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Dear Customer, Speak Early and Have it Your Way!

September 12, 2022 By Nagesh Belludi Leave a Comment

At the heart of every successful product is the ability to address a real need or circumstance of struggle—a “job to be done”—in consumers’ lives. Identification of this “job” happens early in the innovation process, as it forms the core insight around innovation development and execution.

Feedback-Influenced Design is a Key Point of Differentiation

Long before its current mess, Boeing was once the pioneer in aspects of product development. No example illustrates Boeing’s inventive stills than the groundbreaking Boeing 777 program, particularly in its use of iterative, paperless computer-aided design, assembly process-planning, and agile product development. Not only that, the Boeing 777 program offers the most high-profile examples of companies tapping consumers as never before to help them create new products.

Knowing very well that the secret to long-term success starts very early in the innovation process, director of engineering Alan Mulally led a “working together” initiative to organize product development around customer input. (Mulally left Boeing after not being named CEO in 2006 and engineered a dramatic turnaround at Ford Motor Co.)

Concept Testing at Every Stage of Development

In the late 1980s, just as the 777 program was being launched, Mulally made a consequential decision to involve its major potential customers in the development of the aircraft specifications. Mulally made up a “gang of eight” comprising All Nippon Airways, American Airlines, British Airways, Cathay Pacific, Delta Air Lines, Japan Airlines, Qantas, and United Airlines. At the group’s first meeting in January 1990, Mulally’s team distributed a 23-page questionnaire asking what each customer wanted in the design. Within two months, Boeing and the airlines decided on a basic design configuration.

The “working together” initiative was a radical departure from the bureaucratic project organization. Internally, Boeing had become bureaucratic and department-focused. Specialists in various departments would design their parts. Then, it was up to the manufacturing team (the system integrators) to figure out how to make it all come together. It was a “throw-it-over-the-wall” environment where the disconnect was a persistent problem.

Having customer input implied that development was centered on customer needs. This would also tear down the walls between departments—designers, suppliers, and assemblers usually separated by organizations or development phases would now be engaged collaboratively and talking and collaborating in real-time.

In an industry where manufacturers classically designed aircraft with only token customer input. Rather than presenting the market with what Boeing perceived as their idea of what was required, customers had direct input. Over the decades, the Boeing 777 became one of the world’s most successful commercial aircraft and continues to be the workhorse of many a customer fleet.

Idea for Impact: Create Something People Want

Whether selling products or services, fast food, or experiential travel, the most innovative companies organize their offerings around customers’ needs. From the very beginning, they tap consumers as never before to help them create new products, and they’re embedding customer knowledge into the business. Early and frequent feedback is one way to cope with the pressure for shorter product cycles and to be prudent about not investing time and resources in unpromising ideas. It also augurs well for the experiences-over-possessions shift in consumer values.

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  3. Elon Musk Insults, Michael O’Leary Sells: Ryanair Knows Cheap-Fare Psychology
  4. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  5. What Virgin’s Richard Branson Teaches: The Entrepreneur as Savior, Stuntman, Spectacle

Filed Under: Business Stories, Leading Teams, Mental Models, The Great Innovators Tagged With: Aviation, Creativity, Innovation, Leadership Lessons, Marketing, Mental Models

The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline

August 11, 2022 By Nagesh Belludi 1 Comment

When Spirit Airlines pivoted to competing on price in the late 2000s, it quickly gained a reputation not only for operational inefficiencies but also for its in-your-face, take-it-or-leave attitude towards customer service.

Where other airlines charged by-the-package fares for the flight experience, Spirit pared back service and introduced an a la carte pricing model. Charging for the “ancillaries”—i.e., everything optional, including water—allowed Spirit to keep ticket prices down and appeal to price-sensitive travelers willing to sacrifice the usual amenities for a lower ticket price.

In the ensuing years, the unconventionality of this business model did not go down well with customers. Much of the flying public’s frustration with Spirit had to do with Loss Aversion. That’s the notion that the emotional disappointment of a loss is more extreme than the joy of a comparable gain. If finding a cheaper fare on Spirit felt delightful, giving up some—or all—of the savings to purchase ancillaries and surrender the savings felt utterly miserable.

