elop realizes that his most critical tasks are (1) putting into leadership positions those within Nokia who are still capable of dancing gracefully on a knife’s edge and (2) using his deep knowledge of Microsoft to convince Mr. Ballmer to do the same. Then, and only then, will the alliance succeed. If so, I may one day become once again an enthusiastic customer of both companies.

On January 10^th, I was driving to a business school to lead a symposium on leadership in a networked world. On the radio, I heard the debate about whether the vitriol common in American politics today triggered the carnage in Tucson, Arizona on January 8^th. (A man had attacked a centrist US Congresswoman; she is recovering from a serious bullet wound to her head, while six others are dead and twelve more are wounded.)

Some people – typically those on the political left – decried the language used by those on the right. Their Exhibit A was a map Sarah Palin, their bête-noir, put up before the recent US mid-term elections: it had a marksman’s crosshairs drawn on 20 congressional districts (including Ms. Giffords’) held by the Democrats. Others – typically those on the political right – accused the left of politicizing a tragedy. The killer didn’t belong to any right wing group, and quite possibly was psychotic. Words and images like Ms. Palin’s map were merely rhetorical political devices, not incitements to violence; linking these to a psychotic’s actions was wrong.

I considered focusing the symposium on the link between words and action. Ultimately, I chose not to; this issue was key to leadership, but not necessarily to the concept of a networked world. What would I have said if I had made a different decision? Without a doubt, I would have begun with the words in the title to this post.

Henry II, King of England and a part of today’s France, supposedly uttered them from a sickbed. (Other records suggest that he said, “What miserable drones and traitors have I nourished and brought up in my household, who let their lord be treated with such shameful contempt by a low-born cleric?”) The priest in question was Thomas Beckett, his one-time closest friend and confidant, who as Archbishop of Canterbury, had successfully blocked a key law Henry championed. Four of Henry’s knights acted on his words. In one version of what happened next, they went to Canterbury to kill Beckett and succeeded. In another version, they went to arrest Beckett, but backed off and went to bed when he resisted. The next day, they again tried to drag Beckett out of the cathedral. Somehow Beckett got hit on his head. This accident triggered bloodshed: the knights then drew their swords and slew him.

Henry might simply have been delirious – or merely frustrated – when he spoke. In doing so, whether he intended it or not, he set in motion Beckett’s assassination. The four knights were not mentally ill; they acted deliberately to please their lord. They might not have intended to commit murder, but even in the passion-of-the-moment version of the events, by-standers became “collateral damage.” In either version, I doubt they would have acted against “God’s personal representative in England” had they not felt that their lord was implicitly urging them to do so.

Far from issues of life and death, the essential lesson of this story for any business manager is simple: Words of those in positions of authority always have consequences, even if they aren’t immediately palpable. This lesson is valid for positive words as well, and most annoyingly, for words – positive and negative – that aren’t spoken when they could have been.

Why? Because most people try to fit into their chosen group. Because they value praise from their superiors. Because they try to find meaning for the humdrum of their daily work. Because they routinely look to their superiors’ words for cues about what they should do. Because they analyze whom a new boss speaks to first; if he/she talks to them, they conclude they have been anointed, but if he/she talks to someone they consider incompetent, they conclude the boss has “been captured by the wrong people.”  Because they read much into whom their boss has lunch with, ignoring the fact that the lunchtime companion may merely be an old friend. Much of this scrutiny is way over the top, but there is no escaping from the fact that it happens every day in every organization, including informal ones.

So, if you aspire to positions of authority or leadership, teach yourself to be very careful about the words you use. Conversely, if you don’t accept – or don’t want to live by – this lesson, don’t seek positions of authority or leadership. You certainly shouldn’t be given such a position, for you will have the potential to do enormous damage.

Finally, it is worth noting that both the right and the left in today’s debate are wrong. The right is disclaiming a link for which there is tons of evidence. The left is applying the link way beyond what is reasonable: The issue is not vitriol per se, but its source. Identical words spoken by two people will have divergent impact, if one is an average citizen and the other, someone with a substantial following. The words the latter uses in difficult and/or emotionally charged situations can give us insight into whether he/she has the capacity for greatness or whether he/she merely is a power hungry mortal. Unfortunately, instead of using such situations as guides, we convince ourselves that, everyone, without restriction, who is on “our side” is capable of greatness, while everyone, without restriction, who is on “their side” is a power hungry mortal.

My best wishes for this New Year. May it rise beyond the horrific sights from Tucson.

