Interview with Dr. Jonas Ridderstrale, co-author with Kjell A. Nordström of "Funky Business Forever" and "Karaoke Capitalism", and with Mark Wilcox of "Re-energizing the Corporation"
Power has been transferred from those who sell to those who buy. "The stupid, humble, loyal customer is a thing of the past." The competitive edge in today's market economy is e-business. The 'e' stands for 'emotional business'.
"Seeing and believing is the root of action. There is nothing so funkily practical as a great idea."
Vern Burkhardt (VB):
How did you initially come up with the title "Funky Business"
It was partially by chance. At the time we were putting the first edition of the book together we had a number of friends who were not academics or in business. They were musicians, artists, actors, and painters who were convinced that business was boring. And the reactions we received from a lot of people at dinner parties and other social events was similar when we said we were doing research about business They would move on to talk to someone else because they were also convinced business was boring and not relevant for them.
When we wrote the book we wanted to make a couple of key points. We were convinced that in order to make it in business you had to be less conventional, less conservative, less pinstriped suit, white shirt, and tie. In most parts of the world the traits and attire were associated with business. We felt we had to be creative and unconventional. We were also absolutely certain that a lot of ideas from business could be applied elsewhere, and that today understanding what's happening and how to lead is relevant for almost all. Everyone is faced with more choice than ever – so you better arm yourself with knowledge.
A lot of our friends, especially musicians, referred to things that were cool, happening, and as being funky. When we put 'funky' together with 'business' it created a juxtaposition of opposites. For most people business is not funky, and that was the main reason for putting these two opposites together as a title for the book.
Have you discovered the true meaning of funk, and how we are forever funky; funky forever?
A lot of people misinterpret the concept by thinking there is one funky way, one way to be funky, one way for you to be funky as an individual, one for way for your company to be funky, and one way for the country to be funky. I beg to differ. Being funky is ultimately about being true to yourself. Authenticity is key.
At the end of the day you can only be the best person in the world or the best company in the world if you're a first rate version of yourself. Not a second rate copy of someone else. I can I wipe the floor with all my competitors in the business world as long as I remain true to myself.
You and co-author Dr. Kjell Nordström have been described as the new generation of European-based business gurus. How do you differ from the old generation of gurus?
We are younger – just kidding. At least in Europe we were the first ones to shake up the entire approach to making presentations of serious material to a large audience. We are different in the way we package our presentations or, as we say, our 'gigs'. The difference is in the slides we use, the number of hours we rehearse, and how we dress. The entire package is a product, it's a business, and in Europe that's new. It may be more common in the U.S. for business presenters to include a lot of humor but in my neck of the woods that was new.
In terms of the concepts we also differed quite a bit. Most business gurus become well known for a particular idea, a particular concept, which is almost vertical in nature. What do I mean by that? They have a core idea, and then they dig deeper and deeper into that idea. It's quite natural because most people with a background in academia have been educated in a system where you have to specialize.
In our books we have taken more of a horizontal analysis approach where we look at societal changes – such as in art, culture and music – and explore how it interacts with business. We paint a picture of the broad societal trends, which is not unusual, but then we link those trends to what's happening within corporations, the field of leadership and management, and the field of strategy. This horizontal analysis makes us different.
We are also different in terms of the examples we use. Instead of examples that would make sense to a traditional CEO, or someone who has spent twenty to twenty-five years in the economics library at a university, we use examples that make sense to people in general. Most people have not spent weeks in a boardroom, but they have spent a lot of time around the Sunday dinner table. The basic processes are much the same. Our perspective is why would we use a boardroom example if we want to make a point? Use an example related to a Sunday dinner event, because that makes more sense to people.
We try to follow what we sometimes refer to as 'Macintosh economics'. It's similar to the Apple computer. If you want to throw a document or file away you put it in the trash can – you don't have to type slash, colon, go to, and other commands. That's the old way. Like an Apple computer, use symbols that make sense to people – that's how you can communicate with them.
Dressed in black, shaved heads, seminars, and sell out presentation events. Who is usually your audience, and why do they come in sell out numbers?
It varies. Some of our presentations are open to the public, and for those we have a wide range of people attend – school teachers, nurses, CEO's, owners of companies, trade union leaders, and we've even had a couple of church ministers. Instead of telling people what to do we invite them to think. Most people regardless of age, gender, occupation, or educational background are interested in being invited to think.
The majority of the work we do is internal within companies in any industry, and any part of the world. Some audiences are geared towards people with a Human Resources background, some top management, and a wide variety of other specialties. Presenting to such a large variety of audiences might be a problem if we were trying to tell people what to do, but we don't. We don't know exactly what they should do, and if we did tell them what they should do, it wouldn't make economic sense. What we told Motorola to do we could also tell its competitors, such as Sony Ericson. The advice wouldn't be worth much because if they all started following it, it would no longer enable creation of a competitive edge.
I see myself as someone who can raise the right questions, get a discussion going, assist the participants generate some unique and interesting answers, in addition to providing structure, frameworks and inspiration of course. It's about adding to both the intellectual and the psychological capital of people.
You talk about the importance of 'brain power' and say that business success is a matter of herding flocks of brains. Would you elaborate?
Talent is the only thing the western world – U.S., Canada, and Western Europe – is left to compete with. I've changed my mind, and now use the term talent instead of knowledge because talent is a much wider concept. We all know that you can't compete on cost with 1.2 billion Chinese and 900 million Indians, many of whom are well educated. But these days, it is also increasingly difficult to beat them on the basis of having a superior intellectual capital.
Talent is a little bit more complex as a concept than knowledge, because talent includes more than the intellectual capital that used to make and still makes some organizations competitive. At the end of the day if you have an MBA or an engineering degree you will have access to the same knowledge whether you study in Beijing, Boston, Bangalore, or Birmingham. This knowledge from university studies is not as much of a differentiator as it was 10 years ago, for example, because it's available to everyone. You still need it, but this know-how will not provide you with a competitive edge. Talent also captures the psychological elements – the importance of having a can-do attitude; and the social capital – the know-who factor – that is increasingly important.