Passengers felt ripped off by these seemingly hidden fees, especially when the true cost of flying Spirit ended up greater than what the initial ticket price led them to believe.

Spirit became quickly convinced that there was a perception problem—its customers didn’t fully understand how its fares work. Particularly, first-time customers blindly presumed that Spirit Airlines works the same way as other airlines. In reality, there were no hidden or excessive fees, and passengers could only pay for what they need or want. In 2014, the airline introduced its “Spirit 101” campaign to educate customers and alter their perceptions. With time and the increased adaptation of the “Basic Fare” model and curtailed customer service by every other airline, passengers’ expectations have since been right-sized. Spirit Airlines has come a long way, and its customer service has improved vastly.

Further studies on loss aversion have shown that a cascade of successive fees is worse than the cumulative: i.e., three ancillary fees that add up to, say, $70, feel a lot worse than a single $70 fee. Appropriately, Spirit offers a “Bundle it Combo” package.

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Filed Under: Business Stories, Mental Models Tagged With: Aviation, Biases, Customer Service, Decision-Making, Emotions, Entrepreneurs, Innovation, Marketing, Mental Models, Parables, Persuasion, Psychology, Strategy

Evolution, Not Revolution

August 1, 2022 By Nagesh Belludi Leave a Comment

Innovation often transpires from synthesizing existing ideas in new ways, as the following case study on the iPod will illuminate.

In some sense, the iPod wasn’t a breakthrough innovation at all. It emerged from Steve Jobs’s “digital hub” approach to integrating iMac software for playing, editing, and managing photos, music, and movies. According to Walter Isaacson’s masterful biography of Steve Jobs (2011,) when Apple designers learned that Toshiba had newly prototyped a tiny 1.8-inch hard drive that could hold five gigabytes of storage (that’s about a thousand songs,) they conjured up a digital music player. Apple found that existing gadgets were “big and clunky or small and useless” with “unbelievably awful” user interfaces.

Sony’s Walkman had previously proven the market potential of portable audio players, having sold 200 million units in the two decades before Apple conceived the iPod. Napster had offered digital audio file distribution for over five years. Finger-driven touchscreens were pioneered in the 1960s, and Citibank rolled out touchscreen ATMs in the 1980s. (Apple didn’t offer touchscreens until 2007 with the iPhone.) Hence, the iPod’s innovation was in bringing all these capabilities together in a way that was easier to use and relevant to the consumer. Dartmouth’s strategy professor Ron Adner writes in The Wide Lens: What Successful Innovators See That Others Miss (2013.)

Apple was three years late [behind Creative, SanDisk, Sony, and Samsung, who had previously launched portable music players]. As we’ll see again in the case of the iPhone, Jobs tended to be late for everything because he wanted everything to be ready for him. Reflecting on catching technology waves in 2008, he said, “Things happen fairly slowly, you know. They do. These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you’re going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely, it actually unfolds fairly slowly. It takes years.” Jobs’s discipline paid off.

Idea for Impact: Innovation often builds on existing technological competencies or as a synthesis of smaller innovations.

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Filed Under: Business Stories, Mental Models, The Great Innovators Tagged With: Apple, Creativity, Critical Thinking, Entrepreneurs, Innovation, Problem Solving, Steve Jobs

Why Investors Keep Backing Unprofitable Business Models

July 29, 2022 By Nagesh Belludi Leave a Comment

Investors have heaped billions into Q-Commerce—especially the rapid grocery startups—hoping to hook consumers on the convenience of groceries that would turn up immediately, sometimes in minutes.

I’ve never really fathomed how the small-basket orders of low-margin groceries can endlessly compensate for the labor costs and overheads, even after discontinuing the generous referral bonuses, discount codes, and freebies enticing customers. The prospects may evolve if these startups subsist on ever more funding and develop massive businesses with efficiencies from scale. But then they’re right in Amazon’s wheelhouse.

