Competitive Advantage not on the Agenda of 53% of Companies

A McKinsey study early this year suggested that just 33 percent of executives say their companies’ strategies rest on novel data and insights not available to competitors.

“One likely explanation: the widespread availability of information and adoption of sophisticated strategy frameworks creates an impression that “everyone knows what we know and is probably analyzing the data in the same ways we are.” Yet if strategists question their ability to see something that no one else does, they are less likely reach for the powerful insight that is most likely to differentiate them from competitors.”

This was a shocking report for me. My company Tailwind Discover Group is focussed on creating competitive advantage for small and mid-sized businesses. Competitive advantage is always based on the insight that differentiates our clients from their competitors. That is what we help companies discover, that wonderful insight which drives their differentiator. We go after the differentiator that matters most to their customers.

But the biggest shock from the McKinsey study was that:

“just 53 percent of executives characterize their companies’ strategies as emphasizing the creation of relative advantage over competitors; the rest say their strategies are better described as matching industry best practices and delivering operational imperatives—in other words, just playing along.”

In other words, more than half of all companies probably remove themselves from being our clients simply because they don’t understand what makes a business sustain. These companies are going out of business, they just don’t know it yet.

Almost Incomprehensible

I am in the process of preparing for a discussion on the Durbin amendment to the Dodd Frank Act, and the proposed Fed regulation it requires. I am not sure the government understands what problem they are trying to solve. The law falls under the category of consumer protection. But what it actually does is move a little money from the pockets of the banks to the pockets of the retailers. This is exactly what was done in Australia, also purported to be a benefit to consumers, and, of course, it had no impact on them at all. The Fed draft of the regulation has a 135 page meandering preamble full of distinctions that add nothing to the regulation. For example they make the distinction between four party transactions (which are actually five party) and three party transactions, (which are more likely just two party). But the distinction is meaningless in the context of the discussion. Someone must be paid on word-count.

Stupidity in government is nothing new. Back in 1492 Ferdinand and Isabella of Spain did somethings stupid, umm, now what was it? Oh yes, they ordered the expulsion or conversion of the Jews of Spain. In addition to the pain this cause for Spaniards of Jewish heritage, this also had an unfortunate impact on distant Sicily.

Sicily, owed allegiance to Spain and felt it had to go along. It did procrastinate a little. But in the end the Sicilians too, expelled their Jewish population. Almost immediately trade shrank to nothing.

Later, at the end of the seventeenth century some effort was made to get them to come back. The economy needed the trade. It took decades to convince anyone to return, but the returning Jews found unwelcoming arms. They weren’t allowed to stay long. It turned out the queen hadn’t borne a male heir, and the clerics convinced the royal couple that it wouldn’t happen so long as the Jews were around. So out they went again.

Superstition, intolerance, dogmatism, and ignorance are traits easily acquired and difficult to exorcise. Even today, Sicily is feeling the effects of this history.

The Spanish intolerance was a part of its eventual downfall. It was once the undisputed richest country in the world and declined to irrelevance. It spent rather than invested, acquired rather than manufactured, suppressed thought rather than welcomed it, and disparaged hard enterprise. People, both the industrious and the thoughtful, went elsewhere and took scientific investigation and technological innovation with them.

Human vs. Artificial Intelligence

Last night MIT Enterprise Forum in Chicago hosted “Debate Night: Human vs. Artificial Intelligence.”

Unfortunately, Artificial Intelligence failed to show up and instead, was represented by a very intelligent bit of carbon and water named Kristian Hammond, a Professor of Electrical Engineering and Computer Science at Northwestern University who fancies himself as “a machine, or else I don’t know what to think.” Representing Human Intelligence was the delightfully non-machine-like Valerie Pajak, a manager of Business Intelligence and Analytics at APP.

The television show Jeopardy was kind enough to schedule their Watson competition to wrap around the MITEF event, and it was a topic of conversation for the group. The breakthrough for Watson, was that rather than rely on a set of programming steps, the driver of Watson is ‘search’.

Whether it is search, or programming steps around an expert system, or even a set of genetic algorithms, what passes for artificial intelligence to date has been limited to retrieving relevant existing knowledge. This is an important part of human intelligence and, as such, has been improving for hundreds of years. The index at the back of a text book is a form of this sort of intelligence. And while it is an important part of human intelligence, it is only important because of what it enables. Humans dominate the earth not because we can retrieve knowledge, but because we can create new knowledge. And since no new knowledge is ‘whole cloth’ it always depends upon some level of prior knowledge. Existing knowledge is the foundation of new knowledge.

But to create new knowledge, the useful existing knowledge must be in the brain of the human who creates the new knowledge. We create new knowledge in three ways:

1. Discovery - We stumble across something that provides a solution to a problem we have.
2. Experimentation - We are pretty sure we can find the right solution if we just try a whole bunch of alternatives.
3. Synthesis - We have a problem stored in memory, and we’re probably not actively thinking about it when something magical happens, and, voila! a solution pops out of (or is it ‘into’) the brain.

What will truly make Artificial Intelligence beat human intelligence is when the computer can mimic whatever it is that happens in our brains when we’re taking a shower, or out for a long walk, or we’re in bed at 3am dreaming, and that problem solving insight explodes and we create new knowledge. When a computer does that, maybe someone should pull the plug so we can figure out how bad it could get.