Is talent – intellectual capital – going to be the new battlefield for countries, corporations and individuals?
Some recent research indicates that competitive intellectual capital still explains a lot of the variation in performance of individuals. In some of these studies education was found to explain about 28% of the variation in work-related performance.
If you consider just one psychological factor, confidence and self-sufficiency explain 38% of the variation in individual performance. If you add the positive impact of hope, optimism, and resilience to bounce back when difficulties have been encountered, the psychological factors today are critically important.
We shouldn't be surprised that in a well functioning market economy the nature of competition evolves. Once upon a time competition was all about access to physical capital, cheap raw material, and cheap labor. Then competition was related to access to financial capital. Later, the competitive edge was based on intellectual capital, and now it's also a question of psychological and social capital. Access to the old stuff has now become necessary, but no longer sufficient, in the race for business leadership. That's the way the market economy works.
Businesses need to evolve or they will disappear – that's the nature of a well functioning market economy.
You suggest that businesses need to innovate so that for a moment in time they are unique and uniquely competitive. Would you talk about this?
There is only one way in which you can make money in a well functioning market economy. For a short moment in time and/or space you need to be unique. You need to be the only one. You need to leave the customer with no choice except to want to do business with you. Great companies create and defend temporary monopolies. Microsoft is a great case in point, whether or not you like their software, they have been a successful, rock solid temporary monopoly.
This principle applies not only in business. It also applies in music and art – Pablo Picasso had a temporary monopoly. You see it in sports, such as Dick Fosbury who mastered the Fosbury flop that enabled him to win an Olympic gold medal for high jumping in the Mexican City Olympics in 1968.
Behind every monopoly there is always an innovation of some kind. The argument we are making in Funky Business
is that historically most of those innovations were of a technological kind. One hundred years ago a company in Germany, for example, could develop a unique gadget that the competition didn't have. It might have provided them with a temporary monopoly they could exploit internationally for ten, twenty or even thirty years. That innovation provided a competitive edge.
This worked for a long time until technology in most industries became like the air we breathe and the water that we drink – available to everyone. We then entered the era of organizational and managerial innovations. Just in time production, total quality management, business process re-engineering, ISO9000, ISO9001, six sigma, statistical process control, and matrix organizations enabled a number of companies to gain a competitive edge. In fact, it enabled an entire nation, Japan, to evolve and become hyper competitive. Japan didn't have any natural resources, and it was not a great innovator of new technologies. It was exceptionally well suited for taking advantage of the innovative ideas of an organizational and managerial nature, however, and this provided them with a competitive edge.
And Japan's culture enabled order, structure and respect for authority so it was able to take advantage of these production management innovations.
Especially towards the end of the industrial era when the big challenge was to become a little bit better at perfecting the known. But later, all of these organizational and managerial innovations came into the public domain. Today if you deal with any management consultant in the world they will provide you with enough managerial and organizational advice to fill your office from floor to ceiling.
Things change and the argument we're making in Funky Business
is that in a lot of industries being good is no longer enough. Having great quality, having a great price/performance ratio is not enough.
In a lot of industries you need to move beyond to the new frontier of e-business. In this case, though, the 'e' stands for emotional business. That's an idea we have developed in the third edition of Funky Business
and in Karaoke Capitalism
, our second book. The key point is that if you can compete at an emotional level, you will achieve huge competitive advantages. This is related to ethics and aesthetics; it's not as rational in nature as the old stuff.
The competitive differentiator is the affect of your business and its products and services in creating positive feelings with customers and potential customers?
Yes. If you consider Apple iPhone, which is well known to everyone, the question is why do so many people buy this device. It's not because it has superior technology. Very few people have done reverse engineering on all available cellular phones so most people don't know which model provides superior technology. If you were to compare a Sony Ericson cell phone with an Apple iPhone you would find that the Sony Ericson device is way more sophisticated from a technological point of view. But when people buy an Apple iPhone they don't buy a phone – they make a statement. That applies to a lot of industries.
Harley Davidson is another case in point. Rich Teerlink, former CEO of Harley Davidson, was asked the question, "What do you sell?" He responded Harley Davidson enables a 43-year old accountant to dress in black leather, ride through small towns, and have people be afraid of him.
In almost any industry you examine, you will find that a number of companies are competing on being sexy, attractive, and creating an emotional reaction. Apple and Harley Davidson are the obvious ones we talked about. It's also the case with BMW and Singapore Airline.
You'll also find another group of companies that compete on having a superior business model or business strategy innovation. That's the case with Dell, Wal-Mart, Southwest Airlines, Europe's Ryan Air, and EasyJet. There is an increasing polarization of successful strategies.
One of the ideas we've pursued is that of a double economy, where you'll find more and more differences between the 'best and the rest'. This is a natural consequence of the market mechanism that sorts stuff; companies, products and people into two piles based on the principle of economic efficiency.
Those who go after what used to be the locally focused middle class mass market are increasingly finding it difficult to survive. As we move into a world of super capitalism the world markets are becoming increasingly polarized.
You say most of us are not very good at innovation – creating what is not. Is creating what is not the essence of being an entrepreneur?
To create what has not been seen, what has not been heard before, is one aspect of entrepreneurship but it's not the only. Another possibility is to identify an existing innovation and use it in a different location to give you a temporary monopoly because you are unique in that particular market. But that's increasingly difficult because competition is becoming international and global.
Are the greatest innovation challenges figuring out how to adapt technology to people so people don't have to adapt to technology?
In general, I don't think the greatest innovation challenges have a lot to do with technology.
The most difficult thing, at least in an organizational setting, is ensuring you spend enough time and resources on creatively destroying what historically made you successful. Because there are so many forces within every organization telling you to continue to exploit what made you successful yesterday, it prevents you from creative discussions about what will be your cash cows for tomorrow.
