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OUTLINE
1. 2. 3. 4. Background Why do Companies Fail Motorola Case Study Applying The Learning
1. 2. 3. 4. 5. 6. The Innovator's Dilemma Change, Leaders and Culture Knowledge Management Identifying a Black Swan Event Why Good Strategies Fail Conclusions

BACKROUND
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THE EVOLUTION OF STRATEGIC MANAGEMENT/STRATEGIC PLANNING


Period

Dominant Theme

THE 7-S MODEL


TQM 1950's SWOT 1970's
Budgetary planning & control. Corporate planning. competition. Financial control, Planning growth, especially especially through markets. operating budgets. diversification and Portfolio Planning. leadership.

1960's and Early

BCG Late 1970's and 5 Forces 1980's


Strategic Positioning.

RBV 1990's and early 2000's

2000+ Strategic and organizational innovation.

Analysis of industry &

(McKinsey) Strategic competitive


advantage. Focusing strategy around Sources of competitive advantage. strategy. Dynamic aspects of

Main Focus and Issues

Principal Concepts & Techniques

Organizational Implications

STRATEGY STRUCTURE SYSTEMS STYLE (CORPORATE CULTURE, THE WAY WE DO THINGS AROUND HERE) SKILLS (DISTINCTIVE COMPETENCE/S) STAFF (PEOPLE-TALENT) SHARED VALUES (GOAL ,VISION, CORE VALUES)
Selecting industries and Positioning for market flexibility & responsiveness. Industry Analysis. Segmentation. Medium- and long-term forecasting. techniques. Corporate planning Competitor analysis. Experience curves. PIMS analysis. SBU's (Strategic Business Units). Resources and capabilities. Shareholder value. Knowledge management. Information Technology. Analysis of speed, mover advantage. Competing for standards. Financial budgeting. Project appraisal. Complexity & selforganization Corporate social Investment planning.

Reconciling size with

Cooperative strategies.

Synergy.

responsiveness & first-

responsibility.
ethics.

Portfolio Planning.

Renewed commitment to

Multidivisional &

Systems of operational and capital budgeting become key

Creation of corporate & long-term planning

multinational structures. Greater industry & market selectivity.

Restructuring.

Alliances and networks. New models of leadership.

planning departments

Continuous improvement & process reengineering. E-business.

mechanisms of
coordination and control.

processes.
Mergers & acquisitions.

Divestment of
unattractive business units.

Refocusing., Outsourcing.

Informal Less reliance on direction, more on emergence.

THE STRATEGY FOCUSED ORGANIZATION *


Mission: Why we exist Core Values: What we believe in Vision: What we want to be Strategy: Our game plan (how to win) Goals For Implementing Strategy (Metrics): What we need to do OUTCOMES Satisfied Shareholders Delighted Customers Effective Process Motivated and Prepared Workforce

* The Strategy Focused Organization, Robert Kaplan, David Notron, Harvard Business School Press, 2001

THE FORCES SHAPING STRATEGY

Dot.com bubble bursts Sub Prime Crisis, World Wide recession

Collapse of New Economy

Corporate Scandals
Enron, WorldCom, Parmalat, Lehman Bros.

Information International Acceleration competition intensifies Decline of Multilateralism

War and Revolution


Invasion of Afghanistan & Iraq Civil wars in Congo, Liberia, Sudan, Revolutions in Tunisia, Egypt

China as Workshop of the World Outsourcing to LDCs

The Curse of Terrorism Sept. 11, 2001


Suicide bombings in Iraq, Europe, Turkey, Afghanistan

Collapse of Doha round Trade wars between US, EU, China Weakening of UN

Age of Disbelief

Unstable Currencies

Fear of Disease
SARS, Mad Cow, Bird Flu, Swine Flu
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US$ declines by >50% against Euro

The last 25 years of strategic decision making theory has been dominated by two main streams of thinking-- the Industry Attractiveness (IA) view, and the Resource Based (RB) view. Future Sources of Profit The Business Limits of downsizing/cost cutting Where are future sources of Environment
profit?

