Saturday, June 03, 2006

So much for all stars.

Why Dream Teams Fail

It may be tempting to recruit all-stars and let 'em rip.
DON'T DO IT.
Dream teams often become nightmares of dysfunction.

Geoffrey Colvin
2780 words
12 June 2006
Fortune
U.S. Edition
87
English
© 2006 Time Incorporated. Provided by ProQuest Information and Learning. All Rights Reserved.

In what universe is it even conceivable that the United States could fail to reach the semifinals of something called the World Baseball Classic? Not only fail to win, but could field a team that included Roger Clemens, Derek Jeter, Alex Rodriguez, and Johnny Damon and then lose games to Mexico, South Korea, and--wait for it-- Canada? Yet it happened this year.

How could a movie starring Brad Pitt, George Clooney, Catherine Zeta-Jones, and Julia Roberts, directed by Steven Soderbergh, get tepid reviews and gross less worldwide than the star-free My Big Fat Greek Wedding? That movie was Ocean's Twelve.

And how could a FORTUNE 500 company run by a brilliant former McKinsey consultant, paying fat salaries to graduates of America's elite business schools, dissolve into fraud and bankruptcy? It happened at Enron. If someone tells you you're being recruited onto a dream team, maybe you should run. In our team-obsessed age, the concept of the dream team has become irresistible. But it's brutally clear that they often blow up. Why? Because they're not teams. They're just bunches of people.

A look at why so many dream teams fail, and why so many of the most successful teams consist of individuals you've never heard of, yields insight into the essential nature of winning organizations. As always when the subject is the real-world behavior of human beings, the takeaway includes things we always knew--even though we rarely behave as if we do.

The most important lesson about team performance is that the basic theory of the dream team is wrong. You cannot assemble a group of stars and then sit back to watch them conquer the world. You can't even count on them to avoid embarrassment. The 2004 U.S. Olympic basketball team consisted entirely of NBA stars; it finished third and lost to Lithuania.

By contrast, the 1980 hockey team that beat the Soviets at the Lake Placid Olympics was built explicitly on anti-dream-team principles. Coach Herb Brooks, who died in 2003, based his picks on personal chemistry. In the story's movie version, Miracle, Brooks' assistant looks at the roster and objects that many of the country's greatest college players were left out (professionals were not eligible to play then). To which Brooks responds with this essential anti-dream-team philosophy: "I'm not lookin' for the best players, Craig. I'm lookin' for the right players."

To see why dream teams so often disappoint, let's consider the most common paths to failure.

Signing too many all-stars. "Some of the worst teams I've ever seen have been those where everybody was a potential CEO," says David Nadler, chief of the Mercer Delta consulting firm, who has worked with executive teams at top global companies for more than 30 years. "If there's a zero-sum game called succession going on, it's very difficult to have an effective team."

Chemistry and culture are key. Henry Ford II successfully brought in the Whiz Kids, a pre-assembled team of U.S. Army managerial stars that included Tex Thornton, Robert McNamara, and others, when he sensed that Ford needed a revolution after World War II. Young and iconoclastic, they had a record of working together effectively, and they did well at Ford, helping it to cash in on the postwar boom. But 50 years later when CEO Jacques Nasser correctly decided that Ford needed another revolution, he stuck with the old-guard team already in place. Like most old guards, they weren't ready for a real revolution, and when push came to shove, Nasser got ejected. More seriously for Ford, the revolution didn't happen.

For a notably successful method of choosing team members, look at Worthington Industries, the Ohio-based steel processor. When an employee is hired to join a plant-floor team, he works for a 90-day probationary period, after which the team votes to determine whether he can stay. The system works because much of the team's pay is based on performance, so members are clear-eyed and unsparing in evaluating a new candidate's contribution. Worthington's CEO, John McConnell, could be talking about teams at any level when he says, "Give us people who are dedicated to making the team work, as opposed to a bunch of talented people with big egos, and we'll win every time."

That's the philosophy that powers teams such as basketball's Detroit Pistons and especially football's New England Patriots. The Pats have won three Super Bowls in the past five years with few stars and a quarterback, Tom Brady, who was the 199th pick. The Washington Redskins, by contrast, have bought star after star--and floundered.

Failing to build a culture of trust. Read the extensive literature on team effectiveness, or talk to people on teams in sports, business, or elsewhere, and it always comes down to this: Trust is the most fundamental element of a winning team. If people think their teammates are lying, withholding information, plotting to knife them, or just incompetent, nothing valuable will get done. The team doesn't create synergy. It creates "dysergy"--two plus two equals three, with luck.

So dream teams are in trouble right from the start because team members may have particular reasons to be distrustful. In sports settings they are often brought together only briefly from teams that spend the rest of the year trying to beat each other. Even if team members can set aside that antagonistic mindset, they rarely have time to develop confidence in one another's behavior. It's similar in business: Even if team members aren't battling for the next promotion, someone is always getting moved or stolen away. "A major problem is that people are transient," says consultant Ram Charan. Especially on an all-star team, "there's all the headhunting, and there's a constant tug to have people pulled out of the team. Instability is a major issue." That's a big problem because trust, by its nature, builds slowly.

Many companies try to speed the trust-building process. In the '80s there was a virtual epidemic, often in woodsy corporate off- sites, of people falling backward off tables into the arms of co- workers as a way of learning trust. Maybe it even helped. Today consultants have developed many additional exercises that involve people sharing personal stories or revealing their personality type, based on the valid insight that reciprocal vulnerability is the beginning of trust. But the process can be rushed only so much.

In fact, trust is so fragile and so laboriously created that it may never extend very far in a top-level team. "Building a really high-performing executive team at the highest level is a mirage," says a management consultant who doesn't want to be quoted because this particular message is a downer. "When such teams do exist, they'll consist mostly of two people, maybe three." It's just too hard to build trust more extensively at the top level, where everyone is supposedly a star.

