Stupid Survives Until Smart Succeeds

‘We were wrong, terribly wrong,’ wrote Robert S McNamara 30 years after the Vietnam War ended with the fall of Saigon. ‘We were wrong,’ said John Doerr, the Michael Jordan of venture capital, admitting his mistake in turning down Twitter. ‘We were wrong,’ explained Edgar Bronfman, boss of Warner Music, accepting the error of going to war with consumers. ‘We were wrong,’ claimed Ofra Strauss, chair of one of Israel’s largest dairy manufacturers, confessing that competition was causing problems.

It can be hard to say you’re wrong. The challenge is to realize what’s wrong before it’s too late to put it right, and before the unintended consequences of a wrong decision become unwelcome and unmanageable.

Yet for many, many reasons, we find it difficult as individuals to see our errors once we have committed to a certain course of action. And we can find it even more difficult if we have made the wrong decision with other people who share the same biases and self-interest as we do in not seeing our errors.

In 1958, Pedro Bach-y-Rita suffered a severe stroke and collapsed. Aged 65, he was a professor of Spanish at the City University in New York. The damage to Professor Bach-y-Rita’s brain was massive. Disturbance in its blood supply destroyed parts of his brain functionality. After his stroke, he was hardly able to speak or move; his face was paralysed along with half of his body.

Helpless, he was confined to a wheelchair by his doctors. The prognosis was hopeless. His sons, one a doctor, Paul, the other, George – still at medical school – were told that there was nothing that could be done for their father. The damage to his brain could not be repaired and would not heal.

The original plan was for him to rehabilitate at the American British Hospital in Mexico. After four weeks he was still unable to move. The treatment ended at that point because it was not believed that long-term rehabilitation could improve stroke sufferers. George brought him back home and decided that there was still progress to be made.

He decided to teach his father to crawl basing his approach on how babies learn. He explained to his father how they would start from the beginning again. They bought kneepads and they got him to crawl supported by a wall for several months. Then he moved to crawling in the garden which led to disapproval from the neighbours who felt it was undignified.

They would play games, rolling marbles for him to catch, or throwing coins on the floor for him to pick up. Gradually he improved. He learned how to sit down and eat with his son. He moved from crawling to shuffling on his knees. He learned to stand again and walk unaided.

After three months of practice his speech began to return. A few more months he started to type. Within 12 months, the professor was back teaching full-time in his old job at City College. He continued until his retirement at 70 whereupon he got another job in San Francisco and remarried. Seven years later, he climbed a mountain in Colombia, suffered a heart attack at 9,000 feet and died aged 72.

His brain had found a way of adapting.

The story is remarkable enough as an example of human adaptability but the results of the autopsy revealed much more. The damage to Pedro’s brain was much more extensive than thought. And the lesions had not healed. Ninety-seven per cent of the nerves that connect the spine to the cerebral cortex had been destroyed.

His brain had found a way of adapting. It had reorganized itself to change the function of parts to replace the functionality of damaged parts. The constant work with George had given his brain the prompts to use existing tissue in new ways. Upon making the discovery, Paul returned to medical practice, retrained and dedicated his working life to understanding better how to stimulate the natural adaptability of the brain.

This area of study was not entirely new; the idea first appeared in 1890 from a psychologist named William James but it had been pretty much ignored for 50 years. It waited for a name until the 1950s when neuroscientist Jerzy Knorski coined the term neural plasticity. Until the 1970s the accepted view was that the nervous system, including brain functions, was fixed.

The brain could not repair itself nor be repaired. Only the work of scientists like Paul Bach-y-Rita changed the majority view. He demonstrated that parts of the brain that usually do one thing can be retrained to do something else entirely. In one demonstration, images from a head-mounted video camera are sent to the tongue of a blindfolded volunteer. The camera sends enough visual information to allow people to catch balls rolled towards them. They can’t see through their eyes. They can ‘see’ through their brains and it doesn’t matter whether the eye or a camera is sending the information.

Bach-y-Rita proposed a life cycle of plasticity where visible progress in adapting slows while invisible, deep progress adapting the brain’s connections continues. The lack of progress tempts therapists and patients to stop rehabilitation efforts at exactly the point that the brain-body needs to be stimulated. People severely damaged by strokes who had previously been written off as beyond help could now be rehabilitated by accessing the brains inbuilt adaptability.

The story is also about the adaptability of science, of human knowledge. It is a demonstration of how science seeks to disprove its own theories in search of more and more useful theory.

Over the long term theory adapts to discovery, to evidence. But it can only do so if someone challenges existing limitations. For as long as any constraint is accepted, there can be no new knowledge that goes beyond it.

One of the more famous voices in how science adapts was Thomas Kuhn, a physicist by training, from Cincinnati, who published his best-known work in 1962 while at the University of California, Berkeley. The Structure of Scientific Revolutions argued that knowledge does not grow in a consistent way.

