åå

Deep Smarts
In this issue: How to Cultivate and Transfer Enduring
å Realize... Business Wisdom
why the most valuable per-
formers are not necessarily
those with the most
impressive skills or highest by Dorothy Leonard and Walter Swap
IQs, but those who have

O
A summary of the original text.
deep smarts, or wisdom
based on experience.
ne of the most vexing and aid decision making.
å Exploit... problems that any busi- Then we'll look at how
the latest scientific research ness faces is the transfer of beliefs and social influences
that reveals how you can
build deep smarts in your-
knowledge. The literature is shape and influence deep
self and cultivate deep filled with examples of firms smarts. Finally, we'll exam-
smarts in others. that falter when key people ine how to transfer deep
leave. And as Peter Drucker smarts, and how to cultivate
å Consider... observed more than 40 years such wisdom in organizations
how your personal beliefs ago, knowledge is the key to and in ourselves.
and powerful social forces producing something of
can either help you to value in the marketplace. Let's start by taking a look
increase your deep at exactly what deep smarts
smarts, or prevent you from But not all knowledge is cre- are.
achieving your potential. ated equal. The knowledge
å Learn...
that provides a distinctive å=å
how you can transfer advantage, both for compa-
knowledge from the most nies and for managers, is BUILDING DEEP SMARTS
experienced people in your known as deep smarts. Deep THROUGH EXPERIENCE
organization to others who smarts are a form of expertise
are vital to the company's and wisdom based on long Everyone in business has had
future. experience. They give rise to the experience of seeing deep
special insights and an ability smarts at work. When you
å Improve... to make swift decisions that see someone size up a com-
your effectiveness by using cannot be nurtured through plex situation and come to a
simulated experiences to formal education. rapid decision, one that
confront problems and rec-
ognize patterns that you
proves to be not just good but
will face in the real world. In the following segments, wise, then you are witnessing
we'll learn what deep smarts deep smarts at work.
are and how to cultivate them.
å=å We'll see how to build deep People with deep smarts
Volume 14, No. 3 (2 sections). Section 1, March 2005
smarts through experience have more than just abstract
© 2005 Audio-Tech Business Book Summaries 14-05. and how to express that wis- knowledge. They address
No part of this publication may be used or reproduced
in any manner whatsoever without written permission.
dom to others. We'll look at practical, real-life, and often
the ways deep smarts can be urgent issues, and business
To order additional copies of this summary, reference
Catalog #3051.
assembled to provide synergy management is a field that
requires exactly that sort of
talent.
Obviously, no one springs
full-blown onto the business
scene in possession of deep
smarts. They are cultivated
over years of experience,
both good and bad, often
with the help of experts.
These experts act as knowl-
edge coaches to help people
with less experience fill gaps
in their knowledge.
Of course, the world is not
cleanly divided between the
two extremes of novices and
experts. All of us at some
times in our lives assume the
role of a novice who needs to
gain knowledge. If we perse-
vere in accumulating knowl-
edge and experience, we may
also take on the master's
role.
Most of us spend our profes-
sional lives moving up the
ladder of expertise. At the
bottom rung is the novice, or
beginner. With more experi-
ence, we reach the next level:
the apprentice, or intermedi-
ate level of expertise. Above
that level is the journeyman,
or advanced level. And at
the top of the ladder of
expertise is the master, who
has achieved deep smarts.
LADDER OF EXPERTISE (DEEP SMARTS)
2 AUDIO-TECH
It's important to recognize
that even at the top rung,
masters can continue to learn
new knowledge that will add
value to their organizations.
The problem, of course, is
that when these very experi-
enced and valuable people
leave an organization, the
deep smarts go with them.
For example, at the Jet
Propulsion Laboratory, scien-
tists and engineers have built
up enough experience to gain
an understanding of why the
various Mars Pathfinder mis-
sions have succeeded or
failed – but 50 percent of
the science and engineering
staff will be eligible for
retirement by 2006.
With them will go years of
experience, judgment, and
intuition, and the result will
be "knowledge gaps" – that
is, the difference between
what people know and what
they need to know in order to
get the job done.
What do those master engi-
neers have that everyone else
lacks? In a word, experience.
But all experience is not cre-
ated equal. Most of us accu-
mulate a great deal of our
experience at random as a
reaction to changes in our
environment. Most of us also
build experience with a pur-
pose – at least part of the
time, by training, for exam-
ple, or by working with a
mentor or coach. This latter
kind of experience, strategi-
cally directed, is what paves
the road to deep smarts.