Concepts & Theories


Resources & capabilities as basis for competitive advantage Knowledge-based theory of the firm Option theory Complexity theory

Uncertainty Stalling of economic liberalization Intense competition

Demands of society
Social & environmental responsibility Ethics & fairness Quest for meaning
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INDUSTRY ATTRACTIVENESS
Magnitude and ease of making profit, in comparison with the risks involved, that an industrial sector offers. It is based on the number of competitors, their relative strength, width of margins, and rate of growth in demand for its goods or services.

THE RESOURCE BASED VIEW OF THE FIRM


A firms valuable, rare, socially complex, and inimitable resources generate a competitive advantage and, thereby, an above-normal rate of return. Thus, the heterogeneity of resources across firms explains their comparative differences in competitive advantage in the marketplace.
VRIO: Valuable, Rare, Imperfectly Imitable, Organization (ability to exploit the resource or capability)
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FAILURE DEFINITION

We define business failure as when an enterprise has not survived the market test.

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Without strategy, business is as crazy as Wonderland. IF YOU DONT KNOW WHERE YOURE GOING, YOULL
PROBABLY END UP SOMEPLACE ELSE.

Alice: Would you tell me, please, which way I ought to go from here? The Cat: That depends a good deal on where you want to get to. Alice: I don't much care where. The Cat: Then it doesn't much matter which way you go. Alice: so long as I get somewhere. The Cat: Oh, you're sure to do that, if only you walk long enough.
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The Fallacy of Prediction The Fallacy of Detachment The Fallacy of Formalization

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The Icarus Paradox

Success leads to specialization and exaggeration, to confidence and complacency, to dogma and ritual
1990
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Ignored vital information

Clung to an inaccurate view of reality

2003 Chose to not cope with innovation and change


misread the competition

Brilliantly fulfilled the wrong vision

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Prior Strategic Commitments

you are responsible if you could have known, and should have known, something which, instead you strove not to see. Willful Blindness

Inertia

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Case Study

MOTOROLA

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2009: Revenues - $22.0B, Profit: $0.02 per share 3 Units:


1. Enterprise Mobility Solutions: communications to government and public safety sectors and enterprise mobility business, voice and data communications products and systems, mobile computing, advanced data capture, wireless infrastructure and RFID to customers worldwide. 2. Home & Networks Mobility: end-to-end systems for access to digital entertainment, information and communications services via wired and wireless mediums. Digital video system solutions, interactive set-top devices, voice and data modems for digital subscriber line and cable networks. 3. Mobile Devices: designs wireless handsets, but also licenses much of its intellectual properties.
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HISTORY

On 1999, Motorola announced it would buy General Instrument in an $11 billion stock swap, cable TV transmission network components from the head-end to the fiber optic transmission nodes to the cable set-top boxes, are at the availability of Motorola.
Neil Armstrong spoke the famous words "one small step for a man, one giant leap for mankind" from the Moon on a Motorola Radio

The company was also strong in semiconductor technology, including integrated circuits used in computers., microprocessors used in Atari ST, Commodore Amiga, Color Computer, and Apple Macintosh personal computers. Motorola also has a diverse line of communication products, including satellite systems, digital cable boxes and modems.

On 2000, Motorola and Cisco supplied the world's first commercial Motorola introduced the world's first GPRS cellular network. The world's first GPRS cell phone was also Paul Galvin purchased commercial high-power Motorola's world's Motorola demonstrated the the patents to the germanium-based developed by Motorola. first-only commercial world's first workingautomotive radio transistor.
cellular device.
prototype digital cellular system and phones using GSM standard

In 2002, Motorola introduced the world's first wireless cable modem gateway . 1930-1928 1947-1943 1955 1963 1969 1974 1983 1986 1991 In 2003, Motorola introduced the world's first handset to combine a Linux Motorola went public and Java technology with "full PDA functionality". operating system

In 2006, Motorola acquired the world-class software platform (AJAR) developed by the British company TTP Communications plc. In 2007, Motorola acquired Symbol Technologies, Inc. to provide systems for enterprise mobility solutions, including rugged mobile computing, advanced data capture and RFID.

Motorola produced the hand-held radio during World War II

introduced the world's first truly rectangular color TV picture tube which quickly became the industry standard.

