Excerpt from the book DEEP SMARTS: How to Cultivate and Transfer Enduring Business Wisdom By Dorothy Leonard and Walter Swap.
Deep smarts are the engine of your organization. You cannot progress without them, and you will manage more effectively if you understand what they are, how they are built and cultivated, and the ways they can be transferred. Throughout your organization are people whose intuition, judgment, and knowledge, both explicit and tacit, are stored in their heads and-depending on the task-in their hands. Their knowledge is essential. They are, relative to others, expert. These are the people with deep smarts, and it is not an exaggeration to say that they form the basis of your organizational viability.
There are many reasons for us to be concerned about identifying, nurturing, and transferring deep smarts. We face change of all kinds, at an unprecedented rate-and the nature of that change grows more unpredictable daily as technology expands options and global events complicate decision making. We need leaders with high levels of judgment, experience, and capability, as we have seen how profoundly even a few individuals lacking such abilities can influence the course of our lives and the lives of our organizations. We also know that in the coming decade, because of demographic shifts, the so-called developed nations are about to face a large shortfall of leaders and managers. We need to grow new ones, at all organizational levels, as expeditiously as we can. But we need people with deep smarts, not just high IQs.
More than forty years ago, Peter Drucker wrote: "It is only in respect to knowledge that a business can be distinct, can therefore produce something that has a value in the market place." But not all knowledge is created equal. The knowledge that provides a distinctive advantage, both for organizations and for managers as individuals, is what we term deep smarts.
Deep smarts are a potent form of expertise based on firsthand life experiences, providing insights drawn from tacit knowledge, and shaped by beliefs and social forces. Deep smarts are as close as we get to wisdom. They are based on know-how more than know-what-the ability to comprehend complex, interactive relationships and make swift, expert decisions based on that system level comprehension but also the ability, when necessary, to dive into component parts of that system and understand the details. Deep smarts cannot be attained through formal education alone-but they can be deliberately nourished and grown and, with dedication, transferred or recreated.
We cannot afford to leave the accumulation of deep smarts to chance and random experience. Rather, we need to be purposeful in our approach. Many current management practices, particularly the ways we try to transfer deep smarts, are ineffective. We unintentionally stunt the growth of this brand of expertise when we fail to differentiate between the kinds of knowledge that can be transmitted as fast brain food and those that need marinating and slow cooking.
What Do Deep Smarts Look Like?
We know we are in the presence of deep smarts when we see an expert quickly size up a complex situation and come to a rapid decision- one that proves to be not just good, but wise. After we have seen someone do this a few times, we think of him or her as "really smart"-but we don't mean just their native intelligence, although they often have that in abundance. We mean that we trust their judgment, that when many opinions are on the table, theirs have more weight with us. When we ask them a question, we have the sense that some powerful computer in their brains is rapidly sorting through relevant firsthand experiences, pieces of process knowledge, and evidence shaped by personal beliefs and interaction with other smart people to come up with a nuanced answer. So people with deep smarts have a different kind of expertise than those who deal exclusively with abstract problems (e.g., a theoretical mathematician). People with deep smarts address practical, real-life, and often urgent issues, and management is a field that requires this kind of expertise. Deep smarts are not infallible, of course. Even the most experienced expert can mislead or be misled-and we do talk about such hazards in this book. But this kind of special expertise is vital to organizational well-being.
Let us look briefly at a couple of situations that show deep smarts at work-without suggesting that these vignettes demonstrate all the aspects of deep smarts in depth. (That's what the rest of the book is about.)
Deep Smarts in the Boardroom
In early 1997, Intuit reached a critical crossroads in its life. Best known for its financial planning product, Quicken, the company had just sold off its bill-paying operations. As the board met to consider a new strategic direction, there was little dissent about the strategy itself-but a lot about how to finance it. Because of a shortfall in revenue, the sentiment around the boardroom table was that the company could not meet its earnings commitment either for that quarter or for the foreseeable future. Board members were further resigned to an inevitable drop in stock price when the earnings were announced, from the current US$22 to somewhere between US$13 and US$15 a share. However, they believed that it would be worthwhile to continue to miss earnings and invest in the new strategy.
Drawing on years of experience with a variety of companies and resulting deep smarts, then-CEO Bill Campbell argued passionately against this fatalistic viewpoint. Wall Street analysts, he argued, had already discounted the slower growth and the resulting decline in the top line. Lower revenues would not hurt the stock price. But deliberately deciding midway through the quarter to miss earnings was contrary to all good management practices. Perhaps even more important, he pointed out, if the stock dropped, employee options would be worthless, and some critical individuals might well leave the company. Such defections could hurt the company even more than the financial blow per se. It was pure bullshit that they could not spend money on new initiatives and still make the bottom line! He knew how to cut costs-and where to start. Campbell's smarts prevailed. Not only could he detail where he would change operations, but he also understood the big picture, the financial environment. He could foresee Wall Street's reactions as well as those of his employees. Finally, he was savvy about how to influence his board members. The next few months were to prove him right. Management cut expenses, hit their quarterly financial targets, and the stock stayed steady. The course set out that day was successful for Intuit, and Campbell's promise to employees that the stock would double within a year was fulfilled. Deep smarts like these not only enable those who possess them to act with conviction but also to convince others to follow their lead.
