Undercapitalized
Here’s an idea Malcolm Gladwell throws out in a long back-and-forth with ESPN’s Bill Simmons that’s mostly about the NBA. Simmons argues that career longevity, European imports, and overachieving young players have helped make the current NBA particularly well-stocked not just with talent, but with well-used talent. Gladwell makes one of his trademark Gladwellian connections:
What we’re talking about is what are called capitalization rates, which refers to how efficiently any group makes use of its talent. So, for example, sub-Saharan Africa is radically undercapitalized when it comes to, say, physics: There are a large number of people who live there who have the ability to be physicists but never get the chance to develop that talent. Canada, by contrast, is highly capitalized when it comes to hockey players: If you can play hockey in Canada, trust me, we will find you. One of my favorite psychologists, James Flynn, has looked at capitalization rates in the U.S. for various occupations: For example, what percentage of American men who are intellectually capable of holding the top tier of managerial/professional jobs actually end up getting a job like that. The number is surprisingly low, like 60 percent or so. That suggests we have a lot of room for improvement.
What you’re saying with the NBA is that over the past decade, it has become more and more highly capitalized: There isn’t more talent than before, but there is — for a variety of reasons — a more efficient use of talent. But I suspect that in sports, as in the rest of society, there’s still an awful lot of room for improvement.
Noam Scheiber, writing in The New Republic this week, says basically the same thing (about management, not basketball):
A lot of people talk about reviving the domestic manufacturing sector, which has shed almost one-third of its manpower over the last eight years. But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them?
It’s not obvious that you would. Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM’s top executives in recent decades hailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost. As Khurana quips, “That’s how you end up with GM rather than Toyota.”
In effect, what we’ve been doing in American industry is overpaying flashy ball hogs who put up great statistics but don’t know how to build teams or win games. In a similar vein, Umair Haque says that the whole model of a “leader” needs to be rethought, and what we really need are builders:
Leadership was built for 20th century economics. It’s a myth that leadership is a set of timeless skills. Is it? Abraham Zaleznik famously defined leadership as “using power to influence the thoughts and actions of other people.” Influence is the key word. The textbook skills of the “leader” — persuasion, delegation, coalition — aren’t universally applicable. Rather, they fit a very specific context best: the giant, evil, industrial-era organization.
Leaders don’t lead. How did this particular skillset emerge? Influence counts because the vast, Kafkaesque bureaucracies that managed 20th century prosperity, created, in turn, the need for “leaders”: people who could navigate the endlessly twisting politics at the heart of such organizations, and so ensure their survival. But leaders don’t create great organizations — the organization creates the leader. 20th century economics created a canonical model of organization — and “leadership” was built to fit it.
Haque actually doesn’t do a great job at articulating what a “builder” does differently, other than throwing out a few examples. (Yes, Obama isn’t as accomplished a builder as Gandhi — but saying that Gandhi “built” nonviolent resistance only scratches the surface.)
But if you use Haque’s new-economy and Scheiber’s old-economy critiques of current practices, you get something very powerful. The pre-managerial, heroic-age-of-capitalism industrialists of the 19th and early 20th centuries didn’t always build things that were good, from our perspective — but coalsmoke aside, they BUILT things, creating real capital and value along the way. It’s this fifty-year-blip of late uncreative capitalism, milking old property for its dregs, reshuffling money to create something from nothing, that has culturally really screwed us up.
> Leaders don’t lead. […] But leaders don’t create great organizations — the organization creates the leader.
I have to disagree with Haque here, or at least speculate that he has never personally experienced what happens in a team when the leadership changes from bad -> good or vice-versa. I have, and fortunately in the bad -> good direction, and I have to say that it makes an incredible difference.
The situation is really much more complicated than “the organization creates the leader.”
Leaders do lead. Leaders also build: They build the organization that then enables great success for all.
In a previous life, I worked on a team with volatile and lukewarm leadership. We got to know a series of itinerant managers, none of whom really knew what they were doing. The team got nowhere. Then we got a new manager who understood that to succeed, the team needed to a) understand what it’s actual business was (that is, not just what the surface level job was, but what core customer problem the team was supposed to be solving), b) be empowered to pursue that _problem_ regardless of what form the solution took, c) rebuild itself with the right staff.
That last part is particularly important. Mediocre managers are mediocre at hiring, as well as leading. So long as they have warm bodies filling seats and doing the surface level job just well enough to turn in decent numbers to their superiors, that’s all they care.
Great leaders know that hiring decisions are among the most important they ever make. They understand that in order to hire the right people, they have to intimately know the customer’s problem, and what skillset is likely to be generally applicable to that problem (because, again, they’re not pre-judging the solution), and they have to know how to spot that talent in an applicant.
It takes years for the mediocre hires to shuffle off to other pastures and be replaced with motivated, high-talent individuals with a passion for solving the customer’s problem. But the good leader will spend years making that happen. And when they do, the change in the overall team dynamic, the sense of team identity, morale, and yes, ability to see what job needs to be done and go do it, is remarkable.
