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First up today is a review from Knowledge @ Wharton Of Dov Seidman’s HOW: Why How We Do Anything Means Everything … in Business (and in Life). The book focuses on building a corporate culture where “”how” matters more than “what” in business, and how “should” matters more than “can.”" Seidman believes that “companies and their people can operate in both a principled and profitable way.” He believes that “A leading company should be a company of leaders.”

Next, and interesting interview on IT World with CIO Tony Scott who is charged with creating a culture of innovation a la Google at Microsoft—wow, talk about a challenge!

Third, a look at Charles Liang, co-founder and chief executive of $600 million Super Micro Computer, a 15-year-old computer maker with 850 employees. Liang is a one-man management band, so the big question is what happens if he goes poof?

Finally, from Business Week, the opportunity to nominate your choice for the best—or worst—Manager of the Year. The worst category offers the most opportunity, but for a greater challenge think about who deserves best. Please share your nominations here, too.

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Jim Gordon shares his own view of the world here every Sunday. Today is the first of three holiday specials sure to tickle your funny bone and add to your fun. See all mY generation posts here.

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Be sure to check out my Thanksgiving salute to our current leaders

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Previously…. We reviewed in some detail how the lessons of evolutionary replication and variation may provide insights into business. This time we will begin exploring the third of the three basic elements of evolution:

• Replication;
• Variation;
• Selection.

How Does Evolution Pick Winners?

The title question is a trick.

Evolution does not pick winners.

In the first post on this topic we discussed how the environment provides the fitness criteria.

Evolution simply generates a large number of variations. Each variation then “discovers” one specific segment of the environmental topography. With enough variations, evolution can draw a pretty good topographical map of the environment for that species.

In some sense, the species itself is the map of the fitness criteria of the environment. The more closely a species conforms or adapts to the topography of the environment, the better is its fit to that environment.

Good adaptation to the environment is the definition of fitness and survivability.
The simple figure below illustrates how an organism with five features fits its environment. Obviously, it drastically oversimplifies the selection process, but provides a useful starting point for our discussion.

Evolution does not use a calculator to determine fitness. It simply generates millions of organisms, and lets the survivors map the terrain.

We may want to think of each survivor as a single yes/no vote, but evolution does not tabulate the votes to select a winner. Each survivor is a winner in the evolutionary selection sweepstakes, so that winning organism gets to transfer its entire DNA to the next generation.

Evolution may be very harsh, but it is also extremely respectful of each organism. Each survivor wins in toto.

Measuring Fitness—Non-Linear Optimization

Mathematically, we can calculate the fitness of the organism to its environment by measuring the difference between feature points of the organism and corresponding points in the environment. One such calculation is a “least squares” error, which sums the squares of the differences, or errors, between each pair of points.

In addition to the squares algorithm, which measures how well two irregular lines fit each other, mathematicians have developed the linear programming algorithm, which actually calculates the best fit of any set of points (service features) with any other set of points (environmental features).

If this linear programming technique is so powerful, why don’t we just put all the business environmental variables into it and solve for the perfect service?

Because linear programming is much too simple to capture the complexities of the environment for any service.

To be solvable, a non-linear program requires “n” equations with no more than “n” variables, and all variables must be connected in linear relationships.

The real-world environment of survival has many characteristics which defeat a linear optimization program:

• many variables are unidentified;
• most variables have non-linear relationships;
• many variables and relationships change over time;
• many variables work in clusters.

Selection is an arms race.

Many variables are unidentified. In fact, one of the big challenges is to identify which variables participate (or are relevant) to the cluster of fitness criteria for a specific service.

• Does gasoline color affect the demand for it? No, color doesn’t matter.

• Does smell affect the demand for natural gas? Ironically, we know this is true. The smell of natural as is injected artificially, specifically to alert a person to a gas leak. Odorless natural gas is not saleable.

Most variables have non-linear relationships. That is, the service needs some amount of a specific variable, but too much or too little makes no difference to the ultimate fitness of the service. For instance, let’s look at one possible curve for the effect of price on demand.

