Category Archives: Strategy

Thought about dealing with competitors and stakeholders.

The Entrepreneur and the Academic

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Selling chipsWalk­ing around Mel­bourne city one after­noon I decided to have some chips for lunch and ended up in a trendy chip­pery in Eliza­beth Street, munch­ing away on some deep fried pota­toes and mayo. The man serving me was the owner, an entre­pren­eur exper­i­enced in the fast food busi­ness. He, lets call him Brad, spoke openly  and explained how he tries to make a buck in the hyper-competitive world of fast food.

Brad cel­eb­rated big suc­cesses in this mar­ket in the past but emphas­ised that he had only com­pleted high school and has no formal busi­ness qual­i­fic­a­tions whatsoever.

Some time ago, Brad atten­ded a post gradu­ate man­age­ment lec­ture at a local uni­ver­sity. First Brad thought that the lec­turer was talk­ing gobbledy­gook, but after a while recog­nised that the the­or­ies presen­ted in this lec­ture actu­ally match what he does intu­it­ively to run his business.

I told Brad that I occa­sion­ally teach mar­ket­ing at La Trobe uni­ver­sity. What man­age­ment sci­ent­ist do, I con­tin­ued, is to study entre­pren­eurs like Brad to fig­ure out how they do busi­ness and present this back to stu­dents in the­or­ies, for­mu­las and dia­grams. One of the aims of busi­ness stud­ies is to unlock the intu­it­ive know­ledge of entre­pren­eurs such as Brad so that other, less gif­ted and more risk averse bud­ding entre­pren­eurs, can rep­lic­ate their success.

The entre­pren­eur is the hero of con­tem­por­ary cap­it­al­ism and has been ideal­ised and stud­ied in great detail by schol­ars around the world, each look­ing for the holy grail of entre­pren­eur­ship. Research­ers study entre­pren­eurs like ety­mo­lo­gists study insects. They dis­sect them,  ana­lyse them, observe their beha­viour in order to extract the essence of what it is that makes them successful.

Entre­pren­eur­ial bio­graph­ies are, how­ever, always incom­plete and san­it­ised ver­sions of real­ity. The essence of entre­pren­eur­ship is a myth­ical concept in busi­ness stud­ies that can only be known through exper­i­en­cing what it is to be in busi­ness, not by study­ing it

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The Risks of Risk Management

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Risk management is like throwing diceMan­age­ment is about man­aging risk. If there was no risk, there would be no need to man­age any­thing because pos­it­ive out­comes would be guaranteed.

If Ein­stein was a man­age­ment guru he would have said that man­agers don’t play dice, but how wrong he was!

Around the world busi­nesses are using simple matrices to man­age risk. People gather around a table and have argu­ments over whether a risk is low, medium or high. In most cases without proper con­sid­er­a­tion of the actual stat­ist­ical issues.

Risk matrices are a poor proxy for real risk man­age­ment and suck up a lot of resources to ‘man­age’ trivial risk.1. Risk matrices provide false con­fid­ence in the actual risk pro­file and, more often than not, pro­duce out­comes that do not add any inform­a­tion to the situ­ation other than the abilty to provide col­our­ful overviews.

At Hypo­thet­icorp we have cre­ated an altern­at­ive risk mat­rix that you can use to really inform your man­age­ment decis­sions. At Hypo­thet­icorp we bring risk man­age­ment to life. No bor­ing and mean­ing­less num­bers, but prac­tical advice. Down­load this pic­ture, assess the like­li­hood and con­sequence of your risk and act in accord­ance with this sched­ule. Suc­cess is guaranteed!

Risk Matrix

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Notes
  1. Cox, L.A. (2008), What’s Wrong with Risk Matrices?, Risk Ana­lysis, (28)2: 497–512. [↩]

Welcome to the Matrix

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Business researchers are seeking to find the ultimate elegant theoryMan­age­ment sci­ence, just like any other aca­demic field of endeav­our, seeks to under­stand the nature of real­ity. Sci­ent­ists judge a the­ory not only on its abil­ity to pre­dict the future, but also on whether it can be con­sidered eleg­ant. Stephen Hawk­ing admits that he longs for the day when nerds are able to wear t-shirts with one simple for­mula that explains everything in the uni­verse.1.

Man­age­ment the­or­ists are also drawn towards the aes­thet­ics of their thoughts.2. The text books slaved over by MBA stu­dents all over the world are littered with two-dimensional matrices explain everything from what busi­ness strategy to use or whether the divest whole busi­ness units and thus decide over the fate of thou­sands of people. Fam­ous examples are the BCG Mat­rix, Igor Ansoff’s strategy mat­rix, the ubi­quit­ous SWOT ana­lysis, Porter’s Gen­eric Strategies and so on. Some more adven­tur­ous thinkers take it a step fur­ther and pos­tu­late slightly more com­plic­ated dia­grams, such as the GE-McKinsey Mat­rix or Porter’s Five Forces and of course his Dia­mondof national advantage. It is a com­fort­ing thought that the unpre­dict­able nature of busi­ness real­ity can be expressed in dia­grams that even the least intel­li­gent man­ager can repro­duce and impress his peers and super­i­ors with.3.