One of the reasons so many
Internet start-ups failed, for
example, was that their tech-
nically brilliant founders had
little entrepreneurial or
managerial experience.
Worse, their real-world expe-
rience of business was of a
perpetually "up" market
where money was always
plentiful.
When the environment
changed, many entrepre-
neurs didn't have the deep
smarts to respond. It was a
perfect example of how deep
smarts in one area – tech-
nology and the Internet –
didn't provide deep smarts in
another – business. Their
direct experience had taught
them only one way of doing
things. Even when coaches
and mentors told them what
to do – cut costs drastically,
for example – they found
themselves unable to do it.
Clearly, there are some
things that cannot be learned
without direct experience
and constant practice.
Surgery and chess are just
two examples. Good business
management is another. In
fact, after they survived the
tech wreck, many of those
formerly naïve entrepreneurs
– if they were paying atten-
tion – were able to develop
deep knowledge through
their experience of failure.
Here are four rules of thumb
that the authors discovered
when interviewing them in
2001:
1. Hire and fire to cultivate
and retain deep smarts.
Always hire people who
are smarter than you.
And don't err on the side
of letting problem
employees go too late;
rather, let them go too
early.
2. Protect your intellectual
property. When every-
thing else goes wrong,
you still have your tech-
nology and patents.
Make sure upfront that
they're protected.
3. Spend to invest, not to
impress. Many a dot-
com diva now realizes
that money spent on
décor and amenities was
money lost to serious
investment in the compa-
ny.
4. Trust yourself – but be
willing to listen to others.
There is always a deli-
cate balance between
confidence and humility.
It can only be learned
through experience –
often painful experience.
But learn it you must.
Why is it so difficult to know
such things before learning
them the hard way? It has
to do with the way our brains
are structured. Scientists
are discovering that experi-
ence alters the structure of
the brain. It creates new
receptors. Without those
receptors, new information
cannot be incorporated into
the brain. In fact, information
does not become knowledge
until it connects with some-
thing we already know. This
is what is meant by the pop-
ular comment that some
information “went over my
head.”
This is why the dot-com
BUSINESS BOOK SUMMARIES
entrepreneurs couldn't com-
prehend it when they were
told that the only way to sur-
vive was to fire half their
employees. They grew up in
an environment of plentiful
money, and they had no
receptors of experience for
that message.
So how can today's managers
help tomorrow's leaders build
the new brain receptors they
will need to develop deep
smarts? One way is to make
sure that they have a broad
range of experience. The
more diverse the experiences,
the broader the repertoire for
processing new information.
In-depth experience with all
of the elements of an entire
system – whether technical,
organizational, or cultural –
enhances the ability to antic-
ipate and understand inter-
dependencies – an ability at
the heart of deep smarts.
Without these new, system-
wide receptors, information
remains just that: informa-
tion. It can only turn into
true knowledge, or deep
smarts, through experience.
Fortunately, people don't
only learn through experi-
ences in the real world.
They can also learn through
simulations. Simulated
experiences offer several
advantages over real ones.
They cost less. They are less
risky. They allow the learn-
er to fail without real conse-
quences. They enable learn-
ers to practice with rare
events. And they can be
repeated over and over.
That is essentially the
approach used at the
Harvard Business School.
For two years, the MBA stu-
dents make decisions based
on real-world situations. The
assumption is that by prac-
ticing being a manager, the
students will build receptors
in their brains and learn to
recognize patterns.
Similarly, internal teams
that were formed at
Whirlpool and Best Buy to
learn how to innovate more
effectively recently took part
in a three- to five-day "boot
camp" designed to take them
through the emotional and
cognitive turmoil they'd
experience in the real world.
The coaches in some cases
set up deliberately unsolv-
able problems to test team
dynamics. Those shared
experiences later helped in
the real world, because the
team members had built
receptors for the kinds of
problems and patterns they
would face in undertaking
innovative projects.
Simulated experiences like
these are crucial, because the
leaders of tomorrow need to
develop deep smarts.
Training classes and books
can only take you so far before
experience is necessary to
advance the cause.
Now let's take a look at deep
smarts in action and see how
experts develop and express
their wisdom.
