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SURVIVAL IS NOT ENOUGH: MORE STUFF

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Typing in France

If you've ever tried to check your e-mail while in Europe, you know about the nasty surprise I encountered on my last trip. Sure, it's fine with me that they speak French in France ... after all, it's their country. But why did they have to mess with the keyboard!

The keyboard on French computers is intentionally messed up. You need to press the shift key to type a period, for example. Some of the letters are where they should be-making it even more annoying.

If I didn't know how to type, this wouldn't be a problem. When you're a hunt-and-peck typist, you're busy looking at the keys. So if someone intentionally screws up a perfectly good keyboard, you hardly notice.

But if you've figured out a winning strategy for typing fast, you're doomed. You mean to type www.thebigredfez.com and out comes zzz,thebigredfew,co, which is truly exasperating.

I used to be a good typist. I used to be able to surf the Net quickly and easily and well. I don't want to give that up. I enjoy my competence. When I get to France and have to take six steps backward, I get frustrated.

My point is that getting comfortable with a winning strategy makes it incredibly difficult to embrace change.

The Winning Strategy

Every company with more than one employee has discovered a winning strategy. It has succeeded at something that gave the founder enough confidence to hire someone.

When I say "winning strategy," I don't mean that the strategy is perfect, or market-dominating or even good. Just that the strategy makes the founder (or the long-time CEO) feel like a winner. It's a strategy that generates results that the people at the company want to repeat again and again. The winning strategy encompasses the habits and decisions that are not up for discussion every day. When Henry Ford thought that it was more profitable to only make cars in black, that was part of the winning strategy. Today, of course, Ford couldn't care at all what color you want your car-it's not part of their core beliefs any longer.

Big companies got to be big companies because they had a powerful and profitable winning strategy. The little shop around the corner, despite delivering only a meager living to its proprietor, also has a winning strategy, one that the owner sticks with.

At many organizations, the winning strategy is astoundingly simple and well known by all concerned. At others, it is quite subtle and far more mysterious. Either way, every company still around today has a winning strategy or is about to go broke defending an old one.

Virtually all of a company's existing mDNA comes from its current approach to the business-the strategy that made the company successful in the first place. Not only is the winning strategy baked into the company's policies and assets, but the people who work at the company are there because they liked the winning strategy enough to join the company. Replacing a strategy that's still working is difficult indeed. However, if a company doesn't replace its strategy until it is completely obsolete, it will find that it has neither the time nor the money to find a new one.

Schwinn, the company that made the bikes you likely grew up with, is a great example of this trap. It had a winning strategy-exclusive bike shops and heavy, well-made bikes, produced in the United States. When the market shifted and people started buying cheap, lightweight bikes at the local Kmart, Schwinn was unable to alter its strategy in time and went bankrupt.

Why are companies so loath to abandon what's working today? There are several good reasons. The first is that following someone else's path is often an excellent substitute for the perceived risk of original thinking. If your predecessor has discovered a strategy that works, you don't have to come up with one on your own-that might or might not work better. Managers are not personally responsible if they do nothing except what's been done before-but if they take initiative, then it's their responsibility.

The second disincentive is that sticking with tried-and-true approaches helps justify past decisions. To try something new is,  at least partially, to denigrate something old.

The third reason is that until recently, feedback loops were slow and unreliable. If you don't have vivid, immediate proof that your winning strategy is broken, why bother going through the pain of fixing it?

Let's look at it from the beginning. Any company-every company-goes through the same process (at first).

The new company flounders until it finds a winning strategy. This is the strategy that lets the company make payroll, make a profit, perhaps even grow. A winning strategy is fixed in that it doesn't usually change from day to day. It's not always rational but it's always based on history. Managers develop a superstitionlike attachment to the strategy, believing that it is responsible for the company's past and its future.

If you want to teach a pigeon to be superstitious, put it in front of a bird feeder that dispenses food whenever the pigeon pecks it. You'll discover that the pigeon painstakingly repeats all the motions that preceded the pecking-the bird doesn't distinguish between the activities that caused the food to come out (the pecking) and the ones that just happened to be performed the first few times (the twirling or preening).

Management superstition is similar. It's not unusual at all to find large pockets of management in complete agreement about what has worked for their company in the past (and what they expect will work in the future) based almost entirely on superstition.

For example, without any data at all, most people in the segment of book publishing that creates science fiction and fantasy novels believe that you must have a drawing of the hero on the cover of a novel or it won't sell. It's part of their winning strategy, it has been for a long time and they're in no hurry to find out if it's actually valid.

When a nascent company finds a winning strategy, the people who run the company pile onto that winning strategy bandwagon. Everything they do, they do in support of the strategy. They make rules to ensure that they maximize the winning strategy. They embed those rules into the company with their hiring choices, their real estate choices, their manufacturing choices, their policies.