A good leader builds the right team, points them in the right direction, and then gets out of the way. A good leader creates a virtuous circle between themselves and the team.
But having been brought together, the leader is not irrelevant. You can’t just replace the head and let the awesome team turn the new head into a great leader. Quite the opposite. It is stunning to see how quickly even an awesome team can fall apart when some stupid organizational re-alignment takes the leader away from the team they have lovingly and laboriously built.
Somewhere inside Umair is an actual thinker, struggling to get out…
Sounds like Haque’s “builder” is similar to the “sociopath-entrepreneur” that Venkatesh Rao describes in his post that made the rounds recently: The Gervais Principle, Or The Office According to “The Office”. Here’s one quote to get you started on the lengthy article:
“The Sociopaths defeated the Organization Men and turned them into The Clueless not by reforming the organization, but by creating a meta-culture of Darwinism in the economy: one based on job-hopping, mergers, acquisitions, layoffs, cataclysmic reorganizations, outsourcing, unforgiving start-up ecosystems, and brutal corporate raiding. In this terrifying meta-world of the Titans, the Organization Man became the Clueless Man. Today, any time an organization grows too brittle, bureaucratic and disconnected from reality, it is simply killed, torn apart and cannibalized, rather than reformed. The result is the modern creative-destructive life cycle of the firm, which I’ll call the MacLeod Life Cycle.”
As far as uncreative capitalism goes, the health care situation in this country also contributes, in part by giving “leaders” of existing organizations an advantage over “builders” of new ones. These two quotes begin to tell the story.
Don’t have much intelligent to say except that the Gervais Principle article was really, really good.
I am impressed at how the writers at HBS and the New Republic are experts in leadership. If only we could convince them to lead (or build?) the businesses of tomorrow, instead of just writing about them, I am sure that all would be well.
I think Schrieber has some excellent points, but he and Haque both live in a bubble called Cambridge.
From TNR:
“Which meant that, even if a student aspired to become a top operations man (or woman) at a big industrial company, the infrastructure to teach him didn’t really exist.”
Indeed! How can one learn something if a concentration for it doesn’t exist at HBS? Clearly, this knowledge has passed from the earth, like the secret porcelain glazes of the Ottoman Empire.
TNR again:
“A recent Harvard Business School case study about General Electric shows that the company had so much trouble competing for MBAs that it decided to woo top graduates from non-elite schools rather than settle for elite-school graduates in the bottom half or bottom quarter of their classes.”
This is better phrased as: A recent HBS case revealed that the bottom half of their graduates get beat in recruitment by top graduates of non “elite” schools.
I can go on, but really, the flaw in the argument is encapsulated in the first quote. The “elite” business school, and the MBA degree in general, are greatly overvalued.
Now, the idea that our economy overallocates to sectors (finance) at the expense of others (manufacturing), and that this leads to inefficent outcomes, is an interesting one worth exploring. I’d like to hear more from Tim (or Gladwell) about how we can more efficently utilize American talent and ingenuity. Even if we have to do it outside of Harvard Business School.
Umair’s article is awful. Near as I can tell his thesis is “builders are cooler than leaders, and people I like get to be in the builder club”.
My favorite quotes:
“The very word “leader” feels like a relic of 20th century thinking.”
Thank God we have Builders and Constructivism to free us from that double-minus badspeak! I look forward to being a super MakeBetterer in the 21st century.
“Bill Gates, in contrast, was just a leader. He led just another run-of-the-mill corporation to yet another monopoly — a total black hole of Buildership.”
Yeah Bill! Microsoft is just another mill product in the black hole monopoly! Millions of products sold; 93,000 jobs created; 274 billion dollars of wealth built — but you couldn’t hack HARVARD, you non-Builder. Next time try Brown, I hear they have pass-fail.
“The boss makes work a drudgery; the leader makes work a game. The Builder organizes love, not work.”
WTF is this hippy shit? I organize my own love, thank you very much.
Tim!
50-year blip of uncreative capitalism? Have we been living in the same 50 years? (Well. Obviously no. I’m not even 50 years old.)
Computers are not nothing. The Internet is not nothing. The entire cable television infrastructure, both physical and intellectual property. The entire wireless industry. Satellite communications. The modern shipping industry (the one that depends on the standardized container). The massive growth of air-travel. Countless advances in weaponry. Nuclear, solar, and wind power. The green revolution. Biotech. Pharmaceuticals.
All of these things got created or dramatically built in the past 50 years. They aren’t unproblematic examples. There is much to regret about them as well as celebrate. But the same can be said of the coal-smoke era.
Whoa; I’m just talking about the atrophy of the culture of capitalists here, Tim, not the atrophy of capitalism itself.
But I will concede the point that I thought was a given — there have indeed been good things that have happened in the past fifty years.