The quintessential Indian term, “License Raj” pejoratively describes environments where governmental approval – administered by imperious bureaucrats – is essential for day-to-day activities of people and businesses. I used the term at a recent meeting I attended to describe my sojourn (1992—1994) in France. (Incidentally, none of this is a commentary on today’s France and India.)

French state run utilities regularly sent notices that said, “We will come on X day at Y time to read your meter. If you are not at home, we will levy a 50 Franc charge. If you need to change this appointment, you must also pay a 50 Franc charge.” My wife (India-born, but US-bred) spoke French well, but found such demands incomprehensible. I didn’t speak French, but having grown up in India, readily understood them. Ultimately, she found France more challenging than I did.

While several people laughed at my story, one observed, “Oh, you spoke the culture and she spoke the language!” The depth of this casual statement, spoken in jest, stayed with me.

Many scholars and adults believe that learning someone else’s language allows us to understand how he/she thinks. So, premier universities had – and still have – language requirements for undergraduates. Years ago, the European Union, against significant opposition, passed laws requiring children to learn languages that where not their own national languages. When the best of our companies open offices in countries far from home, they populate these offices with people who have more than a nodding acquaintance with the host country’s language.

Indeed, when the Disney company opened EuroDisney outside Paris (while I was living there), it hired bilingual – often fluently so – people. Yet, EuroDisney was an unmitigated disaster at its opening; I took my toddler there and swore I would never return. The Park turned around only when Disney acquiesced to a European – French – management takeover.

So, the knowledge of a language, however proficient, may not necessarily translate into an understanding of the associated culture. Conversely, the understanding of a culture, may not necessarily require fluency in the language. In the language of mathematicians, neither is necessary nor sufficient.

As we create ever more complex – networked – organizations that span the globe, we must understand this issue in greater depth than we do. How do you think businesses should deal with this culture-language issue?

It has been exactly 99 days since I last posted. Hadn’t meant all this time to pass, but life intervened. So, I’m going to welcome myself back by first looking back 40 years.

If you are old enough – or have an deep interest in commercial flying – you might know that long ago, British Airways used to be British Overseas Airways Corporation. During those days of genteel competition, airlines’ acronyms often became amusing nicknames. BOAC was “Better on a Camel;” industry insiders used this moniker affectionately. Decades later, however, one would truly be better off on a camel than on British Airways.

Why? Three words: People, people, people. BA and its employees are constantly at war. Their mutual acrimony routinely spills over into public and affects passengers. Both sides seem to loath the customers who keep them employed.

In the late 1990s, BA put up signs at Heathrow, threatening to prosecute passengers who were discourteous to its employees. It neglected to tell its employees that they too needed to be polite. And with that omission, they unleashed trouble. At a check-in counter once, I expressed mild irritation that I was not given the seat I had reserved. Red Queen style, the agent literally turned crimson with fury. How dare I complain, he asked? If I didn’t like the seat he was giving me, I didn’t have to fly.

Fast forward a few years to an ever lengthening Business Class check-in line. One of the two agents designated to attend to it was enjoying a long, uproariously funny phone conversation. A passenger left our line and requested him politely to terminate what was clearly a non-urgent call. The agent followed the man back to the line and as the rest of us stood around stunned, began screaming, “Who are you to tell me what work I must do?” His rant lasted a couple of minutes and then, he went back to his call.

Fifteen minutes later, he was still on his call and the line was becoming ever longer. Another passenger screwed up his courage and asked a passing agent to summon a manager. This one also became Red Queen incarnate, “You’re telling me to do something? Who are you to tell me what I should do?” He hadn’t heard the “please” the rest of us did and felt it was completely appropriate to abuse a premier passenger.

I’m not making these up! More recently, a business class counter at Brussels was open, but the BA agent was missing. I chatted with a couple of other waiting passengers. Each of us had multiple such horror stories. One called me “lucky” since I only had to fly to London, while he was stuck with BA till Sydney.

This is one sad, sad airline whose service is worse than even the deficient service (by Asian standards) available in the US. As I am writing this, BA cabin crew are finally on the strike that judges had forbid twice before. Once was last December, but by the the time the judicial edict came down, they had hurt thousands of vacationers during the Christmas holiday period. Another time was last April. I was on a round the world business trip that began in Europe and I actively avoided all BA long-haul flights even though they were theoretically the most convenient. Unable to avoid a short Madrid-to-London flight, I waited with bated breath for signs of trouble. Fortunately, I wasn’t affected.