As long as the winning strategy stays the same (and the competitive environment stays the same), the company thrives.

If this sounds a little like evolution in animals, it should. The DNA in a species is constantly being shuffled with and fiddled upon, and then one day, an organism springs forth that's ideally fit for a certain ecological niche. The combination of competition and environment is a perfect match for the winning strategy of this animal. So the fit animal piles on, generating tons of offspring. The population explosion continues until the competitive environment changes.

The cheetah had a winning strategy-run the fastest. It worked great until man invented the rifle and the helicopter. Betty Crocker had a winning strategy as well-make it easy to bake a cake at home. It worked until working moms discovered that they didn't even have time to turn on the oven.

Sooner or later, every winning strategy stops working. The competition catches up. Technology changes. The founder quits. When that happens, one of two things occurs: Either the company has enough time and enough guts to try to find a new winning strategy, or it fades into extinction.

Both are accompanied by a great deal of running around, hand wringing, layoffs, task forces and frenzy. And, with surprising predictability, neither approach succeeds.

This didn't used to matter very much. A good winning strategy lasted for a few generations, enough to build a family fortune or at least deliver a great career. Today, though, because the rules change so often, winning strategies don't last for long.

Companies that understand their winning strategy have taken the first step in identifying the pillars that hold that strategy together. Turkish Air, the national airline of Turkey, for example, has a winning strategy of flying people into and out of Turkey. No surprise there. But it's instructive to note that the strategy is limited to planes and to Turkey. If people suddenly don't want to fly into and out of Turkey, the airline is in trouble. It would face similar trouble if planes were replaced by something faster, safer or more convenient, or if the price of fuel increased by 500 percent in one year.

Discovering your winning strategy and saying it aloud is critically important in getting ready to change it. The easiest way I can describe for finding your strategy is to do this: Figure out what changes in the outside world would be the worst possible things that could happen to your company. (No fair picking something that affects every business . . . it's got to be something that is specific to your industry.)

NBC could lose its viewers to alternatives like cable and the Net. Procter & Gamble could lose customers to lower-priced generics if consumers decided that there was no real difference among products or if they stopped watching commercials. Star-Kist could discover that there are no tuna left in the ocean. Starbucks would be rocked by a report that caffeine causes sudden, uncontrollable cerebral hemorrhaging. In each case, understanding how bad luck (or a competitive threat) could upset the apple cart brings the winning strategy (and a company's dependence on it) to the fore.

The winning strategy is at the heart of a company's mDNA. Especially at the beginning, all of the policies, procedures, staffing and assets of a company are aligned with this strategy. If the winning strategy changes but the company fails to change its mDNA, stress sets in, followed soon thereafter by failure.

The Stuck Winning Strategy

Before your company has a chance of adopting a posture of zooming, you need to understand why you are stuck in your current winning strategy. Only then do you have a chance to undo the deep aversion people have to abandoning something that they believe is working.

Why are entrepreneurs able to accomplish tasks that leapfrog big companies? Entrepreneurs have no winning strategy to replace, so they're far more open to finding one. They're less critical of apparent imperfections and are willing to grab (and run with) the best available new strategy.

Your winning strategy is built around a meme. Then, you and your colleagues build all sorts of new tactics to support that core meme. Replacing your winning strategy requires more than just changing the original meme-you've got to rebuild all the tactics as well. And that's a daunting task.

Your company's current winning strategy isn't perfect. You may think it's forever, but it's nonoptimal, impermanent, filled with holes and inefficient. But it's yours! The idea of switching to an unproven model-one that has obvious drawbacks and plenty of risk-is way too scary (and too much work) to get excited about. After all, there is little or no cost to sticking with what you have. You won't have to lay off anyone tomorrow. You won't have to hire unknown people, go to fundraising meetings or take responsibility. You can happily leverage someone else's proven model.

Unfortunately for you, there are always more entrepreneurs gunning for you. Unfortunately for you, the changing world will always give someone open to finding a new winning strategy plenty of angles that make their newly adopted strategy more powerful than yours.

In the formative years of our industrial economy, there was enough stability that you could ride a great winning strategy for several generations. Build a great steel mill or car factory or patent a formula for correcting mistakes on typewritten documents and you had it made. There are all sorts of cultural institutions (from big factories to retirement plans) that reinforce our belief that winning strategies should last a long time. Today, though, the life cycle of a winning strategy is shorter than ever, meaning that allowing your current strategy to get stuck is costing you money.

In the "old days," the life cycle of a winning strategy was plenty long enough. You could start a job, have a career and practically retire before the winning strategy failed. The prospect of having to abandon your strategy in mid-career was met with terror, not glee.