å=å
EXPERTISE: DEVELOPING AND
EXPRESSING DEEP SMARTS
When you see an expert ath-
lete, a chess master, or a
world-class musician, you
can easily tell the difference
between this expert and
the rest of the world. But
what is the difference
between a master decision
maker and others? How can
you tell if someone is an elite
conceptualizer?
There are six clear differences
3
between masters and novices patterns usually unfold. took an expressway that the
– or even those with a mod- The founders of a dot-com GPS system avoided; while
erate amount of experience. start-up called ActivePhoto his route covered more miles,
They are: were considering offering it saved time for the passen-
their technology to another ger.
1. Experts simply know start-up called BestOffer.com.
more to begin with. But their advisers said no, Fourth, experts extrapolate.
Because of their experi- that would just add business They can recognize familiar
ences, they recognize risk, because BestOffer could patterns even in unfamiliar
patterns and know what fail. They looked past the circumstances. They can
is going to happen in a specific situation and consid- generalize from one experi-
certain situation. ered the overall pattern. ence to a new one, as the
Even without specific advisors did for ActivePhoto
2. Experts make decisions Internet knowledge, the in advising against increased
swiftly. Their expertise expert advisers knew from risk. Even though they had
helps them see the right long business experience that no past experience of
choice, so they don't despite short-term gains, the Internet businesses, they
over-analyze. long-term risk wasn't worth relied on patterns of experi-
it. ences that looked familiar to
3. Experts recognize context. guide them.
They know when to Second, experts make deci-
make exceptions to the sions swiftly. They tend to In another case, an expert
rules that others follow. see beyond the immediate got the company to start
environment to understand diversifying long before the
4. Experts extrapolate. They the risks and opportunities. founders would have. The
can apply their experience In ActivePhoto's case, the company's revenue had
in a familiar situation to inexperienced founders had grown from $9.6 million to
a new situation. been keeping all options open $14.5 million in a single
and acting on none of the year, so they felt comfort-
5. Experts make fine dis- eight potential deals they able, even though they had
tinctions. They can were offered. They asked one only one product. The expert
instantly notice subtle of their senior advisers to saw the writing on the wall
differences that others become the CEO because he and moved the company into
miss. had the business experience new territory early enough to
they lacked. He quickly ensure continued growth.
6. Experts know what they identified a long-term deal
don't know. They recog- with Ricoh cameras as a big Fifth, experts make fine dis-
nize the gaps in their money-maker. He acted tinctions. Expert musicians
own knowledge, and are swiftly, and Ricoh became a make fine distinctions in
quick to realize when crucial partner for pitch and intonation. In
they are encountering an ActivePhoto. This type of antique furniture, experts can
unusual situation. quick pattern recognition is a spot a detail that makes the
key element of deep smarts. difference between a price-
Let's look at these one by less treasure and worthless
one. Third, experts recognize con- junk. In business, there are
text. They know the rules fine distinctions everywhere
First, experts know more and also when to break or you look. For example, an
than non-experts know. bend them. The authors use expert will see that a chief
Through extensive experi- an example of a Paris taxi operating officer does not
ence, they have come to see driver who, not knowing how necessarily make a good
not just a situation itself but to get to a hotel, used a GPS CEO. A CEO is usually an
patterns of situations. Chess to suggest a route. It result- outward-facing person, able
masters, for example, don't ed in the shortest distance to see the big picture and
look at the board to see the between two points, but communicate strategy. A
position of individual pieces. because of heavy traffic it took COO is more focused inside
They recognize general over- much longer than the route the firm, and is operations-
all patterns of play and have used by an experienced cab oriented and methodical.
deep smarts about how those driver. The second driver Failure to recognize that fine
4 AUDIO-TECH
distinction could result in
promoting the wrong person.
Sixth, experts know what
they don't know. They can
recognize when they're seeing
a situation that doesn't fit one
of their familiar patterns.
Beware the expert who pre-
tends to know everything,
because no one does.
In this area of elite expertise,
knowledge always has a tacit
aspect – there are parts of it
that resist explanation but
are nonetheless valid. Gary
Klein, who wrote Sources of
Power, a study of expert deci-
sion making, writes of a fire
department lieutenant sud-
denly pulling his men out of
a house fire just before the
floor collapsed. He explained
it as a "gut feeling," but on
closer questioning, he was able
to recognize concrete signals
that something was wrong.
Based on his long experience
of fires, the temperature
seemed too hot for the size of
the fire they were seeing.
