Thinking Tools

The Waterline Principle: How Much Risk Can You Tolerate?

October 15, 2020 By Nagesh Belludi 1 Comment

American engineer and entrepreneur Wilbert L. “Bill” Gore (1912–86) was the founder (with wife Genevieve (Vieve)) of W. L. Gore & Associates, the maker of such innovative products as Gore-Tex fabrics, Elixir guitar strings, and a variety of medical products.

Gore’s open and creative workplace emphasized autonomy, fairness, commitment, and experimentation. He instituted a mental model for risk-tolerance called the “Waterline Principle.”

Gore compared the level of allowable risk to the waterline on a boat.

Sanction risks above the waterline since they wouldn’t sink the boat—you have ample autonomy above the waterline. If a decision goes bad and produces a hole in the side of the boat above the waterline, you can fix the hole, learn from the experience, and carry on.
Risks that fell below the waterline, in contrast, can blow a hole that can sink the boat. Below-the-waterline risks need prior approval from the “captain.” Your team can be prepared for such risks, investigate potential solutions, or buy appropriate insurance coverage.

Commenting about Bill Gore and his Waterline Principle, business consultant Jim Collins noted in his How the Mighty Fall (2009,)

When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions:

What’s the upside, if events turn out well?

What’s the downside, if events go very badly?

Can you live with the downside? Truly?

The Waterline Principle encourages prudent experimentation and conscientious risk-taking by lowering the risk waterline.

Idea for Impact: Risk analysis and risk reduction should be one of the primary goals of any intellectual process. Invite your team to identify risks that can sink the boat and those that can cause survivable damages.

Moderate Politics is the Most Sensible Way Forward

September 17, 2020 By Nagesh Belludi Leave a Comment

A sharp observation on political extremism in this 1987 TV ad by comedian John Cleese for the Social Democratic Party-Liberal Party Alliance (1981–88) in the United Kingdom:

Extremism has its advantages … the biggest advantage of extremism is that it makes you feel good because it provides you with enemies. The great thing about having enemies is that you can pretend that all the badness in the whole world is in your enemies, and all the goodness in the whole world is in you. If you have a lot of anger and resentment in you anyway, and you, therefore, enjoy abusing people, then you can pretend that you’re only doing it because these enemies of yours are such very bad persons and that if it wasn’t for them, you’d actually be good-natured and courteous and rational all the time.

I don’t belong to a political party, and I don’t think I’ll ever join one. Partisan talking points irritate me no end. I’ll watch the upcoming debates, though, because I’ll find all the onstage mudslinging and the impulsive provocations very entertaining.

In politics, everyone tries to push emotional buttons. Few seem to talk about an evidence-based attitude for making decisions and allocating society’s resources where they’ll make the most impact.

Besides, the media today have made the exchange of ideas particularly charged and increasingly polarized. The only way to be heeded to in a screaming vortex is to scream louder and resort to premeditated ad hominum.

Idea for Impact: Wisdom doesn’t reside solely on one side of the center. I am partial to those moderates whose political stance often varies with the issue. Contrary to popular perception, they aren’t tuned-out or ill-informed. Instead, they’re disposed to see both sides of the complex problems, disregard the left and the right’s excessively ideological positions, and seek the middle ground.

Never Outsource a Key Capability

August 17, 2020 By Nagesh Belludi Leave a Comment

In 2003, Domino’s Pizza started requiring its franchisees to adopt the company’s own point-of-sale system (POS) system, internally called PULSE, instead of letting franchisees choose third party POS systems that could integrate with Domino’s IT systems.

That strategy gave the company the ability to seamlessly control the entire ordering process and add functionalities such as online- and mobile-ordering, voice ordering, and contactless payments.

At the same time, Domino’s clever marketing convinced consumers that it has the snappiest ordering process among all the pizza vendors.

