Elon, run your business like a government!
Better still, let it run like one
Revolutions are when evolution goes bang. By that measure, Elon Musk was already a revolutionary twice over when he acquired Twitter. He made his name by being first to demonstrate the newly possible – that both demand and assorted technologies had evolved to a point where electric cars and reusable rockets could, with the right approach, be commercial.
With Twitter he’s demonstrated the point to which firms have evolved. But this time he’s done it by getting it wrong. It’s not that his reach exceeded his grasp – he’s still grasping – it’s exceeded his business paradigm.
I deliberately said Musk made his name by demonstrating the newly possible. Musk didn’t do the newly possible. Today’s CEOs don’t do things, they cause things. Forgetting that was his first of two mistakes.
Mistake 1, he’s running Twitter.
Musk’s decision to buy Twitter may or may not turn out to be a blunder but his attempt to run it is.
In the industrial era great managers knew what they wanted and how to get it. In the Ideas Era they get what they will want when someone shows them. They follow leaders. That’s the best they can do because of the 3Vs of ideas, the first two – volume and velocity in particular.
Frederick Hayek once said: “…civilization rests on the fact that we all benefit from knowledge which we do not possess.” We humans have always known more collectively than we individuals know. But until recently it was possible to know all about your own product at least. Henry Ford was the celebrity manufacturer of his day much as Elon Musk and the late Steve Jobs are, or were, of ours. A measure of the change since Ford’s time is that we’d never refer to Jobs and Musk as manufacturers. Ford knew how to make a car and figured out how to make cars cheaper and more quickly than his contemporaries. He visited the assembly line and told workers how to do their jobs. Jobs, Steve that is, was good at telling people what he didn’t want and, in a very high-level way, what he wanted – famously, an MP3 player with only one button – but he had to leave it to them to figure out how to do it.
Neither Jobs nor Musk could know as much of the sum of knowledge of computers, rockets, and electric cars as Ford knew of the sum of knowledge of automobiles in his day. Henry Ford’s generation of senior managers was the last that knew exactly how to make their products. His Model T had fewer than one hundred different parts. The modern car has over 30,000 parts.
As Peter Drucker wrote in 2001,1 there is now too much specialized knowledge to be confined to even one sector let alone one person or firm.
Collective knowledge: a cast of thousands
A few years ago, Matt Ridley claimed to have a fishing rod “nobody on the planet knows how to make…” He wasn’t bragging about having, like the emperors of old, commanded the finest artisans to craft something unique and, when they’d finished, bade his janissaries put then to the sword. He’d ordered it on Amazon for £17.
What he meant was that it required collaboration between firms that knew nothing about what the other did, respectively: a fishing gear maker, 3M, and the Cambridge Centre for Micromechanics utilizing a modelling tool developed by the engineering profession, running on a computer – the product of goodness knows how many specialists starting with Charles Babbage and Ida Lovelace.2 Contributors are not just “suppliers”. They are design and development partners because they have expertise the final producer does not.
Some assembly required
The industrial Age consolidated most of the value chain in the new factories. During the Information Age the value chain spilled out of owner-operated factories into markets. But in the Ideas Era value creation is not a matter of assembling parts acquired through market transactions or outsourcing production to a third world plant. As with so many things now, this rod is the product of two assembly processes, the parts that are bought in the market and the seemingly unrelated expertise of separate organizations. It could not have been created by any one person or firm acting alone. The value is the product of relationships.
Mistake 2 – he’s not running Twitter like a government.
This time Musk demonstrated the impossible. In the Ideas Era it is impossible not to run a business like a government at least to some extent.
Admittedly Twitter is an extreme example. Its product is a public square. Its ownership is private, but its business is public.
We have been so busy decrying the privatization of the public square we missed the publicization of the corporate sphere. Like all social media, Twitter’s financial success depends on attracting people to its public square.
Managing public squares necessitates the sort of decisions public institutions make, not least about competing community values. Mark Zuckerberg took a page out of the public sector playbook when he devolved power to an independent court of sorts to oversee content on Facebook. Musk on the other hand is manager, spectator, player, and referee simultaneously and failing at all four.