Almost at an unconscious
level, he concluded that there
must be a larger fire below
them in a basement they didn't
know existed.
Managers who have deep
smarts must work to develop
them in those people moving
up the ladder from below.
And doing so means under-
standing the nature and
functioning of the deep
smarts they possess and use
– often unconsciously –
every day.
Let's now take a look at how
we can fill knowledge gaps by
assembling the deep smarts
of others into larger, more
creative experience reper-
toires than any one person or
group can have.
å=å
BUSINESS BOOK SUMMARIES
ASSEMBLING DEEP SMARTS
When deep knowledge must
come from diverse areas of
expertise to achieve a given
goal, it sometimes becomes
necessary to bring people
together to achieve the over-
all result. In an organization
like NASA, for example, peo-
ple with long experience in a
wide variety of fields have to
work toward a common goal
– say, the launch of a Mars
exploration vehicle. In busi-
ness, this is often the case,
too.
There are at least three ways
to assemble these deep
smarts:
1. Plug and play
2. Plug, modify, and play
3. Creative fusion
In plug and play, the various
experts are brought together,
but there is no attempt to
change what they know.
They continue to develop
their specific areas of exper-
tise, independent of the man-
ager overseeing the specific
project. They don't have to
absorb each other's expertise,
either. Each needs to know
only just enough about the
other's know-how to commu-
nicate effectively. The value
added by managers in this
model is in managing the
interfaces between the indi-
viduals. Dell Computer is
such an endeavor. Its deep
smarts reside in operational
know-how and in managing
diverse experts, not in any
particular computer technolo-
gy. Its assembly and supply
lines, its inventory manage-
ment, and its selection of
partners all contribute to the
overall synergy of the assem-
bled deep smarts.
In the second model, plug,
modify, and play, the various
contributions or components
are modified before they are
assembled. The renowned
product development compa-
ny, IDEO, is such an enter-
prise. The developers there
aren't expert in any particu-
lar technology. They're
experts in the creative
process of design, which
involves the innovative reuse
and combination of knowl-
edge. IDEO brings together
engineers and designers, but
it also employs MBAs and
psychologists as well as his-
tory, biology, and music
majors.
The third assembly model,
creative fusion, also involves
bringing together people with
deep smarts in diverse
domains with the idea that
the sum will be greater than
the parts. In this case, the
experts delve into each
other's deep smarts to share
and cross-pollinate ideas.
The ideal leader for this
effort will be an expert in
managing the creative abra-
sion that results when differ-
ent experts interact. He can
orchestrate the blurring of
boundaries between disci-
plines and allow for a cre-
ative solution.
One example of creative
fusion is when a company
pulls together a task force
from across the organization-
al hierarchy. At toymaker
Fisher-Price, the product
development department
wanted a line of action fig-
ures, but the marketing
department wanted to avoid
violence in those figures.
The creative abrasion
between those seemingly
competitive ideas resulted in
a very successful line of toys
called "Rescue Heroes,"
based on firefighters and oth-
5
ers who perform dramatic
feats but without violence.
One of the big decisions a
company faces when putting
together such projects is
whether to grow the exper-
tise from within, or assemble
it from outside. Part of this
decision involves whether or
not you want to own the
knowledge assets that result.
When Best Buy CEO Brad
Anderson saw the company's
need for ongoing innovation
to sustain its success in
2002, he stopped hiring con-
sultants to identify new
opportunities and instead
hired consulting firm
Strategos to build innovation
into the fabric of the company.
This effort did not come
without cost: 65 employees
were detached from their jobs
so that they could go off and
gain the expert knowledge to
sustain innovation.
In general, growing deep
smarts has a better track
record than assembling from
outside, unless an organiza-
tion's deep smarts and com-
petitive advantage are going
to come from the assembly
process itself.
Another form of deep smarts
that grows over time is the
personal and professional net-
work. Who you know is often
at least as important as what
you know. Headhunters,
venture capitalists, and pub-
licists are expected to develop
networks as part of their
jobs. But networks are also
crucial for any individual or
organization that needs to
bridge a knowledge gap. By
using your network, you can
access another person's deep
smarts to get the answers
you need.
Cultivating your networks
6 AUDIO-TECH
can be either formal or infor-
mal. Some people are just
“naturals” at knowing every-
one, while others must do it
more deliberately. Likewise,
some businesses have natural
networks, like venture capi-
tal firms, while others are
more insulated, like software
design companies.
