Global Peter Drucker Forum BLOG Wed, 14 Sep 2016 12:12:50 +0000 en-US hourly 1 Change and the “Entrepreneurial Society” by Walter McFarland Tue, 13 Sep 2016 22:01:13 +0000 Although thirty years after the writing of Innovation and Entrepreneurship the entrepreneurial society does not formally exist—the prospect of one still fires the imagination.  As many on this Board have elegantly noted—ideas from the book continue to influence thinking and action.  One such idea—and one of special interest here—concerns the role of change in the entrepreneurial society.

I imagine the entrepreneurial society as a vibrant place in which entrepreneurial leaders in government entities, commercial organizations, and not-for-profit institutions work together to “…make innovation and entrepreneurship a normal, ongoing and everyday activity….”[1] . Because of this, the entrepreneurial society is also a place of continuous change—and therein lays the rub.  Continuous change is something that organizations find extremely difficult to do [2].

How does continuous change unfold in the entrepreneurial society?  More importantly what, if anything, can the entrepreneurial society teach today’s organizations’ about continuous change?  The following sections explore this question by examining Drucker’s perspectives on “the nature of change” and on “the nature of change leadership.”


The Nature of Change

On one hand, Innovation and Entrepreneurship is not a book about organizational change—at least in the usual sense.  However, it is all about change—because change triggers the opportunity for “systematic innovation.”  In Drucker’s words:

Systematic innovation therefore consists of the purposeful and organized search for changes, and in the systematic analysis of the opportunities such changes might offer for economic or social innovation [1](p. 35).

The “changes” referenced above flow from a unique perspective on the nature of change—and one very different from the orthodoxy of the field of organizational change.

To Drucker, change is not something an organization occasionally does to align itself better with its market.  The need for continuous change is an immutable force of history arising from a particular kind of entropy—the entropy of the “artifacts” of humans.  In Drucker’s words:  “…we also know that theories, values, and all the artifacts of human minds and human hands do age and rigidify, becoming obsolete….”[1] (p. 254).  Because everything created by humans inevitably becomes obsolete, opportunities for innovation are constantly presenting themselves in organizations and societies.  It is the job of the entrepreneur to recognize this ongoing obsolescence and use it as an opportunity for innovation.

This notion of change arising from obsolescence is a very different perspective than that of the organizational change community—at least in the US.  In that community, the need for change arises primarily from shifts in the market.  When the market shifts in a significant way, so too must the organization to remain viable.  The focus is not on innovation but quick reaction.

This difference in perspectives is important for several reasons, but a key one is that the perspective in Innovation and Entrepreneurship is proactive while the perspective of the change community is reactive.  In the entrepreneurial society:  “…the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”[1] (p.28).  In the change community, organizations wait for market changes and focus resources on trying to anticipate better and predict these changes.

One lesson from the entrepreneurial society is that using continuous change for innovation demands a more proactive stance–constantly seeking change and acting on opportunities.  This proactive stance by entrepreneurial change leaders might lead the market instead of following it.


The Nature of Change Leadership

In the entrepreneurial society, leadership is all.  It, therefore, requires a process for creating and reinforcing entrepreneurial leadership across both the leadership corps and the workforce.  In the section entitled, “entrepreneurial practices”[1] (p. 155).  Drucker makes three recommendations for accomplishing this.  The first one is “focusing managerial vision on opportunity” [1] (p.155). This practice assures that managers are not only focused on problems but also on successes—on understanding what is working better than expected and why.  As an aside, this focus on success has recently been highlighted by neuroscientists as a key factor in brain performance. [3].

The second practice is “generating an entrepreneurial spirit among the entire management group.”[1] (p. 157).  This practice focuses the entire leadership corps on “units that do better and do differently”[1] (p. 157) and ensures that learning from the highest performing parts of the organization is shared organization-wide.  This practice also unites the leadership corps and contributes to creating an entrepreneurial culture.

The third practice is “systemically listening to and interacting with the workforce.” In this, senior leaders listen to and engage members of the workforce in discussions about opportunities for innovation and entrepreneurialism.  Leaders not only draw out the best ideas of the workforce—but actively engage them as fellow entrepreneurs. Recent research has highlighted this approach as a critical factor in increasing employee engagement and decreasing resistance to change [4].  The alignment of the workforce with the leadership corps is a major step in creating the entrepreneurial culture.

Historically, the change community has viewed the leadership of change very differently.  Change leaders—or change agents—are not focused on discovering opportunities for innovative change but on leading change efforts initiated by someone else.  In the context of large-scale change, for example, these leaders focus on topics like the cost, schedule, and performance of change efforts.  Their function can be as much administrative as entrepreneurial.

Another lesson for change from the entrepreneurial society is that change leadership has little to do with administrative chores and much to do with continuously searching for opportunities for innovation—and putting these in motion.  Because the entire leadership corps and the workforce are united in this, continuous change can fuel innovation across the organization.


Innovation and Entrepreneurship has been largely ignored by the change community in the US and potential lessons missed.  Even so, I believe several ideas are worth considering by today’s change leaders.  First, perspective matters.  A review of the change literature reveals that many change scholars are “admiring the problem too much.”  Much is said about difficulties arising from increases in the volume and complexity of change but little about how to use this situation for advantage.  The entrepreneurial leader’s perspective is that continuous change is fuel for continuous innovation.

Second, leadership matters.  Entrepreneurial leaders are not “fast followers” of change and innovation but initiators of them.  They consider risk but are not captured by it.

Finally, culture matters.  Continuous change affects an organization as a system—and affects different parts of the system differently.  Organizations must, therefore, respond to changes effectively and creatively.  To accomplish this, the leadership corps—and the workforce of the organization—must be united in common purpose:  to find change and use it for innovation.

Thirty years after its publication, Innovation and Entrepreneurship challenges us to see change with better eyes.  Continuous change is not a problem to be solved, but fuel for continuous innovation


About the author:

Walter McFarland is the founder of Windmill Human Performance and co-author of Choosing Change.