Motorola sold its television business to the Japanbased parent company of Panasonic

Motorola invented the Six Sigma quality improvement process

Sydney Finkelstein Shade H. Sanford

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Motorola

engineer first gets the idea behind Iridium in 1985 would allow subscribers to make phone calls from any global location established Iridium as a separate company in 1991 and had its initial service in November 1998
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Satellites

Motorola

BACKGROUND

Motorola experienced declining sales and needed technological success to protect its reputation Motorola invests $6,6 billion for satellite design, launch operations and management Strong top management team with many years of experience from Motorola was appointed

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Spectacular

launch Nov 1, 1998

$180 million ad campaign

Handset

costs: $ 3, 000 Cost per minute: $ 3 - $ 8

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Devastating results by April 99 Only 10,000 subscribers CEO quits before quarterly results Bankrupt August Friday 13, 1999

$2 billion equity investments


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The Iridium Project went through a lengthy strategy process, had very defined market needs, was backed by a top tier company with very disciplined processes and incredibly smart people. So why was Iridium an incredibly expensive failure?

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1. Cellular build-out reduces need for Iridium From concept to development: 11 years

3.

Poor Operational Execution

2. Technological limitation and poor design Unable to use phone indoors Phone the size of a brick

Manufacturing problems Launching of service before enough phones were available Insufficient marketing and sales plans Delay in marketing teams in foreign countries

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Breathtakingly elegant and innovative technology, but

Untenable business plan Why did they go forward with an increasingly flawed business plan?

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WHAT WERE THE PROBLEMS?


Problem 1: Problem 2:

Executives made decisions based on the size of previous investments, rather than on the size of the expected return. Problem 3: The composition and size of the board of Iridium (28 members).

Staianos leadership: a double-edged sword If I can make Iridiums dream come true, Ill make a significant amount Problemof 4:money.

Mng. was fully aware of threats in 1998 listed a 25 pages prospectus of risks, no effort to address these risks was done.
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GLOBAL MARKET SHARE OF MOBILE PHONES


Past
. .

NOW
4- 2011 : Motorola ,Mobility Inc. : :Motorola .Solutions Inc.

FUTURE

1996

2000

2005

2008

2009

2010

2011

2012

HOW DID MOTOROLA GET THERE?

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Business is a game of strategy (e.g., chess) not simply a game of chance (e.g., bingo) or a game of skill (e.g., tennis).

APPLYING THE LEARNING

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THE PAST

THE FUTURE

Emphasis on control
Single performance goal

Emphasis on co-ordination
Multiple performance goals

Decisions located centrally


Simple structures,uniffied line of command

Decisions located where relevant knowledge exists


Multidimensional structures Diffused authority, but clear responsibilities

Organization by design

Self organization
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THE LEADERSHIP NEEDS OF ORGANIZATIONS The ability to: build confidence build enthusiasm cooperate deliver results form networks influence others use information

THE REQUIRED COMPETENCIES OF BUSINESS LEADERS business literacy creativity cross-cultural effectiveness empathy flexibility proactivity problem-solving relation-building teamwork vision
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RBV: Strengths Become Weaknesses


Core Competence vs. Core Rigidity
Resources
People Technology Products Equipment Information Cash Brand Distribution

Processes
Hiring & Training Product development Manufacturing Planning & Budgeting Market Research Resource allocation

Values
The criteria by which prioritization decisions are made Ethics Cost structure/ income statement Size of opportunity

core rigidities flip side of core competencies, and caused by overreliance on any advantage(s) for too long.
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Problems in the Management of Innovation

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INNOVATION
is defined as the creation and implementation of new processes, products, services and methods of delivery, which result in significant improvements in outcomes, efficiency, effectiveness or quality. (Mulgan, G and Albury, D (2003)

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The Innovator's Dilemma.


