Category: Management

Efficiency Skills Are “Profoundly Different from” Innovation Skills

(p. A15) How do you deliver performance now while developing the products you’ll need in the future? The skills required to support established franchises, he argues, are profoundly different from those required to develop new ones. Management techniques such as Six Sigma, focused on efficiency and execution, tend to be bad for innovation, which is intrinsically messy and inefficient. Companies need a different approach to nurture the radically original projects, or “loonshots,” that are essential for long-term success.
. . .
In Mr. Bahcall’s view, the principal obstacle to innovation isn’t that there are too few creative ideas–indeed, there are plenty of artists, he says. The problem is that original proposals are both discomfiting and imperfect, hence reflexively rejected before they can develop enough to prove themselves in the field.
. . .
Organizations can miss innovation opportunities by accepting the conventional wisdom, Mr. Bahcall observes, a problem he describes as “false fails.” Consider the Facebook predecessor Friendster. Mr. Bahcall explains that while most investors decided that the failure of Friendster was evidence that social-network efforts weren’t sticky enough to retain customers, Peter Thiel’s investment team wasn’t so sure. They dug into the data and were “stunned by how long users stayed with the site,” despite the irritating crashes that dogged the platform. Hence Mr. Thiel’s fund was an early investor in Facebook, confident that, with appropriate attention to the underlying technology, the platform could succeed. Eight years later, he sold most of his Facebook stake and pocketed roughly $1 billion.

For the full review, see:
David A. Shaywitz. “BOOKSHELF; In Praise of Wild Ideas; Innovative proposals can be both imperfect and discomfiting–and are often rejected before they can develop enough to prove themselves viable.” The Wall Street Journal (Tuesday, March 19, 2019): A15.
(Note: ellipses added.)
(Note: the online version of the review has the date March 18, 2019, and has the title “BOOKSHELF; ‘Loonshots’ Review: In Praise of Wild Ideas; Innovative proposals can be both imperfect and discomfiting–and are often rejected before they can develop enough to prove themselves viable.”)

The book under review, is:
Bahcall, Safi. Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries. New York: St. Martin’s Press, 2019.

“I’ll Stick with You in Failure”

(p. B13) Sidney Sheinberg, an irascible Universal Studios executive who discovered and nurtured Steven Spielberg, putting “Jaws” into production and helping to turn Hollywood into a blockbuster-focused business, died on Thursday [March 7, 2019] at his home in Beverly Hills, Calif.
. . .
Mr. Sheinberg was for much of his career the forthright top deputy to Lew Wasserman, the chairman of MCA, a conglomerate that encompassed Universal. The ultimate mogul, Mr. Wasserman defined power in Hollywood in the decades after World War II.
But Mr. Sheinberg, openly intimidating as president and chief operating officer, kept the gears turning. When the two men left MCA in 1995, Mr. Sheinberg had worked for the company for 36 years, the last 22 as president.
During that time he helped transform Universal into an international entertainment giant, complete with a sprawling theme park empire.
. . .
“Sheinberg dealt with all people like a battering ram: Do it his way or get out of the way,” Dennis McDougal wrote in the 1998 biography “The Last Mogul: Lew Wasserman, MCA, and the Hidden History of Hollywood.”
Most important, Mr. Sheinberg discovered Mr. Spielberg. It was 1968 and the director, in his early 20s, had just completed a short film, “Amblin’,” a love story about hitchhiking hippies. Based on what he saw, Mr. Sheinberg put Mr. Spielberg under contract and gave him a job directing television shows. An episode of “Marcus Welby” was one of the first. In 1971 came “Duel,” Mr. Spielberg’s thrilling TV movie about a commuter terrorized by a truck driver.
With a line that has come to epitomize loyalty in the often fickle movie business, Mr. Sheinberg told his protégé at the time: “A lot of people will stick with you in success. I’ll stick with you in failure.”
Mr. Sheinberg, who could be as tender as he was prickly, was the one who allowed Mr. Spielberg to make “Jaws,” giving him a budget of $3.5 million (about $17 million in today’s money). A problem-plagued shoot pushed the cost to more than twice as much.
But Mr. Sheinberg, developing a father-son relationship with Mr. Spielberg, continued to support the film, which went on to become the prototype for the wide-release summer blockbuster.
. . .
When he opened the first Universal theme park in Orlando, Fla., in 1990 — in a race against Disney, which was building a movie-themed park that is now called Disney’s Hollywood Studios — Mr. Sheinberg and his team incorporated one of Disney’s mouse-ear hats into the “Jaws” ride.
The ears bobbed in the bloody water.

