Our Thinking

Riches to Men of Understanding

Posted by Dave Gillies on Jan 21, 2013 10:14:05 AM

I recently had the opportunity to hear Malcolm Gladwell deliver the keynote at the Centrallia business conference in Winnipeg. I was really looking forward to the event, knowing that Gladwell would deliver ideas that were thought-provoking, maybe even controversial. He began with scripture:

"I returned, and saw under the sun, that the race is not to the swift, not the battle to the strong, neither yet bread to the wise, more yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all." (Ecclesiastes 9:11)

His theme for the evening would focus on business and examine the notion that success is often not guaranteed by being the first to market, nor being the market leader, nor having the smartest or most experienced employees. Gladwell suggests that the record shows that in fact the underdog wins on far more occasions than intuition would expect.

Gladwell gave several examples to illustrate, starting with an analysis of the Beqaa Valley Turkey Shoot, a battle that took place in June 1982 between Syria and Israel at the beginning of the First Lebanon War. Syria had deployed numerous SAM batteries in Lebanon along the Israeli border. Israel reacted by invading, and within two hours, had destroyed 17 of the 19 batteries and shot down 90 Syrian aircraft, all while not losing a single aircraft themselves. This circumstances surrounding the battle have been studied in depth, and areonsidered the most lopsided since the Korean War, possibly since World War II.

At a very basic level, a combination of strategy and technology is credited. Israel deployed AWACS planes above the battle to provide real time intelligence, UAV scouts with electronic countermeasures to foil radar tracking, and fighter aircraft with high precision radar guided missiles at low levels to support ground troops. Gladwell explained that the Israelis invented none of the tactics and produced none of the technology. As it turns out, the multi-layered approach and long-term thinking was developed and documented by the Soviets in the 1970s as part of their Revolution of Military Affairs (RMA). Almost all of the technology and state of the art munitions were developed by the United States for and during the Vietnam War. The trick is that nobody had combined the two in this way before.

The conditions for these developments were explored. The Soviets, with their centralized, intellectually-focused military, had think-tanks doing nothing but pondering and planning the future of war. The culture valued highly those who explored the big picture. Advanced strategy and tactics were a natural result. The Americans, on the other hand have several branches of military, with different lines of command, a spirit of competition, even an entrepreneurial attitude. Add in the strong and heavily resourced private sector, and you get the so-called Military Industrial Complex, yielding the most advanced weaponry and technology in the world. Again, the results were a natural consequence of such a climate.

Israel was desperate. During the previous Yom Kippur War they were decimated by Egyptian missiles, losing a large percentage of their air force on the first day of conflict. They scoured the earth for a solution to prepare themselves, ultimately setting up the conditions for borrowing the resources and applying them on that day in June 1982.

Being THIRD turned out to be advantageous.

In a simpler example, Gladwell cited the culture and technology of Xerox PARC in the late 1970s. A huge building, modern in every way, filled with geniuses being paid exorbitant salaries, and with R&D budgets that were out of sight. Xerox developed the PC, the GUI, Ethernet, laser printers, the mouse, the word processor … yet commercially, reaped almost no benefits. The Xerox Star workstation, released in 1981, retailed around $16,000. They only sold about 25,000.

In December 1979, a 24-year-old Steve Jobs, from down the road in Cupertino, visited Xerox PARC. Seeing the innovation, he was visibly excited, jumping up and down, exclaiming, "Why aren't you doing anything with this!?" He went back to Apple, whose engineers were furiously developing the Lisa, and said, "Stop everything, we need a GUI. We need a mouse!" Ultimately, the Macintosh was born, and as much as I'm loathe to use another Steve Jobs reference, the rest is history.

Again, the conditions were that Xerox was first, IBM was biggest, but the killer innovation happened at Apple - which had neither the brains nor the resources of Xerox or IBM. In fact, Gladwell explains that Jobs has almost never been first with the big winning products coming from Apple. The iPod was late to the party, as was the iPhone, yet both are market dominators.

From here, Gladwell talked about the difference between Conceptual and Experimental innovators as laid out by David Galenson. Conceptualists make radical innovations in their field at an early age; Experimentalists slowly develop innovation over their lifetime, often making the biggest splash near the end of their careers. In art and literature, Pablo Picasso, Orson Welles and F. Scott Fitzgerald were great conceptual innovators with successes in their 20's. Paul Cézanne, Alfred Hitchcock, and Mark Twain took much longer, being middle-aged or older before having their greatest successes. He talked about the British Industrial Revoloution and the studies on why it took place in Great Britain, and not in other countries where conditions were very similar. Ralf Meisenzahl and Joel Mokyr wrote that much of this can be explained by the much greater number of experimental innovators found in Great Britain at the time. James Watt is given much credit for doubling the duty of the steam engine, but history shows that mostly nameless engineers and tinkerers in the years following Watt's successes increased the efficiency by another 500%. Gladwell suggests that this again illustrates the point that the underdogs "win."

Gladwell then spent a little time quickly outlining some other instances with similar outcomes. The National Institute of Health made, arguably, more inroads in the fight against cancer from 1965-75 than has been made before or since. Studies have shown that they accomplished this with a comparitviely small budget and without truly inventing any new treatments, but rather by extending a tweaking treatment known already at that point. Experimental innovation and constraints appear to give the underdog something extra that allows them to succeed. Gladwell explained that dyslexia is wildly overrepresented in successful businesspeople, artists and scientists. He is fascinated by how the process of overcoming this challenge yields other strengths that appear to push this people beyond others without such barriers.

Gladwell has also studied the question, "Can people have too much money?" In interviewing countless billionaires, a recurring theme is that they started in poverty, or with other combinations of challenges that would be considered difficult by most. He suggests that it is comparatively rare for those who have had an easy upbringing to do so well. And yet, Gladwell observes, the children of these people are coddled. They take helicopters to school, and are rushed to specialist hospitals for their paper cuts. When confronted with this paradox, the billionaires are stopped in their tracks with the realization that they may be setting up their children with conditions that almost guarantee they will not be as successful.

Gladwell's upcoming book in 2013 will be called David and Goliath and will explore these ideas and others that he has written for The New Yorker in depth. Whether you believe he is a social genius or an intellectual troll, his ideas are at least stirring. Do you believe that there is a lesson to be learned from the underdog paradox or do you follow the ideas described in Thinking Fast and Slow and attribute these findings to the principle of regression to the mean? I'm not sure, but I'm definitely thinking about it.

Topics: Leadership

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