When New Technologies Cause Great Firms to Fail
This book is about the failure of companies to stay atop their industries when they confront certain types of market and technological change. Its not about the failure of simply any company, but of good companies the kinds that many managers have admired and tried to emulate, the companies known for their abilities to innovate and execute.
Clayton Christensen HBS Press, 1997
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Sears Digital Equipment Corporation Xerox IBM and Motorola

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The Development, Management and Commercialization (DMC) of Technology


The dilemma is how to handle all of these tasks in the face of disruptive technologies Disruptive technologies may change industries in the long run Conflicts can arise within organizations

Across functional departments Across technologies in the firms portfolio Across market segments Across time (short and long run)

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An originator comes up with a innovative idea

Freedom is the greatest when the ground rules are clear. Chalk out the playing field and say, Within those lines, make any decision you need. - Dick Brown, chairman CEO of EDS

At each level of management, the idea gets pruned and refined


Thus till the time the initial idea gets implemented, it would have gone through a number of hurdles.
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THE INNOVATORS SOLUTION

Christensen outlines a processdisruptive growth enginethat helps organizations respond to disruptive innovations more effectively
1. Start early 2. Executive leadership 3. Build a team of expert innovators 4. Educate the organization

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We tend think of a future period at todays rate of progress our memories are dominated by our recent experience.

But we are doubling our rate of progress every ten years So in this century we will experience 20,000 years of progress at todays rate.

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The 21st century an exponential age

With an accelerating advance, a goal can be reached with little warning

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Remember that big change in organizations is either enabled by the culture; resisted by the culture, or it changes the culture and that the behavior of top executives is the most powerful driver of culture

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High Quality Relationships Shared Goals Shared Knowledge Mutual Respect

Psychological Safety

Learning from Failures

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KNOWLEDGE
CHRIS HALL AND DEREK LUNDBERG

Resource Based (RB) view, and the Industry Attractiveness (IA) view recognize the significance of competitive knowledge and intelligence. The literature has shown explicit support of the importance of competitive knowledge practices within the IA framework (Porter, 1980). From within the RB model, all proponents advocate implicitly the reliance on competitive knowledge.

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KNOWLEDGE (CONT.)
CHRIS HALL AND DEREK LUNDBER

It is hypothesized that firms in high velocity, dynamic and fast changing environments should be more likely to develop good competitive knowledge and intelligence systems to help their decision makers make better informed decisions. However, there is almost no relation between the rate of change a firm faces and its competitive knowledge capability. This poses a significant problem for strategic planning because it suggests that managers, despite being aware of their relative competitive knowledge needs, are unlikely to actually have systematic access to the intelligence and 48

Sustainable Competitive Advantage


Shorter life-cycle of innovation Knowledge as an infinite resource Direct bottom-line returns

Managing Overload
Inability to assimilate knowledge Data organization and storage is needed

Sharing Best Practices


Avoid reinventing the wheel Build on previous work

Downsizing
Loss of knowledge Portability of workers Lack of time and resources for knowledge acquisition

Globalization Why Manage Knowledge?


Decreased cycle times Increased competitive pressures Global access to knowledge Adapting to local conditions

Embedded Knowledge
Smart products Blurring of distinction between service and manufacturing firms Value-added through intangibles

Rapid Change
Avoid obsolescence Build on previous work Streamline processes Sense and respond to change

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KNOWLEDGE MANAGEMENT

Knowledge management - processes necessary to capture, codify and transfer knowledge across the organization to achieve competitive advantage. Intellectual capital - knowledge that has been identified, captured and leveraged to produce higher-value goods or services or some other competitive advantage for the firm. Intellectual property type of property related to individuals creativity and innovation.

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Taxonomy of Knowledge

Know-Why Information

Reasoning Procedure

Know-What

Application

Know-How Experience

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COMPETITIVE INTELLIGENCE

Competitive Intelligence provides information by collecting and analyzing information about products, competitors, and environmental changes (Guimares and Amstrong). Garbage in, garbage out, managers think that what makes a model wrong is inaccuracy in the data fed into it, but what can also make a model wrong is the structure of the model.
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IDENTIFYING A BLACK SWAN EVENT


TALEB

The event is a surprise (to the observer). The event has a major impact. After the fact, the event is rationalized by hindsight, as if it could have been expected (e.g., the relevant data were available but not

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THE LUDIC FALLACY TALEB


.