  1. Drucker, P., Innovation and Entrepreneurship. 1985, New York: Harper.
  2. LaClair, J. and R. Rao, Helping employees embrace change. McKinsey Quarterly, 2002.
  3. Brains, S., 4 Ways to acquire Navy Seals’ mental toughness. 2014.
  4. McFarland, W., Managers in the Digital Age Need to Stay Human. Harvard Business Review, 2015.


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The 3 Preconditions for an Entrepreneurial Society by Julian Birkinshaw Sun, 11 Sep 2016 22:01:50 +0000 In 1985 Peter Drucker argued for a shift toward an entrepreneurial society, one where “executives in all institutions…make innovation and entrepreneurship a normal, ongoing everyday activity.” This intentionally broad view requires a fundamental change in mindset. Drucker was pushing us to think and act less like employees taking orders and more like free agents, alert and responsive to opportunities whether we work in a startup or in a large corporation.

Thirty years on, how far have we progressed toward Drucker’s entrepreneurial society? Many large companies are experimenting with ways to tap into their employees’ creative ideas. There has been a boom in startups, the number of freelancers is growing rapidly, and technology-enabled platforms such as Upwork and Amazon’s MTurk are helping people find work that suits their skills and schedules. And yet I would say the entrepreneurial glass is still half-empty, judging by the anaemic levels of engagement in work that we see today.

For the entrepreneurial society to properly take hold, we need three things as individuals: means, motive, and opportunity.

Consider our means first. Charles Handy once pointed out that Karl Marx was right all along. Marx’s goal was for workers to take ownership of the means of production, by which he meant factories and machinery. But in the post-industrial world, most of us are knowledge workers at least in part — the means of production is our brainpower, which we retain ownership of no matter what our job is.

Many of us also need access to technology and funding, and this is one area where the changes of the last 30 years have been profound. Internet technology has essentially democratized entrepreneurialism. To be a freelance worker today, you need an internet connection and a service to sell, whether it is coding, copywriting, or cartoon drawing. To be a taxi driver, you need a car and a GPS. To be a hotelier, you need a spare room. And if you need access to money, crowdfunding platforms and microfinance options make that easier than ever.

In the developed world, at least, the means of the entrepreneurial society are in place — and the developing world is catching up fast.

What about motive? Maslow’s famous hierarchy of needs reminds us that what drives us depends on our lot in life. The industrial era created salaried work as we know it, and for most people it took care of the lower levels of the hierarchy: shelter, security, and social interaction. Now that these things are taken for granted, many of us are reaching for the higher levels — that is, the desire to do meaningful work, develop expertise, and have freedom to make our own choices. When I ask my MBA students who belong to Generation Y what they really want to do, most of them express a yearning to be their own boss. They live in a comfortable world, and it gives them license for self-expression.

If means and motive are improving fast, what about opportunity? Here the story is mixed. In prior decades latent entrepreneurs had to overcome a lot of barriers — the red tape around setting up their own business, the difficulty of getting unsecured loans, the social pressures to climb a corporate ladder rather than work for themselves. But the opportunity for entrepreneurship in today’s business world is enormous. New technologies and economic and social changes have opened up vast new opportunity areas. The social acceptance of entrepreneurship has also improved, thanks to shows such as Dragons’ Den and Shark Tank and role models including Richard Branson, Elon Musk, and Mark Zuckerburg.

But despite all these improvements, much remains to be done before the entrepreneurial society truly arrives. Here are some of the obstacles:

  • Employment law says you are either an employee or a freelancer. But this is an outdated distinction, and it is creating all sorts of problems for companies like Uber and Airbnb, whose drivers and hosts are a bit of both. Some observers haveargued that we need a hybrid “third way,” designed for today’s gig economy.
  • Intellectual property rules were created on the assumption that ownership matters, but today we are more interested in access — to streamed music, to the use of a car, to information that we can use. Some progress has been made here, such as the general public license used in open-source software, but more needs to be done.
  • On the topic of governance, the original limited liability company was a clever invention, a mechanism to facilitate commercial risk taking by limiting the downside for owners. But today such companies seem to be stifling entrepreneurship; they have become short-term-oriented and unduly conservative. Various alternatives to the limited liability company have been invented over the years (for example, S and B corporations), and further creativity would be welcome to help latent entrepreneurs rather than frustrate them.
  • In education the school curriculum focuses on traditional subjects taught in traditional ways, and it pushes students into narrow specialties. Many entrepreneurs claim they succeed despite, not because of, their schooling. Maybe it’s time to put a bit more emphasis on creativity and commercial savoir faire in our education system.

There is a common theme here. While technology, commercial acumen, and social norms have evolved dramatically over the last 50 years, the institutions that govern capitalism are still stuck in the late 19th century. We are using industrial-age rules to oversee information-age business practices, and that is what is holding us back. I have written elsewhere about the need for management innovation in large firms to make work more engaging and fulfilling. An equally pressing need is for institutional innovation at a societal level so that today’s would-be entrepreneurs have the means, the motive, and the opportunity to succeed.


About the author:

Julian Birkinshaw is a professor of strategy and entrepreneurship at London Business School.


First published on Harvard Business Review.


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Experimental Capitalism by Haydn Shaughnessy Tue, 06 Sep 2016 22:01:01 +0000 It seems like an amazing time for entrepreneurism. Yet, if measured by the net addition of new companies to the US economy, home of the startup, or the number of new startups, entrepreneurship has been in decline for twenty years, according to both the Kauffman Foundation and Brookings Institute.We have convinced ourselves that the startup scene is vibrant and we need to ask why.

There are similar illusions around the decline of larger companies. You’ve heard it said often enough that the lifespan of companies on the S&P 500 is also in decline. This too tends to be untrue. Companies don’t disappear when they leave the S&P 500. New companies arrive who have earned their place.

