Finally!

No profound blog this week. It's time for a holiday. After 5 intense grueling months of writing, I finally turned in the manuscript for my next book. It'll be ready for launch sometimes mid-2006. It's called Break From the Pack: How to Compete in a Copycat Economy and it's published by Wharton School Publishing, a division of Prentice Hall. More on that to come, but for me, it's time to decompress for a couple weeks. You'll see my blog next week, but for now, I'm off to Margaritaville, and I wish you and your family a great rest-of-holiday and a terrific New Year.

Google "Goes Steady"—But with AOL???

"This is our dream come true. Our fates are intertwined," gushed an AOL executive in reacting to the recent announcement that Google would pony up $1 billion for a 5% stake in AOL. I’m not surprised that AOL would blissfully sigh that its dreams have come true, any more than I would be surprised at the same reaction by a homely geek if Kirsten Dunst asked him to go steady.

I mean, AOL has been slowly losing full-time subscribers for years. Its proprietary business model runs counter to what the wide-open Web is all about, and what Google ostensibly stands for. A billion bucks and favored placement of its content throughout Google’s site gives AOL some breathing room, and the cachet of going steady with a babe. Over the long haul, I don’t think that the geek turns into Brad Pitt.

And what does Google get from this arrangement? Well, AOL is still the largest Internet service provider in the world (34 million subscribers worldwide; 110 million occasional visitors), and now AOL will start using the Google search engine and pay per click ads instead of Overture’s and Inktomi’s—for five years anyway. AOL will also get the exclusive right to sell online banner ads for Google, and will split the proceeds 80/20 with Google. And since AOL has been the largest source of ad revenue for Google, this relationship keeps the revenue with Google while it also keeps Microsoft (which also wanted the AOL deal) at bay.

Still, I’m skeptical about defensive strategies, the kind that try to build a fortress around existing revenue streams, especially when they involves an investment in yesterday’s winner (remember, the AOL brand is so weak that it was dropped from the “AOLTimeWarner” corporate title). Google has always been about offense—doing something new and fresh, forging new sources of revenues, partnering with or buying really cool, innovative, companies—doing whatever’s necessary to ultimately provide the individual with unbiased, unadulterated access to all the information on the Web . That’s why investors love Google; they can count on seeing big spurts of earnings from groundbreaking ventures. Would it have been a disaster if Microsoft had “won” the deal? Should cool, profitable Jet Blue be so nervous about the upcoming US Air-America West merger that it tries to outbid one or the other and get in on the deal? Not on your life.

In his blog, Matt Assay of Info World is blunter than I am. He says flat-out that Google has sold its soul to get into the TimeWarner empire. Matt may be wrong. I may be wrong. Investors certainly think we’re wrong. Upon the first leak of the news, they bid up Google stock $7.62 to an unfathomable $430.15 a share. So maybe this is a brilliant move, or minimally, since Google market cap is over $120 billion, what’s one measly billion among friends?

I still have a gnawing feeling that this move is the first chink in Google’s armor, but hey, maybe it’s true love after all.

Team Up With Aliens

I recently met with a group of executives in a large industrial firm that has been in financial doldrums for several years. They agreed that they needed to come up with some fresh new compelling directions, but they were stumped as to what they should do. I suggested that they look towards aliens for help.

If you want to break from the pack, doesn’t it make sense to seek ideas and energies from outside the pack? One of the best ways to do that is to learn from people and organizations who have thrived outside your industry, particularly those who are doing things that would be considered unthinkable and insane in your industry. If you want to improve assembly line conversion in your factories, for example, you could benchmark fellow manufacturers in your industry and get some marginally useful, conventional ideas. Or you could do what General Mills did a few years ago, which is send a number of its factory teams to NASCAR races to benchmark pit crews in action. The teams came back and ultimately reduced the time to switch an assembly line from 5 hours to 25 minutes. If you run a cement company and want to show quantum improvement in speed and on-time delivery, you could visit fellow cement manufacturers and get a familiar lesson in accepted industry practices. Or you could do what Cemex, the most profitable cement company in the world, did a few years ago to turbo-charge speed and delivery . CEO Lorenzo Zambrano sent a number of teams to Houston, to figure out how Houston’s emergency 911 crews does it, and to Memphis, to figure out how how FedEx does it.

Even more power happens when you go beyond “observing” and you move into the realm of intimately partnering with talented groups and people outside your industry who don’t come to the table with the mindset and history that’s considered conventional in your business.

As a leader, you’ll get two big payoffs from partnering with aliens. First, you’ll be able to harness and expose your people to state-of-the-art talent and expertise that is unavailable among the players in your current value chain. Over a decade ago, CEO George Lynn teamed up with 3M to instill a quality culture and to sharply raise the quality metrics in the two Atlanticare hospitals. 3M, as a medical supplier to the hospitals, was pleased to participate in quality projects on site in Atlantic City and host hospital personnel in training workshops in St. Paul. Today, Atlanticare’s quality and resultant cost savings and patient satisfaction are well ahead of industry standards.