I think the big challenges are organizational, managerial, leadership-oriented, perhaps even cultural and psychological. Some are even biological because it boils down to the nature of man – we are uncertainty-reducing creatures. We have been designed to avoid uncertainty and risk, because that's how to stay alive. It's probably a good set of design principles from the point of view of staying alive in an uncivilized society, but in business we're talking about how to move beyond the status quo, to create a good life. In a number of ways human nature prevents us from taking enough risks, being creative, and spending enough time and resources on creation of new ideas. Instead, exploitation of existing innovations tends to crowd out creation and experimentation in most organizations.
You talk about the importance of companies working with external partners to come up with tomorrow's products. Is this happening in Sweden or other Scandinavian countries?
I think you see more of this everywhere in the world. Outsourcing of product manufacturing and services, such as information technology, has been commonplace for a number of years. You'll resource your IT from India, and factory workers from Malaysia, Indonesia or China.
I think progressively more companies realize you also need to do outsourcing for creation-oriented processes. You need to outsource innovation, because your own research, development and implementation system is not big enough to excel in all aspects of innovation that are necessary to stay competitive in today's world.
Do we see more of in the Scandinavian countries than other parts of the world? Perhaps. Sweden along with the other Scandinavian countries is a high trust society, so you will probably see more collaborative development efforts than in many other countries. You'll see less formal agreements, more informal relationships. Many of these trust-based relationships have been built over many decades between companies. You'll not see huge armies of attorneys marching in to do the legal work before these creative processes start. That is an important benefit as there are lower legal transaction costs related to huge networks of companies working together. Also the large ownership structures of industry in Scandinavia, and particularly in Sweden, enable flows of people and ideas between companies within those spheres.
That must lead to a lot of innovation in Sweden?
At least historically. Sweden is, by all standards, a very small country – we have 9 million inhabitants. But along with countries like Holland, Switzerland, and a few other countries in Europe, we have an impressive number of internationally successful companies. Some of them are no longer Swedish-owned, but they still have their origins here. Sweden has two of the most well-known and biggest truck manufacturers in the world, some of the most successful retailers in H&M and Ikea. Then, there are Ericsson, Electrolux, and others. For a small country it's pretty impressive.
Historically, most innovations were of a technological nature. It's darn cold in Sweden, and I think the forces of nature caused us to become fairly ingenious. You needed to be a good technological innovator to stay alive.
The big challenge for Swedish industry today is to be more demand-oriented in its innovations. We need to see companies undertake more marketing innovations, and focus more on 'e(motional)' commerce in this age of affection. But even so, we have a fairly impressive track record for a small place.
What do you mean when you say, "leaders must produce uncertainty"?
Historically a lot of people have had the notion that if you take leadership away the result will be chaos. The conclusion was that it's the task of the leader to move in and put a lid on things, to control.
I beg to differ with that view. If you take leadership away, most organizations will become stagnant, repetitive, and self-reproducing systems. The task of a leader today is to stir the pot. To give you an example of the change I am referring to, I saw an interesting interview on the Internet, I think it was by Gary Hamel who interviewed Eric Schmidt, Chairman and CEO of Google Inc. In the midst of the interview Eric Schmidt was asked, "Your span of control at Google is something like fifty to sixty people. How do you manage?" "Well", said Eric Schmidt, "if you get enough direct reports then you can't manage them, that was the idea."
The entire Google company is based on an organizational principle, which is anti-managerial. This doesn't mean that Eric Schmidt plays a less important role. I would argue the opposite. He plays a very different role because Eric Schmidt is not the person with all the knowledge, ideas, and answers. His task becomes asking smart questions, inviting the smart people to have a debate, but it needs to be a debate with a deadline. He draws upon all the diversity that you'll find in a company like Google, and then he has a cut-off point where he'll say, "Yes, this is a fantastic dream. But at the end of the day we also have to deliver on the dream because otherwise it is just a nightmare."
You say companies need to become breeding grounds for risk takers. What are some novel ways a company can go about doing this?
The big question is how you deal with mistakes and failure, because we know that experiments are necessary but also risky. Every once in a while they fail. Hopefully some of them succeed.
Anyone with an innovation strategy needs to be clear how to deal with mistakes and failures. People will stop taking any risk at all in an organization that constantly punishes mistakes and failures,. That's the surest way to be certain you never have any mistakes, but it's also the surest way to fall behind.
My fear is if you rule out the risk for negative surprise to happen, almost by definition you have also eliminated the chance for positive surprise to happen.
I'm not suggesting we should create organizations that necessarily take more risks. I'm merely proposing that if we want to see more innovation, we probably need to make it less risky for people to take risks.
Would you talk about how companies can benefit by "bundling" their services?
It brings us back to the question of what innovation really is. We tend to define innovation as the progression of things, which is an improved version of something you did before, or something that the world has never ever seen before. But that's not necessarily the case.
Quite often today innovation means hyphenation, combination or re-composition. That's what we refer to as the bundling and unbundling of things. If I take a look at my cell phone, which happens to be a Sony Ericson, of course it's a cell phone but it's also a PDA, an Internet access device, a MP3 player, and I can even watch movies on it.
You see that kind of bundling in many industries where new features and things are put together. As a company with these types of products you should bundle things together in a way that makes it difficult for your customers to unbundle them. If customers can unbundle the features and subcomponents, they can just as easily get each and every component from a separate vendor, and your bargaining power will be reduced.
Have the views you express in Funky Business
on the health of capitalism changed in light of the world-wide financial meltdown, and the need for so many governments to step in and shore up their countries' banks?
At the end of the day you have to realize that a market economy is not an ideology. A market economy is a machine. And it is a machine with only one task. As I said, it's a machine that sorts things, people, companies, and countries, on one principle – is it efficient or inefficient. That's what a market does. It's a sorting mechanism, efficient, inefficient, efficient, inefficient.
Of course there could be something wrong with the market economy, with the machine. Maybe General Motors is a fantastic company. Maybe Saab is a fantastic company. Maybe Lehman Brothers was a fantastic company. We could blame the machine, and say there was something very wrong with it.