How Domino’s Pizza reinvented itself

In 2009, Domino’s changed its pizza recipe and admitted that its previous version was awful in a series of brilliant commercials that featured the tagline, “We’re Sorry for Sucking.” Executives even read out vicious customer comments on camera resembling the Jimmy Kimmel ‘Mean Tweets’ show.

Domino’s (which is, incidentally, headquartered a mile from my home in Ann Arbor, Michigan) used its PULSE POS system as the centerpiece of a technology ecosystem that has helped it flourish as an “an e-commerce company that sells pizza.”

Digital sales skyrocketed as the company tapped into greater demand for convenience, and Domino’s carved a bigger slice of home delivery and food pickup market. Morningstar’s R.J. Hottovy notes that Domino’s laser-sharp focus on improving online ordering has paid off leaps and bounds:

Technology plays an important role in Domino’s efforts to develop and enhance its brand image. Domino’s global technology platform includes a digital loyalty program with a rewards system, electronic customer profiling, geo-tracking of pizzas being delivered to customer homes, and customer geo-tracking to have carryout pizzas ready just as they enter the store. Other innovations include high-speed ovens (which reduced cooking time to four minutes) and Pulse (a unified point-of-sale system,) which have re-engineered fulfillment processes to be best-in-class. Pulse integrates all orders (regardless of origin) into a seamless interface that provides detailed monitoring of every aspect of the ordering, cooking, fulfillment, and delivery processes, which reduces bottlenecks and minimizes downtimes, enabling Domino’s to offer faster delivery times than competitors.

By owning the entire customer experience, Domino’s has been able to provide a consistent experience for customers irrespective of how they order, use data to create value for customers, and iterate quickly. No wonder, then, that Domino’s share price is up 28-fold since its 2004 IPO!

Idea for Impact: Don’t outsource what you’re supposed to do best.

Smart companies understand that outsourcing can result in loss of control over key capabilities. That can impede the company’s ability to improve its efficiency in serving customers or introduce changes in response to shifts in the marketplace.

How You See is What You See

August 15, 2020 By Nagesh Belludi Leave a Comment

So very often, we don’t give ourselves to allow for new understandings, new perspectives, and new interpretations to emerge.

Three people were visiting and viewing the Grand Canyon—an artist, a pastor and a cowboy. As they stood on the edge of that massive abyss, each one responded with a cry of exclamation. The artist said, “Ah, what a beautiful scene to paint!” The minister cried, “What a wonderful example of the handiwork of God!” The cowboy mused, “What a terrible place to lose a cow!”

Idea for Impact: Work to overcome the strong waves of conditioning that you’ve been exposed to your whole life.

Take a step back and consider how you’re responding to a situation emotionally and intellectually.

Free up your mind from the conditioning that may be restraining it.

Don’t let your narrow perspectives—those comfortable walls within which you confine yourself—to make you lose touch with what’s possible.

Explore. Discover. Discern. Open your mind to new frontiers.

Overcoming Personal Constraints is a Key to Success

August 14, 2020 By Nagesh Belludi Leave a Comment

Why do some people reach ever-higher levels of achievement, while others struggle or just plug along?

Norman Vincent Peale, the doyen of the think-positive mindset, provides a particularly illustrative example in You Can If You Think You Can (1987):

In Tokyo, I once met an American, an inspiring man, from Pennsylvania. Crippled from some form of paralysis, he was on a round-the-world journey in a wheelchair, getting a huge kick out of all his experiences. I commented that nothing seemed to get him down. His reply was a classic: “It’s only my legs that are paralyzed. The paralysis never got into my mind.”

No matter how formidable your talents, you’ll be held back by certain attitudes and behaviors that limit your achievements.

Your personal constraints—some of them beyond your control—will determine your level of success. Identify those constraints and make a plan to triumph over them.

Idea for Impact: The more you can reframe your attitudes toward the past, future, and present, the more likely you’ll find a meaningful life. Don’t let your constraints lay down what you can achieve.

