This is, as one might guess from the title/sub-title, another of those “business philosophy” books, which I seem to have gotten an inexplicable taste for (after a lifetime of never reading any business books … I belive my first came a decade ago). While I found this an interesting read, and quite engaging, I only ended up with two bookmarks in it, and those within the last 10% of the book … which means that I'm going to be doing some “tap dancing” here walking through the book to find specifics to address.
I rather liked how the author launches into the theme of the book by going into military history for an example somewhat analogous to the type of “big threat” situation that would be later expressed in a business setting. Here, the story is of Union Civil War Colonel Joshua Lawrence Chamberlain, in command of the 20th Maine Regiment, that was holding the hill Little Round Top against focused attacks by a much larger Confederate force during the battle of Gettysburg. His troops, reduced by about 1/3rd down to a mere 200, were out of ammunition, and were unlikely to survive another charge by the enemy. Chamberlain positioned a unit of sharpshooters (who, apparently, still had ammo), along a stone wall on the flank, and had his men prepare a bayonet attack. The sharpshooters surprised the Rebel troops with fire from an unexpected direction, and the 20th Maine's charge down the hill resulted in the Confederates retreating in panic. The Union troops ended up taking more prisoners than they had remaining men, and the exchange (and holding the hill), was credited as a key element to the Union winning at Gettysburg.
How is this a lesson? Well, another commander might have just defended the hill, but Chamberlain opted to make a desperate “out of the box” (if you will) counter-attack, resulting in what had to have been a surprising success. Much of the business stories in the book look at situations of companies taking actions against major threats in dynamically similar veins.
The author frames these threats to one's business as “strategic risks”, which differs from the following:
However, strategic risks target “one or more of the crucial elements in the design of your business model”. The author lists “seven major kinds of strategic risk your business can prepare for”:Traditional risk management focuses on three categories of risk that are widely understood: hazard risks (fire, flood, earthquake), financial risks (bad loans, currency and interest rate swings), and operating risks (the computer system goes down, the supply chain gets interrupted, an employee steals). Most companies have risk managers who specialize in handling these kinds of risk.
These provide a framework for the stories detailed in most of the book. There are numerous interesting charts in here, but they don't seem to be a specific approach, but just a display template for the info … there is also an odd stylistic approach to “handicapping” the odds of a project's success as these cases are being considered – where there is, in the body of the text, small boxes with a bolded percentage number, reflecting what the chances of the thing is question working out were at various points (if I'm recalling correctly, in the examples given these only went up, if in small increments – say, 15% to 18%). Obviously, these are subjective numbers, and have the benefit of retrospect, given that most (if not all) of the discussed products were great successes.1. Your big initiative fails.
2. Your customers leave you.
3. Your industry reaches a fork in the road.
4. A seemingly unbeatable competitor arrives.
5. Your brand loses power.
6. Your industry becomes a no-profit zone.
7. Your company stops growing.
One thing I found somewhat distracting is that the author tends to jump around … leaving one story to get into another, then switching back to the earlier one. This is likely to be that way to allow dealing with the same sorts of risks in different points in different products/companies, but it led to a bit linearity to the telling than had he stayed with one case study all the way through. Speaking of these, the first two are the Toyota Prius, and the Apple iPod. There are numerous steps in the development which are identified (such as the strategy of “creating excess options” by Toyota, which started with twenty engine designs … and this step boosted the odds from 17% to 20% … or Apple's licensing the player technology from another company that boosted their odds of success by a similar 3%). Slywotzky tracks the Prius up to 90% odds of success, and then flips over to discuss the Mars Pathfinder, and its fast/cheap model.
The book shifts from development to customer relations, and takes a look at Coach handbags, and a Japanese chain of music/video/book stores (that have since expanded into “lifestyle” product lines) called Tsutaya. In both of these cases the focus of growth was on amassing proprietary customer information, with their approaches conducting 10x the “conventional model” of customer interviews and marketing experiments. As both those companies are in the B2C zone, the author also adds in a B2B company, Johnson Controls, which went from making frames for car seats, to the entire automotive interiors, introducing the video entertainment system, etc., based on what the data showed the customers wanted.
The “fork in the road” risk brings up “synthetic histories” and “double betting” … and interesting example of the former is a description of what might well have happened to Microsoft had Bill Gates reacted differently to the report of some managers who had gone on a recruiting trip to Cornell in 1994 … which involved some of the first on-line systems – that the students were enthusiastically using. Gates, in the midst of launching W95, could have (as in the story here) brushed this aside, and Mosaic/Netscape could have ruled the world in a couple of years, but instead he recognized the risk to his product implicit in the Internet, and instituted a crash-development program resulting in Internet Explorer. A similar story is told of IBM … which in the first half of the last century was the main source of (mechanical) calculators and related machines. The son of the CEO, Tom Watson, Jr., saw the emerging computers (from Sperry-Univac) as a serious threat, and convinced upper management to invest in computer development as well … this was the “double-betting”, as both the calculator and computer lines were being worked on, and by the mid-60's IBM was dominating the latter business just as they had the former in previous decades. A number of other “horse races” are detailed in this, Blockbuster vs. Netflix, Motorola vs. Nokia, Lotus vs. Borland and WordPerfect, etc. The author identifies blocks to “double betting”, which are failure to face reality, misplaced strategic logic (to avoid “cannibalizing” one's flagship products, it frequently ends up that everybody but the “threatened firm” will invest in a new technology), and fear of spending (although one must “double bet” carefully).