Below some price, the demand for any product is extremely large. At the extreme low, a price of $0, people will simply use all that they can consume. This typically remains true until the price reaches some threshold value, at which demand now becomes sensitive to it. That is, each penny of increase in the price reduces the demand linearly. Finally, at the far right of the curve, the price reaches a point where the demand drops nearly to zero. This is the classical lazy-S adoption curve.

The price of gasoline is an excellent example of this.

• Below $2.00 per gallon, the demand for gasoline is relatively flat. In other words, prices below $2.00 per gallon do not significantly affect our consumption.
• Above $3.00 per gallon, we start to reduce consumption.
• Above $4 per gallon, we dramatically reduce our consumption.

This has been irrevocably proven in Iran and Venezuela. Both countries subsidize gasoline, with prices well below $1 per gallon. In both countries demand far exceeds availability, so much so that other rationing mechanisms have developed—lines at distribution points, and black markets that offer gasoline at much higher (market) prices, but with easy availability.

At the other extreme, consider markets in Europe, where the price of gasoline is routinely $10.00 per gallon. The obvious results are smaller cars, lower gasoline consumption per capita, and much greater use of alternative transportation. The less obvious results are reduced sensitivity to further price increases. Further increases in the price of gasoline will have more limited effects on consumer behavior because consumers have already made significant adjustments.

All this proves that evolution’s selection process is active  and accurate in the business arena.

We have covered a lot of ground to date, with an introduction to evolution and its three basic functions.

Join us next week when we take a moment to review the fundamental parallels between evolution and business.

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Both Jim Stroup, at Managing Leadership, and Richard Barrett here at MAPping Company Success are discussing the need to avoid wasting resources on projects going nowhere.

Richard calls those projects that won’t die vampires and after reading Jim’s post, he and said, “Yeah, killing vampires is hard. The challenge is not the rational analysis, which that blog describes. It is the emotional act of letting go that causes the difficulty.”

It seems as if I’m always the one that ends up tackling the emotional stuff, so here are some thoughts on letting go.

The unwillingness to let go is anchored in your MAP (the link goes to a blueprint of how to change it).

Letting go is very similar to those team building exercises, variations of which have been around for decades, such as the one where you fall backwards from a height trusting your team to catch you.

It’s scary, not because you’re up that high, but because it requires real trust and the result is outside of your control.

Killing a vampire project is like that.

First, you need to trust that the people around you are giving you straight information with no hidden agendas.

Second, you need to accept that the failure of that version or even the entire project is outside of your control.

Finally, you need to accept that no matter how good you are you won’t always be right.—even Steve Jobs had Lisa and Newton.

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See all mY generation posts here.

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Bloggers know that coming up with interesting topics and original content every day, as opposed to big blocks of quotes from articles and other blogs, is difficult. Writing for Saturday is especially challenging because you never really know who is cruising around or what the mood is.

Additionally, I’m always finding interesting articles I want to share, but they don’t really “fit,” so I’ve decided to offer up those odd thoughts and links on Saturday; hopefully finding at least one thing to pique your interest.

• In my (probably) final comment on this subject I’d like to offer up my congratulations to all those Alaskans who put ethics in front of tradition and ousted Ted Stevens from his Senate seat. The Senate thanks them, too, since now they don’t have to choose between honoring ethics or doing business as usual.

• An interesting post on the problems for women in IT with links to several additional articles and posts. The problems for women in technical fields such as IT are myriad. Few women ever have to worry about the glass ceiling, since they rarely rise that far. Rather think about the glass floor and non-existent elevator; the former prevents entry for most and the latter sees to it that the ceiling remains out of reach to the few who pass the first barrier.

• From the NY Times an advisory on avoiding the ads that inundate you at every turn and every milieu. Lots of useful links to help you and some great final advice that I live by.