I'm of the opinion there's basically nothing wrong with the market economy. General Motors is not a great company today. It used to be a great company, but it's not well adapted to the world in which we live. Saab is a company that has not managed to make a profit in about fifteen years. This was the case even when we had a fantastic economy with real growth, so I'm not so sure we should blame the machine.
If we accept the fact that the machine is pretty good at sorting things on the principle of efficient and inefficient, then we need to ask a second question. Is there something wrong with the sorting mechanism? Should we have a machine with a different sorting mechanism, and could we develop such a machine with a different sorting mechanism? Maybe that sorting mechanism shouldn't be one of profitability; maybe it should be sustainability. That would be a very different kind of machine. We started to have that discussion but it disappeared when we got into the current financial crisis. We were on the verge of having a discussion about how to reduce CO2 emissions after the movie "An Inconvenient Truth" was released.
Maybe we need to come up with a machine which sorts, not only by the principle of wealth, but also on the principle of health. Maybe it's difficult to create a machine where you can't help but deal with the health of a system. I'm not talking about personal health but the health of the economic system, the sustainability of the system without it being at the expense of the wealth-producing, profitability, efficiency-oriented things you get with a market economy. Maybe it's utopian, I don't know, but we need to have that discussion. We need to take a look at the implications of the financial crisis that's happening now, because if the machine is basically right and this still happened, we may need to invent a new machine.
Any social system that espouses to survive over time needs to make sure it's not becoming obsolete. As I said previously, historically the principle of efficiency has been tied to the market economy, but we've also had the principle of egalitarianism among others. Any system that is to survive over time needs to combine empathy, efficiency, and evolution?
What might fix the system?
If you promote the market principle so that it has almost a religious stature, there is a risk that what used to be considered a deadly sins – such as greed – almost becomes a heavenly virtue. I'm not exactly sure how we would fix it. I think most Democrats in the U.S. would like to fix it with institutional solutions. I've just read Supercapitalism
, the latest book by Robert Reich who is a professor of public policy and former labor secretary under the Bill Clinton administration in the U.S. I admire him in many ways but he's very much into institutional solutions – regulations and laws. I think the typical Republican solution would be to fix it with values. If they could only get more people to go to church and read the bible, that would fix it. I'm not sure either the law book or the bible book will fix this. Maybe we need both, but I think perhaps we also need a more focused approach to innovation to solve the situation.
Technology has helped us fix a lot of problems in the past, but I don't think it has the answers for this complex challenge.
Your book has sold worldwide and been translated into more than thirty-three languages. You say only "an embarrassing handful of copies" have sold in the United States. Why do you think this is the case?
Competition is much tougher in the U.S. It's the most competitive market in the world for publishing.
The second reason is, I think, is parochialism. During the Clinton years the U.S. in general was a lot more open to the outside world. But after the U.S. economy started to do really well, and with a change to the Bush administration, a rift opened up between Europe and the United States. I'm not blaming either side. I'm merely observing there was more of a rift. The U.S. interest in the outside world seems to have started to increase so there is cause for hope. The fact that Thomas L. Friedman's book, The World is Flat
has done exceptionally well has been a wakeup call for some in the U.S. A lot of people have started to realize there's a world beyond the U.S. border, it's big, and interesting things are happening out there.
There's also been a wakeup call to a lot of American companies. Although the U.S. has some of the best, most successful companies in the world, the majority remains much too reliant on U.S. customers and the U.S. talent pool. I think a lot of U.S. companies are suffering even more than a lot of European companies, especially those from smaller places like Sweden, because for us the rest of the world has always equaled most of it. The typical Swedish company will be around for two years from start up, and then it needs to expand internationally if it's any good and wishes to survive. The rest of the world is not marginal.
Does that mean not only are many U.S. companies suffering financially, their leaders are also suffering psychologically, because all of a sudden the paradigm that U.S. can remain their sole focus is shifting?
Yes. But the leaders of the most progressive companies are not suffering. They are way beyond that. But for the bulk of businesses in the U.S. that's likely to be a big issue, because the business world beyond can appear to be a big threat. On the other hand, rather than it letting have a negative psychological impact progressive leaders will see international business as a great opportunity and convince others that this is the case. There are hordes of intelligent people overseas that are potentially willing to do a lot of interesting work for these American companies for almost nothing, compared to a U.S. graduate.
Most people in the developed world seem eager to retain the kind of lifestyle, possessions, systems, values, and standard of living that we've had for the last forty-five to fifty years, so for the typical company this demand for goods and services remains a huge opportunity. The development may not be a huge opportunity for those people who will turn out to be unemployed and unemployable in places like the U.S., Sweden, Germany, or the UK. But for companies it's a huge opportunity both from an input and an output point of view.
What do you mean when you say "cities are on the move, not nations"?
Urbanization of the world is an interesting phenomenon. You're seeing aspects of it in politics, at least in Europe. Some of the new political parties born during the last ten to fifteen years have been defending the values, rights, and financial status of people living in cities versus those living in the country-side.
The new world that is developing is very much a city-oriented world. I bet the typical person living in New York or Los Angeles has a lot more in common with the typical person living in London or Stockholm than with someone living in the middle of Iowa. People in cities across the world share similar values and life styles – they're biographical buddies.
If you consider, for instance, the U.S. economy you will also find the big companies that determine the economic future of the country are centered on a very limited number of cities. The rest of the country doesn't matter from a global competitive point of view. The U.S. economy is probably more extreme, but it's probably true as well for many, if not most, other countries and regions.
People now have the ability to move about the world freely, and, with markets becoming more global, there are millions of people wanting to build lives with the same comforts as the West. How does this impact the marketplace?
There's a positive and a negative story. When I travel the world and work, for example, with Russian, Ukrainian, Malaysian, Thai, or South African companies I'm reminded that people today enjoy so much more freedom than in the past. A lot of North Americans and Swede's take this for granted. People from these emerging countries don't talk about an evolution when they talk about the last twenty to twenty-five years; they talk about a revolution. It's a dramatic difference that is fantastic when we consider the big picture.
