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May 2016

This Is Your Heart

By | 28 Thoughts, Blogs | 2 Comments

This is you heart

The year is 1931 and a man called Michael Unterguggenberger has just been elected mayor of a small Austrian town named Wörgl. The events of the coming two years will create a story of vision, courage, and one of the most ugly, most pertinent examples of industries that would prefer to suffer than change. Due to that starkness, this story may well have been missing from your history class, even if you studied economics. However, this story is one of my favourite examples of how purpose, focus, and velocity, can produce the most miraculous results. Let us begin.

Born into a Tyrolean peasant family and having apprenticed himself to a master mechanic, Michael built a modest career whilst striving for social justice. His hometown, Wörgl, had grown rapidly in the early 1900s but was affected significantly by the financial crash of 1929. At the time, Michael was town councillor and eventually mayor two years later. Despite the numerous projects to re-build the town, the depression had driven a population of 4500 to include 1500 without a job and 200 families penniless.

Michael studied a book called “The Natural Order” by Silvio Gesell and theorised that the faltering economy was principally caused by the slow circulation of money. Money that increasingly moved from working people into the banks, without being re-circulated back into the market. His plan was to replace the common currency with “Certified Compensation Bills” that the public would be given to be used at their face value (1, 5 and 10 shillings). 32,000 such bills were printed and circulated.

Wörgl bills were designed to depreciate 1% of their nominal value monthly and the owner had to buy and place a stamp on the bill on the last day of the month, showing the devalued amount. Obviously as nobody wanted to essentially pay a premium (by losing value), bills were spent as fast as possible.

On the back of the bills this was printed:

“To all whom it may concern! Sluggishly circulating money has provoked an unprecedented trade depression and plunged millions into utter misery. Economically considered, the destruction of the world has started. – It is time, through determined and intelligent action, to endeavour to arrest the downward plunge of the trade machine and thereby to save mankind from fratricidal wars, chaos, and dissolution. Human beings live by exchanging their services. Sluggish circulation has largely stopped this exchange and thrown millions of willing workers out of employment. – We must therefore revive this exchange of services and by its means bring the unemployed back to the ranks of the producers. Such is the object of the labour certificate issued by the market town of Wörgl: it softens suffering’s dread; it offers work and bread.”

What a statement.

During the 13 months following, Michael initiated all the intended projects: new houses, a new bridge, even a ski jump. Six neighbouring villages copied the system to great effect and the French Prime Minister at the time, Edouard Daladier, made a special visit to see the “miracle of Wörgl”.

Spin forward to January 1933 and Michael addressed a meeting with representatives from 170 towns and villages, all interested in adopting the concept.
The public was happy, employment was high, and poverty was virtually non-existent. People paid their taxes in advance enthusiastically and price increases (the first sign of inflation) didn’t occur.

However, the Central Bank started to freak out due to its lack of control over the situation and decided to assert its monopoly rights by banning complementary currencies. Following a court case where the Austrian Supreme Court upheld the ban, it became a criminal offence to issue “emergency currency”.

Wörgl quickly returned to 30% unemployment and social unrest spread like wildfire across Austria. Michael died in 1936 having watched his life’s mission come into being, succeed brilliantly, then be stripped apart.

Two years later a chap called Hitler entered the scene and many people welcomed him as their economic and political saviour.

The rest, as they say, is history.

The thing that moves me about the story of Michael and Wörgl is the implementation of a vision into real life. There are so many good ideas around, so many interesting things that could be done, and so many idealists, but very few executors. To me it doesn’t matter so much that the concept was ultimately outlawed (although it saddens me that many great concepts are killed at birth), the point is that it actually went to market.

I witness numerous people with new companies, new offerings, new concepts, all with kick-ass technology, fancy slogans, and cool haircuts but I rarely see robust go-to-market actions. It’s almost as if we are living in perpetual concept stage.

Don’t be fooled into thinking that Michael was only able to execute because he was mayor, in fact by 1912 he was elected representative for the union of Innsbruck Rail Engineers in the committee for personnel. He was seen as the person who represented the concerns of the workers against the capitalist interests of the railroad. His active campaigning at that time had a positive result for workers but yet a negative effect on his career progression because of it. His perseverance was due to the purpose that was in his heart. This was a guy who had found his path, focussed like hell, and applied his courage to move things forward.

I see a direct correlation between people who are following their heart and actual outcomes happening, versus people who are following only their head.

Maybe we should look within and ask, “Why am I really doing what I’m doing?” It is said that to truly know where your heart is, one must observe where our thoughts are when they wander… and I say that magical things can happen when we are properly playing from our heart. A blend of both is likely the best mix, but let’s take the head thinking as a given, it’s the heart piece I’m seeing mostly a lack of. But as Miles Davis said, “It takes a long time to play like yourself”.

Michael, along with using your head, you played it from the heart. I salute you.

Taken as an excerpt from ’28 Thoughts On Digital Revolution’ by Jonathan MacDonald, available from Amazon as a paperback and for kindle:

The Poison Of Presumed Centralisation

By | Blogs, Business Poison | No Comments

The Poison Of Presumed Centralisation

On November 16th 2010 an article appeared in Harvard Business Review (HBR), written by James Allworth, about Google’s strategy. The gist of the piece can be gained from these two enclosing sentences; the first from the start, the second from the end:

1. “…But Google may regret the strategic choices that have led to this victory over Apple.”

2. “The Android operating system is, as Google initially intended, untethered to any particular partner. This was a smart way of fighting the opening battles of the smartphone wars against Apple.”