Yet we assume or believe that a sea change has hit entrepreneurism, and change is for the better. In this article I will explain what I think is going on and why entrepreneurism is now more important.

There are essentially five elements to this:


  1. The first is that smaller businesses are becoming more important as a component of the global economy

In most developed economies the rate of internationalisation of smaller businesses is increasing. The World Trade Organization estimates that smaller businesses traditionally have been responsible for about 50% of global intermediary goods trade. That figure is now looking like closer to 60%.[1] Other research shows small businesses are expanding fast across borders. According to Oxford Economics, “In three years [from 2013], the number of small firms that do business in six or more countries will more than double, from 15% today to 35%.”

What are the reasons for this? Partly because it is now much easier to expand overseas, particularly in digital service and goods. SaaS platforms typify this. But even producers of hard goods are finding it easier to grow global markets because of the increased sophistication of global package delivery.

What most commentators miss is that this change is tied to structural change in the global economy.


  1. The platform economy will enable more global business; the secular trend is towards polarisation between small and huge.

Business platforms like Alibaba are actively campaigning for a new world trade order. Legendary entrepreneur Jack Ma (Alibaba, Ant Financial, Didi Chuxing) has called on the World Trade Organisation to set up special privileges (such as lower tariffs) for package delivery. Internally in China his company promotes rural small business as well as urban. In fact Ma has promised to train 1 million rural youths in entrepreneurism. Small is an essential part of tomorrow’s competitive landscape.

One of its most successful manifestations is within Haier, the Chinese white goods maker that sets out to create small entrepreneurial businesses within the overall business. How successful is it? Haier recently acquired the consumer goods business of old industrial giant, GE, and has entered a cooperation agreement in which GE will learn the benefits of going small.

The business model for platforms (Apple, Google, Alibaba, Uber, AirBnb) is to enable and organise small entities, devolve innovation risk onto them, and take economic rent (the 10 – 30% cut that Uber to Apple take off their “ecosystem”).


  1. The third is that, periodically, segments of the economy go through phases of experimentation.

Going back to the days of Schumpeter, there has been some grudging recognition that small firm entrepreneurism plays a significant role in creative destruction. But look at disruptive innovation in any sector and you will see a phase of experimentation where entrepreneurs are trying to determine the preferences and structures of new markets.

As an example of this, look back to the early 2000s. At that point a new infrastructure, The World Wide Web, had emerged. Microsoft, Intel and Apple dominated computing. The large telcos dominated another new field, mobile telephony. Entrepreneurs speculated that there must be another way, a non-monopolistic way, of exploiting these new infrastructures.

A movement called the Internet of Appliances grew out of this speculation. It resonates with the Internet of Things. It was the experimental period when many features of what was to become the IoT were cast into the market for the first time. Entrepreneurs used the early to mid 2000s to test hypotheses about what this new landscape would tolerate. What technologies and applications could actually work on the WWW; what might customers really want? How could they be drawn into some kind of emergent market structure?

All these questions were asked hypothetically and the experiments with the IoA laid the ground for the IoT to come. These experimental periods are critical to how economies restructure.


  1. More segments of the economy than ever are going through this phase, many of them through new business platforms.

Right now the economy is being forced through a whole array of experimental phases. IBM’s Watson has been set up as a platform for a new generation of Artificial Intelligence experiments by the AI startup community. Predix, the GE data platform, plays a similar role in data science. GE has attempted the same in health analytics, though it looks for now that the fitness band industry will be the owner of the personal health “platform”. Apps platforms now abound. Ride hailing, table booking, renting, bring experimentation into personal services. Design communities are another area – creative design, industrial design, engineering. Each is running its own experimental phase to test what the new economy will accept.


  1. The fifth is that business is now being built on a different infrastructure (Cloud, mobile, SaaS, various integrated platforms, and superfast logistics.

This means the “need to learn” plays to the small companies or the intrapreneur and against the large enterprise. The learning model is a key advantage, which is why we will also see more companies becoming participative – following the Chinese model of huge participation platforms where consumers or users determine the functionality of products in real-time interaction with manufacturers or developers.

For all these reasons smaller companies are becoming more important even if they are not becoming more numerous. Larger enterprises will continue to grow in importance too – but the best of them will organise whole markets and enable the future of small.

Only small businesses have the capacity to learn and adapt quickly to an economy that is restructuring rapidly. As they become more significant we need to learn quickly how to support their global competitive advantages.


About the author:

Haydn Shaughnessy is the author of Platform Disruption Wave, an account of how megaplatforms are reshaping the global competitive environment.  He has consulted on platform disruption and strategy to global organisations.


[1] WTO/UNCTAD World Investment Report 2013: CH 4 Global Value Chains: Investment and Trade for Development.


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The Entrepreneurial Government by Zachary First Tue, 30 Aug 2016 22:01:23 +0000 Amidst an apparently global pandemic of governmental chaos, gridlock and ineptitude, talk of the public sector’s role in “the entrepreneurial society” can sound ill advised, if not downright nutty.

Tell that to Peter Drucker.

A generation ago, forecasting the turbulent times in which we now live, Drucker identified building entrepreneurial management into the public sector as our “foremost political task.”

Today’s rapid pace of change—social, technological and economic—is, he wrote, both an existential threat to our public institutions and a tremendous opening for entrepreneurial initiative. For entrepreneurs are, in Drucker’s view, defined by their constant search for value in change. They “look out every window. And ask: ‘Could this be an opportunity?’”

Consider, for example, the changing nature of work. A recent major study of “alternative work arrangements”—temps, independent contractors, freelancers and the like—by Harvard’s Lawrence Katz and Princeton’s Alan Krueger revealed this shocking conclusion: All of the net employment growth in the United States between 2005 and 2015 is attributable to alternative work.