And sure enough, the legendary top executive teams are almost always pairs. Think of Roberto Goizueta and Donald Keough at Coca- Cola in the '80s and '90s, or Tom Murphy and Dan Burke at Capital Cities/ABC from the '60s to the '90s, or Reuben Mark and Bill Shanahan at Colgate-Palmolive for two decades until last year, or Warren Buffett and Charlie Munger at Berkshire Hathaway from the '60s to today. No one would have called those pairs dream teams back when they got together; at the time, most people had never heard of them.

Maybe you noticed something else about those teams: Each consisted of a boss who became famous and a much less famous No. 2 who devoted his career to the success of the enterprise. In every case, though, they developed deep trust over many years and produced outstanding results.

Tolerating competing agendas. You don't often find examples of the best and worst executive teams involving the same person, but consider the case of Michael Eisner. For the first ten years of his reign at Disney, he and COO Frank Wells formed one of corporate America's great teams. On their watch, Disney revived its glorious animation tradition, and the movie business flourished. Eisner and Wells could take credit for saving a storied company--and making shareholders rich. This productive partnership ended suddenly and terribly when Wells died in a 1994 helicopter crash.

Eisner then formed one of the most famously disastrous teams in recent history, bringing in uber-agent Michael Ovitz as president. He lasted only 14 months. In the extensive postmortems, the overriding theme is of conflicting business and personal agendas. Ovitz wanted to buy a major stake in Yahoo, expand Disney's book and record businesses, and buy an NFL franchise, among other big ideas that Eisner dismissed as off-strategy. Ovitz also seemed to have notions of his own future--he spent $2 million remodeling his office- -that did not sit well with Eisner. Bottom line: team failure, at tremendous cost to Disney in both money and prestige.

It is many a father's dream to team up with his sons, but family businesses can find it particularly difficult to unpick the personal from the corporate. That is one part of the dynamic that operated at Adelphia, the cable company founded by John Rigas. Even after it went public, Rigas and his sons operated it as if were still a family concern--for example, paying for private expenses from corporate funds. They got nailed, and Adelphia went bankrupt in 2002.

The challenge is to keep the inevitable personal agendas from becoming destructive. That's part of the leader's job. For example, Ameritech in the '90s had an all-star team of top executives that included Richard Notebaert, future CEO of Ameritech, Tellabs, and Qwest, and Richard Brown, future CEO of Cable & Wireless and EDS. Michigan business school professor Noel Tichy, who was advising the company on leadership development at the time, recalls that CEO Bill Weiss told the team bluntly every week that if he caught anybody trying to undermine the others, the guilty party would be fired. It worked.

Letting conflicts fester. Col. Stas Preczewski, coach of the Army crew at West Point a few years ago, faced a baffling problem. Through extensive testing, he had developed objective criteria to rank his rowers. He then put the eight best--his dream team--in the varsity boat and the eight others in the junior varsity boat. The problem: The JV beat the varsity two-thirds of the time. The situation, as explained in a Harvard Business School case, was that the varsity was full of resentment over who was contributing most, while the JV, feeling they had nothing to lose, supported one another happily.

One day Preczewski lined up the varsity crew in four pairs. He told them they were to wrestle--no punching--for 90 seconds. There were no clear winners: Each man was discovering that his opponent was just as strong and determined as he was. Preczewski then had them change opponents and wrestle again. By the third round they were choosing their own opponents--"One guy would point at another and say, 'You!'" Preczewski says. Finally, one of the rowers started laughing, and they all piled into a general brawl. Eventually someone said, "Coach, can we go row now?" From then on, the varsity boat flew.

You probably can't order members of an executive team to wrestle, tempting though it may be. But bringing tensions out into the open and then resolving them is one of the team leader's most important jobs.

Hiding from the real issues. "Put the fish on the table," says George Kohlrieser, a professor at the International Institute for Management Development in Switzerland. You've got to go through the "smelly, bloody process of cleaning it," but the reward is "a great fish dinner at the end of the day." Most people don't want to be the one who puts the proverbial fish on the table. "There's a veneer of politeness," says consultant David Nadler, "or unspoken reciprocity- -we won't raise our differences in front of the boss." Consultant Ram Charan describes a $12 billion division of ABB that was headed for bankruptcy, in part because of "its culture of polite restraint. People didn't express their honest feelings" about the most important issues. The unit's leader turned it around by insisting that team members say what was on their minds.

Jack Welch was one of the great champions of putting the fish on the table--facing reality, as he says. GE's dream team was and is the Corporate Executive Council, which used to meet at headquarters in a formal atmosphere with rehearsed presentations and little real discussion. Welch moved the meetings off-site, forbade prepared presentations and jackets and ties, and lengthened the coffee breaks to encourage informal discussion, among other changes. At GE they call this "social architecture" and believe it was a critical element of Welch's success.

In business, dream teams are usually part of some rescue fantasy, not the real world. "Be prepared to have an imperfect set," says Charan. "Then you've got to devote your energy to getting them to synchronize. It's very time consuming. It taxes your patience." It's life.

To avoid seducing yourself into thinking all your problems might be vaporized by assembling a dream team, resolve now to accept this fact: There was only one Dream Team, and that was the 1992 U.S. Olympic basketball team. Michael Jordan, Magic Johnson, Larry Bird, Charles Barkley, Patrick Ewing--it was a one-time event. (And remember, Bird and Magic, the veteran co-captains, both had reputations as team players.) For the rest of us, putting together a few talented people who will work honestly and rigorously for something greater than themselves--that's more than enough of a dream.

FEEDBACK gcolvin@fortunemail.com

Lessons From the BUSINESS Playbook

GOOD TEAMS

-George Huntington Hartford and George Gilman In 1859 they founded what became A&P, the first modern supermarket chain. Buying directly from the ships that came into New York, they created a new business model for selling groceries.

-William S. Paley owned it; Frank Stanton (president, 1946-71) ran it, and from the late 1950s to the mid-'70s, CBS dominated prime time, becoming known as the Tiffany network.

-Bernie Marcus and Arthur Blank Fired in 1978 from Handy Dan, a small home-improvement chain, they went on to pioneer the big-box specialty store. Home Depot is now America's No. 2 retailer (behind Wal-Mart), with almost $82 billion in sales.