Wherever your company gets
its deep smarts, from within
or from without, you have to
know what you have before
you can get what you need.
Managers are frequently
going to find themselves in
the position of having to
assemble deep smarts and
manage them, and must have
a working knowledge of where
those assets reside – whether
in your network or in your
company. This is an essen-
tial ingredient for success.
But deep smarts aren't an
absolute. They are shaped
by many forces. Let's take a
look at how belief affects
what we know and how we
use it.
å=å
BELIEFS SHAPE DEEP SMARTS
It is tempting to think of
expertise in absolute terms.
One person has the right
answer, making other
answers wrong in any given
situation. But our expertise,
what we know of the world
and its workings, is pro-
foundly influenced by what
we believe.
Beliefs are important to deep
smarts because they build up
just as deep smarts do: over
time, by life experience, and
through the influence of peo-
ple around us. Our beliefs
determine how we see the
world, how we interpret
events, and how much we
trust the knowledge we
receive from other people.
As a result, beliefs influence
our own deep smarts, and
serve as a foundation for
decisions and actions.
We don't come into this
world with beliefs. They are
shaped by our experience,
including the people we grow
up with. There are all sorts
of beliefs. For example, you
may believe that Coke tastes
better than Pepsi. You may
believe that hand soap
should float. But those
beliefs are inconsequential,
and they can change over
time.
On the other hand, central
beliefs are more important,
and they are least open to
change. Beliefs become cen-
tral when they are based on
three factors:
1. When they are tied to
our identity or sense of
self.
2. When they are support-
ed by our firsthand
experience.
3. When they are supported
by others, particularly
those we admire.
These deep beliefs are impor-
tant to the transfer of deep
smarts at four different levels:
1. Individual
2. Discipline-based
3. Organizational
4. Cultural
Let's start with individual
beliefs. These beliefs are the
product of many years of
experience and are largely
tacit in nature. They serve
as filters, influencing what
we find acceptable, satisfying
or immoral.
For example, Randy Paynter
founded a company called
Care2 as an on-line greeting
card company. It eventually
became a portal. Its stance
reflected its founder's
involvement with environmen-
tal issues, and the company
donated part of its profits to
various non-profit causes.
But this tended to muddy the
waters for investors, who
wanted clear evidence that
they were going to make
money and didn't necessarily
share Paynter's passion for
nature.
Paynter's coach helped him
reshape his communications
with investors to position the
company not as a do-good
organization but as a profit-
making enterprise in a $900
billion market. He didn't
have to change his beliefs,
but he did have to become
aware of how those beliefs
shaped what he did in rela-
tion to others who didn't
share them.
Disciplines, too, have their
unique sets of beliefs. For
example, the designers who
come up with bodies for
BMW cars were steeped in a
hands-on culture in which
they literally made full-scale
clay models of the cars to get
the look and feel just right.
When the company decided
to use computer-aided
design, the designers could
not conceive of how this
could be done.
This powerful resistance was
due to a discipline-based
belief: that BMW customers
truly love their cars and that
the hand-crafting that went
into them was deeply impor-
tant. This in turn was tied
to the designers' identity as
artists. Computer design
threatened not just what
they did, but who they were.
BUSINESS BOOK SUMMARIES
And in fact, although BMW
started using computers for
initial design steps, the clay
models were retained for fin-
ishing the design. The belief
system prevailed, and that
loving attention to detail is
part of both the corporate
identity and strategy.
Organizational beliefs con-
cern what constitutes success
and what strategies lead to
success. Those beliefs are
hard to dislodge and can be a
liability. Edwin Land,
Polaroid's founder, along
with subsequent manage-
ment, held four core beliefs
that had shaped the compa-
ny but ultimately hampered
it during its attempt to go
digital. They were:
1. Success was attributable
to difficult, long-term,
large-scale research pro-
jects.
2. Customers want a physi-
cal print – and therefore
electronic cameras were
not competition.
3. Prints had to be as high-
quality as 35-millimeter.
4. All the money was to be
made from selling film,
not the camera.
These beliefs were disastrous
to the company as the tech-
nology and the marketplace
changed. When engineers
and managers brought in to
start up the digital division
at Polaroid were trying to
convince the old guard that
the film business was over
and they needed to concen-
trate on a good-enough digital
camera, the company lost
hundreds of millions of dol-
lars, ultimately filing for
bankruptcy in 2001.