Among his first acts as dictator of his public square was cuts to the police and sanitation departments. Any mayor could have told him that businesses in and around the square would quickly shutter their shops.
Social media are obviously part of the political world. They perform the same function as political parties, connecting people and issues. (Albeit from opposite ends. Political parties aggregate issues for people while social media aggregate people for issues.) This makes Twitter a strange world for people like Elon Musk. Its financial bottom line is so inextricably tied to what I call its democratic bottom line the usual signals, supply/demand and market pricing, and real competitors aren’t determinative of success. However social media is not unique in the business world. It may be the pointy end of the ship - with Musk at the bow shouting “I’m the king of the world” at least initially - but businesses have been moving in the direction of government for years either as passengers or crew.
The democratic bottom line
In the mid-1990s I, at the time a government official, gave a speech to about 500 businessers.3 I told them how fortunate they are to have a financial bottom line and competitors. “I don’t have either,” I lamented. They chuckled politely but when I added that business is getting more like government, I learned that businessers don’t mind being compared favourably to government, but they don’t like being equated to it.
Bear with me, I’m about to try again.
Government isn’t business done badly
To be fair, they were burdened with the conventional wisdom that business is efficient and hard driving while governments are ineffective at best and malign at worst. Businesses attract energetic go-getters (What then is Dilbert?) while governments attract plodders who are by nature indolent and officious. In news, books, and movies senior public officials are stupid and evil – although how it is possible to be so bad at good and good at bad eludes me to this day.
I, on the other hand, had the advantage of seeing that the burgeoning concerns and practices of businessers were a lot like mine.
The point I was making about why government seems so much worse than business is that businesses are compared to competitors while governments are compared to perfection. The second point is that it’s because of the fundamental difference between business and government, their bottom lines.
Competition and the financial bottom line provide firms an objective performance standard. The bottom line for democratic governments is public confidence they are acting in a construct called “the public interest”. Unlike the financial bottom line, which is cruelly objective, the democratic bottom line is cruelly subjective. Opinions about the public interest are controversial, fuzzy, capricious, kaleidoscopic and idiosyncratic. The only thing that can be said with certainty about “the public interest” is that it is most often coincident with self-interest.
“A government that robs Peter to pay Paul can always depend on the support of Paul” - G. B. Shaw.
It can also depend on the enmity of Peter. – D.J. Keefe.
A firm making electric toothbrushes is successful if its profits compare favourably to its competitors. A government’s electric toothbrush venture will be assailed from the right for competing with the private sector and from the left as a mean spirited substitute for a complete dental care program. Both would agree production costs are too high, the plant ought to be somewhere else – though they’d squabble over where - its compensation plan too low at the bottom and too high at the top, and supply chain downright immoral. If it’s not making a profit, it’s incompetentit and, if makes a profit, it shouldn’t .
None of this is to say that running a successful business in a competitive world is easy or that governments don’t do stupid things. It isn’t and they do. Sometimes the public demands stupid things and other times the government achieves them on its own. Just as there are economies of scale, there are stupidities of scale – but that is something the public and private sectors have in common.
Nor is it a whine that governments are maligned unfairly. It is that the democratic bottom line is susceptible to malign unfairness.
That brings us to the third point and the one that should interest business because, while the public sector has been deliberately adopting some of the characteristics of the private sector at its routine levels since the 1990s, business has been reflexively assuming some of the characteristics of the public sector at its most strategic levels because of the growing importance of reputation, recognizance, and relationships. In other words, “confederations” and “constituencies” - as Peter Drucker would call them - and brands above all.
To see how brands and relationships complicate corporate decision making we need look no further than Drucker himself who famously urged firms to “Do what you do best and outsource the rest.”
Fractal firms
You’ve outsourced your value chain to low wage factories halfway around the world. They bid for the right to make and assemble parts for you. Henceforth production will be left to the market. There is a crisp line between the internal and external worlds of your organization. Your firm is a brain and a brand in a Bell jar. Just as Drucker imagined.
Everything can be contracted out - except brands. And, if you hope to develop new products, you are going to need relationships, not just transactions.
