Six Leadership Principles For Competing in The Modern Era

Six Leadership Principles For Competing in The Modern Era

I was recently asked by a client to explain some of the operating principles required to live in a VUCA world so it made sense to write a quick piece about the frameworks and principles that leaders in today’s world ought to be aware of.

There are literally thousands of frameworks out there, and every discipline has its own set. Below are the ones I feel come up repeatedly in the work we do to help organizations change their Operating System. I have attempted to enumerate some of them but they are clearly biased from my own experience and surely incomplete.

These frameworks and principles are less prescriptive and more geared towards helping you understand a particular aspect of how your organization (or the world) really works.

Here goes it:

I. First Principles Thinking

A classic process that boils things down to their fundamental truths. The method was widely popularized by Tesla/SpaceX CEO Elon Musk in a fantastic interview with Kevin Rose. First principles thinking is usually used as an alternative to thinking by analogies, which is when we do things just because that’s the way it’s always been done. It forces you to look at the fundamental facts of a situation and to use your own reasoning and mental models to solve a problem rather than defaulting to the way the rest of the world thinks.

Musk and his team used this mindset when starting SpaceX and eventually figured out that a rocket can be built for 2% of the typical price(!) just by breaking it down into its materials constituents and the individual cost of its raw materials.

The idea has deep roots in Greek philosophy where over 2,300 years ago Aristotle claimed that pursuing first principles is the key to doing any sort of systematic inquiry — be it in philosophy or in business as Musk does.

Today it remains a favorite weapon of brilliant minds — physicist Richard Feynman, investor Charlie Munger, mathematician William Thurston, and Elon Musk have all carefully cultivated this point of view via self-directed learning and deep thought to attack problems from a different angle and in the process unleash an idea of minor genius.

This is what first principles thinking looks like:

Tesla Masterplan, Part Deux

Don’t live by analogy, use first principles.

II. Risk Taking

A critical element of First Principles Thinking is risk-taking. Classic strategic planning assumes smooth change and a linear continuity of events. That assumption is WRONG. Today when change occurs, it’s sudden and exponential. Organizations with a low tolerance for risk taking face future obsolescence and usually scramble to survive when it’s too late in the game (remember Kodak?).

On the other hand organizations that often push boundaries and risk failure find themselves better hedged to navigate and cope with turbulence. Nintendo is a great example of this. The video game company initially produced handmade playing cards in niche businesses before pivoting to electronics with the GameBoy. Then in 2015, it took part in a series A funding round for Niantic Inc, the company behind Pokemon Go. The app launched in July 2016, adding as much as $7.5 billion to Nintendo’s market cap in the span of two days only. But, let us not forget Nintendo’s many setbacks and failures along the way including the Virtual Boy, GameCube, letting Sony launch the Playstation, GameBoy Camera, and Wii Speak (Full list here).

Risk taking expressed through frequent experimentation and relentless iteration allows any large organization to get better with each new repetition and to learn new processes. These organizations optimize for learning and adaptability by constantly testing new combinations of their products and services in the market (and not relying on PowerPoint decks).

That mentality is often associated with start-ups and entrepreneurs, but any leader can bring it forth to their organization and team. Large organizations that are wary of public failure can instead channel their risk taking efforts with line items instead. Leaders can foster this environment by making multiple bold bets and iterating on them, while still accepting that some, if not most, will fail.

The takeaway message isn’t to control for risk but to take a risk and make sure you get the maximum impact by persevering through productive failures or rapid iterations.

III. Long Term Bets

If risk taking helps leaders think about change and uncertainty, long term bets is the principle of prioritizing investments with a 7–10 year time horizon in mind. The answer lies in Amazon CEO Jeff Bezos’s letter to shareholders in 1997 — “It’s all about the long term.” To Bezos, if you’re working with athree year time horizon then you’re competing against a lot of people. But when you’re willing to commit to a seven plus year time horizon, then you’re competing against a fraction of those people because very few organizations are willing to do that. This doesn’t mean crafting five or seven year business plans, rather, Bezos advocates for setting a crisp vision of what you set out to accomplish and remaining flexible on the details. Amazon, Alphabet (including Google), Facebook, Tesla, and Netflix are all great examples of organizations that are willing to lengthen the time horizon to develop projects they couldn’t otherwise pursue.

IV. Digital-First Mindset

Today the dominant video player is a digital company, the dominant music service is a digital company, the largest hotelier is also a digital company.

We live in a time where in a groundswell of categories the leading, dominant, and fastest growing player is quite likely a digital company. These top performers are operating from a completely different playbook than the rest. They are using a different operating model. They are hiring differently. They are made up of people approaching problems in a particular way while others watch them and lag behind.

What separates Uber from the Taxi commission isn’t the product but how they are doing things, how they are tuning their operating model to use technology for creating new utilities and solutions for their customers.

This isn’t digital in the sense of digital software, but digital as a way of thinking. It is the dominant paradigm that is winning, connecting the customer, community and product seamlessly.

Once you understand the power of this mindset you can start to run organizations in the most optimal way possible.

V. Exponential Growth

Most long range business forecasts dramatically underestimate the power of future events because they are based on assumptions of smooth change and linear continuity of events. Exponential growth is the concept which argues that key measurements like computational power, cell growth or data, are multiplied by a constant factor for a unit of time (e.g. doubling every year) rather than just incrementally increasing (i.e. linear growth). This concept is best illustrated by futurist Ray Kurzweil’s work on the laws of accelerating returns (summarized well here) and given a long treatment in his 2001 blogpost.

The point is that exponential growth, when it occurs, is often more severe and rapid than predicted. This principle underlines the importance of the other frameworks in this piece.

VI. Customer Obsession

Given the reality of rapid change and shifting market trends, customer service has emerged as a key value provider. Because of the evolving nature of our digital economy, more and more value is being captured in the service offerings and analytics to understand customers in an individualized way. This mindset goes beyond paying lip service as a customer centric company, but being customer obsessed. Online shoe retailer Zappos primary mission is to delight their customers no matter what, CEOs at T-Mobile and Apple relentlessly immerse themselves in customer emails and commentaries. In these organizations, the customer becomes the centrepiece of the organization’s credo. Senior leadership goes beyond declaring that the customer is king but continuously fights and invents new ways to serve its customer base.

First impressions matter, but it is lasting impressions that are really paramount to success here. To become customer obsessed, start with the customer’s need (low prices, fast shipping…) and work backwards.

The combination of this first set of frameworks and principles should represent the key ingredients for leadership teams looking to adapt their strategy, management and operations to today’s world. The convergence of these principles is where most leaders will be able to create substantive breakthroughs within their organization in the 21st century era. Watch this space for more important discussions and don’t hesitate to get in touch for further discussion.