• New software from MIT’s Dr. Alex Pentland offers a future promise of a way to analyze your everyday chat to determine the unspoken thoughts that lurk behind the words. The potential improvement in interpersonal communication could be enormous.

That’s it for this Saturday. Please let me know if you like this feature or it should be sent back from whence it came.

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Yesterday I mentioned four basic traits of good culture. Today I want to talk about another one that many people, especially those running startups and small companies, often don’t like and don’t implement.

Process.

The problem is that people frequently confuse process and bureaucracy.

• Process is good—it helps to get things done smoothly and efficiently.

• Bureaucracy is bad—it’s process calcified, convoluted, politically corrupted, or just plain unnecessary.

The hallmarks of good process are

• easy-to-use and flexible method of accomplishing various business functions; and
• informal without being haphazard, and neither ambiguous or confusing.

Occasional surveys (internally asking staff and externally asking vendors and customers how things are working) alert you to when processes start to mutate. By creating a skeletal process and a corresponding graphic in areas where it is needed (financial controls, hiring, purchasing, etc.), you lay the framework for your growth in the future, no matter how hectic.

Bureaucracy stems from people, be it a CEO or first level supervisor, who believes that her staff is so incompetent that it is necessary to spell out exactly how every individual action, no matter how small, needs to be done.

To correct this, the manager responsible must

• must recognize and take responsibility;
• reduce his own insecurity;
• increase his belief in his current staff; and whenever possible
• hire people he thinks are smarter than himself!

Bureaucracy is also fed by people’s fear of change, “We’ve always done it like that.” and similar comments are dead giveaways.

Another significant factor that contributes to unnecessary bureaucracy is the failure to align responsibility and authority.

If a person has the responsibility to get something done (design a product, create a Human Resources department, meet a sales quota), she should have enough authority (spend money, hire people, negotiate with outside vendors) to get the job done.

Giving people responsibility without concomitant authority forces them to constantly ask their superiors for permission, thus reducing productivity, and lowering moral.

The final, and most important difference between process and bureaucracy is that people like working for companies with good process in place, and hate working for those mired in bureaucracy.

But not for long—they leave—making bureaucracy-eradication a major tool in the culture and retention game.

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A lot has changed since I started RampUp Solutions a decade ago. Back then, getting a CEO to discuss corporate culture ranged from difficult to impossible in direct proportion to the size of the company.

Bosses often viewed culture as an abstract concept, a creation of consultants to increase billable hours, but not something that would/could impact on the bottom line.

But that was then, this is now.

“82 per cent of [Canadian] executives surveyed said culture has a strong, or very strong, impact on their company’s performance.”

Meanwhile, in the lower 48, from a new study on innovation, “Corporate culture is, above all, the most important factor in driving innovation,” said Rajesh Chandy, a professor of marketing at the University of Minnesota’s Carlson School of Management and a charter member of the U.S. Department of Commerce’s Advisory Committee on Measuring Innovation in the 21st Century Economy”

Innovation and healthy bottom lines go hand in hand. While innovation may not be the quick bottom line fix that layoffs and other cost cutting actions are, it is the preferred choice of CEOs who understand that surviving isn’t enough.

What weight do other factors have in driving innovation?

“…among traditional drivers of innovation such as government policy, labor, capital and culture at the country level, the strongest driver of radical innovation across nations is corporate culture.”

Chandy goes on to say, “It is important to realize that all innovative companies look alike. They share a common culture no matter where they are located.”

Nearly three years ago I wrote about what people want and don’t want and it hasn’t changed much, if at all.

There are many cultural traits to consider, but here are the four basics that are required, although the words used to describe them keep changing, if you want to foster a culture of innovation.

• Open, honest, constant communications
• Never kill the messenger
• Accept and act on input from all levels
• Walk your talk

And the next time someone tells you that corporate culture is a myth composed of smoke and mirrors, remind them that there are still people out there who believe the Earth is flat.

Click for a direct download of “Radical Innovation in Firms Across Nations: The Pre-eminence of Corporate Culture.”

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