Basically the author is saying that mobile handsets with Google’s Android mobile operating system are out-shipping Apple’s iPhone due to Google’s free distribution through what is called the Open Handset Alliance, yet this openness means there is no control over third parties choosing non-Google services instead, thus diminishing Google’s competitive position.

In my opinion this critique of Google’s supposed competitive strategy is entirely dependent on a context of traditional and centralised business practice. I believe this context is fundamentally questionable. For it to be the case, Google would be displaying certain personalities of traditional centralisation, such as the need to control distribution or directly attack competitors, for example.

When things are centralised, ownership and enclosed resilience is vital; as what you have to hand defines your central unit of power. If Google traded in such a way, the HBR article would be contextually accurate and the opinion based on a valid conceptual construct.
However, Google is not a fully centralised business and their practice is fundamentally unlike many of the companies that commentators would seem eager to pitch it against. Allow me to clarify.

There are three types of organic business structures:

1. Centralised businesses (just as centralised organisms in nature) have a core hub and externally dependent spokes like a spider does. All behaviour, including competitive behaviour, is focussed on increasing the power of the core hub and decreasing the risk of the core hub being destroyed, which would end everything as all vital parts are within the core.

2. Decentralised businesses (just as decentralised organisms in nature) have all vital parts distributed throughout like a starfish does. There is no dependency of any part on any other. In fact, the further distributed it is (like when you cut off a starfish leg), the more the organism continues to grow. The starfish grows another leg, and the cut-off leg grows into a starfish. It’s like Agent Smith in The Matrix. Remember?

3. Hybrid businesses are, unsurprisingly, a combination of centralised and decentralised architecture. In Google’s case, as a hybrid business, there is centralised decision-making and decentralised execution. It is the decentralised execution that positions Google in a different way from their most obvious competitors (who tend to be extremely centralised – Apple for example).

Due to the common misinterpretation of their organic structure that leads to what I believe to be fundamentally inaccurate assessments of competition strategy and risk, I feel compelled to illustrate a different reality than portrayed in the original HBR article, and by doing so, address what I call The Poison Of Presumed Centralisation.

In 1943 Peter Drucker was commissioned by General Motors (GM) to investigate and interpret the secrets of their success. For 18 months Drucker probed and questioned all parts of the organisation and finally published his findings, as agreed he would, in a book called ‘Concept of the Corporation’.

Due to the findings GM were very angry and Drucker was very surprised at this reaction. After all, in his book, Drucker had praised GM for their way of working, even likening them to the US Government’s ‘Federal Decentralisation’.

Drucker said: “In Federal Decentralisation a company is organised in a number of autonomous businesses.” Just as the US Government ceded power to the states, GM let go of central power to autonomous, decentralised divisions. Drucker’s advice was for GM as a hybrid organisation to become even more decentralised. He claimed their success was primarily due to the level of decentralisation. Drucker suggested such measures as hard-coding customer feedback into deep strategy.

But no. GM hated it.

Their response was, in essence, “We are at the top of the game so why should we change?”

By the way, the Japanese car manufacturers took a far more proactive approach to Drucker’s advice and the rest, as they say, is history.

Around this time, Drucker spoke of an organisational position that is often referred to as ‘the sweet spot’. The place where organisations or offerings are centralised enough for control and commercial reality, yet decentralised enough for mass adoption and agility.
Google, with their decentralised execution, currently resides in a sweet spot of openness and pervasiveness.

Decentralised execution cares nothing for the supposed ‘risk’ of other players. In fact, the concentration is on creating tools for competitors to be empowered.

Did Google arm their competitors? Absolutely. On purpose.

Decentralised execution cares nothing for ‘market share’ of specific technology. Instead, the concentration is on becoming invisible, yet always there. The point of the story of GM and Drucker isn’t about the reaction. It’s about the empirical competitive advantage of decentralisation.

Despite unarguable evidence, the most common thought is that businesses are similarly structured with selfish centricity. The presumption by most commentators, including those in respected publications, is that companies are as centralised as spiders and compete accordingly. This is pure poison and shows an ignorance of business structure and market dynamics.

The poison is, however, extremely common. In the (absolutely vital) book, ‘The Starfish and The Spider’ by Ori Brafman and Rod Beckstrom, the second principle of decentralisation is: “It’s easy to mistake starfish as spiders.”

The frequency of commentators and competitors mistaking decentralisation for centralisation actually helps the decentralised compete. Put another way: The more that people misinterpret and treat decentralised companies as centralised, the bigger the threat. This is one of the main reasons that decentralised companies will rarely, if ever, correct a commentator or competitor who mistakenly uses centralised constructs in their reasoning. It is better for a starfish that others think it’s a spider.

Despite this reality, The Poison Of Presumed Centralisation can be found everywhere. Another example can be found in an article called ‘The Truth About Google’s So-Called Simplicity’. In this, the commentator writes of confusion over Google’s product range:

“A long time ago, 1968 to be precise, a wise person named Conway wrote: ‘Organizations which design systems … are constrained to produce designs which are copies of the communication structures of these organizations.’ So true: I can see this in products from many a company. Except with Google, there appears to be no organizational structure of the product. Hmm.”

The poison lives on healthily, demanding a level of naivety to exist.

In closing, and to be fair to the HBR article, one thing I would like to raise is what Google’s strategy would be if they actually felt under attack. To quote again from Brafman and Beckstrom, the first principle of decentralisation is: “When attacked, a decentralised organisation becomes even more open and decentralised.”

The message therefore is clear. Not only can we predict less predictability in competitive moves under attack, we can be assured that The Poison Of Presumed Centralisation will continue to empower the hybrid and decentralised. Faced with this reality, who would you bet on to win?

Taken as an excerpt from ’Business Poison’ available from Amazon as a paperback and for kindle: