Getting better at getting better...
The title is a phrase used by one of my former professors at the Harvard Business School, a noted game theorist. He distinguishes average firms from outperforming firms by the latter’s focus on building company structures that don’t just increase performance, but accelerate it.

This is a subtle but extraordinarily important distinction, brought home by the following word picture: imagine that I hold a piece of paper. I fold the paper in half, then I fold it again in half, and then again. After I have folded the paper another 30 times, how tall is that stack of paper? Answer: over 135 miles. This remarkable outcome is achieved by doubling the previous fold, in essence using 100% of the past to drive performance in the future, keeping the rate of output constant. Businesses that grasp this, and subsequently put the ideas into action have an outsized opportunity for growth – especially given that these reinforcing effects can be harnessed at both sides of the P/L statement simultaneously. Ford Motor Company achieved this in the 1920’s by creating factories (and a monolithic product line) that took advantage of learning curve effects. Google did this by first creating a technology (search methods) and an infrastructure (Linux clusters) that could be rapidly deployed across a range of service channels.

It is trendy these days to write about “smart” companies, best practices, and so on. That is all well and good – but what about dumb, or at least blind companies that learn at high rates? A company that is engaged in a product line or service with no precedent, yet that builds processes for capturing and exploiting learning is just as high on the best practice scale as the companies that we deem “smart” at a particular point in time. That’s good news for all firms, no matter how well you perform today.

Now understand that “closing the loop” from outcome to learning to adjusted action is not trivial. Most companies have immune responses to such things, because learning is painful and public; learning is thoughtful work. Most of the firms I’ve observed in my career that have pulled off the “better and better” dynamic have done so at the willful behest of a committed group of employees or a brave, progressive leadership team. Models can help – by their very nature, business models demand attention, spur debate, and shed the light of analysis on dark corners of the landscape of a firm, where long held beliefs and business rules have rarely been questioned systematically. But those teams pushing the envelope of what is possible frankly need some air cover from the top as a license to overturn entrenched institutional structures.

Good luck, business leaders...this stuff ain’t easy. And we may not be the smartest two guys in the business world, but we’ve done some things with some bright, progressive companies - specifically under the better and better theme - that we would love to share with you. You know where to find us...we’re on top of a very tall stack of paper.

George Danner
- posted by Industrial Science @ 10:26 AM 2 comments