Arik Johnson’s Weblog

"We've found out that having a price is really cool for making profits," Hansson pointed out last spring in an entertaining presentation called "The Secret to Making Money Online." "You have customers, they pay you money for the product or service, and you get profits! It's almost too simple to work." Of course, 37signals didn't come up with this idea on its own, either: "I've heard that over time—hundreds of years actually—this has been how most businesses have made their money."

It's a lot easier to start a nice neighborhood restaurant than it is to start the best Italian restaurant in the world (the Google of restaurants). But just like their bigger brothers, neighborhood Italian restaurants make money. Sure, they don't make as much as the best restaurants in the world, but they do well enough—and it's not nearly as much of a headache to run a neighborhood restaurant as it is to run a place where investors, critics, and the world's press are breathing down your neck.

I still believe the chief hindrance to China's long term international competitiveness is not its resources or processes but its values and the impact those values has on its net productivity. If China is unwilling (not unable) to become more productive and let unemployment potentially float higher, they simply have no compelling competitive incentive to become more productive internationally with a well protected home market.

… killing bad ideas isn’t that hard — lots of companies, even bad companies, are good at that…. What is really hard – and a hallmark of great companies – is that they kill at lot of good ideas…. for any single good idea to succeed, it needs a lot of resources, time, and attention, and so only a few ideas can be developed fully. Successful companies are tough enough to kill a lot of good ideas so those few that survive have a chance of reaching their full potential and being implemented properly.

Large organisations are often incapable of changing course promptly, even in the hands of a capable consultant. So it sometimes makes sense to pursue innovation outside the main business. “You need to remove that risk aversion – one of the key barriers to fostering innovation”, states Attari. He describes a client that realises it has such a large mass moving in one direction that steering from that direction is a near impossibility. “How do they do logical experimentation in developing innovative capabilities that allow them to both test and assimilate while creating this new platform?” The solution is often a Skunk Works where a company can develop a new capability in a logical way, addressing the needs of the marketplace and internally growing and driving profitability growth without having a real impact on the traditional organisation.

McCain aides now say Palin is “going rogue” and straying from their script. Wow. What a condemnation. McCain sticks to the script. How well is he doing?

In truth, Palin’s real problem is not her personality or whether she takes orders well. Her real problem is that neither she nor McCain can make a credible case that Palin is ready to assume the presidency should she need to.

And that undercuts McCain’s entire campaign.

This was the deal McCain made with the devil. In exchange for energizing his base by picking Palin, he surrendered his chief selling point: that he was better prepared to run the nation in time of crisis, whether it be economic, an attack by terrorists or, as he has been talking about in recent days, fending off a nuclear war.

“The next president won’t have time to get used to the office,” McCain told a crowd in Miami on Wednesday. “I’ve been tested, my friends, I’ve been tested.”

But has Sarah Palin?

How do McCain aides get around this dire picture without the aid of strong drink? Let's just say that McCain's campaign now relies on hope more than Obama's does. They hope that the Obama organization isn't as impressive as signs suggest it is. They hope that the greater enthusiasm apparent among Democrats turns out to be less than advertised on Election Day. They hope that the public polls that show a big Obama lead are poorly designed, overstating participation by young voters and African-Americans. They hope undecided voters will all break to McCain in the end.

"The infield was tough. The ball would do funny things," Phillies second baseman Chase Utley said. "It was in bad shape. It was not playable."

Capital is the reward the market gives to good designs. Interestingly, though, the nature of capital changes over the course of a company’s lifecycle. Early on, a company’s capital is tied up in cash and the visions of its founders—but later, capital can be equated with what some economists have termed “know-how.” In classical economics, the necessary economic inputs for production are land, labor, and capital, but know-how—the sum total of an organization’s ideas, plans, and production capabilities—eventually replaces all of them as the economic driver in a modern company. A big part of know-how is derived from customers. Having bought and used a product or service, the customer develops not just an understanding of that offering but, more important, the know-how for what its next iteration ought to be. To capture and leverage know-how, companies must find better ways to understand what their customers know.