Today, of course, the strategies are coming faster and faster. Worse, they're often discontinuous. There isn't always a new winning strategy waiting to take off at just the right moment. ARCO, for example, was an oil company known for being analytical and smart about applying that analysis. They invested hundreds of millions of dollars in solar power when they sensed the winning strategy of sucking every possible drop of oil out of the ground might be coming to an end.

Alas (for all of us) their timing wasn't so good. The technology of solar didn't respond to the money invested by ARCO, at least not in time for them to develop a new winning strategy that could replace the old one. Bad timing for ARCO, but of course, evolution doesn't care.

Part of the wisdom of conglomerates like 3M or GE is that with multiple winning strategies working at the same time, they can layer the tails of the strategies so that one is hitting its peak just as the next one is fading out. ARCO didn't have that luxury, because they're in only one business.

Even a conglomerate, though, is not organized to replace a particular winning strategy at the optimal moment. It's human nature not to seek out a replacement before you need one.

Competent People Embrace the Current Winning Strategy

Most people like to think that they're competent. Competent people have a predictable, reliable process for solving a particular set of problems. They solve a problem the same way, every time. That's what makes them reliable.

Competent people are proud of the status and success that comes with being competent. They guard their competence, and they work hard to maintain it. Top-down command and control managers like to have competent workers.

Bob Dylan, on the other hand, zooms. From year to year, from concert to concert, there's no telling what he'll deliver. Sometimes, he blows the world away with his insight, his energy and his performance. Other times, he's just so-so. The one thing that's certain is that he's going to change.

The factory-centric model of work caused us to adopt Six Sigma quality-management systems. These data-driven approaches to quality are fine as far as they go, but they tempt us to turn workers into competent automatons. We're trying very hard not to let anyone be Bob Dylan at work.

Thanks to our work at creating competence, the receptionist can no longer lose your messages, because they go straight into voice mail. The assembly-line worker can't drop a tool, because it's attached to a numerically controlled machine. The telemarketer who interrupts your dinner is unlikely to overpromise, because the pitch is carefully outlined on paper in front of him or her.

Today, it's much harder to make a bad car, because robots are measuring everything. It's much harder to be an incompetent directory-assistance operator, because computers are handling so much of the work.

As we've turned human beings into competent components of the giant network known as American business, we've also erected huge barriers to change.

In fact, competence is the enemy of change!

Competent people resist change. Why? Because a new winning strategy threatens to make them less competent. And competent people like being competent. That's who they are, and sometimes that's all they've got. No wonder they're not in a hurry to be Bob Dylan.

Piling On to the New Winning Strategy

Smart companies realize that big successes are often the result of luck, and that there may be a long time until the next one. So they're good at piling on.

Piling on is an art. Hasbro knows how to do it, and so does Warner Records. When you release a product that's on the verge of breaking through, you need to mobilize every asset you have to leverage it.

Every year at Toy Fair, the big toy companies introduce far more products than they expect to produce. Toy Fair is held in February, nine months before the peak of the Christmas toy-buying season. This gives the manufacturers a simple luxury: Make the stuff that was bought by the stores and cancel the stuff that failed.

By discovering a new winner and then piling on with all of their resources, the toy makers are able to take many chances early while limiting their risks later on.

Harry Potter is another example of piling on. Scholastic releases hundreds of books a year. They're awfully good at using their winning strategy (books for kids through a variety of channels) to hunt for breakthroughs. But after the success of the first Harry Potter book, Scholastic knew they didn't have the skill or the assets or the resources to push the character as far as he could go. So they sold the entire brand to Warner. All the marketing rights (except for books) now belong to the movie studio.

Warner is pulling out all their stops. They're piling on. If they're right, they'll generate hundreds of millions of dollars in profit. You may not like what they do to Harry (why did they change his glasses?), but they will take the winning strategy and milk it for all it's worth.

Knowing when to pile on (as AOL did once ICQ started to succeed) or when to abandon ship (as Amazon did with their Junglee shopping service) is an art.

Extinction as a Way of Life

Imagine that you have two elephants, a male and a female. Elephants have a very long gestation cycle and only one offspring at a time, so the species is noteworthy for how long it takes them to reproduce.

If there are no casualties-if every birth is a live one and every elephant lives a life of average length-how long will it take for the descendants of this pair of elephants to dominate the entire surface of the earth? The answer, according to Charles Darwin, is less than five hundred years. Every few years, the population of elephants would double. And doubling gets you to big numbers very quickly.

Obviously, almost everything dies before its time. If it didn't, we wouldn't have room for all the elephants. If every business that was started this year survived, we'd run out of people to staff these companies in just a year or two. If every project initiated by your company was a success, you'd be the biggest employer in town within three years and the biggest company in the world in five.