Is the belief that the unstructured randomness found in life resembles the structured randomness found in games. This stems from the assumption that the unexpected may be predicted by extrapolating from variations in statistics based on past observations, especially when these statistics are presumed to represent samples from a bell-shaped curve. These concerns often are highly relevant in financial markets, where major players use value at risk models, which imply normal distributions, although market returns typically have fat tail
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THE SIX MISTAKES EXECUTIVES MAKE IN RISK MANAGEMENT


TALEB ET AL

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Human beings are hard-wired for bad decision making in complex situations. We hone in on answers before examining all the facts, and then seek evidence to confirm our answers. We are adversely influenced by emotion, loyalties, and group think. Decision making can be improved when we encourage conflict and question our assumptions. A devils advocate review should be built in early to the strategy process, and again at the key design stages and when near completion for a last chance to review the full strategy.

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"Unfortunately, most managers know far more about developing strategy than about executing it" Making Strategy Work: Leading Effective Execution and Change L.G. Hrebiniak, Wharton School

Poor Synchronization Loss of Focus Individuals resist change Internal Cultural Factors Employee Incentives Executive Inattention
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Strategic Leadership
Strategic Leadership involves: The ability to anticipate, envision, maintain flexibility and empower others to create strategic change Multi-functional work that involves working through others Consideration of the entire enterprise rather than just a sub-unit A managerial frame of reference
The Management of Strategy- Concepts and Cases 8th Edition Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson
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Establishing Balanced Organizational Controls

Effective Strategic Leadership

Determining Strategic Direction

Establishing Balanced Organizational Controls

Exploiting & Maintaining Core Competencies

Developing Human Capital

Sustaining an Effective Organizational Culture

Emphasizing Ethical Practices

Organizational controls provide the parameters within which


strategies are to be implemented and corrective actions taken.

Financial controls are often emphasized in large corporations and


focus on short-term financial outcomes.

Strategic control focuses on the content of strategic actions, rather


than their outcomes.

Successful strategic leaders balance strategic control and financial


control (they do not eliminate financial control) with the intent of achieving more positive long-term returns.
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Balanced Score Card (Kaplan & Norton)

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CORPORATE GOVERNANCE
Corporate Governance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations Concerned with identifying ways to ensure that strategic decisions are made effectively Used in corporations to establish order between the firms owners and its top-level managers

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WHY IS CORPORATE GOVERNANCE NEEDED?

Separation of Ownership and Managerial Control Agency Relationship


Agency Costs (incentive, monitoring, enforcement costs, and financial losses due to insufficient governance)

Survival of the fittest not the biggest


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Corporate failures have many parents, but the most critical of these were:

breakdowns

in how executives perceived reality for their companies, how people within an organization faced up to their reality, how information and control systems in organizations were mismanaged, and leaders adopted spectacularly unsuccessful habits.

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REASONS FOR CORPORATE FAILURES


UNDERLYING LEARNING DISABILITIES

1. Life-Cycle Decline
Inadequate

environmental scanning, and internal competency-building


and arrogance leading to rigidity and lack of openness to new knowledge.

2. Trapped by Past Success


Complacency

3. Inappropriate Strategic Biases and "Mental Models"


Lack

of self-critiquing and self-reflection causing misalignment with the environment


and self- destructive routines and practices hampering with adaptive response.

4. Rigidity in Response to Crisis


Defensive
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We need a pragmatic optimism, a can-do, change-aware attitude. A balance between innovation and preservation. Honest dialogs on persistent problems, tolerance of imperfect solutions. The ability to avoid both doomsaying and paralyzing adherence to the status quo. David Brin

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A company cannot be a learning company Without also being a teaching company.


Kevin Kelly: (1994) Out of Control The New Biology of Machines, Social Systems, and the Economic World

As we shape technology, it shapes us. We are connecting everything to everything, and so our entire culture is migrating to a network culture and a new network economics

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FAILING TO LEARN AND LEARNING TO FAIL


CANNON AND EDMONDSON

Organizational learning from failure is feasible but involves skillful management of three distinct but interrelated processes:
identifying

failure, analyzing and discussing failure, and experimentation.

Managed skillfully, these processes help managers take advantage of the lessons that failures offer, which are ignored or suppressed in most organizations.
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WHY ORGANISATIONS FAIL TO LEARN


MADHUKAR SHUKLA

Failing organisations are inable to develop and use new knowledge and competencies for developing new adaptive solutions. That is, organizations fail when they don't know how to learn and acquire new perspectives and responses,
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