Think of it in evolutionary terms. Innovation is really a form of competition. Why do companies innovate? They innovate for only one reason: to outperform their peers, to create something that their peers don’t have from which they can gain economic benefits. And because innovation is a form of competition, it’s subject to the laws of evolution. If you look at the CPG sector from the macro perspective, what you’ll see is lots of companies introducing lots of new innovations, and it will look like many random events. Those that really meet consumer expectations or change consumer expectations survive — those that don’t, die. Ultimately, the environment chooses which products work and which don’t.

Management fashion is full of stark choices: Centralize or decentralize? Global or local? Cost or growth? There’s a long-standing proverb in the system dynamics field: “You can have everything you want, but not all at once.” In the 1990s, many consumer products companies decided that they would give up growth in order to have the security of lower expenses. Now they are riding the pendulum back to growth. But in the end, those who succeed in growing their company will do so with all their frugality intact. With an organization design in place that balances the roles of the core, the business units, and the functional infrastructure, they should be able to have it all.

Don't think I'm not a little worried about voting for Obama mind you… just less worried that I am about voting for McCain – here's an excerpt (the WSJ's Murdoch is starting to show):

… growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power.

The economic tides will not stand still while Washington experiments with European-type social democracy, even though the dollar's role as the global reserve currency will buy some time. Our trademark competitive advantage will be lost, and once lost, it will be hard to regain. There are too many emerging economies focused on prosperity and not redistribution for the U.S. to easily recapture its role of global economic leader.

A paradox of human life is that the evolutionary forces that have made us cooperative and empathetic are the same ones that have made us prickly and explosive. Jonathan Haidt, a psychology professor at the University of Virginia, is a leading theorist in the field of moral psychology. He says the paired emotions of gratitude and vengeance helped us become the ultrasocial, ultrasuccessful species that we are. Gratitude allows us to expand our social network and recruit new allies; vengeance makes sure our new friends don't take advantage of us.

You could say our lives as social beings are ruled by the three R's: respect—the sense that proper deference has been paid to our status, reputation—the carefully maintained perception of our qualities, and reciprocity—the belief that our actions are responded to fairly. In other words, high school may be the most perfect recapitulation of the evolutionary pressures that shaped us as a species.

Last night came final and irrevocable proof that the country is entering tough economic times, unseen since the 80s: AC/DC have returned to the top of the album charts for the first time in 28 years.

Even by the standards of a band whose commercial success is a given – the venerable Australian rockers have shifted more than 80m records since forming 35 years ago (in the midst of the 1973 oil crisis) – the circumstances of their 16th studio album's British success seem striking.

At one point last week, AC/DC's Black Ice was outselling its nearest competitor, Kaiser Chiefs' Off With Their Heads, by two to one, despite the fact that they declined to release it as a digital download, preferring vinyl and CD.

“You generally end up with managerial attention diverted to a complicated integration, and away from what they should be doing in the first place — managing the individual businesses to make them healthy,” he declares.

Think eliminating the the overlap in their product portfolios will mean big savings? Salomon is skeptical here too. “This integration will cost far more than either can imagine.” Instead of entangling themselves in a merger, Salomon suggests an alternative to floundering GM: “why not wait until Chrysler goes bankrupt? That accomplishes the same thing without the trouble of the integration.”

His first three disciplines–"keep the growth you have already earned," "take business from your competitors," and "show up where the growth is going to happen"–may seem obvious, and even beyond the control of the average executive. But Treacy provides frameworks for applying each as business practice, not just wishful thinking. His fourth and fifth disciplines, "invade adjacent markets" and "invest in new lines of business," are perhaps the most controversial. Here, though, he is not advising rampant conglomeration. Rather, he stresses the need for acquisitions and expansions made based on reliable data predicting long-term growth with risk spread over diversified investments.

What we are experiencing is not a normal correction but the equivalent of an asteroid strike. It will get worse. For another key environmental factor for the 1.0 model was cheap and easily available energy. As the new reality of Peak Oil becomes clear, then all business models also based on moving goods long distances and from huge central hubs fail. Of course this model is also based on massive usage of financial capital. So how does this play out and who wins? Mammals won for 2 reasons. They were small and because they raised their young they could extend their offspring’s ability to adapt by adding cultural learning to their natural instinct. We cannot know in any detail what the future will now bring. All we can know is that the nimble and the smart will do better than the clumsy and the unthinking. All we know is that any model based on large amounts of capital will not make it – so forget nuclear as an option for energy.