Extinction is part of the process of creation. Failure is the cornerstone of evolution. With the vast majority of new products and initiatives going down in flames, the best strategy is not to assume

the best, it's to assume the worst. Assume that almost everything is going to fail and you'll be right. As long as your realistic thinking doesn't turn into negative thinking that increases your likelihood of failure, this approach guarantees that you'll launch more initiatives more often.

One of the reasons "hot" companies cool off is that in the middle of their runaway success, they become too proud to fail. They're too successful and too busy harvesting their success to launch new initiatives that are more than likely to fail. As a result, when the current success falters (as it always does), they're not ready with something to replace it.

When a company or a project enters runaway, management has just a little time to use the cushion that came with that success to launch new projects. What an opportunity! Take the innovators who were responsible for the last success and encourage them to try again-there are plenty of less imaginative managers who can take their place running the current successful venture. Don't believe your own press releases and put all your assets behind these new ventures-they'll probably fail. But try often enough and you're likely to find yet another runaway success.

Most companies in the computer industry are one-hit wonders. They develop a product, it works and then they milk it for all it's worth. The structure of stock options is one reason (as long as you can keep the stock rising for four years, you win), but the other reason is pride. Software folks know how random success can be, and there are plenty of good personal reasons not to risk one success by following it up with a failure.

Sexual Selection at Work

There's an odd species of bird at the Bronx Zoo called the cassowary. The male's head is covered by a small helmet made out of the same thing as fingernails (keratin). My six-year-old son thought it might be for motorcycle safety (always wear a helmet!), but it's probably something that evolved as a result of sexual selection. Female birds really get excited about the helmet. The male birds with big helmets are more likely to mate and thus pass on their genes.

When the big-helmeted males and the helmet-loving females give birth, the new females are also likely to be helmet-loving (it's genetic), and the males are far more likely to have big helmets (because their dads did).

Over time, the helmet becomes more and more common until just about all the male birds in the species end up with big helmets. Some have huge helmets!

But what's the helmet good for? What possible evolutionary reason could have led to the creation of this bizarre, wasteful (from a survival point of view) growth?

In fact, it's because the growth is wasteful that it is useful. It turns out that only very fit birds, birds with extra resources, could possibly find enough internal energy to grow a helmet. The sick birds, the struggling birds, the birds with mutational deformities-all would be hard-pressed to grow a helmet. The lack of a helmet serves as a signal to the females: This guy is a loser.

Animals need these signals to allow them to communicate fitness honestly. If they didn't exist, unfit males (who have nothing to lose) would lie about their fitness and happily mate, passing on genes that weren't as fit as their competitors.

It turns out that a similar process exists in organizations. Why do big companies allow their purchasing agents to be visited by highly paid salespeople in fancy Italian suits? Shouldn't they ask the companies to fire the salespeople and give them a better price instead? Why not refuse the golf games and the seats at the U.S. Open? Why do we respond to big booths at trade shows?

The answer comes from Darwin. The companies that can waste the time and money to send these signals are the ones that we believe are more likely to have the resources to provide good customer support, more likely to be in business years from now.

The dot-com mania that swept our markets through the late nineties was characterized by a signaling strategy that was unique only because of its excess. There were hundreds of venture-backed companies, all looking to get enough traction to file for an IPO and go public. Since it wasn't revenue or even traffic that was making a company a candidate for overnight riches, how did a smart executive maximize her chances of success?

For more than two years, the signaling strategy of choice was to waste as much money as possible by signing up for a sponsorship with AOL, Yahoo! or another web portal. Ideally, the amount of the sponsorship would be larger than the competition could spend, and the media purchased would be as unmeasurable as possible. The more overpriced and useless the media, the better.

Why? Other than enriching stockholders at AOL and Yahoo!, what good did this strategy do? It was a grandiose signaling scheme. Competitors, investors and employees thought, "If a company is well-funded enough and gutsy enough to do a deal that big and that dumb, well then they're probably well-funded enough and gutsy enough to end up as the market leader." If enough people agreed, it might just become a self-fulfilling prophecy.

This is not irrational, just as peacock mating rituals are not irrational. For a time, it gave potential investors, partners and customers an excellent insight into the aggressiveness and leadership tactics of a company.

It's very easy for an entrepreneur or a salesperson to want to ignore signaling strategies, especially if they're able to offer a product or service that's demonstrably better than the competition's. Yet it's often the suits or the trade shows or the full-page ads or the backgrounds of the top executives that send the signals that really matter.

Executives in the book business look first to the reputation of a literary agent before they read a novel that's being submitted. Physicians considering whether to test a new drug are certainly influenced by the marketing track record of the pharmaceutical company behind it. Signals matter.