For the full obituary, see:

Brooks Barnes. “Sidney Sheinberg, 84, Dies; Universal Studios Leader Who Discovered Spielberg.” The New York Times (Saturday, March 9, 2019): B13.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the obituary has the date March 8, 2019, and has the title “Sidney Sheinberg, a Force Behind Universal and Spielberg, Is Dead at 84.” The online version says that the page number of the New York edition was D7. I cite the page number in my National edition.)

The biography of Wasserman, mentioned above, is:
McDougal, Dennis. The Last Mogul: Lew Wasserman, MCA, and the Hidden History of Hollywood. revised ed. Boston, MA: Da Capo Press, 2001.

Entrepreneur Shafer Learned from Sweet Serendipitous Mistake

(p. 24) John Shafer, who abandoned a career as a Chicago publishing executive to join the vanguard of a new generation of vintners in California’s Napa Valley, died on March 2 [2019] in the city of Napa.
. . .
Mr. Shafer (pronounced SHAY-fer) was 47 when he resolved to acquire a winery as an absentee owner and one day retire as a gentleman farmer. His horticultural experience had been limited to planting flowers in his front yard.
But within six months of that decision, he took a leap. He left his job at what he described as an ossified company to take up a second career in which he could be his own boss and work outdoors.
. . .
. . . as a newcomer to the Napa Valley, which was just beginning to attract winemakers who popularized individual vineyards, he had neglected to hire a sufficient number of grape-pickers far enough in advance. That left the fruit riper — and sweeter — than the industry norm when the grapes were harvested.
“Shafer thought he ruined his wine, but instead it turned out to be the ripe signature style that has defined Shafer wines for the past four decades,” Wine Spectator magazine said.

For the full obituary, see:
Sam Roberts. “John Shafer, Executive Turned Winemaker, Dies at 94.” The New York Times, First Section (Sunday, March 10, 2019): 24.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the obituary has the date March 7, 2019, and has the title “John Shafer, 94, Who Made Triumphant Leap Into Winemaking, Dies.”)

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Firms Find Humans More Flexible Than Robots

(p. B2) JACKSON CENTER, OHIO–Airstream’s factory here is racing to fill a backlog of orders for its retro, high-end travel trailers that spans well into next year. The company is hiring, adding dealers and spending $50 million to build a bigger plant.
I counted eight workers climbing through an Airstream to bolt a hulking aluminum shell to a steel chassis, and snake fluid lines and wires through walls. To finish the shiny, silver capsule off, workers will need to install 3,000 rivets by hand.
There’s not a robot in sight. They may speed production, but the machines require a substantial investment that risks being wasted if the economy slumps
. . .
“We see in U.S. manufacturing a race between technology and human capital,” Stanford University economist Nicholas Bloom said. While some companies like electric-car maker Tesla Inc. are racing to automate almost every process on the factory floor, he said many executives are reluctant to sink investments in equipment that “will be hard to reverse.”
. . .
Robotics spending is forecast to equal $90 billion in 2018, according to researcher International Data Corp., with a hefty chunk of that investment aimed at industrial or manufacturing uses. That is a considerable increase compared to prior years, but it is only a sliver of the nearly $3 trillion committed to capital investment.
John Van Reenen, a Massachusetts Institute of Technology economics professor and Mr. Bloom’s research partner, said executives in many industries –including health care and retailing–aren’t sold on the technical revolution. “There is a big debate on whether robots are really delivering on the productivity benefits they might promise.”
At an event to commemorate the revamp of a factory west of Detroit last month, Ford Motor Co.’s president of global operations, Joe Hinrichs, said a lot of industrial automation happened several decades ago. Now companies are trying to “optimize how they use people” rather than install more machines.
Ford spent nearly $1 billion converting the factory to go from making small cars to producing pickup trucks. Much of that went toward new tooling for stamping out body parts, but relatively little went toward adding automation, Mr. Hinrichs said. Artificial intelligence is now integrated into the final inspection lines to boost quality. But skilled workers are needed to interact with the AI tools.
Mr. Bloom said incremental efforts like this are helping boost worker productivity, even if at a lower rate than was experienced during the decadelong boom that started in the mid-1990s. He said economists may need to get comfortable with 1% annual productivity gains, particularly because it takes a lot of investment just to maintain that modest rate.