Since I star­ted my jour­ney into man­age­ment the­ory sev­eral years ago it has always sur­prised me how much aca­demic lit­er­at­ure on man­age­ment is sep­ar­ated from the pop­u­lar books that man­agers actu­ally read and apply. The ivory tower of busi­ness schools is sur­roun­ded by a great moat, even though most man­agers spend con­sid­er­able time chew­ing the fat with aca­dem­ics when they attend uni­ver­sity to earn their coveted degrees.

Hypo­thet­icorp would not be a real man­age­ment blog if we did not intro­duce our own meta-matrix, or über-matrix of man­age­ment sci­ence. So, lets take the blue pill and enter the world of the Man­age­ment The­ory Mat­rix, hence­forth known as the HTTC (Hypo­thet­icorp) Matrix.

The two dimen­sions of the HTTC Mat­rix are the extent to which a the­ory is cor­rob­or­ated in real­ity. In other words, how much empir­ical evid­ence is avail­able to sup­port the the­ory you are look­ing at. The second dimen­sion to con­sider is the pop­ular­ity of the the­ory. Pop­ular­ity can be eas­ily tested by review­ing the best-sellers lists on inter­net book­shops and book reviews in pop­u­lar man­age­ment magazines. To test whether a the­ory is able to adequately describe the fickle real­ity of every­day busi­ness scary stat­ist­ical mod­els are required, test­ing each assump­tion for stat­ist­ical valid­ity and sig­ni­fic­ance. To visu­al­ise the mat­rix and provide some good meta­phors, a zoolo­gical approach is used. In the bes­ti­ary of man­age­ment the­or­ies we can dis­tin­guish four animal king­doms, dodos, owls, rab­bits and uni­corns, each with their own unique characteristics.

Management Theory Matrix (HTC Matrix)

Dodos

When a man­age­ment the­ory has very little empir­ical found­a­tion and is neither very pop­u­lar it can be called a dodo. Just like the now extinct ugly flight­less bird from the island nation of Maur­i­tius was hunted to extinc­tion by Dutch sail­ors in the sev­en­teenth cen­tury, these the­or­ies are not able to with­stand the evol­u­tion­ary forces of social selec­tion by man­agers and scholars. Although the father of what we now call man­age­ment sci­ence, Freddy Taylor, who him­self was killing the dodos of his time, pro­claimed to base his work on rig­or­ous meas­ure­ments of real­ity. More recent research of his private notes shows that this is more myth than real­ity.4. Sci­entific Man­age­ment is thus an example of a dodo. Although it has spawned many mod­ern the­or­ies, Taylor’s ori­ginal thought has for­tu­nately perished.

Owls

Aca­demic journ­als of man­age­ment the­ory are brim­ming with valu­able research, care­fully under­taken and ana­lysed using deep thought and soph­ist­ic­ated math­em­at­ical mod­els. Pres­ti­gi­ous journ­als will only pub­lish mater­ial that can demon­strate a high level of empir­ical val­id­a­tion. The com­plex­ity of aca­demia is, how­ever, not pop­u­lar with man­agers. Most people in busi­ness are not com­fort­able with con­vo­luted math­em­at­ics and abstract struc­tures pro­posed by aca­dem­ics. The ancient Greek god­dess of wis­dom Athena is often depic­ted with an owl perched on her head. These the­or­ies are as such called owls because of their great wisdom. Alas, owls are shy creatures that prefer the dark­ness of the night and are rarely seen in board rooms and man­age­ment workshops.

Bun­nies

Many the­or­ies that win the pop­ular­ity con­test in the man­age­ment the­ory mar­ket lack dra­mat­ic­ally in empir­ical val­id­a­tion. Man­agers blindly accept Maslow’s Hier­archy of needs as a psy­cho­lo­gical truth and try to emu­late the 7 Habits of Highly Effect­ive people. They are called bun­nies because they are cute and cuddly on the out­side, but breed uncon­trol­lably and can cause irre­par­able dam­age to the envir­on­ment; bur­row­ing holes and under­min­ing the found­a­tions of some organ­isa­tions. Some authors, such as Jim Collins and his immensely pop­u­lar book Good to Great, hide behind a veil of pseudo sci­ence and under­take shal­low research without the stat­ist­ical rigour required in sci­ence. But his work is littered with tau­to­lo­gies and self veri­fy­ing state­ments and is lack­ing in ser­i­ous data analysis.

Uni­corns

What would be expec­ted the cash cow of man­age­ment the­ory, those ideas that are cor­rob­or­ated in real busi­ness prac­tice and are indeed prac­ticed widely, are unfor­tu­nately as illus­ive as the myth­ical uni­corn. But the uni­corn stands for hope of bet­ter times ahead. Maybe one day a new age in man­age­ment will com­mence, as was ori­gin­ally pro­claimed by Taylor, and mil­lions of work­ers around the world can sigh of relief when they are lib­er­ated from the dodos and owls, instead rid­ing uni­corns towards the rainbow.