Since the 1950s, however, the safety net of health and retirement benefits in America has been built largely around the idea that someone would enjoy “lifetime employment” at a single company. The swift fading away of this old system for the burgeoning alternative-work population presents government with a profound challenge.

As it happens, this is a textbook case of what calls for government entrepreneurship. “Most innovations in public-service institutions are imposed on them either by outsiders or by catastrophe,” Drucker wrote. Basic innovations in military structure or strategy, for example, always follow “ignominious malfunction or crushing defeat.” America’s New Deal of 1936—which Drucker called “the greatest innovative thinking in recent political history”—was triggered by a Depression so severe that it threatened to tear apart the country’s basic social fabric.

The trick to making government entrepreneurship effective is to address the constraints that Drucker identified as unique to the sector:

  1. Public-service institutions are structured to focus more on budgets than results. Greater effort by a government agency typically brings the agency greater resources—and resources are often the measure of an agency’s value. Rare is the highly-regarded government agency that acknowledges failure and sloughs off yesterday’s cherished-but-ineffective programs in order to do more with less.
  1. The subordination of results to effort leaves public sector institutions without the clarifying “primary customer” of a business or nonprofit. Instead, government grapples with a multitude of constituents, each with their own veto power over any move that might diminish the programs that serve them. With government, no “customer” can ever really be turned away.
  1. When society entrusts public sector institutions with missions that are moral more than economic, governments respond by maximizing rather than optimizing their efforts. Pity, for instance, the official who brags of their agency’s efficient allocation of food to mitigate the effects of poverty on local children; the public would much rather hear that the agency will not stop working until every child in the community has been lifted out of poverty entirely.

The changing nature of work presents all three constraints: Society is, for the most part, uncertain what constitutes “results” in government programs aimed at helping people in alternative work arrangements; what is appropriate for an office temp struggling to make ends meet, moreover, may not be effective for a well-compensated app designer who likes being self-employed. Government’s ability to take an entrepreneurial approach to the employment safety net is hampered by the many constituencies currently served by established programs that were designed for a bygone economic era. And ultimately, we as a society are not at all settled on whether government’s role in responding to the rise of alternative work should be primarily moral or economic.

Addressing these constraints, Drucker writes, demands that government:

  1. Define the mission in terms of objectives, not programs or projects.
  2. Make objectives realistic—“genuinely attainable”—so that, eventually, the job can be declared finished. In some cases, of course, Drucker notes that this isn’t possible. For example, “administering justice” is not an attainable objective in human society; it is an eternal task. But such objectives should be the exceptions in the public sector, not the rule.
  3. Abandon an objective that has repeatedly defied achievement. The usual impulse, Drucker laments, is to throw more effort at an elusive objective instead of questioning the objective’s validity.
  4. Embrace change as an opportunity, not a threat. This demands building into policies and practices the constant search for innovative opportunity.

So, what could this look like in practice? One example to consider is the Aspen Institute’s bipartisan Future of Work Initiative, which recently issued a resource guide for policymakers. It is designed to show public officials the concrete steps that they can take to provide portable benefits and protections for independent workers.

Its approach is right in line with Drucker’s playbook:

  1. Instead of focusing on existing programs or projects, Aspen frames its mission in terms of objectives: reduce inequality, help workers get ahead, and facilitate access to training, benefits and protections to secure workers’ futures.
  2. Its primary objective so far is genuinely attainable: support and inspire local or state governments to work with “on-demand economy” companies to create portable benefits programs.
  3. It has chosen not to work on an objective at which others have repeatedly failed: stuffing people in the alternative workforce into the box of the existing employer-based benefits system.
  4. And it has embraced workforce changes not as a threat, but as an opportunity—to help people increase their employment flexibility and use on-demand work to supplement their income, without sacrificing their basic financial security.

These are just a few promising ideas for tackling one of today’s major social challenges. But they help demonstrate that entrepreneurship is just as vital for government as it is for corporations and nonprofits.

When you hear mention of public-sector entrepreneurship, don’t dismiss it as crazy talk. And just as importantly, don’t let government settle for superficial gestures, like publicly backed venture funds or tax policy tweaks, that lack clear and attainable objectives.

A healthy society needs an entrepreneurial government—one that looks out every window and asks: “Could this be an opportunity?”


About the author:

Zachary First is the Executive Director of the Drucker Institute. Follow him @DrZfirst.

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Warren Buffett’s ‘Secret Sauce’ by JC Spender Tue, 23 Aug 2016 22:01:33 +0000 There is a small industry of commentators who decode the Berkshire Hathaway (BHI) Annual Letter to Shareholders – which includes Bill Gates.  Their findings vary but the letter released this February was especially interesting (in Gates Notes – “the best ever”).  Most focused on BHI’s financials, only to be expected.  But the letter included wide-ranging remarks by the ‘Sage of Omaha’ on the economy, the history of US productivity, and today’s social inequality.  Few remarked his stating that an economy driven by rising productivity leads to job losses for people whose skills get outmoded or when production moves elsewhere.  Or that ‘safety nets’ are needed, fabricated in Congress’s ‘contentious clashes’.  His analysis was ultimately sunny as he argued US productivity would continue upwards, the US’s ‘secret sauce’.  Few disputed this, given we are only beginning to digest the contrary view provided in Robert Gordon’s monumental The Rise and Fall of American Growth (Princeton University Press 2016) – a few pages longer than Thomas Piketty’s equally monumental Capital in the 21st Century (Belknap 2014) (also applauded in Gates Notes).  If economy-wide productivity increases no longer pay for the safety nets Congress finally fashions, Buffett’s sun sets.  Perhaps the 99%’s and Reich’s ‘anxious class’ sense a different future.