When I took my first job at a company called Spinnaker, I drove my stuff from California to Boston to get to the company's headquarters. Along the way, I dropped a friend off in Chicago. Leaving the city, I passed a huge billboard for Spinnaker!

I was floored. I was twenty-four years old, the thirtieth employee of the company, and they were already running billboards around the country. It filled me with pride and enthusiasm to think that I was working for a company that hot.

Only when I told this story to the president of the company the next week did my bubble burst. Turns out that Chicago was the site of the annual Consumer Electronics Show, the big event where all the purchasing agents from Target and Kmart and Wal-Mart made their choices about what was going to get stocked next Christmas. And Spinnaker had purchased a billboard (just one) strategically located on the way from the airport to the convention center.

Did Spinnaker executives really think that someone would be persuaded to buy their products because of their logo on a single billboard? Of course not. But they were exactly right in their prediction that it would serve as an effective signaling strategy for the buyers who came to the trade show (and one new employee who happened to stumble on it).

So, the imperative is to plan for failure, to repeatedly try new winning strategies and to do it as cheaply as possible. Yet, at the same time, don't try to skimp on your signaling strategies. Apparent overspending on high-leverage signals may be the best investment you make in a new project.

Six Ways Companies Can Use Signaling Strategies

  • Have a very fancy reception area so that potential employees will be more likely to accept your job offers.

  • Hire an extremely well-paid, highly esteemed executive, regardless of price, if the presence of that executive signals the gatekeepers at crucial clients or backers.

  • Run intentionally wasteful direct mail campaigns that reach very small numbers of influential targets. Send signed leather hardcover books by Federal Express to the fifty people you most want to seduce.

  • Fire a profitable client in a very public way.

  • Hire a beautiful receptionist.

  • Pay your receptionist $10 million in bonuses for no good reason.

The goal of each of these strategies is to waste money, but to do it in a way that brings the maximum impact. Because if you waste the money the right way, you're not really wasting it, are you? All too often companies waste money indiscriminately. The genes of those cassowary birds could start growing toenails all over their bodies, after all, but it certainly isn't going to impress the female of the species.

Of course, in some environments, fitness may not mean demonstrating how successful you are. It may instead involve showing how frugal you are. So you could signal this to potential employees by doing all your interviews at Starbucks, and demonstrate it to your customers by delivering your goods in a plain brown bag, shipped priority mail. Being so extreme in your lack of wastefulness is a form of waste in and of itself (it's hard to concentrate at a Starbucks), so the very irrationality of it serves as a signal.

Signals aren't right or wrong. Instead, they either work or they don't. Signals that give a company an edge over the competition that is worth more than the cost of the waste are probably worthwhile. Signals that show bad judgment (putting money in a wheelbarrow and lighting it on fire) are probably a waste.

The lesson of the cassowary is that sexual selection is as important as natural selection in creating interesting species. Sending fitness signals efficiently saves you time and money and, more important, leads to better mates and more offspring.

Your Most Important Sex Is with Your Boss

As individuals, we know far more about ourselves than anyone else does. We also know more than we put to use. Unfortunately, we're not encouraged to be honest about our strengths and weaknesses and ways we want to contribute. In fact, we're subtly encouraged not to be truthful about what we're not good at.

In order to get people to embrace change, the office has to be not just safe for people to admit what they don't know, but unsafe for those whose conduct discourages change.

How does a company balance every manager's obligation to hit key deliverables (this month's sales quota, this number of widgets out the door) with a need to experiment and fail? The easy answer is to make zooming one of the deliverables, one of the things that is measured along with the "real" deliverables. This isn't going to happen just because one top executive orders it. Instead, it will take brave bosses who start small and invest in their employees and make zooming a requirement for job success.

How do you create a company culture that encourages change, especially in established companies? Why does nothing from Saturn translate at GM? A company's leaders and their memos may say over and over that they value innovation, but that can be an old, meaningless saw. Instead, bosses (and eventually, senior management) have to live it. "Culture" as it is practiced in many companies, is overrated, while the importance of the day-to-day interactions between employers and employees are underrated.

Every time you interact with someone at work, you're swapping memes. And the most important meme-swapping goes on with your boss, because you know that your survival (your job) depends on it.

Top-down policies are not the best way to create a zooming organization that learns to evolve. Instead, it's the meme-swapping, the hallway conversations, the small signals that will create the environment that allows this to happen.

If the memes you're swapping with your boss aren't dramatically enhancing your personal mDNA and making it more likely that you'll succeed, it's time to find a better boss.

Embracing New mDNA

Sexual selection is a major driver of corporate evolution, and one way to change mDNA in a hurry is through an acquisition. By acquiring another company, you can dramatically change the way your company behaves. Alas, far too many acquisitions fail. The reason has nothing to do with the strategy behind the acquisition. Instead, it comes straight from the evolution of animals: It's no fun being a lion cub.