BAD TEAMS

-John Rigas, Timothy Rigas, Michael Rigas The paterfamilias, John, and his sons borrowed huge sums for personal use. Adelphia went into bankruptcy in 2002 after disclosing billions in debt. Much of the Rigas clan ended up in court.

-CEO Phil Condit (1996-2003) and his Boeing brain trust Dogged by scandal, falling earnings, and the challenge of Airbus, America's premier airplane manufacturer just couldn't fly right.

-Al Dunlap and anyone "Chainsaw Al" liked to portray himself as a tough-minded savior of dying companies (Lily-Tulip, Scott Paper, Sunbeam). But the big-talking bully got tossed from Sunbeam and ended up as a symbol of capitalism at its worst.

Famous top executive teams are ALMOST ALWAYS PAIRS who developed deep trust over many years.Why do dream teams BLOW UP SO OFTEN? Because they're not teams, just bunches of people."I'm not looking for the best players," said the U.S. hockey coach. "I'm looking for THE RIGHT PLAYERS."

Friday, June 02, 2006

Leading by example.

There is no other way.

link to original piece.

''It's Cool to Be Smart''

Freeman Hrabowski is nurturing a new generation of African-American scientists and mathematicians. His lesson plan: high standards, hand-on help, and some killer chess.

From: Issue 57| April 2002 | Page 34

By: Chuck Salter Photographs by: Kate Swan

Freeman Hrabowski, president of the University of Maryland, Baltimore County (UMBC), has a simple way to explain his goals. "When most people see young black men walking across a campus," he says, "they think, There goes the basketball team. We want them to think, There goes the chemistry honors society."

It's more than a sentiment. As president of a relatively small (11,000 students) and young (founded 36 years ago) university, Hrabowski is nurturing a new generation of world-class scientists and mathematicians, the majority of whom are African-American. He recruits the top high-school students in the United States to attend UMBC as part of the Meyerhoff Scholarship Program. Launched in 1988, the program is one of the most successful of its kind. Ninety percent of its participants graduate in math, engineering, or the sciences, and 90% of those students attend graduate school.

The secret? Hrabowski's exacting standards, his hands-on approach to teaching and mentoring, and an environment where, as he puts it, "it's cool to be smart." Instead of a football team, UMBC fields a chess team that has won five of the past six college championships.

If anyone can do something about the scarcity of African-Americans in the elite of technology, math, and science, it's Hrabowski, who earned a PhD at the ripe age of 24. Growing up in Birmingham, Alabama, he was often the only student in his class who not only enjoyed math but excelled at it. As a 13-year-old high-school junior, he visited the Tuskegee Institute and met a black college math professor who became his role model. "I envisioned having a PhD and teaching math and being a dean," he says. "Every morning, I'd look in the mirror and say, 'Good morning, Dr. Hrabowski.' "

Having made good on his own dreams (he became a dean at 26), Hrabowski, now 51, focuses on helping others realize theirs. Initially, UMBC recruited the best and brightest African-American males to be Meyerhoff Scholars. The program was later expanded to include top women and eventually top students of all races, but the emphasis still remains on African-Americans, who typically earn 2% of all PhD degrees awarded each year, despite the fact that they represent 12% of the population.

It's not that African-American students aren't interested in these subjects. They just don't tend to major in them. Often, they don't do well in introductory science and math courses, says Hrabowski, because many come from poorly funded public schools that didn't prepare them for college. Also, those courses are often designed to weed out weaker students from prospective majors. When black students who performed well in high school are confronted with far more difficult material and greater competition, he says, many get discouraged and opt for a different major.

The summer before their freshman year, the approximately 50 Meyerhoff Scholars (chosen from about 1,500 applicants with an average SAT score of 1,300 or higher) attend the Summer Bridge program, a six-week college-preparatory boot camp. They take classes in science, math, and African-American studies and attend seminars on time management. The students live in the same dorm and study in small groups, a practice that they can continue until graduation.

From the beginning, the staff emphasizes what comes next: graduate school. During Summer Bridge, students are given a booklet that outlines courses, internships, research experience, grades, GRE or MCAT scores, and other requirements. They begin the first draft of their graduate-school application essay as freshmen. Hrabowski ingrains a sense of excellence and discipline in his students. "We've got kids who made A's in high school without trying," he says. "We're teaching them what 'hard work' means. We're talking about wanting to know as much as the professor knows. That's the fire in the belly that they need."

The strategy is working. When UMBC researchers compared the performance of early Meyerhoff graduates with that of students who had qualified for the program but gone elsewhere, Meyerhoff Scholars were twice as likely to graduate with an engineering, math, or science degree, and more than five times as likely to attend graduate school in those fields. So far, more than 80 Meyerhoff graduates are pursuing PhDs, and another 20 are working toward their MD/PhDs.

One of the first scholars to graduate from the program was Chester Hedgepeth, a math and science whiz from Salisbury, Maryland who chose UMBC over Harvard, Johns Hopkins, MIT, and Yale. In 2000, he became one of the first two African-Americans to earn an MD/PhD from the University of Pennsylvania. Although Hrabowski had told those first scholars that they were part of something special, Hedgepeth didn't appreciate the program until he earned a B on a math test during his freshman year. Soon after, one of the Meyerhoff counselors approached him and persuaded him to get a tutor -- a first for Hedgepeth, who went on to make straight A's that semester.

"I realized that it wasn't a program where they just give you money and you do okay in your classes," says Hedgepeth, 30, who's completing his residency at Harvard. "They were pushing me to do my best. It's a priceless feeling, knowing that everyone wants you to succeed."

Contact Freeman Hrabowski by email (hrabowski@umbc.edu). Read his winning Fast 50 entry. For more information on the Fast 50, click here.

Sidebar: Chess Kings

In December, UMBC tied for first at the Pan-American Chess Championships, the NCAA tournament of college chess. It was the team's fifth title in six years. The ensuing celebration, where players enter wearing their team jackets and hoist their trophy, has become a tradition. There are cheerleaders, a marching band, and a smoke machine.