Now consider another person who has to make decisions based on inadequate information and experience-based intuition for a living.
Deep Smarts in Venture Capital
Vinod Khosla has been described as "perhaps the best VC [venture capitalist] on the planet." He has helped create more than forty companies, including several that brought him billions in personal wealth. What deep smarts enable him to see opportunities where others don't? In November 1995, Pradeep Sindhu approached Khosla with a "typically techie" idea: use algorithms to reduce the cost of memory and increase the speed of computing. Good idea? Not if one simply extrapolated from existing current markets. Cisco Systems was already well entrenched, selling to corporations; telecommunication carriers were uninterested in high-end routers as they had plenty of computing power for any needs they could foresee.
Here is where Khosla's deep smarts came into play. From his experience as a cofounder of Sun Microsystems (and his work with start-ups thereafter), he knew that you can't look at customers' current solution sets to figure out what they will need next. Sun owed its existence to the inability of contemporary computer companies to look beyond their current customers' demands. Digital Equipment Corporation, for one, had passed up the opportunity to license from Stanford University the technology underlying distributed computing-and their loss was Sun's gain. Khosla believed that you need to look for changes in the assumptions underlying current businesses and technology: "Value creation points occur during transitions." So Khosla's reaction to Sindhu's proposition was: Forget corporations as customers. This technology isn't enough of a differentiator. But what if the Internet really took off? What if the public started sending huge quantities of data around? Then there would be a need for different services (i.e., he foresaw the exponential growth of companies like AOL). Such services would require a different type of router, and that was an interesting application. "It's not a quantitative analysis, but a qualitative run through the model," he explains. From these insights was born Juniper Networks.
These two examples are drawn from leaders at the top of organizations. But deep smarts can be found at any level-and may lie unrecognized until those possessing them have departed. Nor are managers the only ones with such smarts. There are dramatic instances of individuals who lead in knowledge but who may not possess formal, hierarchical power.
Consider the contribution of the scientist in the following anecdote.
Deep Smarts in Product Development
In the early 1980s, two companies producing tactical missiles were competing for a U.S. government contract that would net the winner billions of dollars over the thirty to forty years of expected weapons production. After each competitor had fired six working prototypes, it was clear that neither company had an edge; both missile designs fell short of the required performance. At this point, in one of the companies, a scientist with deep smarts intervened. Although he was not a member of the project team, he had more than twenty years' experience developing missiles and had heard about the difficulties encountered in the test. Calling together the primary project participants in an auditorium, he proceeded to awe them over several hours with a proposal for detailed changes that he had worked out by himself, in one week of concentrated effort. Methodically, and without notes, he walked them through the redesign, from the weapon point to its aft, explaining all the interdependent software, wiring, and hardware changes that would be required to win the competition. The implications were immense. The redesigned missile would require as many as four hundred people working up to a year and a half to get it ready for production. But his changes were supported and the company won the contract. More than twenty years later, it is still reaping the harvest sown by a man with deep smarts about the entire missile as a system.
Applying Deep Smarts to Organizational Knowledge Gaps
The process of specifically building and transferring deep smarts aims to address knowledge gaps in the organization. A knowledge gap is, quite simply, the difference between what someone knows (and knows that she knows) and what she needs to know in order to accomplish some task with competence, if not expertise. Knowledge gaps may be chasms or cracks. They exist anytime and anywhere in our organization (or our private lives) when background -education, upbringing, life experiences-is insufficient for making wise decisions or taking effective action.
Consider the following examples of knowledge gaps that require the cultivation and transfer of deep smarts.
The Jet Propulsion Laboratory (JPL) needed to pass along the understanding of why Mars Pathfinder missions conducted under the mantra of "better, faster, cheaper" succeeded or failed-but 40 percent of their experienced managers were about to retire. With them would go years of experience, judgment, and intuition. In fact, a number of managers believed that many JPL failures could be traced to a knowledge gap among inexperienced project managers-and some of those younger managers agreed with the assessment.
Brad Anderson, CEO of the highly regarded retailer Best Buy, decided that the sustained success of his company depended upon building an internal, employee-based capability to innovate continuously. He didn't want a new department, segregated from the rest of the company, but an innovation process that would permeate the organization and guide strategy. However, although his employees were extremely bright, hard-working, and terrific at delivering on set goals, innovation had never been made part of their job description. Exhortation would not change the DNA of the organization. Anderson needed to have some deep smarts about the innovation process transferred into the firm.
Venture capitalists Beckie Robertson and Sam Colella needed to "grow" a smart young entrepreneur, Benjamin Wayne, into a CEO who could take over start-up Collabrys and grow it quickly, before it was overwhelmed by the competition. Despite his youth, Wayne had a fair amount of relevant experience, but the company was formed to take advantage of the Internet-and both the technology and the market were evolving at a fast pace. The venture capitalist coaches had a lot of deep smarts about forming and growing companies; they had next to none about this new technology.
Three different situations; three different problems. But what all have in common is the need for deep smarts-to cultivate them and transfer them from relative experts, acting as knowledge coaches, to people with less experience so as to fill a knowledge gap.
Excerpted by permission of Harvard Business School Press. DEEP SMARTS: How to Cultivate and Transfer Enduring Business Wisdom by Dorothy Leonard and Walter Swap. Copyright 2005 by Harvard Business School Publishing Corporation; All Rights Reserved.