Of course Buffett is a practicing manager and less interested in academic talk and macro-generalities than in the specifics of the firms in which BHI invested – whose managers were surely measured on how they pushed their firm’s productivity ahead.  His letter was a superb lesson on ‘business models’, the topic of much sloppy academic talk.  But Daniel Gross, executive editor at strategy+business, seemed alone in noting the letter’s display of Buffett’s deeper grasp, his own ‘secret sauce’.  Buffett’s tale of what happened to BHI’s Dexter shoe-making operation differed from the usual story of overseas competition’s impact.  It suggested a more fundamental business model or ‘theory of the firm’ – that firms can sometimes evolve faster than the people they employ.


How can this happen?  As shareholder value overtook firm growth as the goal, Wall Street innovated with maneuvers that included liquidating the firm, laying off its people, and directing the funds released into different lines of business.  So long as relevant markets existed, tangible (tradable) assets can be reallocated almost instantly.  People, less tradable, get left behind.  Buffett was not sympathetic, writing “When Wall Street gets innovative, watch out!” and that BHI “only goes where it is welcome”, recognizing every firm is more than its tradable assets and has been created by a workforce and community whose future cannot be airbrushed out with simplistic finance talk.  Entrepreneurial managers have a double responsibility; to make the firm’s future, but also to deal with its past.


There has been plenty of discussion about the ‘structural unemployment’ resulting from investor-oriented strategizing.  There is also a huge literature on ‘change management’ – but little attention to firms changing faster than the people who bring them to life.  Firms are actually puzzles we do not understand well – as Nobel-winner Ronald Coase pointed out in 1937 when he asked why firms exist and are as they are.  The most familiar metaphors for firms are: (a) carefully designed and operated machines, (b) communities of motivated people, or (c) as Citizen’s United vs FEC suggested, economic actors or ‘persons’ themselves.  None tell us much about firms and people evolving at different rates.  What was Buffett thinking?  Gross explained people face barriers to change that firms do not and so have fewer options and ‘levers to pull’.  True, but there seems to be more to it and maybe Buffett intuited something about the nature of firms, to use Coase’s term, that is unlike the nature of either people or machines.  Perhaps, being so thoughtful about the nature and social place of private sector firms, as well as successful, he knows something about (c) that informs BHI’s investing.


The recent Citizen’s United vs FEC and McCutcheon vs FEC judgments have centuries of legal debate behind them showing corporate lawyers are far from agreed about what firms are – even if management academics have no such doubts.  On the one side are ‘corporate nominalists’ who see the firm as a bundle of contracts between individual shareholders governing their property and its application.  On the other, ‘corporate realists’ who see firms as distinct legal entities with a ‘personality’ and rights and duties in the socioeconomy.  The 1930s development of ‘managerialist’ ideas, recognizing how in large corporations managerial control overwhelmed the share-owners’ rights, led many to see victory for the ‘realists’.  In the 1970s the tide was reversed by neoliberal ‘agency theorists’, sometimes to the extent that, along with pillorying government, managers were characterized as ‘the problem’ for corporate governance rather than its solution.  Maximizing shareholder value (MSV) is nominalism’s battle-slogan, corporate social responsibility (CSR) is realism’s.  The call for ‘more ethical management’ is realism pushing back against nominalism’s recent dominance.  For the most part management academics pay no attention to corporate law debates, choosing whatever position best suits the theory they purvey – without bothering to justify their choice as lawyers must when arguing real cases.  In contrast, Buffett is a practicing manager, aware of the dichotomy and its implications.  But with what resolution?  What is his working ‘business model’?  His letter suggested a model that escapes both corporate lawyers and management academics.


The American educationalist and philosopher John Dewey added to the legal debate in a 1926 article, arguing that realists treating firms as ‘legal persons’ misunderstood the complexity of ‘personhood’ in a capitalist democracy.  The dichotomy should be dismissed as confusing, obscuring the nature of the firm and the roles of investor and manager alike.  But Dewey also noted the concept of the corporation, to use Drucker’s term, had a ‘chameleon-like’ ability to change with the times.  In a footnote he recalled the older view of the firm as a ‘legal fiction’ which, stripped of its legal baggage, presents the firm as an ‘idea’ – not captured by either nominalist or realist views – noting such ‘imaginary creatures’ are ‘notoriously nimble’.  Today most theorists are stuck on one or other horn of the dichotomy, from where firms seem inherently static and lifeless, given changing assets or people is a challenge.  Thus ‘entrepreneurship’ often gets confused with ‘change management’.


But some are not so stuck, and Buffett may be among them.  Katsuhito Iwai, probing the differences between American and Japanese firms, embraced the firm’s ‘dual nature’, both nominalist and realist.  Rather than being tied to or defined by its tangible assets or its people, each firm is the flexible imaginary creature Dewey sighted inhabiting the middle ground between nominalist and realist abstractions.  How can this be?


Intangible assets, such as ‘know how’, shed some light here.  Buffett’s letter included many comments on intangible assets, the huge part they play in BHI, and the difficulties they present accountants, managers, and investors.  Nominalist theorists presume the meaning of assets is self-evident and that the firm’s accounts show the tangible and real.  Against this Edith Penrose pointed out the ‘nominalist fallacy’, that in practice assets are only as valuable as management’s ideas about how they can be applied.  At the other horn, realists presume people calculate rationally and know their purposes and aims.  Dewey pointed to the ‘realist fallacy’ that people do not know their own minds fully, that their tacit understandings matter.  Imai argued, as most of us do, that tacit knowledge emerges in the middle ground as people with assets pursue a shared idea or purpose.  Crucially this imaginary substance is living but cannot survive the cessation of the firm’s practice, its liquidation.  So the shareholders cannot reallocate it.  A ‘going concern’ has imaginary content that cannot be sold, yet is fundamental to its ability to transform the imagining that holds the horns of the dichotomy together into economic value.