For many years it was also fantastic from an economic point of view because it was clear that capitalism had won. Capitalism had conquered the world from Beijing to Baltimore. We now had access to cheap labor and consistent productivity gains resulting from advances in IT and telecommunications. It was a capitalist's dream-come-true, and everything worked fine until the populations in the emerging countries started consuming things in ever larger quantities. The result was the price of oil, wheat, rice, and just about all other commodities went up, and we got into an inflation spiral. When the national banks around the world reacted by raising interest rates the system could not sustain the 'leveraged lifestyle' of many in the U.S. and other countries. I call it a 'leveraged lifestyle,' because businesses were leveraged, peoples' personal lives were leveraged. Everything was debt financed, which worked as long as the world was growing at an annual rate of 6%. But when the world wasn't growing that fast, when inflation hit, when interest rates went up, and confidence started to wane, it all collapsed. This is not the only reason behind the current economic crisis, but it is one factor to consider.
A cause for concern and worry.
My big worry right now is that I'm not sure how we're going to sort this mess out, at least within the short term. Neither am I sure that anyone else is sitting with all the right answers somewhere up their sleeve. The world is global, and international trade is up like crazy. But the big issue is the world economy is globally integrated in a way we've never ever seen before. Usually in the past there was always one part of the economy that was doing quite well, and it would drag the rest in the right direction. Now, instead of dragging the economy in the right direction, we're realizing that it's not floating – its stretching the net to the bottom.
If I go to a bank in Sweden or Germany I could end up buying a certificate that is based on a loan given to a poor, unemployed person in Alabama that has been convinced by a sales person to buy a new home she or he can't afford.
There are a number of potential scenarios. One of the two big trends of the last twenty to twenty years has been increased economic freedom. We have seen increased international trade, collaboration, and economic activity in general. The other trend has been increased personal freedom, especially in places like South Africa, South East Asia, and the former Soviet Union. There could be a backlash reversing these trends. It would greatly surprise me if we returned to a world in which the nation state is resurrected to have the same kind of importance that it had one hundred years ago. Regionalism seems more likely. Another scenario would be for capitalism to end, but although capitalism isn't perfect, it's the least imperfect system that we've come up with so far. Growing up in a country quite close to USSR, I promise you that that system was a whole lot worse.
Do you foresee a time when simplicity and less rather than surplus and excess will become a way of life and of business in developed countries?
For some, but not for everyone. For some simplicity already is a way of life, but at the end of the day, human beings tend to be fairly selfish, ruthless, and greedy animals. There is a varnish painted on our bodies. That varnish is made up of values and behaviors we've been taught, but it's a very thin layer of varnish. On balance, I'm not sure we should expect the majority of people to go for simplicity and less, rather than surplus and excess.
To give you a simple example, most people around the world – even in a remote place in Africa – know that the way that we, the world, are consuming things right now is not sustainable. By now most people around the world are aware of the problem we have created. But we still keep consuming more.
There was a recent study in Europe about this question. When asked 75% of the people said, "Yes, I would be willing to buy products from a company that was acting in a sustainable way." But when asked what they actually did, only 3% indicated they had actually changed their behavior. There's a huge difference between changing the mindset of people, and changing their behavior.
We've become so numb by things we see on television that basically nothing really
impacts you as an individual anymore. I don't think we should expect big behavioral change until there is something quite personal and noticeable to trigger it. What could it be? Well… it could be something like the bird flu, something that becomes so personal because your child, mother, father, wife, husband, girlfriend, boyfriend, or close friend or work associate suffers and dies.
You say the digital world removes the emperor's clothes. Would you explain what you mean?
It makes the world a little bit more transparent.
My brother is a medical doctor, and when we were in conversation some time ago he sounded a bit grumpy. I could tell he was in a bad mood so I asked him what had happened. He responded he had met someone like me that day. Apparently he had examined a patient, written a prescription, and then the guy suddenly said he had read on the Internet this particular drug had a number of negative side effects. He went on to say there is an experimental treatment in Warsaw, which is supposedly much better and…blah blah blah. Historically, as a medical doctor, you could rest your authority on an information access monopoly. That monopoly no longer exists. It doesn't exist for a medical doctor, it doesn't exist for a politician, and it certainly doesn't exist for a leader in business.
What do you mean by real-time organizations and real-time society?
Our history is far from real time. In the past we tried to plan, foresee, and control the future.
Today, as an organization, you have to act upon information the nanosecond that information is accessible. And you can get access to a lot of information. A company such as Cisco can close its books at any second of any hour, any day of the week, and they will know exactly their financial situation. That wasn't the case historically.
You also have to change in relation to demand and the whims of consumers on a real-time basis.
You say power has transferred from those who sell to those who buy. How has this changed the seller-customer relationship?
Well, this transfer occurs when markets suffer from over-capacity, are being commoditized, and when the search costs for finding the best deal – globally – are coming down. So, in almost any organization today there is a lot of talk about customization, which is tied to the 'customer freedom movement'. The discussion is about how you can involve the customer as a partner in a process that is more 'prosumption-oriented' than in the past. As a consumer you not only want to consume, you often also want to produce – like the specifications of your personalized car.
I think a lot of companies initially mistook customization for pure variation. As an example, if we are a manufacturer of computers, instead of making one computer model we make 10,000 different variations of computer models. But for consumers that's confusing.
At the end of the day most consumers want exactly one thing. They want exactly what they desire. So true customization is about providing a platform that enables customers to co-design and co-produce their own limited edition product, service or experience – whatever it may be.
You advise that companies should treat customers like celebrities and some companies should actually pay their customers. How can such a business model work?
It probably won't work if you're going after customers with very limited spending ability. It's often about having products and services that are sexy and attractive, but it's not necessarily so.