Idea for Impact: Some business models are never created to be profitable, and investors should be wary of encouraging—and funding—loss-making propositions. The lure of backing an initial entrant, capturing market share, and then selling out to a more determined fool isn’t viable! Who needs goods delivered in such a rush for such charges, anyway?

Wondering what to read next?

  1. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
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  3. Elon Musk Insults, Michael O’Leary Sells: Ryanair Knows Cheap-Fare Psychology
  4. We Trust What We Can See: James Dyson Builds for That Instinct
  5. Your Product May Be Excellent, But Is There A Market For It?

Filed Under: Business Stories, The Great Innovators Tagged With: Entrepreneurs, Ethics, Innovation, Marketing, Persuasion, Strategy, Thought Process

Book Summary: No Filter & The Inside Story of Instagram

July 18, 2022 By Nagesh Belludi Leave a Comment

'No Filter Instagram' by Sarah Frier (ISBN 1982126809) No Filter: The Inside Story of Instagram (2020) narrates the civil networking service’s ascendance from a Silicon Valley startup to a cultural phenomenon with an ever-present feature of everyday life and an advertising juggernaut.

The book’s author, Bloomberg journalist Sarah Frier, says, “On social media, the average user is scrolling passively, wanting to be entertained and updated on the latest. They are therefore even more susceptible to suggestions by the companies, and by the professional users on a platform who tailor their behavior to what works well on the site.”

Instagram evolved from Burbn, a mobile check-in app. The founders Kevin Systrom and Mike Krieger refocused their app on photo-sharing, which had become a well-liked feature among Burbn’s users. Most cellphone cameras were pretty shoddy then, so Systrom and Krieger implemented filters to make the pictures prettier.

The founders didn’t, however, consider the downside of their innovation—reality-adjusting filters made not only users’ pictures but their lives, by extension, look more appealing. “Instagram’s early popularity was less about the technology and more about the psychology—about how it made people feel. The filters made reality look like art. And then, in cataloging that art, people would start to think about their lives differently, and themselves differently.”

No Filter author Frier shines in analyzing how Instagram rewired society and ushered far-reaching consequences for society, especially on young people’s mental health. Instagram and its ilk have stolen self-esteem and our attention span, leaving us with a needy dependency on strangers’ affirmation for a scripted-reality form of our lives. “The more you give up who you are to be liked by other people, it’s a formula for chipping away at your soul. You become a product of what everyone else wants, and not who you’re supposed to be.” The ability to rework photos to perfection has spread insecurity—even leading to a surge in filter-inspired plastic surgery.

No Filter also fixates on the battle for Instagram’s soul, following its purchase by Facebook for a then-absurd $1 billion, but seemingly a bargain today. There’s considerable corporate drama and cultural clash, but nothing like the co-founder infighting retold in Nick Bilton’s Hatching Twitter (2013; my summary.) Facebook founder Mark Zuckerberg emerges controlling and rather callous. In seeking incessant growth, he continually thwarts the Instagram team. Paranoid that Instagram’s advance could “cannibalize” and replace Facebook in cultural relevance someday, Zuckerberg held them back. As Instagram grew bigger and cooler, Facebook acted “like the big sister that wants to dress you up for the party but does not want you to be prettier than she is.” In 2018, Systrom and Krieger left Facebook.

Recommendation: Quick read No Filter: The Inside Story of Instagram (2020) for a compelling founding story and a relevant primer on the sweeping socio-cultural impacts ushered by the heavy use of social media.

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Why Groups Cheat: Complicity and Collusion

July 2, 2022 By Nagesh Belludi Leave a Comment

News broke out that Ernst & Young revealed this week that its employees cheated on ethics exams. The accounting behemoth is being fined $100 million. That’s one of the biggest fines ever levied against an audit firm.

It’s absurd that specialists responsible for keeping things straight and steering moral enterprise cheated on ethics exams! Ernst & Young’s leadership evidently disregarded the internal reports about the cheating. Perhaps because when people identify so strongly with a group, they’re much more swayed to view the group’s actions positively and accept that group’s norms.

