Exegesis (#1)
The focus of the first edition was to keep it relatively finance light with two topics that I felt piqued my interest the most this week.
On Strategy:
Although moving towards a world where layers of complexity are being added every financial quarter, companies are still archaic in the way they view strategy.
The way we think about war has shaped the way we view businesses, the "winner takes all" mentality is not value generating and usually causes industry wide decline. This belief has been reinforced by popular business aphorisms drawn from sports and warfare.
Michael Porter has a name for this syndrome. He calls it competition to be the best. It is, he will tell you, absolutely the wrong way to think about competition. If you start out with this flawed idea of how competition works, it will lead you inevitably to a flawed Strategy. And that will lead to mediocre performance. Inevitably there is no such thing as being the best, since this oversimplifies the nature of the consumer and their specific needs.
Athletes vie with each other to see who will be crowned “the best.” They focus on outperforming their rivals. They compete to win. But in sports, there is one contest with one set of rules. There can be only one winner. Business competition is more complex, more open ended and multidimensional. Within an industry, there can be multiple contests, not just one, based on which customers and needs are to be served. McDonald’s is a winner in fast food, specifically fast burgers. But In-N-Out Burger thrives on slow burgers. Its customers are happy to wait ten minutes or more (an eternity by McDonald’s stopwatch) to get unprocessed, fresh burgers cooked to order on homemade buns. Rather than enter a particular race with a particular rival, as Porter would put it, companies can choose to create their own event.
Eventually this becomes the norm in industries and companies then compete for "One-Upmanship". This leads to destructive "zero sum" competition. This inevitably causes competitive convergence where customers have nothing left but price as their basis. A great example is the airline business model.
On Innovation:
Based on the definition of Thinking in Systems: A Primer, A Technological System is a set of technologies that interconnect as a platform to allow other innovations. When this system allows a fundamental and basic innovation, the system can cause a technological revolution.
These technologies do not need to be invented at the same time, an example being the railroad revolution. The technologies below were not invented, or even commercialized at the same time but they formed the basis for a system that made railroads viable:
Innovation is also rarely one-sided as we presume, we remain blinded by non-technological innovations that causes this to be possible, such as the creation of the corporate limited liability and the stock-market which allowed the concentration of capital required.
The railroad was invented to solve a problem: moving coal from the mines to the piers, where it could be loaded on ships or barges. But the railroad addressed a broader and more basic need: moving things around quickly and cheaply. It did more than move coal from mine to ship, it moved goods from city to city, it moved mail from city to city, it moved people from city to city, and those people started living away from their hometowns en masse for the first time. These uses then enabled many other industries to flourish. This is the difference between a technological revolution and a plain old technological system: a technological revolution changes the whole economy.