Most prides of lions consist of a bunch of females (usually sisters and cousins) and one dominant male. Male cubs are welcome to stay with the pride until they stop nursing (which takes a year or so). After that, they have to leave and find their own pride.

The king of beasts services his harem and is master of all he surveys. Except, of course, when he's challenged by another alpha male. If the dominant male loses to the challenger, the challenger takes over the pride. No surprise there.

What happens next is shocking (but not surprising after you analyze it). Within thirty days, all of the lion cubs still with the pride will be killed by the new dominant male.

Why? Because a nursing cub ensures that a lioness is infertile. This delay in the new male's ability to impregnate the pride means that it will take longer for his genes to pass on to a new generation.

Given two imaginary lions, a gentle one who waits until the cubs are older and an aggressive one who doesn't, the aggressive lion will spread more of his genes, faster. That means, of course, that aggressive genes have spread through the lion population, creating male lions who kill cubs as a matter of course. Selfish genes spread faster. The gentle gene is no longer part of the lion gene pool.

Precisely the same thing happens at many companies. The CEO or her strategic task force identify a company and acquire it. They then hand it over to an operating executive with instructions to integrate the acquired company. The problem is that the new company has mDNA, but it's not the operating executive's mDNA.

All too often, the executive begins by looking at the products or services the acquired company brought with it. All of these products (like all products, everywhere) are imperfect in some way. All embody trade-offs. The executive sees threats. He sees products that don't carry his memes. It's easy to criticize these products, of course, and easy to kill them off.

Now the executive is left with a bunch of employees and few products. He didn't hire these employees, and like all employees, they're imperfect. The most senior employees, the ones most likely to have a significant impact on the company, probably made a lot of money in the acquisition and they're in no mood to play games with this executive. They can't bear to see their genes stamped out, so they leave. This leaves other employees, employees whom the manager has no stake in seeing succeed. If they leave, he can hire new employees to replace them-employees who are beholden to him, chosen by him and carrying his mDNA.

Just as the alpha lion killed all the cubs so that his genes would spread faster, the executive kills all the products and fires all the employees so that his mDNA spreads faster.

Does this mean your company should stop doing acquisitions? Not at all. For many companies, acquiring other companies is a key step in evolving their mDNA. Remembering that the reason you did the acquisition is to acquire mDNA may help your management team hesitate before they go out of their way to eliminate the very thing you just bought.

Consider this example from McDonald's. It's hard to imagine a company with better-defined and more consistent mDNA than McDonald's. It has one giant brand that looks very similar the world over, and it dominates an industry that it invented.

Two years ago, McDonald's acquired the struggling Boston Market roast chicken chain. The reason was simple: It wanted the real estate. The idea was to fire everyone, stamp out the evil mDNA and build other restaurants where Boston Market used to be.

The company promoted Jeffrey Kindler, who was the top lawyer at Boston Market, to CEO, and put him in charge of the transition. His job was to renegotiate leases and gradually shut down the Boston Market stores. He had a different plan, though.

Just a year later, Kindler-who had no previous restaurant management experience-completely turned Boston Market around. In fact, Boston Market stores have increased their sales at double the pace of McDonald's stores. And McDonald's is no longer planning to close down the brand and move on.

In fact, the brand is expanding-with an agreement with Heinz Foods to put Boston Market entrees in supermarkets. Boston Market is now the only non-McDonald's brand that is succeeding inside McDonald's. Rather than killing the acquired company's mDNA, McDonald's is watching Boston Market's mDNA spread. Kindler was just promoted to be in charge of all their nonburger brands.

If the goal of an acquisition is the mDNA, not the product line, then treating that mDNA like an asset is more likely to lead to success. Treat the acquired people like heroes. Give them important, executive positions. Listen to their opinions right away, not in a year or two after they've proven their loyalty.

 

Sex Is Important

Evolutionary biologists continue to debate the origins of sex (it's much more efficient for an organism just to split like an amoeba or clone itself without risky and expensive copulation), but despite the murky origins, the vast majority of visible creatures have sex in order to procreate. Even bacteria have sex on occasion.

Sex accomplishes two things. First, it allows the DNA from two organisms to combine in their offspring. Sex is an essential tool for gene transmission. This seems like the obvious outcome, but it couldn't happen if organisms didn't find other organisms to swap with.

A chromosome swap is very similar to what happens when a company hires someone. If a struggling company goes outside the firm in search of a new CEO, people call that "looking for new blood." It's not too far wrong. When the new CEO shows up, a frantic exchange of mDNA begins.

The senior executives of the company work hard to spread their memes to the new CEO. They show her the way they "do things around here." They try valiantly to impress the CEO with their strategy, their policies, their past decisions and their projects.

At the same time that the CEO is being injected with these memes, the CEO has her own agenda. She was hired, after all, because of her experience, insight and smarts. So she's trying to figure out which of her memes to bring to the company and, just as important, which people are going to stay and which carry such bad memes (and have such stuck winning strategies) that they have to go.

The second thing that sex does is largely overlooked but is at least as important. It cancels out mutations. In nature, the vast majority of mutations are not positive. The average human being is born with at least one significant mutation out of the thirty-five-thousand genes he or she carries and if those mutations were passed on unchecked, we would have a much higher rate of birth defects. When we mate, though, the sex process finds many of the errors introduced by mutations and corrects them before they're passed on to our children.

The same thing happens at a company. If a new employee can't adopt the company's winning strategy, if he fights with the memes held most dear by the company, it's not unusual to find that person shunted away from a position of authority, or worse, fired. Put ten engineers on a team, as we've seen, and their teamwork will weed out most of the negative mutations. Meme recombination works very much like genetic sex ...the outliers disappear.

This is the time to remind yourself of Muller's Ratchet. In an isolated pond, an organism that reproduces without sex is often busy evolving into extinction. Why? As we saw earlier, in all species, most offspring have DNA that is likely to contain a few new mutations. But, in this case, since asexual reproduction doesn't cancel out mutations as well, they become part of the offspring. The result is that over time, harmful mutations accumulate, and in many cases, the species becomes dysfunctional and disappears.

If you spend eight years writing a biography and no one reads it until it's done, it's likely it's not nearly as good as it could have been. You've probably embedded the same errors deep throughout the entire book. If someone had commented on your first chapter, you would have caught those unwanted errors (the mutations) and eliminated them from the rest of the book. Have sex or get stale.

By exposing your organization to people carrying memes you'd like to incorporate, you're likely to lose some individuality (the mutations will be shunned), but you'll benefit by gaining memes from the talented people. The challenge is to choose which memes you absorb and which you discard.

Companies tend to have committees (who work to maintain the status quo under the guise of increasing communication) and teams (who are assigned to actually accomplish something). Committees are bad because they eliminate all mutations, even the good ones. Teams, on the other hand, can be a very useful way of swapping mDNA and removing bad mutations at the same time.

Removing a person from an organization, while it doesn't have a direct analogy in animal genetics, is a form of sex as well. Now, however, instead of adding that person's memes to the mDNA, you're deleting them. This form of corporate sex is one of the most powerful available to management. There's probably no faster way to alter a company's mDNA than to fire the right people.

Artificially Selecting the mDNA in Your Company (aka Firing People)

Just about everyone knows a bully at work.

Bullies are annoying, difficult, counterproductive, and sometimes even dangerous, yet nobody actually seems to want to do anything about the steady supply of new bullies who emerge on a daily basis. A bully is a person who uses external force to entice others to do things his way, regardless of what a rational person might say is the best course of action.

The bullies we feared growing up were physical bullies. They used their perceived greater strength (or our perception that they were willing to use it) to get whatever they wanted.

Unfortunately, bullies don't stop bullying when they grow up-they just learn to hide it better. A kid who learns to get his way by bullying isn't going to abandon this winning strategy just because he or she has a job.

A bully gets what she wants at the expense of the group's well-being. And because bullies operate from a zone of fear, they're the most likely to effectively oppose change of any kind.

Bullies can keep your company from investing in a profitable new area because they're insecure-and unsure how it will affect their career. They can ruin the career of a promising new upstart because they view that person as a threat. Bullies can make it hard for other companies to do business with you. Most of all, bullies make it hard to zoom.

Why are we willing to tolerate bullies? I chalk it up to fear and ignorance: fear that if you stand up to a bully, you'll somehow hurt yourself and the organization, and ignorance about the best way to deal with the bully. The thing is, most bullies are bullies because they're scared. And that means that they're among the first people who will stand in the way of your quest to institute constant change as a way of life.

A bully-free company is faster, smarter, more profitable and more fun. Stand up to the bullies. If they quit, fine. You'll survive. And if you replace them with nonbullies, the company will thrive.

Firing people is dramatically underrated as a management strategy. By firing people who slow your company down, you're doing a dramatic service to everyone who's still there. Sticking by one or two powerful people who refuse to zoom can easily lead to the layoff of 2,000 people.

Years ago, Ken Olsen, the founder of Digital Computer, steadfastly refused to embrace both open systems and the personal computer. His board of directors should have fired him. Instead, they indulged his obstinacy and saw the entire company fade away and then be sold for scrap.

Is there someone with influence at your company who frequently stands in the way of change? What would happen if that person left?