No matter how much deep
knowledge of the new digital
market Polaroid brought in,
it wasn't enough to dislodge
central beliefs tied to the
company's corporate identity.
The same sort of catastrophic
scenario has played out time
and again in many companies.
Cultural beliefs are just as
powerful as organizational
beliefs. This has proved to
be a difficult stumbling block
when importing Western
ways to foreign countries. In
Asia, for example, the broad-
based conglomerate is still a
dominant business model,
with single companies
involved in everything from
cooking oil to steel to
advanced materials and oil
fields. Bringing the
American idea of market
focus to those countries does
not always work.
Knowledge about beliefs is
crucial when attempting to
transfer deep smarts. The
more central the beliefs, the
more serious the resulting
clash. Often we hold core
beliefs that we don't even
recognize – and we certainly
don't understand that they
may not be held by others.
For example, many venture
capitalists and experienced
entrepreneurs in Silicon
Valley hold as a core belief
that innovation is good and
that risk – along with some
failure – is inevitable or even
desirable. They unconsciously
transmit those beliefs along
with their advice. Their pro-
tégés either accept or reject
the advice based, in turn, on
their own core beliefs. This
process of sorting beliefs into
acceptable and unacceptable
goes on constantly in organi-
zations wherever knowledge
is being created, captured, or
transferred.
7
This raises the question of
whether beliefs can be
changed. The answer is yes,
with some qualifications.
The more a belief is linked to
personal identity, the harder
it is to change. But there are
some influences strong
enough to affect even the
deepest of belief systems.
The consulting firm Strategos
guides clients through expe-
riences aimed at challenging
deeply held beliefs. For
example, Whirlpool employ-
ees traditionally assumed
that customers for household
appliances, like dishwashers
and washing machines, were
women.
Strategos consultants took
the employees to observe
men around the house, where
they saw that men use appli-
ances, too – in the garage,
for example. That led to the
development of the Gladiator
line of appliances, such as the
Beer Box, the Freezerator,
and the Gearwall workshop
modules. This product line,
Whirlpool's first new brand
in half a century, moved
from concept to prototype in
an unprecedented six months
and promises to generate
sales of $300 million by 2007.
Without confronting the
Whirlpool employees' beliefs,
this would not have hap-
pened. And without the dra-
matic direct experience, their
belief that their customers
were exclusively women
would not have changed.
Managers can take this les-
son to heart. Often, the only
way to change beliefs is to
expose employees to direct
evidence – meeting cus-
tomers face-to-face, traveling
to foreign offices, trying out a
competitor's product, and so
on. But in the best of all
8 AUDIO-TECH
worlds, managers create an
environment where beliefs
are routinely challenged.
Intel, for example, touts
"constructive confrontation"
as an organizational value.
It is this all-important social
context of beliefs and their
effects that we'll examine in
the next segment.
å=å
THE IMPACT OF SOCIAL
INFLUENCES
From the time we're born,
our social context begins to
shape our beliefs and our
behavior. Those around us
guide and direct us in subtle
ways that we may not
become aware of for many
years. The more aware we
become of these social influ-
ences, the more freedom we
will have to choose our own
behavior and to shape that of
others.
In some cases, people can be
so strongly influenced by
social forces that they are
willing to make decisions
that conflict with their
beliefs – at least temporari-
ly. But those sorts of deci-
sions don't often last long or
bear the richest rewards.
And they don't often change
the core beliefs.
For example, David Loiterton
had 20 years of experience in
the music industry when he
approached a Hong Kong
incubator with a business
plan for a record company.
Almost as an afterthought,
he had included an Internet
presence in his plan, and the
incubator coach seized on it
as his main incentive for
investing. In other words,
the coach wanted him to
start an Internet company
that sold music, rather than
launch a more traditional
record company.
Against his gut instinct,
Loiterton allowed his compa-
ny to be turned on its head.
The social influences that
caused him to go against his
beliefs were:
1. The coach apparently had
the expertise about what
would be successful.
2. He had coercion on his
side, since Loiterton's idea
wouldn't be funded under
the original business
model.
3. He offered rewards in
the form of money.
Expertise, coercion, and
rewards are powerful social
influences.
By 2001, the boom for
Internet stocks went bust.