The Key to Reinvention is Getting Back to the Basics

August 6, 2020 By Nagesh Belludi 1 Comment

Leaders of turnarounds often succeed by putting the fundamentals on the table and insisting upon a greater emphasis on the basics.

The turnaround that CEO Brian Niccol has cooked up at Chipotle Mexican Grill [CMG] makes a great case study of the back-to-the-basics approach to management.

The Basics Often Get Lost in a Speedy World

To set the context, here’s a concise history of Chipotle: founded in 1993 by chef Steve Ells, Chipotle found great success in marketing its near-local sourcing of fresher ingredients, using naturally-raised proteins, and on-premises cooking.

Chipotle grew swiftly and established itself as the flag-bearer of the fast-casual trend that spurned fast-food orthodoxy. McDonald’s was a major investor from 1998 until 2006 when Chipotle went public.

In 2015, Chipotle’s star began to fade away when hundreds of its customers got sick from infections with salmonella, E. coli, and norovirus. Worried that this short-term rough patch can turn into a long-term downward slide, the company’s board recruited Niccol from Yum Brands’s Taco Bell division in 2018.

CEO Brian Niccol made Chipotle Fresh Again by Focusing on the Basics

In two short years as CEO, Niccol has returned Chipotle to industry-leading performance and positioned the company for above-industry growth. His Barron’s ‘Streetwise’ interview with the inimitable Jack Hough provides an insight into how strategic business leaders think and make decisions:

When I arrived at Chipotle, I discovered that it was a company full of ideas; it lacked discipline and the focus to figure out the few things we wanted to do really well. Chipotle had lost focus on executing the basics of running a great restaurant.

We modernized food safety practices and emphasized avoiding contamination and educating food suppliers and farmers.

We went back to following the original culinary on how to make great food: getting the right char on the chicken, the right amount of lemon, and the right amount of chopped jalapenos.

Idea for Impact: Getting the basics right is often the first essential step to building a greater organization.

So many companies fail on their fundamentals—and don’t even realize it—especially when their businesses have grown, market conditions have changed, and the companies have taken on all sorts of complexities that have stumbled.

If you want your organization to pull through a slump or hit a new growth trajectory, consider cracking down on the basics.

Focus on your core values and your underlying business model, which are like beacons that can help steer you on the right track. Inquire why your organization exists. How should you operate? What is your market position? What matters to the organization’s mission and vision? Focus on doing the right thing—and doing it consistently over time.

A renewed emphasis on the strategic basics will put your company in the best possible position to navigate new strategic choices, as Niccol’s Chipotle has done.

How to Gain Empathic Insight during a Conflict

May 28, 2020 By Nagesh Belludi Leave a Comment

One simple starting point for finding common ground during a conflict is to ask, “what if the others’ perspectives were true?”

When others tell you something that you don’t agree with, just suspend disbelief for a moment.

Imagine what it is to be like them.

Think, “what if the others’ perspectives are true.”

What would that mean to you?

What would that mean in the context of your shared interests?

How would that change your perspective on your own opinion?

Putting yourself in the other person’s shoes can help you identify how they’re feeling and why they’re feeling that way. This makes it easier to take the big vital step: treating them with empathy and compassion. Suddenly, the conflict is less personal—it’s not about you or them.

Idea for Impact: We human beings are not transformed as much by statistics and facts as we are by stories. When there are two alternative viewpoints of one story, being open-minded, listening honestly, and identifying the other through their stories could be really transformative. It changes the conversation. It helps you move forward and seek solutions that are favorable to both sides.