Paradigms shift from time to time to make new theories and discoveries possible. It was impossible for treatment of stroke sufferers to get beyond a certain point without a paradigm shift in the way that brains were understood. Neuroplasticity had to compete with the idea that brain tissue was fixed. Part of the competition is objective, based on evidence. Part is subjective, based on the assumptions that guide how the credibility of new theories is assessed.

The challenge then is to stay open to new paradigm shifts without becoming obsessed with the new, new thing at the expense of progress. The new way of looking at situations isn’t necessarily better than the old way. But to avoid new thinking is to reduce the effectiveness of adaptation. Unhelpful, unworkable, illogical, even false ideas can survive simply because people are not ready to listen to a smarter alternative. And it’s a lesson that is useful to any kind of adaptive effort: be open to the absurd and insignificant.

In 1995, CEO Robert DiRomualdo had every reason to feel pleased. Under his leadership, bookseller Borders had grown from just 31 stores to more than 350 units, and from $59 million to nearly $1.4 billion in sales. He was the darling of analysts. Even better, the company was on the verge of breaking away from the ownership of giant retailer Kmart. He would be in complete control of his own future. He had never heard of Jeff Bezos. It would be 18 years before that seemed like a huge mistake.

Amazon.com went live in 1995, just five years after the World Wide Web was invented by Tim Berners-Lee. It was part of its founder’s ‘regret minimization framework’ through which he pushed himself to jump into the internet boom of the late 1990s.

Back then there were only 16 million web users; today there are over 2 billion. It was hugely exciting to early adopters but to 99.6 per cent of the world it was just another techie thing for computer geeks. This year, Amazon had $45 billion in sales and is only 18 years old.

Back in 1917, Barnes and Noble were also innovators. It was a start-up partnership between William Barnes, son of the owner of a book-printing business, and G Clifford Noble. The first store opened in New York City and specialized in the student book market. They adapted the concept of the cafeteria to create the booketeria, with a conveyor belt with payment taken by one employee, purchases recorded by another and wrapping by a third. They were an early adopter of ‘music by musak’ playing in the background interrupted by advertising. The flagship store had a staff of more than 300 and became the world’s largest bookshop.

Despite this early success, the company was sold in 1971 for $750,000 to Leonard Riggio, a young entrepreneurial book-selling genius from the Bronx. The company was in a slump so Leonard moved beyond textbooks to all non-fiction and beyond students to the general public. He improved the buying experience by creating new more specific categories (a revolution at the time and introduced a children’s section.

These early improvements led to growth. And the success encouraged Riggio to do something bigger. He decided to go for something dramatically different by becoming the first to adapt the supermarket model to book-selling. B&N were the first bookstore in the USA to advertise on television and the first to discount bestsellers in a pile-them-high, sell-them-cheap approach. His book warehouse spanned three buildings and was soon full of customers filling their shopping carts with bargains they might never read.

While Riggio was innovating aggressively at 20 locations, Tom and Louis Borders opened their first store in Michigan. Both students at the University of Michigan, they decided to sell books to the academic community. Over the next few years, they opened four more bookstores, two in Michigan, one in Indianapolis, and another in Atlanta. They had reached $32 million in revenue, and wanted to go much further.

Where Barnes & Noble had Leonard Riggio, the Borders brothers found Robert DiRomualdo. He was a young guy with a Harvard MBA and lots of experience working his way up to become CEO of Hickory Farms, the US food chain. And in 1988, he joined a book-selling industry that was experiencing never-before-seen demand from customers who seemed to have an insatiable demand for discounted books. Borders quadrupled in size over the next four years, and had become a book-selling phenomenon by 1992.

Instead of floating the company on the stock exchange, the brothers decided to sell to the Kmart Corporation. Over the next year, sales reached $224.8 million and the company continued to become more corporate. They gained modern cash registers, a department of human resources, formal training programmes, and a music department. They also developed what many described as the industry’s most advanced inventory management system that identified 55 different seasonal patterns.

Within three years, sales of the Borders group were $1.5 billion. They had become a national chain while still keeping, and rewarding, many long-term employees. Most of their people were college graduates and took pride in their ability to deliver the kind of first-class, knowledgeable service customers want and act upon. The Borders concept grew ever larger to the quivering delight of analysts. By 1995, they had 88 superstores; awesome, multi-million-dollar temples for worshippers of literature, music and coffee. The average store stocked more than 128,000 book titles and 57,000 music titles and cost over $2.6 million from decision to opening ceremony.

2006 was the last time the company made a profit. Over the next four years its sales reduced by $1 billion dollars. Eventually it got to the point where each day they were in business they lost money. A succession of chief executives with no book-selling experience attempted various desperate measures without ever getting ahead of the situation. They were never able to understand what was happening and what had to happen well enough to adapt fast enough to survive.