Radical conservatives are still having an interesting time of it, though these days they are being mutilated by fellow "conservatives." The well-fed Right now cultivates ignorance as a political strategy and humiliates itself when its brightest sons seek sanctuary in the solitude of personal honor. The truth few wish to utter is that the GOP has abandoned many conservatives, who mostly nurse their angst in private. Those chickens we keep hearing about have indeed come home to roost. Years of pandering to the extreme wing — the "kooks" the senior Buckley tried to separate from the right — have created a party no longer attentive to its principles.

THE NOMINATING process this year produced two unusually talented and qualified presidential candidates. There are few public figures we have respected more over the years than Sen. John McCain. Yet it is without ambivalence that we endorse Sen. Barack Obama for president.

The choice is made easy in part by Mr. McCain's disappointing campaign, above all his irresponsible selection of a running mate who is not ready to be president. It is made easy in larger part, though, because of our admiration for Mr. Obama and the impressive qualities he has shown during this long race. Yes, we have reservations and concerns, almost inevitably, given Mr. Obama's relatively brief experience in national politics. But we also have enormous hopes.

In the near term, a fattened GM in the United States arguably could become "too big to fail," a cynically convenient achievement in today's climate of political change, economic uncertainty and market intervention. How better to position the combined GM-Chrysler entity to lobby an Obama Administration and a solidly Democratic Congress for a direct government bailout than by making it indispensable?

We can't use the word innovation here, because if a market is known and a company has a good foothold in that market already, they should be very impatient for growth: invest aggressively and get ahead of the competition is the only way to succeed. But this particular type of innovation we call disruption needs a longer runway for it to take off, and part of the reason is that many of the strategy details are just unknowable in advance. You've got to get into the market, try a few things, fail a few times and iterate towards a viable strategy. Then, once the strategy is known and tested, it's very important to invest aggressively to grow. But the evidence really is strong that when a corporation needs that new business to get very big, very fast, they won't allow it to take that time on the runway — the time to make sure it's headed in the right direction. They just force it to take off very quickly and almost always, it fails.

I have a little vignette in The Innovator’s Dilemma about how people were trying to fly in the Middle Ages by fabricating wings, strapping them onto their arms, jumping and flapping real hard. For centuries subsequent innovators framed the problem as: The guys who died just didn’t flap hard enough. Yet it still never worked. Once they understood that there were some basic laws of nature that they needed to account for, once Bernoulli understood fluid mechanics well enough to articulate his principle, then there was a law of nature we could actually harness. I think that to some degree prior to my research, a lot of good managers were flapping their wings. They were working very hard to fight some fundamental laws of organization nature.

Being president is more of an improvisation than a neatly scripted plan. It's about reactions as much as actions. What we need to know most about a president is how he thinks, how he listens, the strength of his worldview and the nimbleness of his mind.

Dang!

Sex addict David Duchovny and his actress wife Téa Leoni have split up – but not for the reasons one might think. It was not his 'sexual compulsion proclivity' that caused the break-down of their marriage, but rather his discovery of explicit text messages on her mobile phone sent by actor Billy Bob Thornton. Through the texts Duchovny found out she had begun a relationship with Oscar-winning actor Billy Bob Thornton, 53, who was formerly married to Angelina Jolie. The couple are separating after 11 years and two children, daughter Madelaine West, 9, and son Kyd, 6. Five-times married Billy Bob met Téa when they made a comedy film together earlier this year called Manure. Thornton, a musician with his own band, has been seen with Téa at his gigs. 'She even helps him load and unload his truck,' says a friend of the couple.

'Madonna believes the reason she is a world icon is that she has somehow been chosen to channel messages to the masses. She feels her destiny has been preordained. Guy on the other hand thinks that's a load of b*******.'

Lauren spent a lot of time during the "Party Like Paris" challenge—during its eight-hour nightclub crawl, before its sunrise yacht trip—flirting with guys. Inadvertently revealing that her name-dropping skills need polishing, she disclosed to one, a little anxiously, "Paris Hilton. We're kicking it with Paris Hilton. Just lettin' you know." The gentleman, proving himself well-schooled in contemporary etiquette, did not fumble in finding the most correct reply: "That's tight."