The man responsible for developing this chess dynasty is Alan Sherman, an associate professor of computer science. He became faculty adviser to UMBC's chess club in 1991, the year after it finished 26th out of 27 teams at the Pan-Ams. Sherman realized that the only way to turn the program around was to recruit better players -- the sort who were getting accepted into Harvard, MIT, and Yale. The problem was that they hadn't heard of UMBC. So Sherman began offering full and partial chess scholarships as an incentive. In every issue of Chess Life, he runs a classified ad looking for students in the top 10% of their class with an SAT score of 1,400 or higher and a chess rating of 2,000 or higher.

The chess club is making a name for itself -- and for UMBC. It has been featured in newspapers, on television networks, and on National Public Radio. "A colleague of mine went to a math conference in Arizona recently, and he was hoping that the people would know him from the great department at UMBC," says Sherman. "But people came up to him and said, 'You're from that chess school, right?' "

Everyone's a critic.

June 02, 2006

Criticism's status quo getting thumbs down

By Anne Thompson

The media world and cyberspace are abuzz with lengthy debates about the state of film criticism. What should its role be as the rules of the game keep evolving? Several different forces are putting pressure on film critics. Technology is wreaking havoc not only on Hollywood but also on publishing.

As a generation of top critics move into their 50s and 60s, newspapers are chasing the same young demographic as advertisers and studios. Just as film distribution and marketing are adapting to the rise of digital delivery, the Internet is altering the face of film criticism.

That doesn't mean that film critics are going away. Even though "The Da Vinci Code" already has earned $148 million in North America despite its paltry 23% positive rating on Rottentomatoes.com, film critics are still a given. It goes without saying that such global commercial juggernauts as "Da Vinci" and "X-Men: The Last Stand" are critic-proof by definition. That has been true for decades.

From January-April, 11 films opened without being screened for the press, amid repeated assertions that print critics are going the way of the dinosaur.

The Wall Street Journal's Pulitzer Prize winner Joe Morgenstern was moved to respond: "I'm not surprised that the studios are skipping critics screenings when some of these atrocities hit the screen. (And then, it should be said, sometimes hit the top of the boxoffice charts; today's movies and moviegoers often deserve each other.) What is there for critics to say, except variations on the theme of Arrrrgh? The mystery is why they didn't start doing this several years ago."

Studio publicists know, Morgenstern says, "that many of their superiors would rather not show films to critics at all. Especially to print critics, who offer more potential loss than gain."

But critics do have a huge impact on independent movies, Morgenstern adds. Tentpole movies with gargantuan ad campaigns don't need critics to brand their titles. But most other movies need reviews, which are crucial to their long-term life, from their theatrical run through television and DVD. That is why filmmakers kill to get a theatrical platform even in just a few key cities. Films like the 2005 mock-docu "My Date With Drew" could easily have gone directly to DVD -- but the filmmakers insisted on the legitimization of a theatrical review.

Long gone are the days when the New York Times' Vincent Canby or the Washington Post's Gary Arnold could make or break a movie. But according to Tom Bernard, co-president of specialty distributor Sony Pictures Classics, critics still have a major impact on how well art films play.

"In the smart movie world, critics have an effect in big movie markets," he says.

Critics can anoint worthy movies at film festivals. And especially in Los Angeles and New York, top critics also have the power to push certain films into Golden Globe and Oscar consideration. Equally influential is the Chicago Sun-Times' Roger Ebert, who not only is a major force in his hometown but -- thanks to national syndication, Rogerebert.com and his nationally syndicated TV show with Richard Roeper -- is America's most powerful celebrity critic. It took Ebert decades to connect first with a local, then a national audience. He understands intuitively who his followers are and what they want from him; his job is secure.

Not so for most of his peers. That is because daily newspapers are losing circulation, Hollywood advertising and their influence over moviegoers. As publishers struggle to hang on to their readers via online content, blogs and podcasts, some are replacing experienced critics -- many of whom, like Ebert, have built loyal local followings -- with younger, less expensive models. Newspaper editors seem to believe hiring a younger critic will help them build a wider demo. Although they might deny it, veteran critics Kevin Thomas and Janet Maslin were pressured to give up their daily posts at the Los Angeles Times and the New York Times, respectively. John Anderson accepted a buyout at Newsday and is now freelancing. Most recently, the
Chicago Tribune's Mike Wilmington and the New York Daily News' Jami Bernard were forced out of their long-held gigs.

But when established critics stop reviewing, they often leave behind a gaping hole.

"When audiences lose faith in a paper," says SPC's Bernard, "they end up doing something else." He contends that theater attendance has dropped in such specialty film markets as Boston, Seattle and Miami that have lost popular critics.

To date, the New York Times has resisted such pressures. Its lead critics, A.O. Scott and Manohla Dargis, have yet to establish the kind of bulkhead that Canby and Maslin had during their tenure at the Times, but that is partly because neither Scott nor Dargis has a particularly mainstream sensibility. Both are canny careerists, though, as well as elegant writers who often seem more interested in crafting arcane intellectual arguments than reaching out to their readers. Thus when Scott or Dargis champions a small movie such as "Gunner Palace" or "The Notorious Bettie Page," it has little impact.

At least Scott and Dargis are encouraged to discourse intelligently about movies. Some of their peers are pushed into being entertainers, promoters and interviewers instead of objective reviewers. Perhaps expressing some sour grapes of his own, respected former Daily News critic Dave Kehr -- who now writes a weekly New York Times DVD column -- blogged at Davekehr.com about his and Bernard's former employer: "During my tenure at the News, Jami and I suffered unbelievable interference from editorial higher-ups, all of whom seemed to believe that they were vastly more capable of registering the 'populist' perspective on a given film than the people they'd somehow (and clearly mistakenly) hired as experts on the subject."

Kehr goes on to point out that these days, many younger writers are being hired by the likes of the Village Voice: "Oldsters in the field -- which at this point means anyone over 30 -- may want to start looking for a new gig."