Brands and relationships are measured in degrees of trust, shared values, good will, and confidence.
Brands sum-up and underpin relationships. Regardless of who produced a product, brands are its pedigree. People are interested not only in the quality of a product but the qualities of the firm that brands it – specifically that the brand reflects well on them. Brands also play an important part in recruitment, human resource management, supplier relations and supply train management, regulatory affairs and public policy making more generally.
Protecting brands is a political act not a financial calculation.
When the Rana Plaza, a building in Bangladesh containing garment factories, collapsed in April of 2013, killing 1,130 and injuring 2,500 others global revulsion pushed clothing retailers to impose varying workplace safety requirements on their suppliers. The adequacy or sincerity of their efforts can be debated, but the companies still felt the need to act or, to borrow a phrase from the public sector, to find “something we can appear to be doing.” Who can say whether the retail bosses of the developed world were honestly appalled or just protecting their brands. They were certainly protecting their brands but that doesn’t mean they weren’t also appalled. When self-interest and public interest pull in the same direction, big things happen.
Thanks to brands, society's norms are imposed on corporate norms and pricing signals because brands are a handshake. Firms that contract out production are still vertically integrated virtually; publicly accountable for each link in the value chain including the parts they no longer manage.
This is not new. In the 1790s, Elizabeth Heyrick led a consumer boycott, urging her fellow citizens in Leicester to stop buying “blood-stained” sugar from the slave plantations of the West Indies. Soon ceramic manufacturers began putting antislavery mottos on sugar bowls and eventually, the massive East India Company gave in and obtained its sugar from more costly free labour producers in Bengal.
What is new is the horizontal vector of ideas. The future when “everyone will have 15 minutes of privacy” is here.4
For years the value of brands increased lockstep with the volume and velocity of information thanks to brands’ ability to navigate our news nozzles. The horizontal vector of ideas has made brands more fragile because it is so much easier to spread fantasy and so much harder to explain reality. Any detail or, worse, image, can be brought unverified to world attention by anyone.
What the Information Era gave by making outsourcing easier and cheaper, the Ideas Era took back by turbocharging brand owner accountability.
So what?
Brands, like heads of state and aircraft carriers, are particularly attractive and vulnerable targets that must be extravagantly protected.
The democratic bottom line is always foremost for government. Its financial bottom line of varies in importance depending on how people are feeling about public finances and taxes. Until recently, and still today for most business, the financial bottom line is foremost but the democratic line has gained in importance with the steadily rising importance of brand and relationships.
The problem is the democratic line offers lots of guidance but little direction. So more and more strategic corporate decisions are made without the clarity of comparing your costs and your competitors’ prices. That is, firms make non-market decisions in hopes of eventual market success, just as politicians make unpopular economic decision in hopes they’ll have a salutary effect come election time.
If the idea of business having anything in common with government still seems wacky to you, consider whether any of the five laws of political physics resonate in your corporate life. I formulated them twenty years ago, in a misguided attempt to enliven a PowerPoint presentation on government. As I recall, they went roughly like this:
1. The law of fluid dynamics: the democratic bottom line is turbulent.
2. The law of thermodynamics: expectations rise.
3. The law of supply and demand: the demand for, and supply of, simple answers to complex questions is unlimited.
4. The laws of evidence:
a. Truth is the only thing we can prove but its unconvincing
b. A half-truth is twice as powerful as a truth.
5. The law of constant criticism: choose the course that results in criticism you are least uncomfortable with – which is not necessarily the least criticism.
What can the public sector teach the private sector? Democratic governments are actually quite good at crisis management, relationship management, and reading non-market signals. Politicians are expendable, institutions persist (although the threat to institutions are also under threat from the vector of ideas)
PS: Another reason for businessers to consider the lessons the public sector has learned over the years through hard experience: inside every business, management is the government.
Government and business kinship won’t be a regular theme for me but I will return to it as the occasion requires.
Yes, “businessers”. We have firefighters, letter carriers, doctors, lawyers, and even chairs - I still feel a bit weird being a chair even after chairing hundreds of meetings - why do “businessmen”, “businesswomen”, and clunkiest of all “businesspersons” persist?