“Our whole business is based on giving our artists and designers complete freedom to invent without limits.” Bernard Arnault (HBR)
For a long time, we advocated for a decentralized command. It just made sense that as Ray Kroc wrote, the person closest to the problem should solve the problem. But reading Good Strategy, Bad Strategy reveals a wrinkle in this advice.
Richard Rumelt opens the books with an example from his classes. Rumelt asks his MBA students why Walmart went on to succeed where Kmart did not. The shiny pre-MBAs “are willing to throw anything into the bin, and I don’t stop them,” he writes. There will be boxes and lines and obvious answers, but where was the competition? Why wasn’t this obvious to everyone?
And early on we get a central idea to Rumelt’s work:
“Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition.”
Rumelt sees a synthesis between Walmart’s command and logistics. They weren’t just better, they were the only one doing it. It was Zero to One. With large stores connected to integrated supply lines and digital record management, Walmart was the largest buyers (at the lowest prices) and most efficient distributor.
One part of their strategy fed another which fed the original.
Had Sam Walton let his store managers dictate purchases, those supply and price advantages would have evaporated. However, store managers orchestrated local marketing. Walton encouraged just about anything to bring people to the stores, often a popcorn or ice cream cart was involved. It was okay that individual stores varied in applications that weren’t central to the synergy.
Part of the reason this blog has focused so much on DC is that we write about business in the earlier and smaller stage. For nascent businesses action trumps coordination.
The existing businesses which maintain a more bottom-up structure have a more ‘collection of parts’ vibe. Ted Sarandos said about Netflix’s non-notes: “We’re way better off taking someone’s creative vision and putting it through the service than us trying to go in and retool it. At the end of the day if the creator says, ‘That’s my show.’ we put it up.”
It doesn’t matter to Netflix that documentaries are shot a certain way or that some subjects are covered while others are not. What data could have, would have, suggested Tiger King?
When John Galliano created dresses from newspaper, Arnault wasn’t worried.
“I don’t have alarm bells when it comes to creativity. If you think and act like a typical manager around creative people—with rules, policies, data on customer preferences, and so forth—you will quickly kill their talent. Our whole business is based on giving our artists and designers complete freedom to invent without limits.”
Why didn’t it bother Arnault? What-if all of LVMH’s 75 brands did this? The don’t. Each of the ‘newspaper dresses’ is an experiment, it’s outcomes are (expensive) limited runs, and the mass-market has some of its DNA.
Finally we have the (maybe old) difference between Toyota and GM. Known as Andon manufacturing, the Toyota assembly system included a chord anyone could pull when they saw something wrong. GM, did not.
There are lots of ways to run a business. Arnault says just this. However for most business, some ways are better than others. Netflix’s hands-off-ness helps creators make great work and share the word about Netflix being hands off, which leads to better creators working with Netflix. This is what Rumelt teaches. That’s the art to it.