Choose Your Customers, Choose Your Future

Your customers do a lot to determine your company's mDNA. If you're a PR firm that represents crazy, impulsive superstars, you've organized and staffed to make yourself good at dealing with crazy and impulsive superstars. If you didn't, there's no way they'd stay with you. At the same time, though, it's unlikely you've evolved your skills and staff and assets to make your firm the ideal choice for a boring corporation. Just down the hall in your building, on the other hand, is a firm that represents the Russian Orthodox Church, Exxon and the Washington Philharmonic. Odds are that they'd last about five minutes if they had your client list.

Every time you interact with clients, you swap memes with them. They affect the work you do, the prices you charge, the rate at which you change and the kind of person you hire.

Years ago, my company's biggest client (accounting for nearly 50 percent of our sales) was a big, loud, pushy, angry company. The people who worked there pushed their suppliers hard, trusted no one, broke their word frequently and were not the easiest people to please. We were dependent on their income (and the word of mouth it generated would bring us even more income), but our interactions with them were changing our mDNA. We were hiring differently, interacting with each other differently, and most important, interacting with our other clients differently.

I had no choice. I fired our biggest client.

The alternative was to become a firm I didn't want to become. The alternative was to evolve into a company that specialized in insane deadlines and cranky clients.

Some customers demand suppliers that are deeply entrenched in maintaining the status quo. They demand a level of predictability and staffing that will make it very hard for you to build a zooming company. Thus, you choose your future when you choose your customers.

If you determine that your future success as an organization lies in your ability to adapt to changes in the competitive environment, then you'll need clients that agree with you. Every time you take money from a client, you're swapping mDNA, and if their mDNA is slowing you down, you're trading your future success for today's revenue.

Amazon Tweaks and Tests While Wal-Mart.com Struggles

Wal-Mart used evolution as their secret weapon to catch up with and eventually overtake Kmart. Sam Walton set out to test and measure his way to success, and the strategy worked. Thirty years later, Wal-Mart realized that they needed an online store if they were going to continue their growth and capture dollars that were moving online. But rather than learning from Sam's success, they ignored his strategy when it came time to go online.

When Amazon started, the company had nothing to lose. Its founder, Jeff Bezos, had just a few employees with some cheap office furniture, holed up in Seattle. No reputation, no venture capital.

Starting with little, Amazon experimented like crazy. They had nothing to slow them down, so the first site went up in just a few weeks. There was no warehouse because Amazon outsourced that. The customer service department was staffed by the few people who also worked in marketing and accounts payable.

Every day, Amazon tested and measured and improved. Over time, they gradually added features, acquired companies, closed and opened new stores. They evolved.

Wal-Mart started later. Much later. And the mindset of the Wal-Mart team was not surprising. They told me that as the world's largest retailer, they had to think big. They realized that after their site went up, it would be visited by huge numbers of people, so it had to be robust. And because people had come to expect one-stop shopping from their Wal-Mart store experience, it also had to be complete.

After one aborted launch, they actually took the site down for a month while a new executive retooled it for a second launch. That rebirth has been unsuccessful as well.

Success hurt their ability to zoom. Wal-Mart fell in love with their permanent winning strategy of low prices, mass scale and underserved communities. This is the strategy that made them a star. (They forgot about the testing and measuring part that led to these memes).

When they decided to launch an online store, they assumed that their current offline winning strategy would work without any changes. They assumed that they could dictate the terms, and that their huge brand and reach would take care of any problems that arose.

How much has Wal-Mart learned from the online experiences they've had? Compared to the systems that teach them how customers behave in their stores, essentially nothing. Wal-Mart isn't evolving fast enough online, and until they do, they're likely to continue to fail in this medium. They have a fixed winning strategy online and it's stuck.

How could Wal-Mart have avoided this fate? My advice would have been to launch a small site, with perhaps ten products for sale. Make the offers on the products as remarkable as possible (remarkably cheap prices or remarkably well-written offers or remarkably high-demand items). Build a permission asset so Wal-Mart could talk with these early customers and test new offers. As word of mouth spread, set a small team loose on both evolving those ten offers and adding new ones.

Imagine that instead of selling every book, as they do now, they choose to just sell The New York Times top ten bestsellers (Wal-Mart stores sell more New York Times bestsellers than any other chain in the world). Instead of selling a wide range of clothing, why not just Wrangler jeans?

By creating offers for specific products, by understanding-through actual doing-how the processes work, Wal-Mart could create a platform for change.

Over time, the people at Wal-Mart would learn what was working and repeat that throughout the other parts of the site. Imagine saying to a team of ten people, "Each of you gets ten pages. Tweak them every hour until you figure out what approaches get the highest yield." At the end of a day they'd have tested eight hundred different offers. And from that sort of knowledge, Wal-Mart could grow and continue to evolve its online business with confidence.

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