Some readers might blame such behavior on the presence of unions. Maybe so, but they are, at worst, only partly at fault. To me, the clear onus for such disregard for customers must be placed on management. BA management, it seems, has long believed that “service” means more amenities. BA has generally been among the leaders in introducing new technology – like flat bed seats in business class. But in the far more difficult area of creating a more positive corporate culture, in well over a decade, its management has failed – miserably, in my opinion. Nor has their approach to management created much value for their shareholders. Which raises the question: Why do they still have their jobs? (I know, Richard Branson’s been asking this for a long time.)

Economists point to the virtues of free markets; if enough people felt like me, they say, we could take our business elsewhere and punish BA. In a world of networks, however, that is not true; BA is a key member of the One World alliance and as long as I choose to fly One World, I will have to put up with BA, at least occasionally.

Sometimes, good things have very bad consequences.

Last week, an Italian court gave three Google executives six months’ suspended sentences. Their case dealt with a video uploaded on YouTube in Italy, giving the court (and the prosecutors) jurisdiction. The video, which showed a group of teenage boys bullying another with autism, quickly became an Internet sensation. A couple of weeks later, Google received a complaint and removed the video within three hours. By then over half a million people had viewed it. The Google executives were deemed guilty of violating privacy laws.

In the real world, most issues worth reflecting on – like this one – have no simple answers. This one asks us to weigh the relative benefits of privacy and free speech. I don’t know all the possible arguments people made about this case, but I’ll address a few that I heard repeatedly.

The first ignores the specific details of the case and suggests it was a cynical ploy by the billionaire Italian Prime Minister Silvio Berlusconi to clip the power of the Internet since it was threatening his vast “old media” empire. I don’t know much about the Italian judicial system, but if one has a reasonable understanding of realpolitik and of Mr. Berlusconi’s repeated cavalier disregard of a variety of laws, this view is hard to dismiss as a ridiculous conspiracy theory. If true, the court’s decision could have a very negative impact around the world.

It isn’t unheard of for ruthless executives to take unethical, albeit legal, positions to further their ends. The big deal here is that this decision was handed down in a Western democracy on an issue with very high stakes. Undoubtedly, many ruthless people are currently assessing how they could win similar rulings in their bailliwicks. The Ahmadinejads and Mugabes of the world are preparing arguments along the lines of “But this is acceptable in the West.” So, the decision has made the world much more fraught with risk for decent people.

The second viewpoint has attracted most commentators. In essence, it compares the Internet to traditional communications – like telephones and the post office. Telephone companies aren’t subject to criminal charges when their equipment and services are used to plan crimes, no matter how nefarious. So, why should companies like Google?

I am not a lawyer, but for me, this argument doesn’t have legs. Progress in laws generally always lags progress in technology. In The Spider’s Strategy, I argued that our legal systems haven’t caught up with the fact that sense-and-respond capabilities are erasing the traditional boundaries of companies and taking us into uncharted territories. So, inadequate laws shouldn’t be a defense here.

Besides, Google’s defense was that it took down the video within 3 hours of being informed about it. The real question is: should it have acted proactively? After all, when I go to my local post office, I am routinely, proactively asked to confirm that the letter or package I am shipping has nothing dangerous in it. Legally, the post office doesn’t have to ask me (at least not that I know of!), but it is commonsensical for them to do so, if for no other reason than to protect its own people. I am sure that if I give them cause for concern, someone will take some proactive action and at least screen my package. Indeed, increasingly, the post office is trying to screen all packages.

But Google responds that every second, twenty hours of video are loaded on its systems around the world. They just don’t have the ability to screen everything. This argument also seems specious. Google doesn’t have to screen everything. However, can’t – doesn’t – it have filters to screen on an exceptional basis? If a tag or a comment says “school yard bully” couldn’t that particular video be checked out? Let’s assume that this filter would itself get swamped by volumes. How about using an additional decision point? “If a video hits 100,000 views or if a video is shooting up the popularity index very rapidly, check its appropriateness.” Saying “We want the right to search every book in the world and make money out of giving people access to these” seems incompatible with “We can’t possibly be expected to scan every video – or even a fraction of the videos – currently on our system.”

