Kieran Levis.com

31 December 2009

Few organisations achieve a satisfactory balance between entrepreneurial spirit and management discipline, the elusive quality I call disciplined entrepreneurialism. There’s an almost inevitable tension between the often anarchic forces of creativity and originality and those of order, efficiency and professionalism. Creative people and organisations are often hopeless at practical tasks, while the highly practical frequently lack a creative spark. Too much brilliance with no discipline means products don’t get delivered on time and costs run wild. Too much emphasis on efficiency and control crushes originality and inhibits experimentation.

Apple in the 1980s went to both extremes. Early on it was a magnet for the brightest computer engineers in the country, much as Google became twenty years later, the place to work in Silicon Valley. But shortly after a sensationally successful IPO in 1980, Steve Jobs engineered the dismissal of Mike Scott, the CEO whose tough management style had ensured the effective launch of its first computer, against all the odds, but had ruffled a few creative feathers. Regis McKenna, a board member who had done more than anyone to burnish Jobs’s public image, later felt that this was when things really fell apart.

“Looking back, he was Apple’s last chance to institute some kind of order. After that, the culture became so overwhelming that even the toughest manager would come in to shake things up – and instead find himself two months later lounging on a beanbag. . . . The mistake everyone makes is assuming that Apple is a real company. But it is not. It never has been.”

In so far as anyone was now in charge it was the 25 year-old Jobs, who veered between being Apple’s greatest asset and its evil genius. The company was almost torn apart by feuds between rival fiefdoms, with Jobs urging his team to be pirates and openly pouring scorn on the ‘bozos’ working on the Apple II, still and for years to come the company’s cash cow. He championed two brilliantly innovative new products which both flopped – the ludicrously over-priced Lisa was a commercial disaster and the ‘insanely great’ Mac won endless plaudits but nothing like enough customers. Before it did there was another boardroom struggle that failed to produce an effective leader. In 1983 Jobs had insisted on appointing as CEO John Sculley, a marketing professional who never quite grasped the dynamics of technology markets. But when Jobs tried to rectify his mistake the board, exasperated by the excesses of its sacred monster, backed Sculley and in 1985 Jobs himself was ousted.

Sculley could now turn Apple into an organisation with more of the disciplines of Pepsi-Cola, but the computer industry was a deal more complex and volatile than soft drinks. Many of his decisions were eminently sensible and premium pricing certainly helped to make Apple profitable for a while, but proved disastrous in a market commoditised by ever-cheaper clone PCs. Apple found itself marginalised by Microsoft and every year its market share got smaller. Sculley surrounded himself with professional managers rather than innovative technologists who might pose a threat to him. Despite himself succumbing to the curse of the beanbag, he came close to squeezing the creative soul out of Apple.

Under his even less inspirational successors, morale and profits sank steadily, and in 1997 market share hit 3% and losses $1.6 billion. It was at this darkest hour that the former enfant terrible returned, having learned in his twelve years away how to lead creative companies. Not only did Jobs give Apple its soul back, he and the colleagues he now worked with so effectively have made it a model of disciplined entrepreneurialism. Universally acknowledged as the most innovative company in the world, by 2007 its supply chain management was ranked higher than Cisco’s and Wal-Mart’s and second only to Nokia’s. (Read more about its extraordinary renaissance here.)

Only extraordinarily talented companies should model themselves too closely on Apple. The beanbag may have been banished, but it is still not exactly a real company. One lesson is clear though: no business can afford to let either wild creatives or hard-nosed suits rule the roost entirely. Balanced teams are probably the single most important ingredient in disciplined entrepreneurialism. This is often encapsulated in partnerships between complementary individuals: Jobs and Wozniak in Apple’s first coming, Ibuka and Morita over four brilliant decades at Sony, Omidyar, Skoll and Whitman at eBay, and, most recently, Page, Brin and Schmidt at Google.

It is easy enough for innovative young companies to acquire professional management; the challenge is to avoid it squeezing out flair and creativity. That is nothing compared to the difficulties facing mature companies trying to become entrepreneurial. They are often too disciplined, too honed for efficiency, too dismissive of mavericks to allow new ideas to flourish. Really radical innovations almost always come from outsiders.

Mature companies can be very effective at systematic incremental improvements in markets, technologies and processes they know well, but the more they are optimised for handling well-structured operational problems the less likely they are to be able to tackle major creative challenges. Entrepreneurial companies are oriented towards exploration and discovery. They make progress through trial and error, through pursuing many options simultaneously, through making lots of little mistakes and learning from them – what Eric Beinhocker calls deductive tinkering. Mature successful businesses are optimised for exploitation and execution. They want to measure progress, eliminate redundancy and avoid mistakes. Radical ideas threaten the status quo, are risky and seem to offer at best uncertain returns.

When radical ideas are generated in large companies, those who develop them often leave to pursue them elsewhere. And so the cycle of creative destruction begins again, with entrepreneurs challenging incumbent managers.