Chasing the Rabbit

Chasing the Rabbit:How Market Leaders Outdistance the Competition and How Great Companies Can Catch Up and Win,

by Author Steven Spear
Foreword-Clay Christensen

The term theory gets a bum rap among most managers because managers are practical people and theory normally is associated with the word theoretical, which has a connotation of impracticality. However, a good theory is consummately practical because a well-researched theory is a contingent statement of what causes what and why. The law of gravity, for example, actually is a theory. It is extremely useful because it allows us to predict in advance, without having to collect experimental data, that if we step off a cliff, we will fall. Good theories allow us to predict the result of an action accurately.

Even though most managers do not think of themselves as being theory-driven, they are in reality voracious consumers of theory. Every time managers make a plan or take an action, it is based on some theory or mental model in the back of their minds that leads them to believe that the action being taken will lead to the desired result. The problem is that managers are rarely aware of the theories they are using and often use the wrong theories for the situations in which they find themselves. It is the absence of conscious, trustworthy theories of cause and effect that makes success in building successful businesses seem random.

Because of the central role good theories play in bringing predictability to management and innovation, I’ve spent a good portion of my academic career studying what good theories are: How can I tell a good theory from a bad one when I’m looking at it? I’ve tried to help researchers learn how to build valid theories that managers can rely on so that their actions have the desired effects. Unfortunately, as our understanding of the theory-building process has coalesced, the report card on most of those who research and write about management has been abysmal. The preponderance of what is written for managers about management is bad theory and should not be trusted. I’m not the only one who has reached this conclusion: Professors Jeffrey Pfeffer and Robert Sutton at Stanford and the late Professor Sumantra Ghoshal of the London Business School have written eloquently about this problem. Professor Phil Rosenzweig at the Institute for Management Development in Lausanne recently published The Halo Effect, a scathing, cogent, and compelling indictment of most management research.

A happy and humble young man named Steve Spear walked into this paucity of sound management theory about 12 years ago as a doctoral student at the Harvard Business School. He was fortunate to have been taken under the wing of Professor H. Kent Bowen, one of the world’s foremost materials scientists, for whom the scientific method of building robust theory was second nature and whose discouragement with the state of management research mirrored my own. The puzzle Bowen and Spear decided to unravel was intriguing. Despite Toyota’s openness and all that had been written about the “secrets” to its success, no other company had been able to replicate Toyota’s achievements in profitably making its cars continuously better and cheaper (when adjusted for quality and performance improvements). Their hunch, which proved right, was that prior students of Toyota’s methods had observed “artifacts” of the system such as lean (low-inventory) manufacturing and just-in-time “pull” scheduling of production. However, those researchers were measuring correlations between a factory’s possession of those attributes and its performance. No scholar had unearthed the causal mechanism that led to what Steve ultimately termed a self-improving system.

Whereas many business researchers prefer to collect data from the Internet or from easily accessed databases so that they can analyze the data in the comfort of their offices, Steve essentially got himself employed in the factories of Toyota and its suppliers and competitors to learn from the inside out and answer the question, “How do these guys think when they design and improve a process?” Steve’s interest wasn’t just in fabrication and assembly processes. It spanned processes such as training people, designing products, building management strength, and maintaining equipment as well. Every evening, Steve returned to his room and painstakingly chronicled everything he had observed.

Out of that extraordinary detail, Steve distilled the mental models and frameworks that the people at Toyota instinctively followed when they designed, used, and improved a process of any sort. Those things weren’t written down anywhere, yet people seemed instinctively to follow them as if the rules were tattooed on the backs of their hands. Nobody—not even Toyota’s most senior managers—could articulate those cultureembedded instincts. Yet when Steve described them, they instantly agreed that those instincts were guiding their actions. Steve had uncovered the fundamental causal mechanisms underlying the success of the Toyota Production System. I honestly think that history will judge Steve Spear’s doctoral thesis to have been the finest, most impactful thesis ever written at the Harvard Business School, and that includes my own doctoral work on the phenomenon known as “disruptive technology.”

We were blessed that the Harvard Business School invited Steve to join the faculty so that Professor Bowen and I could continue working with him as a colleague.