The third viewpoint focuses on biases rooted in the divergent histories of people around the world. Americans favor the freedom of information over all else because its national birth was in part driven by the oppression of a government using information inappropriately. That’s why it is the First Amendement to the US Constitution (part of the Bill of Rights which enshrines the first ten amendments); the Consitution was adopted on September 17, 1787 and the Bill of Rights was adopted on December 15, 1791. In contrast, there is no explicit “right to privacy” in the US Constitution or its amendments; this right was imputed to exist (on the basis of several of the other Bill of Rights amendments) as late as 1965 by a much disputed ruling of the US Supreme Court.

In contrast, Europe has suffered severely as a result of a lack of a fundamental right to privacy. Throughout history, dictators and totalitarian regimes have terrorized their people by collecting huge amounts of secret information and using these to justify punishments, torture and killings. And so, it is no surprise that Article 8 of the European Convention on Human Rights says, “Everyone has the right to respect for his private and family life, his home and his correspondence.”

Supporters of the “information first” logic point out that today’s totalitarian states block access to information, particularly that acquired through the Internet. So, Google rightfully stood by its corporate motto and “did no evil:” It shouldn’t have – and didn’t – act preemptively to block the video, but took action when it was appropriate. Supporters of the “privacy first” logic, (which, incidentally, the Italian court adopted) argue that Google had a fiduciary responsibility to protect the autistic child’s right to privacy. Above all, Google should have “done no harm.”

In the years to come, we will face the two facets of this third viewpoint over and again. Sense-and-respond capabilities will not only benefit businesses and society, but will also raise this issue in ways that we can’t even imagine. (For example, listen to “Different Strokes.” This “On the Media” program from National Public Radio discusses technology that tracks where someone goes on the Internet on the basis of his/her typing pattern.)

My own bias is towards privacy; I think it will increasingly become hard to live as an individual unless privacy safeguards are strengthened. And the day when this becomes a real issue for everyone is not far off; it will happen, as I’d indicated to a pharmaceuticals industry audience in May 2002, because of genetic-profile based medicine. Even “open information” stalwarts in the US will have to think about whether they want companies and governments to have unfettered access to their own specific genetic structures. That is why I did not howl in protest when I read about the Italian court’s decision – but as I indicated in my discussion of the first viewpoint, I am not one hundred percent convinced that it was the right decision.

Michael Crichton was the author who ensured that English speaking children know – and can perfectly pronounce – the names of at least ten dinosaurs. I read the first of his 26 novels, The Andromeda Strain, in 1976 and several others – including the ones about dinosaurs, Jurassic Park and The Lost World – in subsequent years. He also created the extremely popular TV show ER; I didn’t see even a single episode of the show. He passed away in November 2008.

I liked reading his books because many, if not all, of them dealt with the complexities of a world I knew well: the intersection of advanced technology and business. However, I am definitely not a “Crichton groupie;” I stopped reading him in the early 1990s, because I felt that his 1992 book, Rising Sun, had racist undertones. This decision means that Mr. Crichton may well have held positions about which I know absolutely nothing.

Mr. Crichton’s writings introduced me to an extraordinarily powerful idea: humans are creating ever more complex technological systems without truly understanding their implications. They think they can completely control these, but the reality is they can’t. For example, consider the following extract from a speech on environmentalism, as it is reported on “Michael Crichton, The Official Site”: “Most people assume linearity in environmental processes, but the world is largely non-linear: it’s a complex system. An important feature of complex systems is that we don’t know how they work. We don’t understand them except in a general way; we simply interact with them. Whenever we think we understand them, we learn we don’t. Sometimes spectacularly.”

I couldn’t help but be reminded of this idea when the news about Toyota’s ever-expanding recall came into the public spotlight. How could a company so admired and emulated falter so badly? One explanation is that the Company’s relentless pursuit of growth over the last decade caused it to take its eye off quality. Toyota’s new CEO, Akio Toyoda, shares this view; when he got the job in October 2009, he apologized profusely in public for the quality problems that Toyota had experienced. As time would tell, those were nothing compared to what’s happening right now. (I will return to this explanation in a future post.)

A second possible explanation drove me to introduce Michael Crichton here: we are building cars so complex that we really don’t understand how they function and why they do what they do. So far, no one knows what ails the Toyotas. Is it a mechanical problem with the accelerator pedal made by the US company CTS? These pedals are being replaced not just on Toyota but also on other cars. But even Toyota doesn’t think this is the key explanation. Mechanical problems are generally easy to diagnose because we can actually see what’s wrong. The “improper floormats” explanation is also, at best, a secondary one. Right now, the focus seems to be on the electronics that control acceleration – and possibly, even the embedded software. Yet no one has yet figured out what this problem is. So, unless the real story has not been made publicly available (which is always possible), this explanation is still speculation; perhaps informed speculation, but speculation nevertheless.