But newspapers might be throwing the baby out with the bathwater. Aiming at a youthful readership is a fool's errand. Any parent of a teenager knows where young people go for information about anything: the Internet. Which is where Kehr and many less established critics are now expounding on movies. Such aggregate sites as Rottentomatoes.com and Metacritic.com collect and rate film reviews, so that it is possible to check any movie's average score. But they also make it easy to find the critics you like, no matter where they are writing. Punch in "Da Vinci" at Moviereviewqueryengine.com and 155 reviews pop up, from Scott at the top and 13 Ecritic.com entries in the middle to the last citation from Cuttingedge.be -- in Dutch.

One rising cyber-star is FilmFreakCentral.net's Walter Chaw, who writes with a refreshing candor that you would never find in the print world. In his recent review of "X3," for example, Chaw calls director Brett Ratner "a homophobic, misogynistic, misanthropic moron."

But in a "The House Next Door" blog interview, Colorado native Chaw admits that he struggles to gain entry to screenings, even though his site has three times the traffic of both Denver dailies combined. "I don't know if I'd be as moral," he says, "if I were banking Roger Ebert's or even a living wage."

Eliminating the critical middleman altogether are Netflix.com and Criticker.com, which use smart software to measure a visitor's taste by letting them rank movies they have seen. They make uncannily accurate recommendations of movies to see in theaters, rent or buy with a quick click. Criticker also matches its members up with fellow amateur critics with similar taste. It can be intensely pleasurable to wander cyberspace, luxuriating in the company of kindred spirits and revisiting favorite haunts. Such bloggers as Michael Blowhard (2Blowhards.com), Edward Copeland (Eddieonfilm.blogspot.com), A.J. Schnack (Edendale.typepad.com) and Andrew Horbal (Andyhorbal.blogspot.com) have day jobs and blog for fun, happy to communicate with like-minded souls. Commerce, promotion and careerism has nothing to do with it.

The critic of the future is still being forged. Big-city newspapers are in the midst of making the inevitable transition to the Internet. Small newspapers will probably lose their local voices. But now there are many cyber critics, amateur and professional, more than happy to fill the gap.

Revisiting John Boyd.

Note concept of "energy maneuverability".

---

The Strategy of the Fighter Pilot

Business is a dogfight. Your job as a leader: Outmaneuver the competition, respond decisively to fast-changing conditions, and defeat your rivals. That's why the OODA loop, the brainchild of "40 Second" Boyd, an unconventional fighter pilot, is one of today's most important ideas in battle or in business.

From: Issue 59 | June 2002 | Page 98 By: Keith H. Hammonds Photographs by: Fredrik Broden

The F-16 fighter jet is, as supersonic military aircraft go, a modest machine. It measures just 49 feet long and 31 feet wide from wingtip to missile-capped wingtip, and it weighs about half as much as its U.S. Air Force predecessor, the F-15. With a top speed of 1,350 MPH, it lags the F-15 and other big planes. It can't fly as high or as far. But in battle, the F-16 defies physics. Its design allows extreme maneuvers, even at low speeds. It dumps and regains energy in an instant, and despite its light weight, it can withstand nine times the force of gravity -- which enables some serious twisting and rolling. Pilots jag and flip with subtle nudges to a sensitive electronic flight-control system. The plane is unthinkably agile. Picture a young Michael Jordan with 29,100 pounds of thrust.

Now think of your company: Is it an F-16 or an Aeroflot turboprop? In business, success isn't simply a matter of being quickest to market, of spending the most, or of selling the highest-quality products. You can win by using any of those methods but only if you do one thing more: Outmaneuver the other guy. You have to decode the environment before he does, act decisively, and then capitalize on his initial confusion by confusing him some more. Agility is the essence of strategy in war and in business.

John R. Boyd knew this. He knew it instinctively in the early 1950s when, as a young U.S. Air Force fighter pilot -- cocky even by fighter-pilot standards -- he issued a standing challenge to all comers: Starting from a position of disadvantage, he'd have his jet on their tail within 40 seconds, or he'd pay out $40. Legend has it that he never lost. His unfailing ability to win any dogfight in 40 seconds or less earned him his nickname: "40 Second" Boyd.

Boyd applied his intuitive understanding of energy maneuverability to the study of aeronautics. In the 1970s, he helped design and champion the F-16, an aluminum manifestation of everything he knew about competition. Then he focused his tenacious intellect on something grander, an expression of agility that, for him and others, became a consuming passion: the OODA loop.

Observation; orientation; decision; action. On the face of it, Boyd's loop is a simple reckoning of how human beings make tactical decisions. But it's also an elegant framework for creating competitive advantage. Operating "inside" an adversary's OODA loop -- that is, acting quickly to outthink and outmaneuver rivals -- will, Boyd wrote, "make us appear ambiguous, [and] thereby generate confusion and disorder."

The product of a singular, half-century-long journey through the realms of science, history, and moral philosophy, Boyd's ideas both augment and challenge conventional thinking about organizations and conflict. Boyd himself, a cigar-smoking maverick, enjoyed distinctive unpopularity in official Pentagon circles. But even among critics, his OODA loop was much harder to dismiss.

The concept is just as powerful when applied to business. The convergence of rapidly globalizing competition, real-time communication, and smarter information technology has led to a reinvention of the meaning and practice of strategy. What do you do in the semiconductor industry and other sectors where the time advantage of proprietary technology is collapsing even as the cost of developing it explodes? Companies in manufacturing, telecommunications, retail -- in nearly every business -- are discovering that fashion, fad, and fickle customers require constant vigilance and adjustment. We operate in a video-game world where time is compressing, information goes everywhere, and the rules of the game change abruptly and continuously.

All of which makes the OODA loop more powerful than ever. Want to outthink and outexecute the competition in the air or on the ground, in combat or in business? Want to test out new ideas, get feedback from your customers, adjust your product accordingly, and launch a new version -- before your competition even senses the opportunity? Then learn how to make the OODA loop the centerpiece of your strategy process.

The Birth of the OODA Loop

Colonel John R. Boyd retired from the U.S. Air Force in 1975. That he never was promoted to general says much about his tenuous relationship with the military. Though widely acknowledged as a dazzling strategist, his impolitic, in-your-face bravado clashed with the staid Air Force culture. From his cramped second-floor office at the Pentagon, he waged an assault on the military leadership's bureaucracy and corruption that lasted more than a decade.