The risk of a “unique competitor” is first framed in the basketball battles between Bill Russell and Wilt Chamberlain, which involves some fascinating analysis of the game, and Russell's quote: “Wilt played vertical, I played horizontal. I got to his favorite spot first … so that he'd have to shoot from an angle he didn't like.” This then spins into the Wal-Mart vs. Target story, focusing on Bob Ulrich, who went from a merchandising trainee at Target to CEO of its (then) parent company (Dayton Hudson, since sucked up by Macy's, like so many others). His strategy (among several) was to find “name” designers who were in a slump, such as Isaac Mizrahi, Mossimo Giannulli, and numerous others, and sign them for exclusive product designs … that had to follow a “3H” – Head/Handbag/Heart – philosophy … helping to also drive the “non-overlap” dictate that means that only 30-40% of products in a Target could be found (cheaper) at the local Wal-Mart.
There are some chastening data points in the chapter on “brand erosion” (especially for those of us who have been around a lot of decades), with once-dominant companies that are either gone or shadows of their former selves. Two companies which are specifically looked are Sony and Ford, which lost significant brand value in the period from 2000-2006 (27% and 69% respectively), and a table with the declining results of a bunch of other “household names”. This is countered with a look at Samsung, which, in that same period, more than tripled its brand value … here another detailed look with those percentage boxes interspersed. There is an interesting table here on “brand risk”, with 10 “types of failure”, a definition of each, and an example of a company that stumbled due to that particular issue.
The “no-profit zone” largely deals with competition and collaboration … with examples like Steve Jobs convincing the music industry, which was in full battle mode against Napster, etc., to embrace the iPod's proprietary format, and the iTunes marketplace, and the various European manufacturers who came together to create Airbus and compete with the major American aircraft manufacturers. Slywotzky also offers up a “synthetic history” of what might have happened had the assorted players in the auto industry come together ala the players in Airbus, in the mid-90's. In this fantasy, costs have plummeted, fuel consumption has dipped, and emerging economies are producing vehicles that are able to be sold for just a few thousand dollars.
In the “company stops growing” risk, there's another interesting chart here, tracking growth moves, and companies that made these work, as well as stories of a number (oddly, mainly European) companies that responded to stagnating growth with an array of approaches. There's also a piece about Proctor & Gamble's sudden decline in 1999 (their stock lost 50% of its value in one quarter), and how they fought their way back by 2004. Part of this was a new direction that asked “Are there things that professionals do for consumers that consumers could do for themselves?”, which not only resulted in products such as Crest Whitestrips, but also a focus on “consumer anthropology”, a research approach that P&G was dedicating as much as $200 million in 2006.
At the end of each chapter there are questions for companies to ask themselves to assess their level of risk in the various areas, and in the last chapter it looks at “reversing risk” and providing a number of tools to help one get there. These fall in these six main categories:
These include things like a “Risk Exposure Map”, a “Risk Profile Worksheet”, the “Strategic Risk Spectrum”, etc. There's a lot of “coaching” here as well, like looking at how companies are often structured to ignore risks, from “killing the messenger” who brings up bad news (like in the Microsoft “synthetic history”), overvaluing confidentiality, and “siloing” information. Slywotzky defines “three disciplines that can help management teams get consistently better at managing their portfolio risks:” 1. knowing the true odds, 2. seeing the earliest warning signals, and 3. constantly comparing risk profiles. He provides quite a lot of material about each of these, with numerous example tables, and a worksheet for #3 to compare one's company with a key competitor. One thing that I suspect would be very useful for a lot of companies would be the last part of the book, which outlines, over several pages, a half-day workshop to use the various tools in the book to determine one's “strategic risk and upside profile”.1. Identify and assess your risks.
2. Quantify your risks.
3. Develop risk mitigation action plans.
4. Identify the potential upside.
5. Map and prioritize your risks.
6. Adjust your capital decisions.
Needless to say, The Upside is not a “general reader” or “all and sundry” book, although it's an interesting enough read, with a lot of fascinating info. It's also getting a bit “vintage” at this point, having come out in 2007, so there are sectionss which seem like real old news from today's standpoint. However, it is still in print in the hardcover (so it certainly must have its audience!), and the on-line big boys are offering it at 49% off of cover. It is available from the new/used guys too, with “very good” copies that can be had for the ever-popular price of 1¢ (plus shipping). If this sounds like something you'd find of interest, you should certainly have no excuse to not pick up a copy.