Monthly Archives: May 2010

Anomalies are gaps between reality and the mental maps we use to guide our actions. My last few posts identified anomalies that often point to opportunities. People can further increase their odds of spotting an opportunity if they understand obstacles that dull our attention to incongruous data. I discuss four important impediments below.

The seduction of routine. “Routine,” according to the English philosopher Alfred North Whitehead, “is the god of every social system.” Standardizing an ad hoc process-from cooking hamburgers at McDonalds to assembling cars at Toyota-increases efficiency, reduces waste, and paves the way for continuous improvement. During the past sixty years, a series of process management tools, including total quality management and lean manufacturing, have spread rapidly. These tools all aim to identify defects, such as burnt Big Macs or defective radios in a Camry. Six sigma, and similar techniques, make perfect sense for improving high volume activities such as fast food preparation and manufacturing, where deviations annoy customers. Striving for zero defects in all activities, however, discourages experimentation and hampers learning. More subtly, it dulls sensitivity to anomalies, which are coded as as defects to be eliminated rather than clues to be explored. Process

Anomalies, as I argued in an earlier post, are gaps between reality and the mental maps we use to guide actions. Incongruities often point to opportunities to create economic value.

5. This could work in our industry (but we don’t do it). In 1976, Dr. Govindappa Venkataswamy retired at the age of 58 as a practicing ophthalmologist, and opened an 11-bed clinic in Madurai, India with two other ophthalmologists. Dr. V. was frustrated that existing procedures could not clear India’s backlog of 20 million blind. The “aha” moment came for Dr V. while passing a McDonalds on a trip to the United States. Amazed that McDonalds could serve millions of hamburgers daily, at low cost and with uniform quality, he wanted to learn whether a standardized approach could be used to remove cataracts, the leading cause of blindness in India. After visiting Hamburger University in Oak Brook, Illinois, Dr. V. refined an assembly-line model of screening, preparing and operating on patients, that allowed staff at his Aravind Clinic to conduct nearly ten times as many operations per year compared to doctors in the state-owned hospitals.

4. We should have this at home (but we don’t). In the early 1990s, a Swedish business student tried to store his belongings, but found that all the local self-storage facilities were full. Surprised by the demand for a

Faced with a complex and dynamic world, we rely on simplified mental maps to focus attention and guide our action. A start-up business plan, large company’s strategy, and a general’s battle plan are all examples of the mental maps that guide action in a turbulent world. Unfortunately, people often mistake their map for the underlying terrain, and ignore anomalies, or unexpected events that defy their assumptions.

That is a shame. These gaps between our mental maps and reality often point to new opportunities to create economic value. Instead of ignoring or dismissing them, we should actively explore them to see if they reveal an unexpected opportunity. The most welcome anomaly occurs when a product or service exceeds all expectations. When Honda entered the US motorcycle market they expected to sell large motorcycles to leather clad bikers. It was not until a mechanical failure forced them to recall their large models that they aggressively marketed their 50cc bike, which took off in defiance of their ingoing assumptions.

Surprisingly, firms often fail to exploit unexpected success. A few years ago, a London shopkeeper began selling American donuts, which were among his best-selling and most profitable items. A few months later, he eliminated the donuts, because they sold out so fast that afternoon commuters complained when they couldn’t get one. This post and the next will list ten anomalies that often reveal new opportunities.

10. There should be a product here (but there isn’t). As accessories editor for Mademoiselle magazine in the early 1990s, Kate Brosnahan spotted a gap in the handbag market between functional bags that lacked

In 1964, the Metropolitan-Dade county government completed construction of a new Miami port that accelerated the growth of the nascent Caribbean cruise industry. Throughout the next fifteen years, dozens of start-ups, including Royal Caribbean and Carnival, retrofitted existing ships to offer pleasure cruises. Established transatlantic cruise companies, such as Hamburg America Line and the White Star Line, which transported tens of millions of immigrants from Europe to the United States in the late 19th century, failed to seize the opportunity.

Incumbent cruise lines had every incentive to exploit the new market. The rise of non-stop commercial flights between Europe and North America decimated demand for transatlantic passenger cruises, produced massive overcapacity, and wiped out industry profits. They also knew about the market. For decades, European passenger lines had sailed overnight cruises to Caribbean ports with departures from Miami as a way to utilize their ships during the Winter, when rough waters limited Atlantic crossings.

