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|In: Industry Commentary|Last Updated:

I entered college shortly after the first Earth Day. The book Limits to Growth was popular back then — it made the point, now unpopular but still mathematically inescapable, that there are … well, the title says it.

It’s like this: The earth’s population now exceeds 6 billion people, and it doubles every 50 years or so. Think the year 2000 caused headaches? If the population continues to grow at its current rate, in the year 3000 our descendants will each live out their lives standing in a three inch circle. It’s the miracle of compound interest. Maybe if they stand on tip toe they’ll be able to make it work.

And no, we can’t just ship the excess population into space. To do so, in 50 years we’d have to create the technology and capacity to put 120 million people a year into space, just to stay even.

“Well sure,” I hear you say, “but the population won’t continue to grow at that rate.”

Exactly. The only question is what’s going to stop it, when, and how many people will live on the planet when the population levels off. That there are limits to growth is a matter of arithmetic, which means you don’t get to argue.

It isn’t only the human population that has limits to growth. Marketplaces do too. Look at it this way: If you’re McDonald’s, and every human being is already eating three fast-food meals a day, you’d better figure out a better expansion plan than to open more restaurants. You’ve saturated the market.

Right about here it gets complicated. “Marketplace” isn’t easily defined. For example, the American restaurant marketplace is close to saturated — just how many more meals can we all eat out, after all? The fast-food marketplace is also close to saturated, I imagine. The non-traditional-Mexican-fast-food marketplace is, it appears, expanding rapidly, though, which explains McDonald’s investment in Chipotle.

In theory, companies can operate successfully in both mature (the code word for saturated) and growing marketplaces. In principle, it’s a rare company that succeeds at both, because so many of the factors that drive success are very different between the two.

In a growing marketplace, sales and marketing are missionary in nature, and new customer acquisition is everything. You have to explain an unfamiliar concept and its benefits to customers who, when you start, have no idea what you’re talking about. Whether it was the personal computer in 1980, the PDA in the mid 1990s, or for that matter fast food when White Castle opened its doors, the challenge is persuading potential customers to buy anything at all.

In a mature marketplace, in contrast, sales and marketing are comparative. Car manufacturers don’t have to explain what a car is for, how it works, and what the benefits are from owning one. They do need to persuade you that buying the ones they sell is a better idea than buying the ones someone else sells. In this kind of environment, growth is incremental, not exponential.

Companies organized to support exponential growth look very different from those organized to support incremental growth. Margins are different, internal controls are different, the whole budgeting process is different. It all has to be. When revenue growth can be exponential, spending is a high-return investment. When revenue can only grow incrementally, all spending is suspect, because cost management has a much greater impact on net profitability.

The trade-offs among speed, cost and quality are quite different, too. In a high growth situation, speed matters most, because the revenue lost due to a delay in capitalizing on an opportunity compounds exponentially. In a low-growth situation, the excess long-term cost that results from quick-and-dirty work far outweighs any short-term gains.

The corporate risk-profiles for the two situations are quite different, too: With high growth comes both an appetite for and a need to take risks, since the alternative is being left behind. With significant marketshare and only incremental growth, it’s far easier to lose ground than to gain it. Companies in mature marketplaces are, and should be, more risk averse.

And there you sit, leading an IT organization. Chances are good you’ve read a bunch of material about IT best practices. Perhaps you worry that you aren’t following them. Or maybe you’re worried that you are, and they aren’t working as well as they’re supposed to. So here’s a question:

Where did those “best practices” come from? Who decides, for you and your company, what’s really best?

There are limits to growth, whether for a population or a marketplace. The idea of “best practices” suggests there’s also a limited number of good ways to run an IT organization. Namely, one.

Just an opinion: Even if there is such a limit, we haven’t reached it yet.

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|In: Business Ethics|Last Updated:

Spiderman’s uncle, Ben Parker, expressed it well, if too often: “With great power comes great responsibility.”

Hold that thought.

KJR Club member Roland Cole, responding to last week’s column about privilege, bureaucracy, and business governance made a good point — that nothing in my column distinguished privilege from the simple exercise of authority.

Let’s do that, starting with a few random threads:

  • Privilege, you’ll recall, means “private law.” Bureaucracy is what you get when form triumphs over substance — when following the process is more important than achieving the desired result.
  • The ancient Greeks differentiated dictators from tyrants. The former established the law through the raw exercise of authority; the latter simply exercised raw authority.Which, I suppose, means that a business leader who makes ad hoc decisions without respecting the need for consistency or policy is, in a sense, a tyrant. One who establishes the policy manual through the exercise of personal authority is a dictator. Oh, well, nobody ever said a business should be run as a democracy anyway. As last week’s column pointed out, the first requirement of a business is to be competitive — it’s in government that the first order of business is fairness.
  • In addition to tyranny and dictatorship, the ancient Greeks defined, and tried out all of the “x-cracies.” There’s plutocracy (rule by the wealthy); aristocracy (rule by a hereditary nobility); democracy (rule by the majority); and meritocracy (rule by the best-qualified). Of course, the ancient Greeks got to everything first, including public sanitation systems, so don’t feel bad about it.
  • In the absence of monopoly or collusion, business ends up being fair whether or not a particular business is fair, in that both customers and employees get to vote with their feet. The absence of competition is why government must regulate monopolies, and assuring competition is why government must prevent collusion. A business needn’t be fair, but the business community, as part of our society, must be. We aren’t supposed to be a society of privilege.

Which gets us to the clarification suggested by Mr. Cole: The exercise of authority doesn’t automatically constitute the establishment of privilege. That’s determined by how you exercise authority, and in favor of whom. It’s privilege when someone get their way because of who they are rather than because of the merits of their case. As Americans we rebel against this kind of thing: It means something a lot like an aristocracy is in charge.

A lot has to do with how you choose your inner circle. If it’s a bunch of like-minded souls, shame on you. To quote the un-Ben-Parker-like Lyndon Johnson, “If two men agree on everything, you may be sure that one of them is doing the thinking.”

Public governance, emphasizing fairness, should be democratic. Business governance, emphasizing effectiveness, should be meritocratic. Which points to how you should create your inner circle: Choose highly capable people who frequently disagree with you.

Quite a few readers discussed the ethics of the matter. That wasn’t part of the column, and for a good (to me) reason.

While ethical behavior is a frequent topic in this column, I rarely appeal to ethics as a reason for either choosing or avoiding a particular course of action. That’s because your ethical code, like your religious choice, is a private matter. It’s likely different from mine, but no less valid for being so. Whenever someone appeals to your ethical code (or, even worse, your religious beliefs) when trying to persuade you, they’re making assumptions, many of which are likely to be false. Chances are good they’re also trying to persuade you to act in their best interests rather than your own: “Do the right thing,” is ManagementSpeak for “Do what’s best for me.”

I’m certainly not against ethics. Ethics are a good thing. By definition. In the absence of a professional code of ethics coupled with revocable credentials, though, an appeal to ethics is an exercise in futility. We’re all good people in our own eyes. Extraordinarily few people consider themselves to be evil or their behavior unconscionable — even serial killers manage to rationalize their behavior to themselves. The notion that Satan causes the evil that happens on this earth is quaint, but fails the test of Occam’s Razor. We humans do a fine job of it on our own.

If you do want to think of this as an ethical matter, Ben Parker points you in the right direction: “With great power comes great responsibility.”

It’s eloquent, even if it does plagiarize Winston Churchill’s, “The price of greatness is responsibility.” But then, if you plagiarize Winston Churchill, whatever you say will be eloquent.

And worth hearing.

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