Many years ago, I had started writing – and then abandoned – a book on manufacturing. In that effort I had assailed the belief that some software companies popularized in the 1990s: “Get it 80% right and ship.” Customers will tell you what is wrong – and you can fix it then. An incredibly simplistic belief in the power of being first to market drove this view. I hope it gets buried soon, for Apple is only the latest company to show that first mover advantages are highly overrated.) Couple this view with Mr. Crichton’s lesson and the dangers of following it become immediately obvious.

In 2006/2007, I was writing The Spider’s Strategy. I pointed out that the holy grail of modern product development – “make it modular” – had major limits. Companies like modularity because it gives (1) the flexibility to use the same parts in different places and (2) the ability to outsource design and manufacturing work in discrete chunks. I cited examples of product failures that had afflicted some of the best known brands in the world, including Toyota and argued that the weakness of this thinking lay in the electronics and software. This limitation made it essential for companies to collaborate closely with their design and manufacturing partners.

Toyota understood this fact better than most other companies. This is why it focused on building strong partnerships with its suppliers. Those partnerships had helped it make the jump from a Lean company to a networked company. It is truly sad that along the way somehow its management unlearnt this critically important lesson.

I spent a chunk of December in the UK, traveling from London to Edinburgh to Cambridge to Cardiff (It’s a Dr. Who/Captain Jack Harkness thing; if you know these names, you won’t ask, “Why Cardiff?” and if you don’t, don’t worry since the answer’s too long to give here!). There, as here, on the surface the economy seemed fine. Oxford Street, London’s equivalent of New York’s 5th avenue, was beautifully lit up and packed with people. The department stores were hard to walk through; Harrod’s had its security staff directing and controlling traffic inside. Our effort to get seating for a traditional afternoon tea – relatively easy, even near Christmas, on past trips – met polite refusals at multiple locations; we ultimately went to the British Museum, not to see the exhibits, but for tea!

I also saw a very different side of UK. In all the cities, many stores were boarded up or had “To Let” signs. Other than Harrod’s, department stores were discounting prices even though there were no posters and banners announcing sales; we paid less than sticker price for several items. The news was gloomy – Iceland was bankrupt, Greece almost so and Spain and Portugal were not far behind; failure to resolve these would undoubtedly hurt the Euro Zone. Perhaps most tellingly, endless pubs and small restaurants were inviting customers to party with them on Christmas, using price – “Only £16.95 a person” – as their primary solicitation tool. In contrast, a few years ago, we few restaurants were open and we had to pay £150 for 3 people (one a child) at one of the few open establishments.

Almost metaphorically, the elegant, comfortable and super-fast Eurostar trains that run through the tunnels beneath the English Channel broke down. On a bitterly cold day, not one or two, but five of these trains simply came to a halt within the tunnels. Why? No one knew. The trains had operated flawlessly for 17 years – and on occasion, in comparably cold weather. Chaos reigned for days: Thousands of people were stranded, unable to go on their planned ‘holidays.’ As the trains stopped, so did truck traffic between the UK and France. Thousands of truck drivers stood around on British highways, turning them into parking lots. And for good measure, the British Airways cabin crew union decided to go on an indefinite strike to protest a work rule change. The strike was ultimately avoided when a British court voided the strike vote on the basis of a technicality, but before the court ruled, more panic gripped the public. Uncharacteristically, huge amounts of snow and bitter cold stopped other trains and blocked roads all over the country. And a financial institution made news by announcing its plan to transfer its professionals abroad to help them avoid the newly announced taxes on bonuses – even though it was unclear whether the law applied to them.

Whenever there’s panic and chaos, humans almost cannot resist pointing fingers at others. And that’s exactly what was happening all around. The people and the press wanted black and white answers – somebody’s head should roll, shouldn’t it? Someone has to pay for my inconvenience, right? And far from black and white, no one nominally in charge even seemed to know whether the problems were on the grey scale – or were a garish shade of red and orange.

This situation is a microcosm of today’s US economy (and most likely, for many others). The old rules no longer work because of network effects. Experts disagree about what the new rules should be and “My model is better than your model, you imbecile!” types of arguments abound. Politics drains what little realism there is in these models and ideology is spewed, dressed up as science. Piecemeal solutions are offered as panaceas for all evils. People who don’t know the difference between “budget deficit” and “national debt” routinely pass judgment on what should or should not be done. And seeing them in this state, many of those who can distinguish such terms – but don’t understand terms like “empathy” and “conspicuous consumption” – tell themselves that this is the best time to pay themselves their biggest bonuses ever.