He spent a lot of that time thinking. He devoured the writings of Heisenberg, Newton, and Sun Tzu and read thousands of books, journal articles, and newspapers. During that period, he came to his idea of the OODA loop and, beyond that, to a sort of unified theory of competitiveness.

The world knows relatively little about any of this, in part because Boyd refused to write much down. He insisted on presenting his thinking in a 14-hour briefing titled "A Discourse on Winning and Losing." He was a striking speaker, witty and vigorous. But the 300-odd typewritten and hand-sketched pages of overhead slides that survive him are not especially compelling. The single work that he committed to paper before his death in 1997, a 12-page treatise called "Destruction and Creation," is daunting. "It's got the specific gravity of uranium," observes writer Robert Coram, whose biography, Boyd: The Fighter Pilot Who Changed the Art of War (Little Brown), will appear in November.

"Boyd was a difficult man," admits Franklin "Chuck" Spinney. It has fallen to Spinney to parse, smooth, and preach Boyd's gospel. Spinney is an unapologetic disciple: He worked with Boyd for more than two decades, and he shares his mentor's brusque manner and healthy disregard for nearly everything official. Like Boyd before him, Spinney is a professional irritant at the Pentagon, disliked by many military leaders but secure in his position, thanks to his unique talent and his many political connections. He toils in Boyd's old office.

"Have you seen the thought experiment?" Spinney demands, hopefully. The best response is "no" -- because in Boyd's absence, the experiment and Spinney's own oral presentation, "Evolutionary Epistimology" (accompanied by PowerPoint slides instead of overheads), may be the only reasonable way to come to terms with Boyd's often tortuous thinking.

On to the experiment. Imagine four scenarios: someone skiing, someone power-boating, someone bicycling, and a boy playing with a toy tank. Break down each domain into its component parts: For skiing, there would be snow, chairlifts, skis, hot chocolate, and so on. Within their domain, the parts have directly identifiable relationships with one another. But scramble together the parts from the four domains, and suddenly it's hard to determine any relationships at all. We are thrown into chaos.

Now, Spinney instructs, take one part from each scene: From skiing, select the skis; from power boating, the motor; from bicycling, the handlebars; and from the boy with his toy tank, the treads. What do these elements have to do with one another? At first, seemingly nothing -- because we still think of them in terms of their original domains. But bring the parts together, and you've used your creative pattern-recognition skills to build ... a snowmobile! "A winner," Boyd concluded, "is someone who can build snowmobiles ... when facing uncertainty and unpredictable change."

The Uses of the OODA Loop

This kind of stuff generally ticks off actual fliers, who proudly proclaim themselves "dumb fighter pilots" and tend to shun anything that smells of intellectual extravagance. "I've never been inside anyone's OODA loop," Major Chris Peloza says dryly, rolling his eyes. Peloza has flown F-16s in the Air Force and the Air National Guard for 16 years. He's never heard of Boyd, and he doesn't know what OODA stands for.

But he knows exactly what it means. An effective pilot explodes his rival's comfortable view of the universe. With his familiar clues hopelessly scrambled, a rival under pressure will usually try to interpret the mess from his accustomed perspective. While the confused rival struggles -- and before he has a chance to figure out the pattern that will yield the dogfight equivalent of a snowmobile -- the savvy pilot quickly executes yet another set of maneuvers, once more scrambling the parts and further feeding his opponent's confusion. Ultimately, Boyd wrote, the winner "collapses his [adversary's] ability to carry on." You win the competition by destroying your opponent's frame of reference.

Boyd most often couched this phenomenon in a military context. His monumental research and reading let him draw from such strategies as the Battle of Marathon (Greece versus Persia, 490 BC) and Napoleon's tactics at Waterloo. Germany's blitzkrieg method in World War II led the country to "conquer an entire region in the quickest possible time by gaining initial surprise and exploiting ... fast tempo/fluidity of action ... as basis to repeatedly penetrate, splinter, envelop, and roll-up/wipe-out disconnected remnants of [the] adversary organism."

"In Boyd's notion of conflict, the target is always your opponent's mind," says Grant Hammond, director of the Center for Strategy and Technology at the Air War College and author of The Mind of War: John Boyd and American Security (Smithsonian Institution Press, 2001). In his own work, Boyd didn't apply his principles to business strategy and market share, says Hammond, "but the analogy still holds. It's all about rapid assessment and adaptation to a complex and rapidly changing environment that you can't control." In fact, Boyd's ideas translate seamlessly into business. In a groundbreaking article published in 1988 in the Harvard Business Review titled "Fast-Cycle Capability for Competitive Power," Joseph L. Bower of Harvard Business School and Thomas M. Hout, a partner at Boston Consulting Group, actually cited the OODA loop -- although not its author. (Years later, Boyd called Hout to rectify the oversight.) "The OODA loop limbers up your organization," Hout says now. "It keeps you constantly worried about the next cycle," about making rapid, incremental improvements that throw off competitors.

Bower and Hout's classic example -- and one that Boyd also studied -- was Toyota, which designed its organization to speed information, decisions, and materials through four interrelated cycles: product development, ordering, plant scheduling, and production. Self-organized, multifunctional teams at Toyota, they observed, developed products and manufacturing processes in response to demand, turning out new models in just three years compared with Detroit's cycle of four or five.

Systems like Toyota's worked so well, Boyd argued, because of schwerpunkt, a German term meaning organizational focus. Schwerpunkt, Boyd wrote, "represents a unifying medium that provides a directed way to tie initiative of many subordinate actions with superior intent as a basis to diminish friction and compress time." That is, employees decide and act locally, but they are guided by a keen understanding of the bigger picture.

In effective organizations, schwerpunkt connects vibrant OODA loops that are operating concurrently at several levels. Workers close to the action stick to tactical loops, and their supervisors travel in operational loops, while leaders navigate much broader strategic and political loops. The loops inform each other: If everything is clicking, feedback from the tactical loops will guide decisions at higher loops and vice versa.