Before the end of 2011, Borders had ceased to exist. It went into bankruptcy protection with $1.2 billion in assets against $1.3 billion in debts and no way to borrow more money. By the end of September, all 19,600 employees had lost their jobs and every store had either been sold or abandoned. Not one of the last four CEOs helped the company to adapt any faster or better.

There was CEO Phillip Pfeffer who lasted five months before resigning in 1999. He was the last bookseller to manage the company. CEO Ron Marshall forced experienced senior managers out and closed down the international divisions, shutting down the benefits of operating in faster-growing economies. He did all that in a year and then quit.

Employees witnessed interim CEO Michael Edwards leading the company near to the bitter end. And finally, venture capitalist CEO Bennet S LeBow, who thought he could buy and sell the company for a profit and failed. None of these men was able to know the problems of the company and the shape of the solution well enough to solve them.

People always know.

At some point, events will prompt someone in a group, organization or profession to think about adapting to get ahead of future events. It might be anyone at any level or in any role; hierarchy can be inversely related to insights about the future.

The further people are from the prodding stimulus of the environment, the less pain they feel. Even if they experience some discomfort, they may find it difficult to know what specific adaptations to make because they can’t feel the specific demands of the situation.

People always know. The problems that shock analysts and stock markets are rarely a shock to the rest of the organization.

Unfortunately, both insights and dissatisfaction may simmer for years, without reaching boiling point. This is particularly true if they are at a level below internal power and influence, outside the select group who get to make the biggest decisions about the direction of the company.

The problems started years before the crisis. Kmart tried to force Borders to sort out its struggling acquisition, Waldenbooks. As a result, many Borders management resigned. They weren’t stupid and couldn’t see how they could thrive with the challenges of turning around a problem company. It would slow down their time to adapt.

When Greg Josefowicz became CEO in 1999, the situation didn’t look bad financially but the situation was changing at a deep level. He had spent 30 years at a supermarket chain and did not seem to understand how relentlessly the competition was adapting itself and disrupting the market. Even after six years, he didn’t solve the integration of purchasing systems between Borders and Waldenbooks. And the lack of integration meant that the company became slower and slower at adapting.

Great ideas didn’t happen because they were impossible without state-of-the-art computer systems.

In a blunder of epic proportions, the new CEO shut down their newly launched online bookshop after just one year in operation.

Yes, it was late. Six years behind Amazon, 12 months behind Barnes & Noble. But shutting it down and replacing it with a co-branded version of the Amazon.com website? The decision handed over the next seven years of learning to their key rival. The technologies, the patents, the recruitment of talent, the knowledge of customer patterns and needs, and the view of the future were all cut off.

Book-selling had never really been about bricks and mortar. It had always been about sharing authors’ ideas in ways that customers were willing to pay to enjoy. Barnes & Noble understood.

They were slower than Jeff Bezos at recognizing how the web would shape consumer behaviour, but they still took barnesandnoble.com public within two years of amazon.com.

That’s impressive catch-up adaptation. As a result of still playing the game of adaptability against amazon.com, they still kept learning from experience and their competition. It’s one of those positions where each rival benefits from moves designed to get ahead of a rival. Together, and with others in the industry, including Sony and Apple, they are growing the market. Together with the other players they are moving further ahead of non-players.

So while amazon.com were first to develop an e-book reader – the Kindle – barnesandnoble.com were still able to bring out a viable alternative – the Nook – within a couple of years. Borders took another year to even start selling e-books. The service was provided by a third party. And they never did develop an e-book reader of their own. The difference is significant, more than enough to slow or stop any effective adaptation.

Every situation provides information.

Every situation provides information. If you know what the situation is demanding then you can try to adapt but the connection between situation and response can be damaged.

The connection can get slower. It can stop working. Or it can send distorted signals. A disconnect between what the situation needs and what is done can become permanent. You can have a chronic mismatch between situation, intention and action.

In 1969, Bach-y-Rita had a short article published in the journal Nature. He described a 400-lb device that allowed people born blind with damaged retinas to see. His machine performed miracles but so absurd were his claims that the story was largely ignored, his papers rejected.

In 1994, DiRomualdo appeared unaware of the opportunities in the insignificant world of internet retail, and settled for playing a losing game. The idea that people would buy their books sat at personal computers and via mobile phone was absurd. Until they weren't.

Human brains and human society are plastic, they actively try to rewire and reconfigure. What we call competition is only part of this; the bigger picture is that our adaptation to new forms is a deep but imperfect ability ??

??Audiobook: Adaptability: How to Win in an Age of Uncertainty)

??Adaptability: Table of Contents

??Read More about Thinking and Acting Strategically Here