No Risk, No Reward

Neatly pigeonholed, Wind is a professor of marketing at the University of Pennsylvania's Wharton School. But in practice, his head travels everywhere. As founding director of Wharton's SEI Center for Advanced Studies in Management, Wind grapples with ideas and management strategies that underlie "the 21st-century enterprise," as he calls it. He proposes three essential characteristics of organizations that flourish in times of turmoil.

1. Disciplined opportunism. Think of the world right now as one magnificent fire sale. "There are huge tactical opportunities to buy cheap assets," Wind says. "You can buy technology or talent for very little money and build assets that will create the great companies of the future.

"But you need to have discipline about this," he continues. It's one thing to snap up a failing technology outfit for half of its book value. It's another to land an asset that truly plays to your company's strategic strengths.

2. Continuous learning -- and unlearning. According to Wind, "The fundamental challenge is to ask, What do we do, and why do we do it? We do things because they've worked in the past. But those things may not work in the future." In a fast-changing marketplace, the assumptions driving your current vision and strategy won't stay compelling for long.

"We talk about the learning organization," says Wind. "But we have to balance learning with unlearning. What can I learn from the past, and how can I unlearn the things that might constrain me? Balancing the two, learning and unlearning, must be a dynamic process. And the CEO must drive this. The CEO should be the 'chief unlearning officer.' "

3. Adaptive experimentation. In a turbulent environment, Wind says, no strategy is optimal. So you have to create an environment of continuous experimentation -- a way to design projects that allows you to learn, adapt, and change. These experiments must be big experiments, because it's hard to measure the difference that small changes make. But even more important, why waste the resources required for experimentation on something that isn't really new?

"In general, companies that do what they think is safe, that try tiny changes, don't get results. Companies that are bolder get bigger results. Why? Because radical experimentation forces everyone to innovate. And because it's a competitive weapon: If you're experimenting a lot, other companies can't figure out what you're doing.

"Most important, experimentation allows you to learn really fast what's happening out there. It forces you to continually reexamine strategy, because you're constantly measuring your experiments. Experiment, measure, modify, and react. It's a powerful way of learning."

*Economics primer: Frank H. Knight was cochair of the department of economics at the University of Chicago from the 1920s to the late 1940s. In his classic book published in 1921, Risk, Uncertainty and Profit, he distinguished between risk and uncertainty. Risk, he argued, was a randomness -- as in a game of roulette -- whose probability could be determined. Uncertainty implied unknown and perhaps unknowable probabilities. Will human cloning be commonplace in a generation? That's an uncertainty.

Change per se, Knight wrote, does not drive profit. Just because you operate in a dynamic world doesn't ensure opportunities to make money. Likewise, a risky situation isn't necessarily profitable. Since the odds are calculable, they are calculable by anyone and so not unique. But "change may cause a situation out of which profit will be made, if it brings about ignorance of the future." Profit "is in fact bound up in economic change ... it is clearly the result of risk, but only of a unique kind of risk, which is not susceptible of measurement."

VI. Customers: "People are more open-minded than we give them credit for."

At the 2001 Detroit Auto Show, GM's Buick division unveiled the Bengal, its latest concept car. It was a stirring creation -- a two-tone, metallic-blue convertible roadster that reeked of power and dash. It looked fast. It was sexy. And in many ways (most of them good), it was strikingly unBuicklike.

The average age of people who buy Buicks is 62. That isn't to knock 62-year-olds. The problem is, if you sell to 62-year-olds for too long, you become overly cautious. You start to think that those older people don't like change. So you never change, because it's too risky.

The other problem is that 62-year-old customers die sooner than the fortysomethings who buy BMWs. And so, the challenge: If Buick changes too much, all of its older customers might start buying Lincolns. But if the company never changes, it risks running out of customers.