For the full commentary, see:
John D. Stoll. “ON BUSINESS; Humans Are Winning the Battle With Robots.” The Wall Street Journal (Saturday, Nov. 3, 2018): B2.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Nov. 1, 2018.)

Former Biggest Retailer Sears Limps into Bankruptcy

(p. A1) For much of the 20th century, Sears defined American retailing with catalogs and department stores that brought toys, tools and appliances to millions of homes.
By the time Sears Holdings Corp. limped into bankruptcy on Monday [Oct. 15, 2018], the once-great company was shriveled and sickly. Decades earlier, it had been dethroned by Walmart Inc. as the biggest U.S. retailer. Then it was crippled by a chief executive with unorthodox strategies, and Amazon.com Inc., an endless online catalog that sucked profits out of the business.

For the full story, see:
Suzanne Kapner. “Sears, Once Retail Colossus, Enters Painful New Era.” The Wall Street Journal (Tuesday, Oct. 16, 2018): A1 & A6.
(Note: bracketed date added.)
(Note: the online version of the story has the date Oct. 15, 2018, and has the title “Sears Reshaped America, From Kenmore to Allstate.”)

Bureaucratic FDA Delays Approvals for Fear “We’ll Be Toast”

(p. A21) Oct. 30 [2018] marks the 36th anniversary of the FDA’s approval of human insulin synthesized in genetically engineered bacteria, the first product made with “gene splicing” techniques. As the head of the FDA’s evaluation team, I had a front-row seat.
. . .
My team and I were ready to recommend approval after four months’ review. But when I took the packet to my supervisor, he said, “Four months? No way! If anything goes wrong with this product down the road, people will say we rushed it, and we’ll be toast.” That’s the bureaucratic mind-set. I don’t know how long he would have delayed it, but when he went on vacation a month later, I took the packet to his boss, the division director, who signed off.
That anecdote is an example of Milton Friedman’s observation that to understand the motivation of an individual or organization, you need to “follow the self-interest.” A large part of regulators’ self-interest lies in staying out of trouble. One way to do that, my supervisor understood, is not to approve in record time products that might experience unanticipated problems.

For the full commentary, see:
Miller, Henry I. “Follow the FDA’s Self-Interest; While approving a new form of insulin, I saw how regulators protect themselves.” The Wall Street Journal (Monday, Oct. 29, 2018: A21.
(Note: ellipsis, and bracketed year, added.)
(Note: the online version of the commentary has the date Oct. 28, 2018.)

P&G Bureaucracy Suffocates New Chapter

(p. A5) Vermonters Paul and Barbi Schulick sold their vitamin business to Procter & Gamble Co. in 2012, hoping P&G ‘s PG’s deep pockets would fund research needed to nurture the small-but-profitable company.
Instead of growing, New Chapter, founded in 1982 by the Schulicks, spiraled downward.
. . .
The Schulicks kept roles at the company training managers and running research and development at its offices in Brattleboro, Vt., but this month they quit. They said excessive bureaucracy hurt New Chapter and that P&G–coming off a fight with activist investor Nelson Peltz–ramped up pressure for profitability and vetoed plans to develop breakthrough products.
M”The patience factor has really worn out” at P&G, Mr. Schulick said in an interview. “There is a lot of pressure to meet targets, and we weren’t responding fast enough.”

For the full story, see:
Sharon Terlep. “At P&G, Vitamins Maker Loses Energy.” The Wall Street Journal (Friday, July 20, 2018: A5.
(Note: ellipsis added.)
(Note: the online version of the story has the date July 19, 2018, and has the title “They Sold Their Startup to P&G. It Struggled. They Quit.”)

Distorted Incentives Can Lead to Short-Termism or to Long-Termism

(p. B1) Capitalism is often accused of fostering short-termism, making companies chase quarterly profit numbers to satisfy shareholders.
A better criticism is that the targets corporate executives aim for are grossly simplified, thanks to the twisting line of responsibility from corner office to fund manager to pension fund and ultimately to the savers who own the company.
These distorted incentives sometimes lead to short-termism; at other times, shareholder enthusiasm pushes executives to focus far too much on the long run, as in the wild mining boom that turned to bust in 2011, or the dot-com bubble.