The second payoff is subtler, but just as important. As George Lynn found out with 3M, true partners from the outside wind up questioning the very way you do business. They're not hung up on your traditions and your sacred cows. They'll challenge them. They’ll suggest new approaches to everything, even things you didn’t bring them in for. To help its dealers manage leads, cross-sell insurance and financing, and document ongoing service faster and cheaper, Ford Canada has partnered with Dell to overhaul its enterprise information systems. That’s sensible outsourcing and partnering, but the real payoff is deeper because the relationship is deeper. When Dell aliens work with their Ford partners, they point to Ford organizational practices and business assumptions that simply make no sense. They suggest changes in operations, design, people management, customer care and corporate culture that violate conventional wisdom in the auto industry; they are suggestions that only an outsider, with an outsider's perspective and “attitude”, could make. That’s what FedEx did in helping Fujitsu to achieve a double whammy breakthrough: shrink its order turnaround time from 30 days of mass produced product to four days of built-to-order product.

Of course, the aliens benefit too. In working with Ford, Dell gains significant sales entry into a new company, gets new exposure to the massive global auto industry as a whole, and expands its opportunity to further refine its low-cost enterprise I.T. strategy. 3M gains more intimate ties with a valued hospital customer and more understanding of the entire health care industry. It's a win-win situation all around if and when the relationship is approached more in terms of collaborative learning than transactional commodity.

So here’s what I told my clients: In today’s economy, where knowledge, expertise, and technological advance expand exponentially, your company can't know it all, can't own it all. As a leader, you should seek help, but don’t limit your quest to the spuriously “safe” and familiar zone of your industry. Don't ignore the breakthroughs that are occurring elsewhere just because nobody in your industry is doing it—yet. Expand your search for superb alien teammates in other industries, and in universities, art and design studios, think tanks, research institutes, nonprofit advocacy groups, nongovernmental organizations—any source that can help you look at your business differently and do unconventional things. Encourage your people to learn from anyone, anywhere, and help expose as many of your people as possible to alien knowledge. Send them to NASCAR, send them to the Rocky Mountain Institute, send them to Interaction Design Institute Ivrea, send them to Harley Davidson “HOG” (Harley Owner Group) events, send them to any place that’ll stretch their thinking. When he was chief planner at Royal Dutch Shell, Arie de Geus said “The ability to learn faster than competitors may be the only sustainable competitive weapon.” Keep that in mind as you lead the search in other planets for the kinds of alien expertise that will propel your team to market leadership.

Change Lives, Make Money

Management titan Peter Drucker has passed on, and we are all fortunate for having shared space and time with him. There are many concepts that Drucker promoted when they seemed downright radical but are now accepted as conventional wisdom—like decentralization, knowledge work, empowerment, and the fact that companies exist for customers. In this week’s blog I want to discuss another point he raised that is less well-known but just as profound. And one which I take some issue with.

During the last segment of his illustrious career, Drucker worked extensively with non-profit organizations. He advised groups like the Girl Scouts and American Red Cross to run themselves like a business, albeit a business that strives to "change lives" rather than maximize profits.

Let me humbly suggest that this is a spurious "either-or" distinction, for two reasons. First, in order to achieve their missions, even nonprofits must maximize revenues over expenditures. I remember a tough nun who ran a nonprofit hospital I once worked with, who repeatedly told her people: “We must do well in order to do good!”

Second, the distinction is spurious even with for-profit organizations. “Maximizing profits" in a vacuum often leads to myopic decisions, where the quest for short-term results trumps long-term competitive positioning. Likewise, it often leads to a culture where entrepreneurialism and innovation are aimed at “creative financing” rather than on developing more imaginative products and services. Both consequences weaken any company, and the latter tendency taken to an extreme gives us an Enron and Worldcom.

I’m a big believer in profits. In fact, I believe that profit metrics are far more predictive of competitive advantage than are revenues, market share, and balance sheets (if that wasn’t the case, companies like GM, Kodak, and United Airlines would be the healthiest companies in their industries). However, in today’s economy, I propose that Drucker’s "either-or" ought to be a "Both-And": Those companies which seek sustained competitive success will aim to maximize profits by changing peoples' lives.

Changing peoples’ lives for the better is the ultimate value creator. Whole Foods aims to “change the way America eats” (their words). Apple aims to provide people with the means to create their own multimedia wherever they are. Harley Davidson aims to make your average meek middle class customer feel like a strong “badass” (their words). Google aims to allow the individual to harness all the information on the planet. Atlanticare aims to create an “epidemic of health” (their words) by helping their health care plan members prevent illness. Each of these organizations boasts financial metrics (including profits) and growth rates that humble their competitors who are simply trying to “make a profit”.

I’m not talking about attaching simplistic slogans to your current business. In my upcoming book Break From the Pack, I talk about re-thinking your business to create a “higher cause” that will go well beyond providing “good products and services”. A higher cause, like that of Whole Foods and Harley Davidson, aspires to change customers’ lives, drive all strategic and operational decisions, and leave a positive, lasting legacy. Microsoft’s Steve Ballmer once said that the key questions for any executive to ask are: “Are we working on something important? Are we changing the world? Those are the kinds of things that make a difference to people.”

So think “Both-And”. Develop a unique, compelling, inspiring “higher cause” for your organization or business unit. Then figure out how you’ll manage your business to efficiently attain it and by doing so, make a lot more profit in the process.