Research by Vanderbilt University’s Jessica Kennedy and colleagues suggests that high-flying people are sometimes more inclined than low-ranking people to adopt what their group recommends, even when it represents an ethics breach. Power sometimes provokes people to so strongly want to identify with their group that they’re willing to overlook when the group’s collective actions cross an ethical line. This affinity is, therefore, urged to sustain transgression instead of stopping its spread, especially when the odds of being caught and punished are slim.

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Filed Under: Business Stories, Leadership, Managing People, Mental Models Tagged With: Discipline, Ethics, Getting Ahead, Integrity, Leadership, Motivation, Psychology, Role Models

Book Summary: Jack Welch, ‘The’ Man Who Broke Capitalism?

June 23, 2022 By Nagesh Belludi Leave a Comment

The Man Who Broke Capitalism (2022) by New York Times columnist David Gelles contends that the pernicious greed spawned by former General Electric CEO Jack Welch is exceptionally responsible for exposing the structural failings of capitalism in recent decades.

'The Man Who Broke Capitalism' by David Gelles (ISBN 198217644X) The danger inherent in any ideology grows stronger when it starts to thrive because it swiftly morphs into temptation—a voracious appetite for ever better “returns” in the present case. Welch was indeed the most visible catalyst and a much-imitated champion of brutal capitalism. But Gelles’s narrative draws his book’s lengthy subtitle (“How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America”) excessively, thrusting ad nauseam the well-founded thesis against Welch’s ploys and “the personification of American, alpha-male capitalism.” See my previous articles (here, here, and here) about how the faults of Welch’s strategy become evident many years after his retirement.

Gelles does an agreeable job of outlining the socioeconomic paradigm that has made modern western capitalism’s shortcomings ever more apparent. Starting with influential economist Milton Friedman’s decree in the ’70s that the one and only social responsibility of a business is to maximize profits, Gelles explains the revering of Welch’s “downsizing, deal-making, and financialization” strategy. Without balance, it provided short-term benefits for shareholders, but the long-term well-being of corporations and society lost out. A sense of restraint is most pertinent to the power of capitalism.

Capitalism isn’t irretrievably bound to fail, as Gelles rightly argues, but it needs to be rethought. It’s morally incumbent upon the social order to inhibit the embedded incentives that create powerful tendencies towards short-termism. Gelles offers no more realistic, objective insights than the familiar solutions prescribed by our career politicians.

Overall, Gelles’s pro-Fabian polemic falls short of a fair-minded assessment of the epoch’s economic forces. Indeed, many of Welch’s tactics were timely and necessary, but he pushed them farther and longer. Too, Gelles fails to study counterexamples of many corporate leaders who’ve thoughtfully copied Welch’s playbook and helped their businesses and communities prosper, not least because they were restrained enough to avoid Welchism’s blowbacks.

Recommendation: Speed Read The Man Who Broke Capitalism for a necessary reappraisal of the legacy of Jack Welch. There isn’t much eye-opening here, but author Gelles affords a relevant parable about the power of restraint and the time- and context-validity of ideas.

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The Tyranny of Best Practices

May 9, 2022 By Nagesh Belludi Leave a Comment

By all means, acquaint yourself with the management practices of Dell (in supply chain management,) Toyota (quality control,) Ryanair (working capital,) or whatever company is the present-day shining exemplar of the pertinent best practices. But beware of the risks of taking their best practices out of context and applying them to your business.

Some advantages are unlikely to be accrued by borrowing fashionable ideas from other companies. It makes sense, for example, to study how Apple’s innovations have changed the world, but the visionary in Steve Jobs can’t be replicated.

Best practices can offer deceptively simplistic solutions. Some of them aren’t implementable—even relatable. You can try replicating Google’s policy of allowing employees to spend 20% of their time on their own ideas; that initiative isn’t likely to transform a company designing gasoline engines.

Many of the basic principles of innovation are universal. But management methods succeed—or fail—in a specific context. A company’s industry, maturity, location, and leadership structures influence this context. Unless you develop a thorough understanding of all the factors that have contributed to others’ success, there’s a risk that you’re learning the wrong lessons.