Managers and entrepreneurs walk past lucrative opportunities all the time, and later kick themselves when

In their 1982 bestseller, In Search of Excellence, Tom Peters and Robert H. Waterman, Jr. listed eight themes that explained, in their estimation, the success of the companies they studied.  A few of their principles, including “stick to the knitting” and “stay close to the customer” entered business parlance, and one–maintain “a bias for action”–entrenched itself as a fundamental dogma of management practice.

Like all dogmas, “bias for action” captures an important truth. Peters and Waterman defined the principle as a tendency toward speedy decision making–”getting on with it,” rather than getting bogged down in endless meetings. Their exhortation to accelerate decision making provided a much needed fillip to the excessive bureaucracy that slowed action in many large corporations in the early 1980s.

In volatile markets, however, executives often use a bias for action as an excuse to skip the hard work of assessing a messy situation. In an earlier post, I argued that navigating turbulent

Geography shapes destiny. Bordered by oceans to the East and West, the United States has tended towards isolationism through much of its history, while Poland’s position between Germany and Russia has invited invasion from both. Geography, or more specifically the physical layout of organizations, also shapes employees’ ability to make sense of turbulent markets.

The topography of most large organizations-where finance occupies one floor, for example, and marketing another-reinforces the functional fiefdoms that arise naturally among colleagues who read the same professional journals, speak the same jargon, and crunch the same numbers. Geographic dispersion of operations often frustrates executives attempts to foster a shared world-view.

An open office, in contrast, can foster and maintain shared situation awareness among team members. Some of the most agile organizations I have studied, including Zara, Mars, and AmBev rely heavily on open offices, which confer several advantages:

  • Frequent discussions, overheard snippets of conversation, and visual observation of who is working on what help employees intuit the overall situation and understand how their own work fits into the bigger

A few years ago, I was helping top executives at an American bank to identify opportunities to grow revenues. To solicit ideas, we staged a version of the Dragons’ Den. Teams of middle managers played the role of entrepreneurs, pitching their business plans to a group of senior executives. In their role as dragons, the executives assessed the opportunities, balanced upside against risk, and evaluated the feasibility of the plan to execute. The best teams received funding and management support to pursue their opportunity.

Many of the presentations were good, some were bad, and a few were downright ugly. What struck me most, however, was how the teams spoke about customers. Instead of describing real people–”Nancy” or “Jim”-the teams spoke about “The Customer” in abstract terms like a philosopher discussing “The Other.” Viewing customers as an abstraction paved the way for teams to make sweeping (and often unwarranted) generalizations about their concerns, preferences, and appetite for new products. Customers were forecast to embrace cross-selling, not because it solved a pressing problem for them, but because cross-selling helped the bank.

Listening to the presentations, I jotted down the verbs each team used to describe what they would do to (not for or with) “The Customer.” The list included “cross-sell,” “leverage,” “squeeze,” “exploit,” and “penetrate.” At

Business leaders are often pictured as captains of industry, standing at the bow of a ship, peering through a telescope deep into the clear horizon of the future, plotting a course, and proceeding steady as she goes.

Turbulence, however, obscures visibility into the future, and frustrates long term prediction. Volatility precludes smooth extrapolation of past trends, complex interactions frustrate efforts to anticipate possible outcomes, competitors thwart the best laid plans, and new information emerges that forces a fundamental rethink of a situation.

In turbulent markets, we glimpse the future not through a telescope, but through a kaleidoscope. Leaders making sense of volatile situations must anticipate emerging opportunities and threats in real time; glimpse fresh connections among apparently unconnected events; sift the few key variables from the deluge of trivial; and make sense of the situation based on fragments of incomplete and oftentimes conflicting information. And, of course, all of this must be done in real time often under pressure. And people often seek out historical patterns in new situations.

At first glance, making sense of a rapidly changing environment seems impossibly complex. And yet, entrepreneurs and executives do so on a daily basis, and some achieve consistently superior results. Experts in the aviation industry use the term “situation awareness” to describe a pilot’s or air traffic controller’s

Leading in turbulent times

This blog is no longer active but it remains open as an archive.

Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.