I couldn’t help wondering whether the US definitely – and Western Europe perhaps – are on glide paths to a two-tier economy. Certainly Warren Bennett, who could single-handedly finance some small countries for years without breaking a sweat, has expressed similar concerns about the US; he has flatly said that this trend does not bode well for a democracy.

So, here’s my hope for 2010: That of us who are brilliant or are among the top echelons of the society (in our minds anyway) and those of us who make major decisions on behalf of our companies, resolve to do whatever we can to help turn this gloomy picture around. We don’t need specialized training to do this; all we need is (1) to consider for our own, everyday choices, not just “What’s in it for me?” but also, “How will it affect the network within which I live?” and (2) to help others do the same. If our networked economies thrive, we’ll do even better than we are doing now; if they fail, sooner or later they will drag us down.

Governments alone can’t solve a problem that companies, consumers and governments jointly created. They will need the active help of companies and consumers. And if, as corporate executives and consumers, we do think of our networks, 2010 can truly be a happy new year.

Edward Whitacre, the Chairman of the Board of GM, has been very active during the last few days. On December 1, he – formally GM’s Board – fired CEO Fritz Henderson. An Associated Press article in The New York Times reported on opinions expressed by two – unnamed – people who were close to Mr. Henderson. It noted that “…the board upset that the automaker’s turnaround wasn’t moving more swiftly and Henderson frustrated with second-guessing …” The same people also suggested that “[Henderson has] was frustrated from the beginning by the board and government push for faster change and other questions about his decisions.” Mr. Whitacre has taken on the task of interim CEO while the Board searches for a replacement. In all likelihood, he/she will be from outside the industry.

Three days after making this decision, Mr. Whitacre appointed a new management team. He reached down into the senior middle management cadre and appointed Mark Reuss, a recent GM for Australia and a newly appointed VP for Engineering, GM for North America. He expanded the responsibilities of three women executives and sidelined Robert Lutz, the Vice Chairman who ran product development and who had hinted publicly that he would be replacing Mr. Henderson. In a public statement about these decisions, Mr. Whitacre noted that GM’s top heavy management was stifling good mid-tier managers, and he wanted to “… give people more responsibility and authority deeper in the organization, and hold them accountable.”

Of course I cheered! In this blog, last December (“What’s Good for General Motors is Good for America”) I wrote, “… this company cannot be trusted to reform itself …” and listed five conditions that the US government should ask for in return for bailing out GM. These included: “Mr. Wagoner and his top lieutenants must resign in an orderly fashion …;” “ … over the next five years GM … must be reduced in size, so they are no longer ‘too big to fail.’ This will require mandatory spin-offs of relatively independent businesses …;” and “…no one in the top spots in any of the restructured companies should come from the senior-most ranks of these companies …”

Then, in January (“Marie Antoinette’s Soulmate”), I tore into Mr. Lutz: “If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments (during an NPR interview) should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie ‘Let them eat cake’ Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him …” I also opined that a pre-arranged bankruptcy would not solve GM’s core problem. During the negotiations, I said, “No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations …” I added, “I would like to see … an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths.”

Then in April (“The King is Dead! Long Live the King”), I challenged the criticism made of the firing of Rick Wagoner: “Imagine, for a moment, that a President of the US (… ‘POTUS’) was at the end of an eight year tenure and he … had not been able to turn around the economy. Would you call him a failure? Sure you would! Mr. Wagoner has been CEO for 8 years; prior to that he was GM’s CFO, President of North American Operations, and COO. A comparable track record in US national politics would have been Secretary of Treasury, (a hands on) Vice President and then POTUS. In effect, Mr. Wagoner had many more then 8 years to fix GM. Under the circumstances, the fact that he might have ‘made progress,’ is simply not good enough!” I ended that post with, “The King is dead. I hope the new King – or kings, as I have argued earlier – come from middle ranks or better yet, from outside the industry.”

So, Mr. Whitacre has made many of the executive changes I wanted. Hopefully, the new blood will transform GM’s ossified culture and structure and take the strategic steps I suggested. As long as Mr. Henderson was the CEO, there was no hope of this happening. His concern that the Board was pushing too hard indicates that he, like Mr. Wagoner, would have found eight years too short for reforming GM.

Now there is hope that at least some of the money the US government used to bail out GM will be returned.