Idea for Impact: You can’t truly become another company. You can only become a better version of yourself, not an inferior version of someone else. Be inspired by others’ best practices, but don’t imitate them blindly.

Wondering what to read next?

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  3. You Need to Stop Turning Warren Buffett Into a Prophet
  4. The Checkered Legacy of Jack Welch, Captain of Quarterly Capitalism
  5. Book Summary: Jack Welch, ‘The’ Man Who Broke Capitalism?

Filed Under: Business Stories, Leadership Tagged With: Creativity, General Electric, Leadership Lessons, Learning, Mental Models, Role Models, Toyota

Ideas Evolve While Working on Something Unrelated

March 10, 2022 By Nagesh Belludi Leave a Comment

In the ’90s, Japanese conglomerate Hitachi, through its subsidy Hitachi-Omron Terminal Solutions, introduced the Clean ATM, which cleaned the bank notes during transactions. The Baltimore Sun (11-Dec-1996) notes,

Hitachi has turned its talents to money-laundering of a literal kind, with an automated teller machine that sterilizes and irons yen notes before dispensing them.

Hitachi did not set out to sanitize the money; its engineers were trying to solve the problem of crumpled bills, which tended to jam machines, a company spokesman says. They solved the problem by running the bills through rollers heated to 392 degrees [Fahrenheit, 200 degrees Celsius]—any hotter would singe paper money—and discovered that the process also killed bacteria.

Idea for Impact: Serendipity is central to the creative process. Many ideas evolve when you’re working on something unrelated. Always be ready to discover what you’re not looking for.

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Book Summary of Verne Harnish’s ‘The Greatest Business Decisions of All Time’

December 6, 2021 By Nagesh Belludi Leave a Comment

'The Greatest Business Decisions' by Verne Harnish (ISBN 1603209786) The Greatest Business Decisions of All Time (2012) is a flatfooted anthology of 18 engaging—and oversimplified—business stories that influenced the course of business. Edited by management consultant Verne Harnish, this tome contains long articles by nine Fortune magazine journalists.