Consider Amazon. Amazon treats you as a celebrity in that they provide you with an enormous amount of information that makes your life easier. If you buy a book, or if you are looking at a book, they provide you online with information that other customers in your situation have provided Amazon. If I search in their system for a management book or a novel, I will automatically get a lot of advice that other customers who looked at this book also like certain other books. As a consumer of Amazon, if you buy into its business model and write reviews of books, and if you're any good and do a lot of reviews, you'll be paid for it. Not huge sums of money but you will receive coupons and various kinds of benefits. Another case in point is Ryan Air, the leading low-cost airline in Europe. Management has considered flying people for free or eventually even paying them. Of course, this only makes sense if you can get the passengers to spend enough money on other things – tax-free, peanuts, sandwiches, and many other products. The plane becomes a flying mall.
You will find similar approaches in the high-end niche markets. It's not necessarily expensive to treat someone like a celebrity. I think the return on decency is alive and well. Certainly it should be alive and well, in almost any industry.
You say most customers function as rearview mirrors. While you encourage businesses to listen to customers, you also advise them to ignore customers in order to be innovative. What do you mean by this?
It's for the simple reason that the typical customer wants something quite similar to what they have today, but they want it cheaper, better, and yesterday. Or as Henry Ford once put it, if I had asked the public it would have wanted a faster horse.
In a lot of cases you can't expect customers to do your innovation for you. Most customers in most industries will be very conservative. In most cases they are not paid to come up with new ideas, so why we expect it?
You can involve customers and have a discussion with them, but ultimately you have to give birth to new ideas, new products, and different customer experiences. If you're good at customization you will likely want to co-produce and co-design with key customers.
You've got to make up your mind how much you will rely on input from customers in your innovation processes. Will you be an organization that is very much in bed with your customers, and goes way beyond the point of just being close to you customers from a customer service point of view? It requires building processes that essentially integrate customers into your business model to enable co-design and creativity. Or will you be an organization that tries to surprise your customers by coming up with something that is unimaginable to them, or if it's a business-to-business relationship, which far surpasses a particular company's expectations.
You say "the boss is dead" and "the job is dead". Is that scary or should we be thrilled with this trend?
I guess it depends on who you are. If you are someone who finds a lot of security in a piece of paper that has a title and job description it may seem threatening. If you're someone who finds a lot of security in a business card saying CEO, likes to boss people around, or likes to go to a job where you check your brain at the door until you leave, it's scary.
If you're someone who looks at work as a collaborative, creative process, where novelty, experimentation and curiosity are more important than reduction of uncertainty and security, it's a fantastic world. In fact, we've never had better opportunities and more tools for designing jobs that are enriching. Or having companies that are fun and interesting to work for, and can come up with products and services that make a difference to the lives of people.
We've never had more of an opportunity to get rid of that human shell called poverty on a global level. But it's a question of what we decide to do with all that we have. The future isn't cut in stone, it's up to us. That's the good thing – today, as an individual, you can make a difference.
Would you talk to us about your idea that organizations should have motivation descriptions rather than job descriptions?
For many years, and we've talked a bit about it already, many organizations have spent a lot of time and effort trying to mass customize in relation to their consumers. Today the best companies, smartest companies, and most creative companies are spending at least as much time mass customizing in relation to the talented people working for them. They are re-writing the rules for the employee deal.
In a world in which we are heavily reliant on talent, in a world in which people are increasingly loyal to themselves rather than a particular boss or a particular company, you have to personalize each employee's value proposition so that it makes sense for that particular individual. You do that not by developing more elaborate job descriptions. You do that by asking people what motivates them.
To give you one example, one of the largest retailers in Europe is a UK company that I've done some work with. A couple of years ago, management decided to get a feel for what really motivated everyone working for the company. So they sent out a survey and, when they analyzed the responses – I'm simplifying things a little bit – it turned out about 80% of the employees were the kind of people that essentially work to live. Their view was you've got to work, you have to make a living, but at the end of the day that's what it's all about. About 20% of the employees working for the company were the kind of people that lived to work. For them work was everything. They wanted a successful career; they were going to make it in business. When the company leaders looked at all the things used to motivate people within the company about 80% of what they did was geared towards the 20% who lived to work. And, only 20% was geared towards the 80% who work to live. Of course, if you fail to motivate 80% of the people that work in your company you're not going to continue to be successful. They went back to the drawing board and, instead of having uniform one-size-fits-all set of motivators, they developed a much more differentiated portfolio. Instead of a job promotion, if you did a really good job you might get an extra week during which you could stay home with the kids – even if they didn't have the flu. That reward was something that had a higher motivational effect for some of the previously forgotten 80% of the employees.
What advice do you have for organizations that still produce annual reports?
Look at the annual report as a map rather than an actual description of reality.
Why is it important for companies to appeal to the emotional human being rather than the rational one? Will this increasingly be a business differentiator?
I think it will be. This year is the two hundredth anniversary of Charles Darwin's birth, and for most people, Charles Darwin is associated with survival of the fittest. It turns out he developed a second theory of how to survive in nature, which could be summarized as survival of the sexiest, because natural selection couldn't explain a couple of things. One was why the peacock has survived. You could say a number of things about the peacock, but you can't say that he is well suited for survival. It isn't extremely fit, can't run, has difficulties hiding, and can't fly very well. When a peahen looks at the peacock, which is extremely attractive, she thinks 'wow what a guy, but he should be dead. If he is around with that ridiculous costume he must have fantastic genes.' Similarly, companies that can develop a "credible handicap" will survive and most likely thrive. That's really what the tale of the peacock is about – having a credible handicap, he is credible because by all logical reasoning he should be dead.
BMW, a company we work with, has thirty-six highly trained German engineers that work only on the sound of the door. When you close the door of a BMW car you're suppose to hear 'ZIP'. They have eleven people working only on the smell of the car. Why? It's quite simple. When you and I go to a BMW car dealer to shop for a new car we walk in, take a look at the cars and are impressed with what we see, we walk up to the car and open the door, step in, sit down, hear 'ZIP' as we close the door, breathe in, and we think 'wow'. And our thinking of 'wow' translates to our perception of the asking price of $99,000 – 'that's really cheap man'.