As the great historian of science Thomas Kuhn taught, the key to developing a theory that is valid internally and externally is to seek anomalies, to find instances in which the present explanation of causality does not yield the results that the theory predicts. In contrast to researchers who believe that a theory is strengthened by the finding of more and more examples in which the theory works to get ever-higher levels of statistical significance, the scientific method requires researchers to search for instances in which the theory does not work. That is what Steve did next.

To this point, those who had studied the artifacts of Toyota’s system had convinced us that the system was useful only in industries in which physically discrete products are manufactured. In an anomaly-seeking mode, Professor Bowen and Steve decided to see if the frameworks they had uncovered, which came to be called the “DNA of the Toyota Production System,” could lead to similar results in a dangerous, complicated, capital-intensive process industry such as aluminum production, which is about as far from the assembly of transmissions as one can get. There was nothing to study passively in this stage of Steve’s research, because no company besides Toyota was following those rules. Therefore, Spear and Bowen taught the rules to the executives at Alcoa and helped them teach and reteach them throughout their company. The management then applied the rules to the redesign of all sorts of processes in the company under the name of the Alcoa Business System (ABS). The results were astounding. In an industry in which nobody had thought that Toyota’s methods were applicable, the company continues to report that its annual savings from applying ABS exceed $1 billion. Because Steve had gone beyond observing the statistical correlation between attributes and outcomes and had articulated the fundamental engine of causality; the rules worked like a charm in this polar-opposite industry.

To help with Steve’s ongoing efforts to find a very different industry in which the Toyota DNA would prove not to be useful, Bowen and I next invited him to go to the other edge of the world with the following challenge: “The causal mechanism—the rules—clearly works in making cars, mattresses, and aluminum. I bet it doesn’t work in managing a horrifically complicated service business such as a hospital.” We then opened a few doors for him. Steve taught administrators in a small Boston-area hospital and then those in much larger ones in Pittsburgh what those rules are. He helped them teach their employees how to design processes that follow the rules and how to improve them with great haste when the initial design shows itself to be flawed. Again, the results were astounding in terms of errors avoided, costs reduced, and lives saved. Remarkably, Steve discovered that employees in those institutions were much happier working within the rules than without them because the rules made it easy for them to fix the broken processes that had made their work lives so frustrating.

Compared with the problems most people deal with, the contexts in which Steve has developed, refined, and tested his theories of continuously improving processes were bafflingly complex. Cars are made from 10,000 components, meaning that hundreds of thousands of things can go wrong. Aluminum is made with massive pieces of equipment that cost tens of millions of dollars and operate at temperatures, pressures, voltages, and speeds that aren’t just dangerous but take place at the edge of what the laws of chemistry and physics define as possible. Hospitals try to coordinate the work of thousands of people to save thousands of lives from a nearly infinite variety of medical conditions. Rather than proposing complex solutions to those complex systems, Steve breaks down the complexity. All these systems, at the “atomic” level, consist of activities, connections, and pathways. You get them right, and even unfathomably complex systems become high performing and self-improving. Steve did research by teaching people to take action, and the quality of his theories was measured in the billions of dollars in additional profits that have been earned, the accidents that have been avoided, and the lives that have been saved that would not have been if his rules had not been followed.

Steve continues to improve his understanding by searching for companies and industries in which the rules do not work, but so far he has been “disappointed.” The rules seem to be very broadly applicable principles of management. They are the causal mechanisms that, when followed, cause a company’s processes to keep doing better and better, whether they are processes for understanding customers, designing products that address customers’ needs, or making products at ever increasing levels of quality and ever-decreasing cost.

This book is not the sort of easy, entertaining paperback you can buy in the San Francisco airport and finish by the time you land in Boston. There’s no fluff here, no simple silver-bullet solutions to all your problems. But this is probably the most insightful book about quality and process that has ever been written. Steve Spear’s research passes every litmus test for good management theory. It is internally valid, meaning that its conclusions derive unambiguously from its premises and that all other plausible alternative explanations have been ruled out. It is externally valid in that it is applicable to companies in a broad range of industries that are very different from one another. What’s truly remarkable is that the validity of these ideas was not established by applying them to other data sets from the past. Instead, it was verified by applying these causal rules in companies that were not performing remarkably well and then seeing the quality, cost, and profitability of those companies’ products and services improve continuously as they learned to follow the rules. Thus, Steve can teach us not just what to do but how to do it. I count having been one of Steve Spear’s colleagues and advisers to be one of my foremost credentials.