  1. Apple and the Return of Steve Jobs. The 1996 decision by Apple’s board of directors to bring back Jobs revived the company, transformed the consumer electronics industry, and made Apple one of the most valuable companies in the world.
  2. Zappos and Free Shipping. Zappos’s decision to offer free shipping and 365-day free returns lured more mainstream buyers onto the internet. Other retailers had no choice but to provide free shipping (albeit with some restrictions) and absorb the costs.
  3. Samsung and Global Immersion. In the early 1990s, Chairman Lee Kun-Hee instituted a policy to send his brightest young employees on international sabbaticals that exposed them to the local cultures and build business networks. This program later fuelled Samsung’s global ambitions.
  4. Johnson & Johnson and the Tylenol Comeback. Consistent with the company’s “patients come before profit” credo, CEO James E. Burke set the benchmark for crisis management when he decided to pull Tylenol off the shelves nationwide and create a tamper-proof bottle at the cost of $100 million. Johnson & Johnson cemented its reputation for responsible management.
  5. 3M’s 15% Free Time Rule and Innovation. 3M Company CEO William McKnight’s extraordinary idea of giving employees free time for “experimental doodling” yielded such innovative products as Post-It notes. 3M quickly diversified its portfolio and entered many consumer- and industrial-businesses. 3M inspired Google’s 20% rule.
  6. The “Intel Inside” Marketing Campaign. To forestall the commoditization of the computer chip, CEO Andy Grove shifted Intel’s image from that of a microprocessor company to that of a producer of a coveted, brand-name product that stood for performance. Intel became a household name that consumers sought when they purchased a computer.
  7. General Electric’s Jack Welch and Crotonville. Welch transformed GE’s sprawling management-training institute in Crotonville, New York, into a focal point of learning for the company.
  8. Bill Gates and His “Think Weeks.” The Microsoft founder’s twice-yearly retreat in rural isolation allowed him to read, reflect, and map out ideas—away from the distractions and the noise of business life.
  9. Softsoap and Impeding Competition. A small Minnesota company called Minnetonka Corp. developed liquid hand soap in the early 1980s. When Softsoap started flying off the shelves, deep-pocked behemoths like Procter & Gamble began to prototype their own variants. Minnetonka’s CEO Robert Taylor developed a smart strategy to block his giant competitors and keep his company’s market share. He purchased the entire U.S. supply of plastic pumps used in the liquid soap bottles for one year—that’s 100 million units from the only supplier. By the time his competitors had access to the plastic pumps, Taylor’s Softsoap’s brand was well established.
  10. Toyota and the Quality Revolution. Toyota’s institutional obsession with waste-reduction, zero defects, and process improvement has transformed manufacturing and inspired excellence in every service industry—including hospitals.
  11. Nordstrom and Customer Service Excellence. Nordstrom built its brand on “above-and-beyond” customer service and problem-solving. The entirety of the Nordstrom Employee Handbook fits on a 5×8 card and contains precisely one rule, “Use the best judgment in all situations. There will be no additional rules.”
  12. Tata Steel and Labor Relations. During a turbulent period of India’s leading steelmaker, Managing Director Jamshed J Irani confronted a bloated cost structure by reducing his 78,000-strong workforce to 40,000 by 2005. In keeping with the Tata Group’s rich philanthropic legacy, Irani offered decent pension plans and invested in labor welfare.
  13. Boeing 707 and the Jet Age. Boeing’s decision to develop the Boeing 707 at the cost of $185 million (more than the company’s market capitalization) “remade a company, an industry, and the very culture of its time.” The 707 was the first transatlantic commercial jetliner in an era of prop planes. It kicked off the Jet Age, revolutionized air travel, and established Boeing as a dominant airliner manufacturer.
  14. IBM and the Customer-Centric Makeover. In 1993, Lou Gerstner became CEO and embarked on an “Operation Bear Hug” to launch new communication pipelines between top executives and IBM’s customers. This helped transform IBM from an inwardly focused bureaucracy to a customer-centric market-driven innovator.
  15. Sam Walton and Walmart’s Saturday Morning Meeting. Walton’s energetic 6:00 A.M. meeting was a pep rally, merchandising workshop, and financial update—all rolled into one. He brainstormed with his store managers on how to improve things week after week and helped metamorphose Walmart from a single, small-town variety store in 1962 into the world’s largest retailer.
  16. Eli Whitney and the Dawn of American Technology. Whitney’s invention of the “saw gin” that worked well with short-staple cotton helped transform Southern agriculture (and sustain the institution of African slavery!) Whitney then popularized the use of interchangeable parts in making firearms.
  17. Bill Hewlett and David Packard and the “HP Way.” The essence of Hewlett-Packard’s management philosophy was an openness and respect for the employees. With a framework of principles and the simplicity of their management methods, they established many progressive management practices that prevail even today.
  18. Henry Ford and the Factory- and Wage-Revolution. When Ford introduced the moving assembly line, his fledging factory was confronting a dispirited workforce, declining workmanship and quality, absenteeism, and annual labor turnover of 370 percent. Then Ford decided to raise wages from $2.50 to $5 a day. The following week, Ford Motors had more than 26,000 job applicants. Ford increased production rates and slashed the per-unit cost of the Model T. Annual labor turnover fell to 16 percent, and Ford’s profits doubled within two years. Every time Ford increased the productivity of car production, he continued to raise wages. His well-paid workers had more to spend—and could afford the very cars they built.

Recommended: Quick read. The Greatest Business Decisions of All Time is a concise and entertaining read, especially if you like getting into heads, the thoughts, and the motivations of well-known business luminaries. The 18 case studies lack rigor and are beset with recency biases, narrative fallacies, and a misplaced sense of causes and effects. Some stories, e.g., the Softsoap one, aren’t well known.

Daniel Gross’s Forbes Greatest Business Stories of All Time (1997) is significantly more engrossing and instructional.

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Filed Under: Business Stories, Leadership Tagged With: Creativity, Innovation, Leadership Lessons, Thinking Tools

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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