Epi­logue

But what does this all mean you might ask your­self. The simple mes­sage that the HTTC Mat­rix pro­claims is, in the words of Immanual Kant: “Sapere Aude!”, or in com­mon speak, dare to think.

Man­age­ment the­ory is a social the­ory and no other aspect of real­ity is so dif­fi­cult to cap­ture in the­ory as the beha­viour of human beings. Good man­age­ment sci­ence is com­plic­ated and often requires deep though and self know­ledge to be able to under­stand busi­ness. As a social sci­ence, busi­ness can not be explained away in simple the­or­ies. Under­stand­ing comes with wis­dom and insight that can simply not be drawn in two-dimensional diagrams.

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Notes
  1. Stephen Hawk­ing (1988) A Brief His­tory of Time. [↩]
  2. W.G. Astley, W. G. (1985) Admin­is­trat­ive sci­ence as socially con­struc­ted truth. Admin­is­trat­ive Sci­ence Quarterly, 30: 497–513. [↩]
  3. Mat­thew Stew­art (2010). The man­age­ment myth: Debunk­ing mod­ern busi­ness philo­sophy. New York?& Lon­don: W. W. Norton. [↩]
  4. See Mat­thew Stewart’s excel­lent book The Man­age­ment Myth, which provided the inspir­a­tion to write this post. [↩]

Enter the Dragon

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Wear­ing bright pink pants, white T-shirt and green sash, I stood look­ing through the barbed wire and plague locusts at the trees filled, for the first time in Bendigo’s his­tory, with a smelly and squawk­ing colony of fruit bats. The sound of Mancini’s Pink Pan­ther theme was a stark coun­ter­point to the apo­ca­lyptic feel of the mar­shalling area and was an odd but pleas­ing reminder that, out there, were the fest­iv­it­ies of the 140th Bendigo Easter Fest­ival. My strange out­fit matched that of the other sixty men, whose job it was to spread out over the length of Sun Loong – the forty year old, one hun­dred metre long imper­ial dragon – and carry him through the crowd; the grand finale of the Festival’s Easter Monday street parade. When I hois­ted the bam­boo and silk dragon’s mid­sec­tion above my head, the one thing I least expec­ted to receive was a motiv­at­ing insight into entrepreneurship.

After being swept the 500 metres toward the parade start­ing area, each of the dragon-bearers had an hour to wait. This is when I met Ewan.

Ewan was a fifty-something with close-cropped hair and a no-nonsense atti­tude. We talked about our kids and he men­tioned how he enjoyed the time he could spend with his chil­dren because he works from home – some­thing he has done for a great many years. Ewan explained he could do this because he has a pas­sion for start­ing up busi­nesses and grow­ing them. He also men­tioned the many and var­ied indus­tries in which he’d worked: pay-TV, repos­ses­sions, logist­ics, tele­com­mu­nic­a­tions; to name a few. Though I have no idea what level of suc­cess he’d achieved in any of the busi­nesses in fin­an­cial terms, it was clear that he had thor­oughly enjoyed start­ing each busi­ness, each industry (with the excep­tion of tele­com­mu­nic­a­tions) and he really loved the life­style his choices afforded him.

Through­out our dis­cus­sion he gen­er­ously offered a lot of advice about how to “avoid work­ing for someone else … there’s only one way to do some­thing: your own way.” Some of Ewan’s views were:

  • Start small and build up – that way you avoid get­ting trapped if the idea doesn’t work
  • Seek out a niche – some­thing that no-one has thought of or bothered with
  • Avoid employ­ing people – where pos­sible use subcontractors
  • You don’t need train­ing to be an entrepreneur
  • Treat oth­ers the way you expect to be treated: with hon­esty and integrity
  • Avoid the tele­com­mu­nic­a­tions industry – no one is mak­ing money in telecoms.

The shout went up that it was time for the dragon to march its way through the streets lined with fam­il­ies from all over Vic­toria. As I watched Ewan’s feet shuffle ahead of mine, I thought about what it is that really makes him or any other entre­pren­eur suc­cess­ful. It’s an indefin­able mix of self-confidence, energy, clev­erness and determ­in­a­tion that pre­dis­poses them to succeed.

After 4,237 steps over 2.1 kilo­metres, I helped Sun Loong rest in his Museum home to reluct­antly sleep for another year. I returned to my reg­u­lar cloth­ing, none of which is pink, and walked out into the sun­light and away from the barbed wire enclos­ure, the bats and the locusts.

I don’t believe in signs, omens, or ‘mes­sages from the uni­verse’ and hav­ing walked through an appar­ent apo­ca­lypse, I left with a much bet­ter sense of what it is to have a real love of busi­ness – some­thing I never expec­ted when I entered the dragon.

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