Howard Gardner’s Five Minds for the Future // Books in Brief

May 8, 2020 By Nagesh Belludi Leave a Comment

In Five Minds for the Future (2006,) developmental psychologist Howard Gardner argues that succeeding in a rapidly evolving world requires five proficiencies:

The Disciplinary Mind: “Individuals without one or more disciplines will not be able to succeed at any demanding workplace and will be restricted to menial tasks.”
The Synthesizing Mind: “Individuals without synthesizing capabilities will be overwhelmed by information and unable to make judicious decisions about personal or professional matters.”
The Creating Mind: “Individuals without creating capacities will be replaced by computers and will drive away those who have the creative spark.”
The Respectful Mind: “Individuals without respect will not be worthy of respect by others and will poison the workplace and the commons.”
The Ethical Mind: “Individuals without ethics will yield a world devoid of decent workers and responsible citizens: none of us will want to live on that desolate planet.”

Gardner is best known for his work on multiple intelligences—the theory that cast serious doubts about the simplistic concept of a “single” intelligence, measurable by something like IQ. Gardner’s notion that “there is more than one way to learn” has transformed education in the U.S. and around the world.

Recommendation: Speed-read Five Minds for the Future. Written through the lens of a skills-development policymaker, Gardner’s theses and prescriptions aren’t ground-breaking but make for thoughtful reflection. Complement with Gardner’s The Unschooled Mind (1991; summary.)

Make ‘Em Thirsty

May 6, 2020 By Nagesh Belludi Leave a Comment

Sony’s Akio Morita, like Apple’s Steve Jobs, was a marketing genius. Morita’s hit parade included such iconic products as the first hand-held transistor radio and the Walkman portable audio cassette player.

Key to Morita’s success was his mastery of the art of the pitch. Morita pushed Sony to create consumer electronics for which no obvious need existed and then generated demand for them.

The best marketing minds know how to create a customer—previously unaware of a problem or an opportunity, she becomes interested in considering the opportunity, and finally acts upon it.

Coca-Cola marketers are but creating a thirst by showing the fizzle a freshly poured glass in Coke ads. “Thirst asks nothing more,” indeed.

The marketing guru Seth Godin has said, “So many people are unhappy … what they have doesn’t make them unhappy. What they want does. And want is created by the marketers.” Recall the old parable,

A sales trainee was trying to explain his failure to close a single deal in his first week. “You know,” he said to his manager, “you can lead a horse to water, but you can’t make him drink.”

“Make him drink?” The manager sputtered. “Your job is to make him thirsty.”

Idea for Impact: Whether you realize this or not, you’re in marketing, as is everybody else. You’re constantly pitching your ideas, skills, time, appeal, charm, and so forth. Study the art of the pitch. Master the art of generating demand for whatever it is you have to offer. Learn to “make ’em thirsty.” Marketing is everything.

Question Success More Than Failure

March 5, 2020 By Nagesh Belludi Leave a Comment

Katrina “Kat” Cole, formerly CEO of the American baked goods-chain Cinnabon, in an interview for Adam Bryant’s “Corner Office” column in the New York Times:

I’ve learned to question success a lot more than failure. I’ll ask more questions when sales are up than I do when they’re down. I ask more questions when things seem to be moving smoothly, because I’m thinking: “There’s got to be something I don’t know. There’s always something.” This approach means that people don’t feel beat up for failing, but they should feel very concerned if they don’t understand why they’re successful. I made mistakes over the years that taught me to ask those questions.

People tend to attribute failure to external factors and success to their own abilities and performance (see self-serving bias and Dunning-Kruger effect.) The human brain is indeed riddled with cognitive and memory biases that are conducive to making people feel like they’re good and capable, regardless of reality.

Idea for Impact: Luck is so much more important than we acknowledge. Most successes and failures in life combine both skill and luck. Understanding the relative contributions of skill and luck in failure—and success, as Cole suggests above—can help you judge past and present results and, more significantly, prepare for future results.

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Thinking Tools

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How Domino’s Pizza reinvented itself

Idea for Impact: Don’t outsource what you’re supposed to do best.

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The Basics Often Get Lost in a Speedy World

CEO Brian Niccol made Chipotle Fresh Again by Focusing on the Basics

Idea for Impact: Getting the basics right is often the first essential step to building a greater organization.

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