This is not news to experienced managers.  But it is not easy to operationalize or explain as part of a specific firm’s business model, as Buffett did in his 2016 letter.  His language was homespun rather than academic, thank goodness, but not lacking in precision or power.  He identified three notions of a firm – nominalist, realist, and imaginary – so as to explain managing their intersection.  With a real business to run his model did what those of economists or management academics failed to: help BHI’s managers (1) embrace their particular firm’s trinity, (2) synthesize it into value-creating practice, and (3) highlight the risks of dichotomies between their firm, its people, and its surroundings, risks that are the focus of business ethicists and principal-agent theorists.  Leveraging from the insight that the nominalist, realist, and imaginary can change at different rates, Buffett’s model outlined answers to Coase’s questions about the nature of the firm – practical answers that bring the BHI shareholders’ concerns about productivity, managerial ethics, and financial performance together.  A secret sauce indeed.


About the author:

JC Spender trained first as a nuclear engineer then in computing with IBM.  He moved into academe as a strategy theorist, opening up a subjectivist/creative approach that complements mainstream rational planning notions of strategizing.  This 40-year project was brought to completion in Business Strategy: Managing Uncertainty, Opportunity, and Enterprise (OUP 2014).

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Why the new entrepreneurial citizen must learn from the past to account for an uncertain world by Paolo Quattrone Tue, 16 Aug 2016 22:01:27 +0000 People tend to forget, but words have a history.

‘Society’ – as philosopher, anthropologist and sociologist Bruno Latour reminds us – combines the Latin socius (an ally or companion) with ‘-ties’. It’s about how we as individuals bind ourselves to one another to form communities.

But the way we govern and understand ‘socie-ties’ – be they states, public or private institutions – has not escaped our modern obsession with interpreting the world around us through calculation.

Whether through financial figures, electoral polls or reality show audience votes, we’ve come to believe we can simplify anything with supposedly objective data.

In this drive to manage corporations, states and communities by numbers, we have come to believe incentives, metrics and other forms of numerical data can capture what are otherwise irreducible complexities.

We no longer ask questions like: Why did that happen? What can’t we know? What are the risks? What could go wrong?

This search for certainty has made us falsely believe that by maximising shareholder value we can pursue the common good, but we’ve forgotten this ‘common good’ is always in a state of flux.  It depends on the evolving links between political, social, moral and environmental concerns which should be debated, not measured.

However, the greatest casualty of this world which praises numbers as sacred is ‘rationality.’ In our drive for certainty, we’ve forgotten its true meaning.

For many, it will be common knowledge the term originated from the Latin ratio. But what’s perhaps less understood is that it not only meant ‘reason’ but also ‘account’ and ‘proportion’.

Because for an account to be rational, it must also seek proportionality – i.e. it must establish a proportionate relationship between members of a community and seek to reconcile opposites.

By the 16th Century, the Jesuits had already developed a simple system to achieve this. Their colleges’ cash boxes had two keys – one held by the procurator (the equivalent of today’s CFO) the other held by the rector (in today’s terms, the CEO).

Only by talking to each other and mediating competing interests could they open the cash box and appropriate funds as agreed.

For them, looking at financial numbers was a pragmatic means to interrogate non-financial issues, to seek the common good, which by definition, could not be defined once and for all but needed to be continuously negotiated.

Accounting was the material practice to allow this negotiation and guarantee the search for an impossible balance between interests purposefully designed to be in opposition and in tension.

Why the micro-lecture on the etymology of accounting in a post on entrepreneurial citizenship?

The make-up of word ‘entrepreneur’ reminds us that a good business person is always between (entre) not only different ventures but also ‘in between’ competing concerns that today can range from geopolitical issues to pressing matters of inequality.

Not only do entrepreneurs have to be citizens of a community and be able to navigate organising logics (industrial, civic, polity, market).  However, they must also ‘speak’ several languages (economic, political, technical, social), to communicate with complex audiences and act as cultural mediators between the business and the civic dimension of managerial actions.

For centuries, accounting has been the tool entrepreneurs have looked to, to help them operate in this middle ground. It’s how they’ve mitigated concerns between economic and social tensions of their actions.

It is also in today’s entrepreneurial explosion where I see the greatest opportunity to rediscover the lost meaning of society and rationalism.

Entrepreneurial citizens will have to be more socially aware than before, and ready to embrace a new form of governance that goes behind and beyond the numbers to really properly understand how business impacts, and can benefit us all.

It is time for this new breed of entrepreneurs to embrace uncertainty and use data to build on it rather than seeking to control and reduce it.

However, first we must accept that while rational choices may be impossible to make, reasonable judgements remain in our reach. Something which is only achievable once we appreciate the ties that bind societies together, and the challenges they create and which we have to mediate.

Developing the right intellectual and ethical framework to allow this change in attitude is important, and it’s essential we also give entrepreneurs the tools to navigate it.

With the rise in big data, we now have a powerful instrument to draw on limitless sources of information to develop statistical models that know us better than we can know ourselves.

Of course, this runs a very real risk of assuming certainty and accuracy can guarantee us an un-messy future. A belief which may in some cases force people, and algorithms, to make wrong decisions and at a faster speed.

However, it also gives us a significant chance to increase the scope of our interpretive power, and restore judgement to our decision making to tackle the growing global challenges we face, as a community.

We just have to remember the meaning behind our words.


About the author:

Paolo Quattrone is Professor and Chair of Accounting, Governance and Social innovation at the University of Edinburgh where he is also leading  a project to establish a new interdisciplinary institute to train ‘entrepreneurial citizens’ in collaboration with industry, government and the broader civic community. He has worked and conducted research at the universities in Madrid, Manchester, Oxford, Palermo and Stanford.

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A Framework for the Collaboration Economy by Rick Goings Tue, 09 Aug 2016 22:01:20 +0000 The global economy is changing. The old engines of job creation are stuttering. The jobs gap is rapidly widening, threatening stability in societies around the world. Corporate structures, meanwhile, are creaking or failing – disrupted by technology that is leveling the playing field between small businesses and big enterprise. This is not a slow economic evolution, but – as I have argued before – more like a tectonic rupture along the three fault lines of technology, talent, and demographics.

