Summer is a big time for reading lists, usually focused on lively page-turners for the beach. But it’s also a good time to catch up on books about business, management and new ways of looking at our rapidly changing world. So, with the summer winding down, I wanted to recommend a few books - both new and old - that have influenced the way I think about business and management.
A good place to start is with the latest book by Wired editor Chris Anderson, Free: the Future of a Radical Price (2009). Its thesis is that in a digital world, price is rapidly falling to zero. The new world he describes is the digital equivalent of the Gillette model of selling razors at a loss and making money on the blades. We’re seeing this with everything from software to photo sharing and editing sites, where online businesses attract customers with free basic services and make money on more feature-rich premium services. It’s a model engrained in those under 30, who are accustomed to getting their information for free.
A good example is the recent decision by online travel companies (OTC) like Orbitz Worldwide to eliminate booking fees. For a decade, the OTCs believed they needed to charge consumers to book flights in order to make money. The fees had the effect of leading many consumers to find a flight on the OTC but book it on the airline’s own Web site. Since eliminating booking fees, more consumers are booking their flights through the OTCs. At Orbitz Worldwide, for example, air transaction grew 22 percentage points in the second quarter compared to the first quarter of 2009, when fees were still in place.
The Black Swan: the Impact of the Highly Improbable (2007), by Nissam Nicholas Taleb. The title comes from the assumption made in the 17th Century that all swans were white because it was the only color ever observed - until a species of black swans was discovered in Australia. His message is we can’t predict important events simply based on past events or conventional assumptions. He explores the way the brain and experience works, our innate optimism and our inability to read signs.
There’s a clear lesson here for business around the notion of asymmetric risk - in other words, risks that arise from wholly unexpected or unpredictable places, outside our normal range of experience and observation. I used the book with Travelport’s senior leadership team last year as a way to encourage new thinking about the kinds of companies that could disintermediate our businesses.
Outliers: Stories of Success (2008), by Malcolm Gladwell, looks behind the secrets of success and finds interesting patterns that defy some of our long held notions of why some people succeed wildly (think Bill Gates) while others never quite seem to live up to their potential. He finds individual merit has less to do with it than culture, community, upbringing, fortuitous timing and dogged persistence. All the outliers he studied invested at least 10,000 hours of intense, focused effort to become expert in their area.
There are also two older books that have had a lasting influence on me.
The first is Capitalism, Socialism and Democracy (1942), Joseph Schumpeter’s classic economic essay addressing the concept of capitalism driving innovation through “creative destruction,” a Darwinian view of markets. This book has been particularly influential on me when I’ve managed mergers, re-engineering and outsourcing operations offshore.
The second is The Soul of a New Machine (1981), by Tracy Kidder. I first read Soul when I joined Digital Equipment Corp. in 1985. Kidder spent a year following a team of passionate engineers at Data General who were designing and building a new computer to compete with DEC’s products. It shows how core technology development occurs, the risks, processes and personalities of complex system design, and the heated competition internally and externally in high tech corporations. It emphasizes the extraordinary effort and passion individuals need to achieve breakthroughs. It is also a poignant story. Despite the quality of the product and the immense effort to overcome great odds, it didn’t succeed in saving Data General in the marketplace.
The book helped me understand that passion, focus and enormous hard work drive breakthroughs. But I also learned that this passion and focus quickly dissipates in large organizations and in business-as-usual (non-crisis) environments. As such, it’s important to set up small, empowered groups and inject a sense of urgency into their mission.
Regardless of what business or industry you’re in, there are great lessons in each of these books. In a world as competitive as this one, we need all the insight we can get.
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