The Cost of Competence
Technology is intimately linked with change, and the pace of high-tech-driven change is constantly accelerating. That, in essence, has been the biggest business story of the past couple of decades, one that we've seen play out again and again. Forward-thinking start-ups materialize and change the rules of the game almost overnight, eating the lunches of well-established competitors. Think about how long it took AOL to react to the shift from subscription-based Internet services. Or the way Yahoo continues to struggle with the changes wrought by Google's search engine.
Why is it that obviously talented leaders at companies that were once themselves whirlwinds of innovation often seem unable to respond to threats from new approaches? Actually, cognitive psychologists have known at least part of the answer for about half a century. When people get very good at doing things a certain way, they become surprisingly inept at learning new skills when changing conditions demand it. Numerous studies have demonstrated that novices have an easier time mastering new tasks than experts. In other words, getting very good at running your company can be a way of ensuring you'll do a lousy job of running it when new technology or business models dictate change.
Robert Sternberg, a professor of psychology and the dean of arts and sciences at Tufts University, calls the phenomenon "the cost of expertise." Sternberg has spoken with high-tech CEOs, and he believes that the high-tech business world is a veritable showcase for the expertise penalty. "Managers who have been successful develop a vested interest in maintaining things the way they are," he says. "They want to keep defining problems the same way they've always defined them." He adds that as leaders get comfortable with solutions that have brought them success, they tend to stop looking for new ones. In fact, they enjoy and become protective of their reputation for doing things a certain way. And because the most successful managers tend to be older, they often lack the natural receptivity to new ideas that comes so easily to younger people.
What does it take to get an entrepreneur to go out on a limb to embrace technological change in a way that leaves behind hard-won skills? Sometimes, nothing short of a cataclysm will do. That was the case with Larry Cerri, founder and managing partner of Unison, a meeting-planning firm in Nyack, New York. Business had been strong since the 1980s. Clients often asked if meetings and training events somehow could be made more engaging and interactive. And Cerri and his staff did what they could with the standard tools of the trade. Then came September 11, and the meeting industry cratered. Faced with rebuilding revenue almost from scratch, Cerri found himself wondering if using new technology might give Unison an edge.
He consulted software experts and within a year built a system that networked people in disparate locations via their PCs, which made it possible for speakers to solicit comments and ideas from anyone in the audience in real time. The technology now accounts for 90 percent of Unison's business. If he hadn't faced disaster, Cerri says, he wouldn't have made the leap. "You can't help feeling fear about ideas that are different from what you've been doing, and that fear creates resistance to jumping in," says Cerri. "It's when you have to face the reality that your day-to-day routine won't work anymore that you realize you have to make something really new happen." Of course, given the pace of change in today's economy, that might be too late.
In many cases, adapting to change means making a series of small moves rather than a large strategic shift. But even tiny steps can be a tough sell. Robert Jue, a senior consultant for Oakland, California-based Convergent Computing, has been communicating with clients via instant messaging. Clients loved the ability to get an immediate answer without getting bogged down in phone calls or e-mail exchanges. But many of Jue's own colleagues were less than enthusiastic. That's because the company's complex client billing system doesn't have a good way of accounting for instant messages. Rather than considering the possibility that the billing system ought to be changed to reflect this new way of servicing clients, the consensus was that Jue ought to just lay off the IMs. So far, he hasn't given in. "IMing is huge with many of the people I deal with," says Jue. "It's just funny that I'm getting pushback."
Jue's not talking about incompetent, uncreative people here. That's the whole point: It's the people who have been doing the best job that are often at the highest risk of getting locked into the modes of thinking that served them so well but that can be rendered ineffective by a fast-changing world. Needless to say, it's not that we need less competent managers. Rather, we need to redefine competence, by shifting emphasis away from being a high performer at any one time under any one set of conditions and toward being a consistently good performer as technology ushers in transformation after transformation--even if that means turning your back on what has so far worked out well for you.
Consider Brant Bukowsky, who along with his brother Brock founded the online ticket brokerage Show-Me Tickets in Columbia, Missouri, and helped drive it to sales of $22 million before selling out in 2005. Why did they walk away from the company they had so painstakingly built? "We saw Google and other search sites coming out with comparison-shopping features, and we thought the online ticket industry was going to become very price competitive," Brant says. "We were good at marketing, but we felt that the business wasn't going to be about marketing anymore, just low prices."
To plot their next move, the Bukowskys studied technical papers and patent applications to get a sense of how search engines would be connecting consumers to businesses in the coming years and decided the two businesses with the best fit were the vacation rental and government-subsidized home mortgage industries. Their vacation rental sites now draw 150,000 visitors a month, and their Mortgage Research Center site is on track for $15 million in sales this year, up from $10 million last year. One reason the mortgage business is doing so well is that Brock realized most mortgage sites weren't licensed to do business in multiple states, so he spent two years mastering the chores needed for licensing; now 95 percent of the company's business is out of state. "We're paranoid," says Brant. "We ask ourselves every day, What could happen to cause trouble for our business? Then we take steps to avoid that happening."
Or take Ford Models, which has dominated the fashion talent business for more than half a century. Over the past three years, the company has built a multimedia business focused on showcasing its models in Internet videos; it's now one of the most popular destinations of YouTube visitors. Ford has also created an entirely new market by setting up large events for aspiring models and other fashion fans that helps feed an online advice-giving business, and has changed the way customers hire models, emphasizing more complex, multimedia relationships involving an ensemble of talent. "We ask all of our people to think about what they're going to do today that's new and different," says Ford president John Caplan. New approaches generated by that attitude have increased gross revenue by 140 percent in the past five years.
In fact, says Tufts' Sternberg, being very good at something doesn't have to exact a toll on innovation if you're aware of the problems that talent can cause and take pains to fight the urge to stay within the safe confines of your own hard-won expertise. "You don't have to be very young to be open to new thinking," Sternberg says. "But if you're not young, you might have to work at it harder." He says he himself tries to avoid obsolete deanly thinking by constantly seeking out opinions from people who are likely to see things differently, such as students and university financial officers. After all, experts on the problems with expertise don't have much of an excuse.
Contributing editor David H. Freedman (email@example.com) is a Boston-based author of several books about business and technology.