I hope that from the pages of this book you’ll be able to learn from Steve even a fraction of the valuable insights I’ve gotten as I’ve worked with him. In his field he has no peers.

Clayton M. Christensen
The Robert and Jane Cizik
Professor of Business Administration
Harvard Business School
Boston, MA
July 2008

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Overview


Winner of the Shingo Prize for Research and Professional Publication, 2009

How can companies perform so well that their industry counterparts are competitors in name only? Although they operate in the same industry, serve the same market, and even use the same suppliers, these “rabbits” lead the race and, more importantly, continually widen their lead. In Chasing the Rabbit, Steven J. Spear describes what sets high-velocity, market-leading organizations apart and explains how you can lead the pack in your industry.

Spear examines the internal operations of dominant organizations, including Toyota, Alcoa, Pratt & Whitney, the US Navy's Nuclear Power Program, and top-tier teaching hospitals--organizations operating in vastly differing industries, but which share one thing in common: the skillful management of complex internal systems that generates constant, almost automatic self-improvement at rates faster, durations longer, and breadths wider than anyone else musters. As a result, each enjoys a level of profitability, quality, efficiency, reliability, and agility unmatched by rivals. Chasing the Rabbit shows how to:
Build a system of “dynamic discovery” designed to reveal operational problems and weaknesses
Attack and solve problems at the time and in the place where they occur, converting weaknesses into strengths
Disseminate knowledge gained from solving local problems throughout the company as a whole
Create managers invested in the process of continual innovation

Whatever kind of company you operate--from technology to finance to healthcare--mastery of these four key capabilities will put you on the fast track to operational excellence, where you will generate faster, better results using less capital and fewer resources. Apply the lessons of Steven J. Spear's and leave the competition in the dust.

Table of contents

1. Why We Need an Operations-Based Model of Competition
2. Competing through Capabilities + “Lean Manufacturing” and Its Discontents)
3. Managing Organizations to be the Ultimate Learning Machines: Capabilities of the Operationally Superlative
4. Capability 1: Designing Processes As Experiments to Reveal Problems
5. Capability 2: Solving Problems Experimentally to Generate Knowledge: Don’t Think, Do (Don’t Tweak)
6. Capability 3: Sharing Knowledge through Collaborative, Experimental Problem-Solving
7. Capability 4: Developing People through Coached Problem-Solving
8. Getting Started—Creating a Context Conducive to Experimental Learning
Biographical note

Steven J. Spear, four-time winner of the Shingo Prize and recipient of the McKinsey Award, is a senior lecturer at MIT and former assistant professor at Harvard. A senior fellow at the Institute for Healthcare Improvement, he is the author of numerous articles appearing in academic and trade publications, including the Harvard Business Review and The New York Times.
Back cover copy

Sprint to the lead in your industry--and stay there!

"Chasing the Rabbit contains ideas that form the basis for structured continuous learning and improvement in every aspect of our lives. While this book is tailored to business leaders, it should be read by high school seniors, college students, and those already in the workforce. With the broad societal application of these ideas, we can achieve levels of accomplishment not even imagined by most people."
The Honorable Paul H. O'Neill
Former CEO and Chairman, Alcoa
Former Secretary of the Treasury

"Some firms outperform competitors in many ways at once--cost, speed, innovation, service. How? Steve Spear opened my eyes to the secret of systemizing innovation: taking it from the occasional, unpredictable 'stroke of genius' to something you and your people do month-in, month-out to outdistance rivals."
Scott D. Cook
Founder & Chairman of the Executive Committee
Intuit, Inc.

"Steven Spear connects a deep study of systems with practical management insights and does it better than any organizational scholar I know. Chasing the Rabbit is a profoundly important book that will challenge and inspire executives in all industries to think more clearly about the technical and social foundations of organizational excellence."
Donald M. Berwick, MD, MPP
President and CEO
Institute for Healthcare Improvement

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