The result of this transformation: We are moving into a post-corporation world, with an economy based not on hierarchies, but collaboration. Let me be clear: neither big business nor small enterprises are dead. However, they will have to change – to provide employment, and to survive.

The transition to this Collaboration Economy will not be easy.

  • Too many people are not equipped to thrive in it.
  • Too many companies cling to their old hierarchies and sclerotic supply chains.

Without support, they will not succeed.

The entrepreneur is dead. Long live the entrepreneur.

Our world doesn’t have a jobs crisis. Instead, there are not enough opportunities to earn money. We know that job creation by decree doesn’t work; it’s unaffordable and pushes people into dead-end jobs. So when jobs are scarce, entrepreneurial opportunity is critical. We have to help people identify the skills they have, teach them the skills they lack and equip them for work they love.

However, tell most people that they should become an “entrepreneur” and they panic. That’s because in the public mind, “innovators” and “entrepreneurs” are mythical beings riding the unicorns of Silicon Valley. The media and pundits have created an unrealistic image of what an entrepreneur does and what innovation means.

Being an entrepreneur is not about coding apps or closing a funding round. We have to bring expectations back to a human scale. A Chinese homemaker in Chongqing, a young school leaver in South Africa’s Diepsloot township, or even a Ph.D. in Santiago de Chile will struggle to be the next Mark Zuckerberg. 90% of the world’s population under the age of 30 live in emerging markets. They can’t all find work by boosting their SAT scores in STEM subjects (Science, Technology, Engineering, and Mathematics).

If we want to help people enter the Collaboration Economy, we have to reposition the “innovation bar.” Inventing flying cars and better rockets is great, but not everybody has to be a tech entrepreneur. Let’s celebrate new business concepts and the gig economy as well, because they can also offer meaningful careers, especially ones which don’t require tech training.

Moreover, if we break down the tasks of running your own business, people quickly say: “Hang on a minute, I can do that.”

I recently visited our teams in Indonesia and China. When you hear the stories of these women, regardless of their background, they have what it takes to be a real entrepreneur.

Like entrepreneurs the world over, they have three basics in common:

  1. Tools: People need the right tool set, both regarding technology and fundamental business knowledge.
  2. Formula: An excellent idea does not make a successful business; it helps to have a simple, consistent and scalable, proven method, while those with a genuinely original idea may need mentorship to turn that spark into their formula.
  3. Mindset: That’s arguably the most important ingredient. Entrepreneurs need some grit and confidence. With the right support, this mindset can be learned.

Success in the collaboration economy needs these three basics.

Young people can get this help fairly readily. Adults are usually left to their own devices. No wonder that many start-ups fold within four to five years. Passionate people may run them, but they lack a formula and business tools.

For the Collaboration Economy to thrive, we need to give everybody a chance to learn these tools, find the right formula and get the mindset – so that they can earn an income. Uber is a taxi company that has no taxis but a successful formula. Not long ago I met an older woman working as an Uber driver. She used to clean houses. Now she earns more money and has more flexibility. “Now I can pick up my granddaughter from school,” she told me. She knew how to drive, so didn’t need to learn anything new. What she needed was a successful business model.

In China, we now have 5,500 Tupperware studios. When I speak to our entrepreneurs, it’s evident that their success comes from a combination of tools, formula, and mindset – especially non-cognitive skills.

The Collaboration Economy is taking shape, whether a “formula”based on business models  like Tupperware’s, or the ability of entrepreneurs to plug into technology ecosystems like Uber, or -locally -companies like Orahi in India, PortoLeve in Brazil or SafeMoto in Rwanda. They all draw their strength from the entrepreneurial grit of thousands of businesses and individuals.

There’s probably never been a better time to be an entrepreneur. People can right-size their business because they can be agile and scale – all the way from having a gig to growing a big enterprise.


Companies as conveners

Where does that leave traditional businesses? Once there was a corporate staircase, from sole traders up to multinational giants, and entrepreneurs trying to climb it quickly realized: Mount Everest had nothing on it. Now this staircase has been transformed into a sliding scale, where technology and new ways of working have removed much of the friction. Small companies can be as powerful as their biggest rivals, and the giants can be as nimble as tiny competitors.

However, many businesses are held back by their old hierarchies and cumbersome procurement processes. If these firms hope to succeed in the Collaboration Economy, they have to disentangle themselves from their rigid ways of working.

They have to identify their core business, the source of their competitive advantage. It’s only here that they’ll win. Everything else can be left to outside specialists – to their collaborators in the Collaboration Economy.

This kind of set-up, powered by a clever and open procurement process, is especially attractive for emerging markets. They have already managed to leapfrog whole generations of technology – using mobile solutions instead of landline phones and traditional banking. They can do the same with corporate models.

Many large enterprises, meanwhile, will realize that they are lumbering under the weight of vertical integration. To win, they need to be exceptionally nimble.

Too many of them are trapped, however, in the momentum of their corporate structure. Bosses and boards fear failure and focus on quarterly performance, compliance, and efficiencies. They don’t scan their strategic horizon for the next big shift. When they fail, it’s often because their strategy was looking backward and inward.

Ultimately, the company of the future has to be a collaboration tool; a platform or ecosystem underpinned by a set of values and a core business model. Companies have to become the conveners of the Collaboration Economy and help people plug into their business.

The economic fault lines are rupturing already, everywhere. We can protect ourselves against these jolts if we equip both individuals and corporations with the frameworks necessary to build the Collaboration Economy.


About the author:

Rick Goings is Chairman and Chief Executive Officer of Tupperware Brands Corporation, a leading global marketer of relationship-based selling. The portfolio includes not only Tupperware, but multiple beauty brands including Avroy Shlain Cosmetics, BeautiControl, Fuller Cosmetics, NaturCare, Nutrimetics, and Nuvo Cosmetics brands.