Consider this recent event. In March 2000, fire seriously damaged the New Mexico mobile-phone chip factory of Philips Electronics. Nokia reacted immediately, sending employees to help Philips recover, demanding production from other Philips fabs, and seeking out alternative suppliers. Ericsson, supplied by the same factory, sat on its hands -- and lost months' worth of production. Nokia capitalized on Ericsson's disarray by pushing new phones, allowing Nokia to grab even more market share and ultimately forcing Ericsson to outsource production.

Nokia didn't explicitly check through every point in the OODA loop, of course. "That part of Boyd's thinking is very misunderstood -- and Boyd is mostly to blame," says Chet Richards, a Boyd aficionado and strategy consultant. The loop doesn't require individuals or organizations to observe, orient, decide, and act, in that order, all the time. "Going through the cycle every time takes too long," Richards warns.

Think instead of the loop as an interactive web with orientation at the core. Orientation -- how you interpret a situation, based on your experience, culture, and heritage -- directly guides decisions, but it also shapes observation and action. At the same time, orientation is shaped by new feedback. An effective combatant, Boyd reasoned, looks constantly for mismatches between his original understanding and a changed reality. In those mismatches lie opportunities to seize advantage.

And reality, Boyd understood, changes ceaselessly, unfolding "in an irregular, disorderly, unpredictable manner," despite our vain attempts to ensure the contrary. "There is no way out," Boyd wrote. "We must continue the whirl of reorientation, mismatches, analyses/synthesis over and over again ad infinitum." The OODA loop persists endlessly.

The Future of the OODA Loop

John R. Boyd died, says Robert Coram, "believing that people considered him a kook, a man who never made general and whose ideas never gained popular acceptance." His ideas weren't easy to grasp, and most military leaders were loathe to listen to such a source of disruption -- an iconoclast who threatened their comfortable order.

Although the OODA loop and other Boyd concepts are written into Air Force doctrine, Boyd's name is relatively unknown in his own service. Some believe that his influence is waning in the Marine Corps, the branch that once embraced his thinking the most enthusiastically. Among Boyd's old friends and admirers, many of whom gather every Wednesday night at the Fort Myer Officers' Club outside of Washington, DC, some wonder if they are fighting a losing battle. "The group is fading," says Tom Christie, one of Boyd's closest collaborators and now director of operational test and evaluation at the Pentagon. "We're all getting older, and we didn't inculcate John's ideas into younger people coming up."

Yet Boyd's ideas themselves are growing more relevant -- in military operations and in business competition. In the wake of the Gulf War, Pentagon officials credited Boyd's thinking on maneuverability for the rapid attacks that crippled Iraqi forces. Today, many military strategists believe that the way to counter terrorists is to think as they do -- to employ speed, ambiguity, and deception. One way to look at the tragedy of September 11 is that, for a moment, the terrorists got inside our OODA loop.

The phenomenon is magnified by the rapidly declining half-life of any good idea through ever-faster pace and ever-more-demanding dimensions of the competitive arena. The dogfight, it seems, is just getting hairier. So what happens to the OODA loop, some wonder, as technology increasingly compresses the flow of information, driving decision making ever faster? On one hand, observes retired Colonel Ted Hailes, a professor at the Air War College, "in the drive to make OODA loops smaller and faster, man's role in the loop is being reduced or preformulated." Think of program trading on Wall Street, for example. Grant Hammond theorizes about evolution toward an "OODA point."

On the other hand, it may be that technology compresses just one part of the loop, that the wide, instantaneous availability of data creates an environment of complete transparency. In such a world, it would be impossible to gain advantage from observation, since all competitors would see the same thing. Orientation, then, would grow even more important: The data is worthless, after all, without our interpretation. And that means Boyd was more right than even he could have imagined: The future of business will belong to those innovators who can build snowmobiles.

Keith H. Hammonds (khammonds@fastcompany.com) is a Fast Company senior editor. Read John R. Boyd's "A Discourse on Winning and Losing" and related works on the Web (www.d-n-i.net/second_level/boyd_military.htm).

Good blog.

Wednesday, May 31, 2006

From the class room to the crass room.

From Harvard to Las Vegas

Prof. Gary Loveman left the ivory tower to run a casino. Now the Harrah's CEO heads up the world's largest gaming empire.

By Daniel McGinn
Newsweek

April 18 issue - If you fly into the Las Vegas airport, grab a cab and ask the driver to take you to the town's most fabulous casino, you might arrive at the door of Mandalay Bay, which has a giant shark aquarium, the best pool and classy restaurants like Aureole. Or maybe you'll wind up throwing dice at the Palms, where Paris Hilton and Britney Spears party regularly. But the odds are surely slim that you'll find yourself at Harrah's, a slender and unimaginative casino-hotel, whose 2,530 rooms haven't changed much since its days in the 1970s as a Holiday Inn. Harrah's is strictly a midmarket gambling parlor, more apt to lure in gamblers who—lose perhaps $200 an evening than the high rollers who bet thousands per hand. Yet where casino aficionados see an appalling lack of style, Wall Street sees a lot to love. For, despite its lack of trimming and trappings, Harrah's management team has turned the company into a profit machine.

Credit for that goes to Gary Loveman, an MIT-trained economist who's emerged as the gaming industry's unlikeliest high roller. Loveman, 44, spent four years at Harvard Business School teaching M.B.A. students how service companies like Wal-Mart and Taco Bell boost profits. Much of his work focused on a seemingly simple lesson: that businesses need to identify their most profitable customers and get them to shop more often. To test his theories for how to do that, in 1998 he left Harvard to become chief operating officer at Harrah's, the Las Vegas-based casino company. In 2003 he became CEO. Since arriving in Las Vegas, he's lured mathematicians and computer jocks to help him create a high-tech marketing program that tries to perfectly match the perks they offer frequent gamblers with those customers' idealized preferences. Their efforts are paying off: last year alone Harrah's stock jumped by one third.

