Only the Paranoid Survive

 Andy Groves begins his classic with the Schumpeter quote that it is not price competition, but the new commodity or technology that strikes at the foundation of existing firms.  At that time Andy was teaching strategic management at Stanford.  With time, the rules - environment change and these changes sneak up on leaders.  The ability to recognize that the winds have changed before the boat is wrecked is important.  Back in my boating days we would boat in my 18 footer from Hood Canal up to the San Juan Islands on a sunny windless day and camp overnight.  The following day would often be cloudy and windy making the trip back hazardous.  He notes you would like to detect significant changes earlier by being mindful of especially your organizations periphery.  Like Nonaka, he points out that middle management are often the first to note the change and it their job to inform leadership.  He warns to be careful not to inhibit this through fear  by middle management of punishment.  When confronted with change managers go through denial, anger, bargaining , depression , acceptance.  Senior managers try to escape through diversions such as acquisitions.   There is what he calls inertia of success otherwise known as the competency trap in which businesses continue what has been successful.

One of Porters 6 forces - power of existing competitors, complimentors, customers, suppliers, substitutes and potential competitors, can become a 10x or superforce causing a strategic inflection point where business either increases or starts to decline depending on the actions of the firm.   The point is not a point but occurs so gradually it is hard to detect.  They approach with little cat feet.   The change of the computer industry form a vertical industry dominated by IBM to horizontal took a decade.   He discusses how Steve Jobs missed this change in '85 with Next which had designed a great obsolete vertical product for a new horizontal world.

Strategic inflection points are common.  Other industries have undergone 10x changes including sales, shipping, patent medicines (in 1906 they took out the opioids) and some come through changes in regulations.   The HMO Act of 1973 was a major change for HMOs.  My biggest investing mistake was selling shares in a small HMO stock called United Healthcare in the early '80s.   One challenge is distinguishing a signal from noise.  One must decide is this a significant change?  To tell, ask who your key competitor is.  If this has changed it may  indicate an inflection point.  Ask if your complementors are changing.  If people around you don't get it the it may have changed. "Learn what goes on at the periphery of your business."  He recommends doing this through e-mail.  However,he points out that the most important tool to detect an inflection point is debate among your staff.

It took Intel a year to decide to change direction from memory chips to microprocessors  even though they were loosing money and the change implementation took three years.   



Of course, when there is an inflection point it is not always obvious which solution will win.

Responses to change also include strategic dissonance where companies say one thing and do another. This occurs when middle managers are changing reacting to the situation but leadership hasn't caught on.  This is resolved through experimentation which should be ongoing in the learning organization.
To reign in the chaos of change the first task of the leader is to create a vision of what focus the company should have in the future. For Intel it was a microprocessor company.  Redeploying resources is done through strategic action.  These are concrete steps, not plans.  Timing and clarity are important and at an infection point strategy needs to be both top down and bottom up.   The culture must tolerate debate and make clear decisions.

I is amusing that in the last chapter he explains the Internet and evaluates whether it will be a 10x change.  He decides it will be.


Grove on change at Intel

A food problem

Junk food is causing obesity and tooth decay.
PBS - Tooth Decay Epidemic blamed on junk food

Healthy food : the solution

 Insects are food and could be part of the solution.

Kelly Brownell : What is food
 Select chapter 2

Marcel Dicke: Why not eat insects?

Promotion

Acceptable food is cultural.

Seth Godin on Marketing


Kelly Brownell : Marketing
 Select chapter 4

Don Bugito

Some Mental Learning Disabilities 

Among the Learning Disabilities are Status Quo Bias which is an irrational preference for the current state of affairs.  The brain is wired this way.  Per Wikipedia, a study found that erroneous status quo rejection has a greater neural impact than acceptance.  We make decisions constrained by bounded rationality, that is the lack of time and knowledge to always make optimal decisions which leads to satisficing (choosing an ok solution, not the optimal) and routines.  We need Consumer Reports.  We are also victims of the competency trap which is when we continue to do what were good at even after the environment changes.   Which is why Alec Baldwin's Blogpost on Huffington Post supporting Mayor Michael Bloombergs proposed banning of large size sugary drinks in which he points out how food is marketed as a drug is valid.  See Kelly Brownell, OYC The food marketing landscape.  Humans are genetically designed for food scarcity in an environment where food companies valuation is determined by their growth.  These mechanisms have been shaped by evolution. We can tell when we are hungry but satiation can be overridden.  When you ask a Frenchman how they know when to stop eating they say they are full.  When you ask an American it is when the plate is empty or the TV show has ended.  People tend to eat the same amount as the people around them.  To some extent we are lemmings. So food availability used to be a good thing but now it needs to be limited.  NYC is also scaling back its school breakfast program.

With the exception of the reactions in infants to sudden withdrawals of support and to sudden loud noises, the human being is entirely instinctless....Man is man because he has no instincts, because everything he is and has become he has learned...from his culture, from the man-made part of the environment, from other human beings.
-- Ashley Montagu, 1973 

 Another learning disability people are susceptible to framing.  Advertising food that is 80% fat free sells more than advertising food that has 20% fat. People avoid things that are framed as losses as do monkeys research shows.  Another problem is that our minds are not evolved to do base rate computations at Peter Grey in his OYC psych course points out.  This is a Kahneman slow brain computation.   How much is 28 times 72.  The brain draws a blank.  If the incidence of a disease is 1 in 1000 and a test has a 5% false positive rate and a 0 false negative rate and if a person test positive for the disease what is the likely hood they have it.   People guess between 50% and 90%  The answer is 2%.   (Out of 1000 people one will have the disease.  If you test the other 999, 50 will test positive)  Medical tests are good for testing  people with symptoms that increase their likelihood of having the disease but randomly testing people is not helpful. NY Times Lets (NOT) Get Physicals.  Availability bias makes us falsely overestimate the chances of being killed by sharks is greater then the chance of getting killed by food poisoning from potato salad.  Confirmation bias is another deficiency.  The internet has been the greatest promoter of confirmation bias since you can confirm anything.  

Getting around these deficiencies require some thinking. 

The "THINK" motto was developed by Thomas J. Watson, Sr., three years before he joined the forerunner of today's IBM in 1914. By the early 1930s, THINK began to take precedence over other slogans in IBM, and it appeared on signs such as this in IBM plants and offices, and in company publications, calendars and photographs all over the world.

 

We also plotted the actors involved in these events to develop these system components over time.  This graph shows that the public sector played the major role during the initial periods of industry emergence beginning in 1955 and that private-sector actors did not become involved in cochlear-implant development until 22 years later in 1977.  However, when private firms became involved,  the number of events performed by both private and public sector actors increased dramatically.

 This graph demonstrates how government spending is analogous to the planting of seeds by farmers. This creates an environment where the private sector can harvest the corn.  Austerity by government now will stifle the innovation of the future.  

Nick Hanauer TED Talk  

Steve Blank Secret History of Silicon Valley