For the full commentary, see:
James Mackintosh. “STREETWISE; Fixing Capitalism, One Disclosure at a Time.” The Wall Street Journal (Wednesday, Nov. 28, 2018): B1 & B12.
(Note: the online version of the commentary has the date Nov. 27, 2018.)

Big Data Crushes “Intuition, Skill and Experience”

(p. 14) Drawing on an eclectic bunch of anecdotes and studies, Tenner makes his way through four sectors in which “intuition, skill and experience” have been effectively crushed by “big data, algorithms and efficiency”: media and culture, education, transportation and medicine.
A few of his examples:
Search algorithms have extended the ability to find scientific journal articles and books dating to the 19th century. In principle, this means scholars may encounter a broad range of research and discovery, dredge up forgotten work and possibly connect important dots. But in reality, as one sociologist found after studying citations in 35 million scientific journal articles from before and after the invention of the internet, researchers, beholden to search algorithms’ tendency to generate self-reinforcing feedback loops, are now paying more attention to fewer papers, and in general to the more recent and popular ones — actually strengthening rather than bucking prevailing trends.
GPS is great for getting from one point to another, but if you need more context for understanding your surroundings, it’s fairly useless. We’ve all had experiences in which the shortest distance, as calculated by the app, can also be the most dangerous or traffic-clogged. Compare the efficiency of GPS with the three years aspiring London cabdrivers typically spend preparing for the arduous examination they must pass in order to receive their license. They learn to build a mental map of the entire city, to navigate under any circumstance, to find shortcuts and avoid risky situations — all without any external, possibly fallible, help. Which is the more efficient, ultimately, the cabby or Google Maps?
In the early 2000s, electronic medical records and electronic prescribing appeared to solve the lethal problem of sloppy handwriting. The United States Institute of Medicine estimated in 1999 that 7,000 patients in the United States were dying annually because of errors in reading prescriptions. But the electronic record that has emerged to answer this problem, and to help insurers manage payments, is full of detailed codes and seemingly endless categories and subcategories. Doctors now have to spend an inordinate amount of time on data entry. One 2016 study found that for every hour doctors spent with patients, two hours were given over to filling out paperwork, leaving much less time to listen to patients, arguably the best way to avoid misdiagnoses.
Faced with all these “inefficiently efficient” technologies, what should we do? Tenner wants more balance.

For the full review, see:
Gal Beckerman. ” Kicking the Geeks Where It Hurts.” The New York Times Book Review (Sunday, June 30, 2018): 14.
(Note: the online version of the review has the date June 4, 2018, and has the title “What Silicon Valley Could Use More Of: Inefficiency.”)

The book under review, is:
Tenner, Edward. The Efficiency Paradox: What Big Data Can’t Do. New York: Alfred A. Knopf, 2018.

Lean Supply Chains Fail to Scale Quickly

(p. A1) American factories are running short of parts.
Suppliers of everything from engines to electronic components aren’t keeping up with a boom in U.S. manufacturing, which has lifted demand in markets such as energy, mining and construction. As a result, some manufacturers are idling production lines and digesting higher costs.
. . .
(p. A4) Years spent making supply chains as lean and efficient as possible are hurting big customers now as demand climbs, industry consultants said.
“Suppliers have not been willing to jump on adding capacity because they’ve been burned badly before,” said Shiv Shivaraman, a managing director at consultant AlixPartners LLC who advises auto and machinery makers on supply chains and production processes. “You will see many people limping for a while.”
Some companies are stockpiling parts to head off future challenges, potentially exacerbating the supply pressures.
“We built some inventory last quarter because we had seen the lead times extend and we are trying protect our customers,” said Andrew Silvernail, CEO of Idex Corp. , a maker of pumps, valves and meters that is based in Lake Forest, Ill.

For the full story, see:
Doug Cameron and Austen Hufford. “Parts Makers’ Shortages Tap Brakes on Industrial Boom.” The Wall Street Journal (Saturday, Aug. 11, 2018): A1 & A4.
(Note: ellipsis added.)
(Note: the online version of the story has the date Aug. 10, 2018, and has the title “Parts Shortages Crimp U.S. Factories.”)