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Brexit: Crisis and Opportunity – Nothing Lasts Unless Incessantly Renewed by David Hurst Tue, 02 Aug 2016 22:01:09 +0000 Multilayered complex systems are stable when the large and/or slow processes govern through constraint the smaller, faster ones. Sudden change can take place when agents at a lower level escape the restrictions of agents higher in the system, disrupting the whole. This principle applies to all complex systems from golf swings to management organizations and political structures.


The Founding Fathers ensured that this was the case in the structure of the American government when they wisely arranged the different branches of government in a systems hierarchy of constraint. The House of Representatives is elected every two years, Presidents every four years, the Senate every six years (on staggered terms) and the Supreme Court is appointed for life. The intent was to create a stable system of checks and balances that could handle only modest change and would not be subject to sudden radical movements. For similar reasons, James Madison favoured representative democracy and rule by experts over direct democracy and rule by faction. There are analogous, if less engineered, hierarchies of constraint in dual-house – elected and appointed – parliamentary systems. The role of the ‘upper’ house is to reconsider and modify the occasionally impulsive actions coming to it from below.


From a systems perspective, when British Prime Minister David Cameron agreed to a referendum on whether to remain with or leave the European Union, he was risking that a small, fast system might escape the constraints of representative democracy and the sovereignty of Parliament. It has escaped, and the result is crisis and chaos. Some say it is the end of the Post-World War II political dispensation. Perhaps, but it is also an opportunity for both Britain and the EU.


The Waning Narrative of the European Union


Three years ago I gave a presentation to the International Forum on the Future of Europe in Vilnius, Lithuania. In it, I suggested that the problem with the EU was that it had lost its narrative. I used an ecological perspective to show how the EU had been born in the aftermath of the Second European Thirty Year War (1914-1945) as a passionate movement to avoid further conflict among the nations of Europe. After initial success, greatly aided by the rebuilding of Europe’s shattered infrastructure, it became a series of increasingly ambitious economic and political projects. In that process, however, like all successful institutions, it became much larger, more calculative, rule-driven and bureaucratic. The stories told by expert economists and bureaucrats are rarely compelling and, as the original narrative waned, means became ends-in-themselves.


Economic attachments are fragile. We may work for money, but we live for the story. An ecological perspective suggested that any “buy-in” would be temporary at best and that the resulting tepid commitment would fluctuate with the EU’s economic fortunes. This is particularly the case if economic gains are spread unevenly and significant segments of the population feel left out and ignored. The result was widespread Euroscepticism that, as Nigel Farage, then the leader of Britain’s United Kingdom Independence Party (UKIP) proclaimed, was all about national identity.  The Brexit Referendum became a contest between technicians favouring the status quo and populists promising a return of a Little England narrative. The story won: it usually does.


With Crisis Comes Opportunity 


“Never let a good crisis go to waste” is an aphorism often attributed to Winston Churchill but never sourced. The idea probably comes from Chinese Taoist philosophy and its use of natural analogies to understand stability and change. Crisis plays a pivotal role in the renewal of ecosystems. Wind and fire, flood and pestilence clear away old growth in mature forests and open up patches, where there is equal access to water and light. Here young organisms, fueled by nutrients from a recycled past, can flourish and renew the system.


In Britain, it seems likely that the old political party arrangements no longer reflect the new divisions in the electorate. The Conservatives are badly split, and left-wing Labour Party has been called a “walking ghost”. It performed poorly in the referendum, with many of its members ignoring its call to “Remain”. There is now a contest for its leadership. So the Brexit crisis may act as a catalyst for the reform and reconfiguration of Britain’s political parties, something that would be extraordinarily difficult to do in regular times.  By the time this new configuration has gone to the polls for a new mandate it is possible that the whole Brexit concept will be so completely muddled that a crisis-induced, reformed EU may accept some version of Bremain.


In the EU, it is time for its leaders to reflect upon the entire project. Those with direct experience of World War II are nearly gone and with their passing, the founding narratives of the EU become second-hand memories. The administrative integration of the EU’s members needs to be slowed and even rolled back, a direction to which Angela Merkel seems sympathetic. The creation of the Euro was a bold but premature move, freezing the system when it still needed significant wiggle room. Attention should be on strengthening European identity through new narratives and the creation of compelling experiences that build and maintain them. You can only fight old stories with new narratives. It will not be easy. The late historian Tony Judt stated the challenge well in his paradoxical thesis that Europe has been able to rebuild itself politically and economically only by forgetting the past, but that it can define itself morally and culturally only by remembering it. Perhaps it is time to start the process again with the generations born since 1945.


Management Lessons from the Brexit Moment


What can managers learn from the Brexit moment? Stability is a relative matter, and nature teaches us that great stability is often achieved at the cost of a system’s resilience. The resulting structures are hard but brittle. Authoritarian organizations are like this. Resilient systems need to flex and flow, not by trashing hierarchy – that is a recipe for chaos – but by minimizing the number of levels and designing the constraints to ensure that there is discretionary space at every level in which to act and to innovate. The Toyota Production System (TPS) comes to mind. Toyota is a highly bureaucratic organization, but the TPS creates spaces in which everyone at every level can act to take advantage of opportunities that appear only at that level of granularity. The military equivalent is auftragstaktik, so-called “mission command”. It is a form of directed opportunism that encourages initiative in all ranks. Unfortunately, it is not a one-time affair but a fundamental philosophy that has to be faithfully followed. As organizations grow in scale, enabling hierarchies of constraint continually threaten to morph into coercive hierarchies of control, closing out the spaces for discretion and judgement and stifling entrepreneurship and innovation.


The bottom line is that with crisis comes opportunity and, as Charles de Gaulle remarked of the French Army in 1942, “Nothing lasts unless it is incessantly renewed…


About the author:

David K. Hurst is a management author, educator, and consultant. His latest book is The New Ecology of Leadership: Business Mastery in a Chaotic World (Columbia University Press 2012).

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