And now Loveman is placing his biggest bet yet. Last July he agreed to buy rival Caesars for $9.4 billion. Approved by shareholders last month, the deal will make Harrah's the world's largest gaming empire, with $8.75 billion in combined revenue last year, ahead of MGM Mirage, which is acquiring Mandalay; those two grossed a combined $6.72 billion in 2004.

Harrah's journey in the gambling industry is an unlikely ascent. The company's roots lie in Reno, Nev., where founder Bill Harrah opened a bingo parlor in 1937. The company didn't enter Las Vegas until the 1980s, and throughout the '90s Harrah's remained an incongruous sprawl. Much of its profits flowed not from Las Vegas but from a network of shopworn casinos and riverboats in places like Illinois, Indiana, Mississippi and Louisiana. In 1999 the company bought the Rio on the Vegas Strip, which is closer to the modern Sin City ideal: a rainbow-colored, V-shaped tower of suites. Still, its limited Vegas presence made Harrah's a lesser player compared with rivals opening lavish new properties like the Venetian and Bellagio.

Lacking the hippest venues, Loveman had to find alternative ways to boost sales. The key has been a loyalty program he created called Total Rewards. It replaced the old Vegas system of doling out freebies—drinks, meal coupons, comped rooms—to gamblers based on managers' guesstimates of who's betting enough to deserve them. Loveman's coldly calculating computerized system uses magnetic cards that gamblers insert into slot machines to track their play, allowing them to pile up points toward those perks.


The system goes far beyond the simplicity of a frequent-flier program. Through surveys and by tracking purchases, Harrah's strives to predict exactly what its loyal gamblers may want: a free steak dinner, spa treatments or tickets to a show. Harrah's then uses this information to design customized offers—delivered by mail, phone or e-mail—to lure gamblers in more frequently. It also uses the data for tailored pricing: customers pay widely varied rates for hotel rooms, for instance, based on how much they're likely to lose in the casinos. "We're going to keep offering you things and asking you and talking with you... [until] we get to the point where we know what you want," Loveman says.

One B-school professor compares the rigor of Harrah's marketing efforts to epidemiologists who use clinical trials to test the efficacy of drugs. Indeed, analysts say Total Rewards is the most innovative marketing effort in gaming, but it's also been recognized as among the most advanced examples of "customer-relationship management" in any industry. "Gary has taken a business everybody thought was kind of touch-and-feel and made it into a scientific business," says Sergio Zyman, the former Coca-Cola branding guru. "They understand precisely what is going on with customers, how to motivate them and how to sell them more."

Until recently, Loveman touted another advantage in selling them more: geography. While competitors focused on building ever-better Las Vegas properties, he argued that Harrah's far-flung array of regional casinos offered better access to folks who wanted to play close to home. But by 2003, as Las Vegas rebounded from the post-9/11 travel slump and rivals' opulent new gaming palaces lured visitors, Harrah's lackluster Vegas venues became a problem. "We knew we needed to get bigger in Vegas, and rather quickly," Loveman says. Harrah's considered building new casinos there, but that would be slow and costly.

Then Caesars called. The higher-end gaming company, which owns Caesars Palace, Bally's and Paris, has been poorly managed and profit-challenged for years, analysts say. Wall Street applauded Loveman's decision to buy it. "What Harrah's has done historically is identify low-hanging fruit—companies that have been underperforming," says J.P. Morgan analyst Harry Curtis. The deal gives Harrah's the higher-end Vegas casinos it needs—and adds 10 million customers to its marketing database. Loveman envisions customers shuttling between his portfolio of properties, much as visitors do at Disney World. Though some industry watchers have knocked the deal as a departure from Harrah's old strategy, Loveman says that it makes perfect sense. "We're going to work really hard to make sure most of your business in the city is with us," he says. Last year Harrah's earned $367.7 million, and Mark Greenberg, manager of the AIM Leisure Fund and a large shareholder, expects more double-digit profit growth.

Even as the CEO of the industry's biggest player, Loveman's ideas—and his academic pedigree—make him a bit of an outsider. Rivals complain he wants to "commoditize" gambling by expanding too far beyond Las Vegas and Atlantic City. "Harrah's has never met a community they didn't think was appropriate for a casino," says University of Nevada, Las Vegas, professor Bill Thompson, author of "Gambling in America." Loveman doesn't even live in Las Vegas—his family's still back in Boston, and the CEO lives in a hotel during the workweek. The commute is worth it: Harrah's paid him $3.5 million last year.


For his part, Loveman is unfazed by the criticism. His biggest annoyance is that politicians, regulators and even some rivals treat gambling as such a unique business in need of such close regulation. "We're constantly having to overcome all these myths," he says, citing allegations of mob influence or that many customers are gambling addicts. In contrast, Loveman portrays gambling as a recreational activity not unlike watching a movie, in which the suspense of finding out if you win or not creates pleasing emotions, much like the suspense of watching "Survivor" or the Academy Awards. Instead of an admissions fee, he says, you pay for the fun via lost wagers. Never much of a gambler himself before he joined the company, he plays a little blackjack nowadays.

He hopes the old biases against his business fade as he brings in more outsiders, who'll run the casinos the way they'd run any other enterprise. When he recently searched for an executive to oversee Harrah's slots operations—which deliver 80 percent of profits—Loveman didn't even consider casino-industry veterans. Instead, he hired an executive from The Limited whose last job was running the Victoria's Secret Web site. Slot machines may not have obvious parallels with skimpy lingerie, but Loveman figures a smart outsider can find ways to get his customers' hearts pumping, too. Stanford professor Jeffrey Pfeffer, who's written a case study on Loveman's career transition, says it illustrates how professional skills can be transferable in ways that are difficult to anticipate. "He's extremely good at asking questions inside of Harrah's that get people to think about things in new and different ways," Pfeffer says. "That's what a professor does." And for an industry that's long been obsessed with creating the splashiest new venues, Professor Loveman's most important lesson is that with smart marketing, less-fabulous casinos can sometimes turn shareholders into big winners.

With Steve Friess in Las Vegas


© 2006 MSNBC.com

URL: http://www.msnbc.msn.com/id/7433764/site/newsweek/