BMW shouldn't be around in one of the most competitive industries on our planet, not even Toyota made a profit last year. Why is BMW still around? Because it appeals to the emotional human being, it has a credible handicap. It creates an experience.
It's the same thing if you consider ethical handicaps – if you develop a green strategy. Let's assume you're a steel company or in pulp and paper, and you invest in clean technologies. Will you have a handicap? Well sure, from a cost point of view in relation to your less ethical competitors you will have a handicap. Now, is it a credible handicap? Not everywhere, not for everyone, certainly not right now given our economic crisis. From that point of view, I guess Kermit the frog was right – it's tough being green. But you may have a credibility gap with your key customers, and it may give you a competitive edge for attracting new customers who wish to deal with environmentally responsible suppliers. It may be a business differentiator.
We'll see more companies focusing on the customers' emotional reactions because often it's one of the few dimensions in which you can differentiate yourself as a company today. It is an infinite dimension. There's no limit to how much you can attract or captivate someone from an emotional point of view. And, it is also subjective. What is a credible handicap to you may not be a credible handicap to me. What is great from an emotional point of view for you may actually produce negative emotional reactions in me.
We're moving closer to the 'age of affection'. But emotional reaction will not captivate everyone, everywhere, and for every product. The majority of people around the world will not buy Absolute Vodka; they'll get the cheapest vodka they can find. They will not fly with Singapore Airlines. They will fly with South West or anyone else that gets them from point A to point B for the lowest fare possible. They will not get an Apple iPhone; they'll buy a cheaper one.
Polarization of the market is something we're going to see in industry after industry.
What do you see as the greatest challenge for businesses given the current economic downturn?
The mega challenge is to restore faith in the entire system. Trust in the financial system. Trust that capitalism and the marketplace still works.
Businesses face the challenge of public suspicion of the financial leaders that contributed to the current situation. Do they have the ability to learn from their mistakes, and do a better job of leading?
Where do you see some of the biggest opportunities for businesses during these difficult economic times?
I don't want to go back to the Great Depression because that's a different story. If we go back to the oil crisis in 1973, which was a big problem, one should keep in mind that Microsoft was founded that year. FedEx was founded in 1973.
Fortune favors the bold and the brave. There is a great opportunity to look at the world with fresh eyes, to envision something that is fundamentally different than what we've seen before. It's a great time to engage people who have been disengaged by what they've seen during the last few year.
It's also a time to start executing. It's time to move beyond just discussing. It is time to start experimenting, testing, trying, and doing. If anything this is a time for leaders who aspire to change, inspire to change, and perspire to make change happen. This is a time in which you can make a big difference. That's the big opportunity. We've seen it before; it's going to happen again.
The market economy is a huge laboratory. Right now we're experimenting with more things in more places than we've ever done before and, as we discussed earlier, experiments are risky. That doesn't mean we should stop trying, however. Standing still is always the surest way to fall behind, and I would hate to have our next decade or more go down in history as the time when we stopped trying.
If you were updating Karaoke Capitalism: Management for Mankind
for a new edition, what changes would you make to your key message?
I'm not a big fan of updating books. Most books, if they're any good, capture a certain zeitgeist of the time they were written.
I was hesitant about updating Funky Business
in the renamed edition, Funky Business Forever
, but as the book was becoming somewhat of a business classic – we were approaching half a million copies sold – we decided to update it, but in a very different way. The update is done as a discussion between my co-author Kjell Nordström and me about what we still think and what we no longer believe because some things have changed. We did that rather than a rewrite of the book.
Instead of updating Karaoke Capitalism
, I've written a new book you probably haven't read yet called Re-energizing the Corporation
It came out a couple of months ago. I co-authored it with Mark Wilcox, a British chap who used to be head of management training and development at Sony Europe. We have tried to take some of my ideas, some of Mark's experience, and blend them together based on our work with Sony Europe and other organizations throughout the world.
For once I've tried to be a little more practical. Most of my previous books are a little more philosophical, but this is a book with a "why" part and a "how to" part. The why and the how have changed in business. If you combine the why and how you end up with a "wow" kind of experience, and that equals energy.
You earned a PhD in Economics. How did that help you to be so creative in your thinking and writing?
I'm not so sure that the PhD helped me. I guess in some ways it did. I received a lot of training by doing rigorous analysis. I was lucky enough to have a fantastic mentor when I did my PhD, a guy called Gunnar Hedlund, who unfortunately passed away a number of years ago. People develop people. You need to get someone that can be a midwife for your brain. Gunnar was very much a midwife for my brain by helping me to figure out how to use my strengths. I was lucky.
No doubt you were creative in your approaches as a child.
I've always been fairly lazy and I've never been that persistent, which I think is generally seen as something negative. If you show up at a job interview and say, "I'm not the most persistent guy in the world and, in addition I'm quite lazy", you wouldn't land a top job.
But the flip side of the coin is that I'm curious and all over the place, which is both good and bad. Today's world, which is a fairly incoherent place, forces you to be all over the place in order to see the novelty. My mind works by combining things – the Pope is doing something, as are Brittney Spears, Jack Welch after he left GE, and Bill Gates, and something's happening in India and in the art world. I combine all those types of things; it is organized anarchy at the expense of depth.
Jumping around is interesting because it provides me with a different perspective, which is complimentary to the one provided by traditional academics.
You're a renaissance man who's an economist?
I'm the MacGyver of management 'guruism', ha, ha...
What other books written by European authors on creativity, innovation or business leadership would you recommend?
I think just about any book by Charles Handy is worthwhile reading. He's a pretty amazing character. He's a wise old man and I like reading books by wise old men and women. It's quite low key but his reflections are…he's probably the closest we have in Europe to Peter Drucker.
There's a leadership guy at INSTEAD in France called Manfred Kets de Vries. He writes some really interesting stuff – the best leadership books I've read by anyone globally.
