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I’m finally getting around to reading The Innovator’s Dilemma from Clayton Christensen, though I’ve heard the branded term enough to understand the general gist of the book.

Two pretty choice quotes that I’ve liked a lot from just the first few pages of the book:

There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.

And a similar, though perhaps more descriptive, quote:

First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies. By and large, a disruptive technology is initially embraced by the least profitable customers in a market.

The New York Times has an intriguing look at the widespread attitude of ‘lending at all costs’ that drove Washington Mutual to incredible growth and, subsequently, disastrous failure.

My favorite quote from the piece:

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

While in retrospect WaMu’s behavior as an organization was greedy and short-sighted, there is actually very little unique about the seemingly systematic misbehavior at the bank. As I was reading about WaMu, I was struck by how the pattern of increasingly dysfunctional behavior within the organization was, in reality, remarkably similar to other organizational failures.

As Diane Vaughan wrote in The Challenger Launch Decision, there are often very logical progressions within organizations that result in corner-cutting and risk-taking. In the case of Challenger, external pressures and internal culture/politicking led to systematic deviations from procedural norms. In other words, the organization made risky trade-offs to meet its goals.

In WaMu’s case, the motivating factor was even simpler: getting paid. Considering that financial incentive was introduced both at the organizational and personal levels within the company, it’s really not unexpected that WaMu would willingly (or naively) accept unreasonable risk for seemingly greater reward.

The truth is that organizations make fundamental decisions about their own risk profiles on a continuous basis. In the cases of both WaMu and the Challenger launch, clear-headed people would argue that the risk/reward structures were measured incorrectly at an organizational level. WaMu as a company, with all of its risks, was so unlikely to succeed over time that “the bet” was clearly a bad one. In poker, we would say that it was a dramatically ‘Negative Expected Value play’.

And that leaves the question of whether WaMu executives were stupid or just personally greedy. If they made such lax decisions for the organization believing that they would be successful long-term, then we could simply label them as stupid (and incompetent at recognizing risk/reward). Case closed. If, however, they made such lax decisions knowing full well that they could likely result in significant disaster, then the only rational reason for continuing on that path would be their own personal financial gain.

Fundamentally, the issue is proper alignment of incentives – would WaMu executives have operated in the same way if their own personal financial stability was completely tied to the long-term success of the company? One would hope not.

But then again, maybe they were just actually stupid, in which case they probably wouldn’t have changed a thing.

Just finished reading an interesting (and, frankly, tragic) biography, titled American Prometheus: The Triumph and Tragedy of J. Robert Oppenheimer. The authors (Bird and Sherwin) pull together a herculean breadth of biographical information about Oppenheimer’s life and wind it into a careful look at a complex man.

A few things really stand out to me from the biography:

• The power of Oppenheimer’s personality as a scholar, a scientists’ scientist and, later on, as a polarizing political intellectual with great moral breadth. Reading about his depth of personal interests provided a roundness to him that we don’t usually imagine about brilliant scientists.
• The complicated moral implications of fathering the atomic bomb. It would be simple and convenient if Oppenheimer had simply come to categorically regret building the bomb, but his emotions on the matter were much more nuanced and complex. His perspective could be described as some mixture of fatherly pride, moral regret, resigned disappointment (in Truman and others), and accepting responsibility.
• The chilling parallels between the atmosphere of the McCarthy era, of which Oppenheimer was the most prominent victim, and the current U.S. presidential administration
• Lastly, the minor character flaws of Oppenheimer that, combined with a Shakespearean cast of politically-connected enemies that he built over the years, ultimately led to his effective exile from American policy. Here was a man of tremendous intellect and breadth of knowledge – it was almost as if he had no time for the political sensitivity that would have kept him safe

Bird and Sherwin do a great job of objectively walking through the life of a great American hero and tragedy. You end up with great admiration for both the brilliance of Oppenheimer and the subtle job by the authors in examining Oppenheimer’s own character flaws.

a couple of years ago, i remember reading a business week article on “The Revenge of Steve Wynn.” it was right as the new wynn resort was opening and, in reading the article, i found myself wondering what the back-story was. namely, it seemed like there must be more intrigue around the wrestling of mirage (bellagio, mirage, treasure island, etc.) from wynn’s hands. after searching around on google for about five minutes, i couldn’t find anything interesting and dropped it.

fast forward to last weekend in portland, when i happened upon this somewhat unauthorized biography of steve wynn, “running scared… steve wynnwhile browsing at powell’s.

basically, steve wynn is a crazy man. i thought the book was an effective biography, but really the most interesting parts were the wild ’steve wynn is buddies with the mob’ sections. i ended up blowing through the thing in less than a week; the casino business is friggin crazy…