Lesson 1: Challenge Dogma With Chutzpah

This is part 1 of my series on how Michigan can learn from Israel's economic success.

On January 21st 1988, Roger Smith, the chairman of General Motors, was undoubtedly distressed. A young executive named Elmer Johnson had written a biting critique of the company's culture. He wrote: “We have vastly underestimated how deeply ingrained are the organizational and cultural rigidities that hamper our ability to execute.”

21 years later, another bold executive, Rob Kleinbaum, penned a similar appraisal: "GM’s decision making processes need serious revamping. Despite improvements, most meetings are still exercises in procrastination, rubber stamping or idea killing, without anything that would pass for genuine debate and dialogue. Dealing with complex issues requires genuine discussion, feedback, and intellectual engagement."

Most explanations for General Motor's collapse agree that the company's culture discouraged critical thinking and open debate. This was not the only problem, but it undermined attempts to solve other problems, because the organization's ability to think clearly was crippled.

Contrast this with a story of another company that needed to challenge conventional wisdom to succeed - Intel.

In the microchip industry, faster always meant better. At least until the chips got so fast that they couldn't operate without overheating. Most companies designed elaborate cooling systems to compensate, but Intel's Israeli team of engineers had other plans. They realized that the cooling mechanisms could only help up to a point, were clunky, and used too much power. After months of experimentation and debate, they developed a chip with the equivalent of gears on a car. It could perform at high levels with lower speed. This breakthrough innovation promised to revolutionize the entire industry.

When they pitched the idea to Intel's corporate executives, they met a wall of resistance. No one thought they could sell a technically "slower" chip, when all their competition was focused on speed. The Israelis had the guts to persevere and ultimately convince their bosses to go ahead with their project, and it was a wild success for the company. The technology they invented is now the new industry standard.

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The difference between winning and losing starts with an organization's dedication to the truth - no matter what the consequence to egos or hierarchy.

Chutzpah is a Hebrew term, roughly meaning "audacity" or "gall". It takes serious chutzpah to challenge the thinking of those senior to you, if they are incompetent. Prudent leaders encourage dissent.

In the Israeli military, junior officers often disagree with their superiors in ways that would surprise even the most progressive American officer. It's not a sign of disrespect - it's a shared cultural value. They understand the importance of the free flow of ideas. They maintain a healthy distance between their ideas and their ego.

If you're possessive of your idea, then an attack on it is an attack on you. You'll do everything you can to defend it, even though it may be wrong. This places far too much importance on ideas. Despite what we often hear, it's not the idea that matters, it's the result. If you have a team striving to achieve a common result, they'll ruthlessly abandon ideas that don't work in favor of ones that do - ones that are closer to truth.

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How To Nurture A Culture of Chutzpah in Michigan

Education shapes culture. We should design a public education system that intentionally develops high-chutzpah individuals.

Extra-curricular activities like debate gives kids a healthy tolerance for argumentation. If you aren't used to it, debate is emotionally challenging. Over time you learn how to argue without taking it personally.

This is a good first step, but debate isn't enough by itself. For all it's merits, debate doesn't foster a dedication to the truth. You simply learn how to defend a point - any point. Without a firm hold on reality, you end up with a bunch of people arguing in a room about, well, nothing.

To remedy this, we should combine debate with exercises that have groups of students solve complex yet concrete problems. One example is the classic egg-drop experiment, where you have to design a mechanism that allows an egg to survive a two story fall. If you have a group of kids arguing about the best way to build protection for the egg, they ultimately have to reach a compromise and test their idea. The egg either breaks or survives, and the kids learn to value the truth higher than the ideas of the most persuasive speaker.

These are just two initial ideas, but my main point is that it's possible to design a system that intentionally develops a specific type of culture. We're not powerless. If we get serious about this effort, I'm fairly certain Michigan would become a talent hotspot. The economy of the future depends on knowledge and innovation, and the place with the best talent will also be the most prosperous. I would love to hear a discussion on how Michigan can intentionally develop more chutzpah in it's talent.

The Future of Business is Small

In the past, companies had to be big because they had to in order to stay organized. Communications and transportation technologies were slow and expensive, so they needed a hierarchical chain of command to maximize efficiency. You can't have an open discussion about an important business decision very well via snail mail.

Another reason bigger used to be better is that there were fewer competitors and they were mostly producing physical objects of some sort. If you sold 100 widgets a day, you could beat out the guy selling 10 widgets a day on sheer scale, because there wasn't much possibility for differentiation of the products. They just had to work.

But now, product differentiation and company flexibility matter a lot more.

The number of businesses has increased vastly, therefore, the number of choices have increased with it. All those choices have made a crowded marketplace, and it seems to me that people are less and less satisfied with a product just being a good deal. They want the product to stand out, to have good design, to meet some special niche need, and on top of that, they also want it to be cheap and they want it to work. When a product stands out it gives people a reason to not have to sort through every last boring alternative to see which one is marginally better.

Think of Apple for example. Mac computers cost more on average than their PC counterparts, but people still buy them. Why? They perform the same tasks as a PC but they do it with style. They are fun to use as works of art themselves, not just a means to some end.

I'm sure a lot of people will say, "You're just describing the luxury market, nothing has really changed." This is part true, but I think that we shouldn't underestimate the momentous shift caused by the internet. Before, branding was an expensive thing, you had to pay for advertising which was really expensive. Now, any company can make a snazzy looking product and advertise and brand it themselves online for much cheaper. We're seeing a branding arms race. People want to be a part of a community and companies want communities formed around their products. The internet is enabling this to happen to a greater and greater extent.

So back to my initial thesis, that the future of business is small. The reason I think we'll start to see a trend toward leaner business is that people are starting to reject mass-advertising. Friends are much more trustworthy than some marketer. With the internet, it is becoming easier to rely on real connections with people we trust to make purchasing decisions. I'm describing businesses that are more like movements. They are smaller and more flexible, so they can always outpace their bigger rivals when the markets shift. They'll be able to stay on top of trends. They'll have a more loyal customer base. They can get in touch with suppliers through similar social networks, rather than the traditional good-ole-boy network. These suppliers can come from anywhere in the world.

The global market is getting a lot more competitive, and the products that stand out, and are made by lean companies will win.