There's a Dutch fellow, Fons Trompenhaars who writes about cross-cultural management issues. Quite intriguing stories, he's a great storyteller. He writes interesting and relevant stuff about how to deal with differences in culture, and how to use the variety of cultures as something that can spark innovation and creativity.
There's a woman that writes interesting material, Lynda Grattan. She writes about creativity, creative groups, and hot spots. She's also doing some interesting work in the field of female leadership, and the feminization of the world.
There are quite a few Europeans that I think a lot of curious North Americans should try to catch up on.
The important conclusions you made in 1999 are independent of time and space. What were some of those important conclusions?
One of the things I'm thinking about right now, and maybe it will summarize how I develop ideas, is talent makes capital dance – the sub-title of Funky Business.
My son is eleven, and he's at an age where he's getting a lot of homework. I remember when I did my homework when I was young. My mom asked me if I had any homework, I said, "Yes," and she told me to go to my room to do it. I had my books, a pen, and a few pieces of paper. I'd sit in my room for about two hours and then she'd interrogate me to determine what I'd learned.
My son is working in a different way. He's blogging, he's on his cell phone sending text messages, and his friends are coming over to learn using the computer. I became intrigued. Why is he approaching his homework in such a different way than I did? And then it struck me that knowledge on the individual level is growing at a linear rate whereas knowledge on the societal level is growing at an exponential rate. There's something weird happening. With specialization and more and more people having access to ever increasing amounts of knowledge, the game is changing. If all that is true, it also means we are all becoming increasingly stupid – relatively speaking. We're a little bit smarter now than a couple of hours ago but relatively speaking we're losing out. As a single individual you're losing out.
Of course there will be individual variation, but in general we are becoming increasingly stupid, and that I think will have a number of consequences. The fact that we need to collaborate to a greater extent, which my son is doing, is one. He understands more or less implicitly he can't make it on his own. As a lone ranger he's going to fail. He's got to link up. He has to work with others. When you can't control all the know-how, you need to compensate with know-who. That's only one conclusion.
I'm working on the other nineteen conclusions that came out of this fairly simple idea born out of noticing what my son is doing, and how he is approaching school in a different way compared to what I did just twenty-five years ago.
That also shows how my brain works. I pick up signals everywhere, and I believe if people could spend more time doing that, reflecting, and thinking we might avoid more financial crisis, personal crisis, and other problems. So my advice is take some time to think. That would be my advice to your readers.
Your son is forming a funky tribe that probably will have lasting benefit for the rest of his life because he is learning how to develop a social network and how to engage in collaboration with others.
Yes, so long as he doesn't try to escape from his first tribe, which is the family tribe.
Do you have any tips on how we can enjoy capitalism and the marketplace?
I like spending time with successful people for a number of reasons. They tend to buy you better lunches and they are happy people. I ask them questions. I have tried to figure out why they became successful, what's the common success factor. It turns out that most of them, about 90%, can answer two questions with one answer. Those two questions are what do you do for a living, and what do you enjoy most in life.
Historically you could get by having high skill. Tomorrow it will be a combination of high skill and high will that separates you from the crowd. Being smart is no longer enough. You also have to love what you are doing.
If I recall correctly, in his latest book Outliers: The Story of Success
, based on studies of highly successful people and groups like the Beatles, Malcolm Gladwell suggests it takes about 10,000 hours of practice to become great at something; to become exceptionally world-class fantastic. You better love what you do if you aspire to be great!
You mentioned the Beatles. They became exceptional by doing a lot of extended gigs in Germany, as I understand it.
Yes, by playing five or six hours every evening.
Are you still involved in the academic world?
I still have the researcher instinct in me. And I'm a visiting professor in the UK and Spain.
Thank you for a great conversation.
The market economy is a machine, not an ideology. It sorts out those businesses, which will and will not be successful. It requires being efficient, and offering customers something unique so they will have no choice except to want to do business with you. Achieving a competitive edge requires an innovation of some kind. And increasingly the competitive edge will go to businesses that can appeal to the emotions of customers in the 'age of affection' – 'E(motional) commerce'.
The very nature of a job is changing. Out with a job description, in with 'motivation descriptions'. Even in these difficult financial times there will be winners who can innovate new products, approaches and business models. As Jonas Ridderstråle put so aptly it's a fantastic world if rather than wanting a reduction of uncertainty and financial security, you favor novelty, experimentation and curiosity. And you focus on developing collaborative and creative skills. "We all want to belong and to overcome the lack of community… This human need offers one of the greatest challenges and opportunities of our time."
Dr. Jonas Ridderstråle's Bio:
Jonas Ridderstråle is a visiting professor at Ashridge Business School in the UK and at Instituto de Empresa in Madrid. Previously as an assistant professor at the Stockholm School of Economics, he was responsible for the school's Advanced Management Program, which is a five-week, top-management program that attracts the elite of Scandinavian executives.
He is on the editorial board of The Capstone Business Encyclopedia. He acts as an advisor and consultant to a number of multinational corporations, and he is available to give presentations and seminars.
Ridderstråle's research focuses on new organizational models and leadership styles in the information age. He has been published in leading academic journals, including Business Strategy Review, Organization Science and CritcalEYE Magazine. He contributed to the best-selling Financial Times Handbook of Management and Business: The Ultimate Resource
. Ridderstråle has appeared on numerous business news television shows including CNN's program Global Office for an interview on the ideas behind his books. He has also been featured in publications including Fortune, Fast Company, Time Magazine, Financial Times, Stern, and Paris Match.
Ridderstråle co-authored with Kjell A. Nordström Karaoke Capitalism: Managing for Mankind
(2004), and Funky Business Forever: How to Enjoy Capitalism
(2008). He co-authored with Gerry Johnson Exploring Corporate Strategy: AND Karaoke Capitalism, Managing for Mankind: Test and Cases (2005). He also co-author with Mark Wilcox Re-energizing the Corporation: How Leaders Make Change Happen
He has an MBA and a PhD in international business from the Stockholm School of Economics. Ridderstråle lives in Sweden.
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