Loiterton's business reverted
back to the original plan, in
which the Internet played
only a small supporting role,
and he focused on building a
music company that reflected
his beliefs and his particular
expertise – his own deep
smarts.
Another powerful social
influence is groupthink.
Numerous psychological
studies have shown that peo-
ple may go against their bet-
ter judgment under social
pressure.
This social impulse to comply
and conform pervades the
business landscape. At its
worst, it leads to bad, or even
immoral, decisions. At best,
it fails to promote learning or
creativity. In other words,
building deep smarts
requires commitment from
the heart as well as dedica-
tion from the brain. It won't
develop simply by going
along with what everyone
else is doing.
A slightly different kind of
conformity is known as herd
behavior. While in the previ-
ous example, people are act-
ing against their beliefs, in
herd behavior they may not
know what their beliefs are
and are thus particularly
open to social influence.
Some obvious examples come
from the Internet bubble,
when few people really knew
what new business models
would be successful, so they
felt they had to jump on the
bus or else be left behind.
Herd behavior is often based
on scarcity, which leads to
such varied phenomena as
the Beanie Baby craze and
the astronomical price of
real estate in Palo Alto. Not
even the experts are
immune, as many realized
after investing in dot-com
start-ups with no business
plan for future profitability.
This is a natural part of
human behavior, but it can
often lead us astray, as those
who have been victimized by
cults can attest. But it is not
always a bad thing to be
influenced by the group in
which you're working.
In what the authors call trib-
al behavior, people who
share the same discipline,
such as software develop-
ment, feel a common bond
and a shared set of beliefs
that guide behavior. For
example, Apple Computer
was almost cult-like at its
inception. As one original
team member put it, "We all
believed we were on a mission
from God."
One of the forces that influ-
ences which tribes we belong
to is the influence of role
models. This may be a
BUSINESS BOOK SUMMARIES
leader in the group or the
group itself. The role model
makes us want to join, and
sets the standards by which
we'll operate. We don't even
have to know the individual
personally for this influence
to work powerfully.
Marc Andreessen's success
with Netscape at the age of
24 inspired Rajesh Reddy, a
young computer engineer in
India, who founded Unimobile,
though the two had never
met. During this period in
the 1990s, herd and tribe
behavior set off a stampede
of like-minded people that
became the dot-com boom.
In 1999, 45 of the 360 stu-
dents from the School of
Business at Stanford had
started their own Internet
businesses within a year of
graduating. They saw others
do it, responded to the role
model, and went on to do it
themselves. The key to suc-
cess in such endeavors is
how well deep smarts in
business are transferred to
the upstart entrepreneurs.
And this is precisely why
developing deep smarts is so
important. The fact that it
involves so much tacit knowl-
edge makes it a huge com-
petitive advantage that is
extremely difficult to imitate.
It is why companies must
learn to transfer deep smarts
from the experts and masters
down the ladder to the
apprentices and novices in
order to preserve that com-
petitive advantage.
It is to this very important
subject – of transferring
deep smarts – that we now
turn our attention.
å=å
TRANSFERRING DEEP SMARTS
Up to this point, we have
examined what constitutes
deep smarts. Now we will
explore how to transfer deep
smarts from those who have
them to those who need
them.
Every time someone takes
over a new job or leaves an
old one, there is an immense
waste of knowledge.
Newcomers need to know
whom to call when some-
thing breaks down or a
process needs to be expedit-
ed. They need to know how
to decode subtle signs of hos-
tility among subordinates in
meetings. They need to
know the right approach to
satisfy a particularly
demanding customer. All of
these insights, and many
others, are vital to doing a
job well – but they are
rarely passed on from one
person to the next.
This is where knowledge
coaches can be valuable. A
knowledge coach is someone
who has expertise and a will-
ingness and ability to transfer
it.
But knowledge coaching can
be a tricky business.
Sometimes the knowledge
gap is simply too large, and
either the expert doesn't
know where to begin, or the
novice lacks the receptors to
understand what he's saying.
In such cases, smart experts
will often find surrogates
who are closer to the novice
in their level of experience.
People who have recently
graduated from novice status
can often better understand
the receptors of a novice and
transfer smarts more effec-
tively. Venture capital firm
Kleiner Perkins sometimes
assigns its young employees
9
to coach young founders of
start-ups because they have
similar experiences and they
speak the same language.
As the novice's knowledge
base grows, so do the recep-
tors in his brain. Soon he is
able to absorb deep smarts
from increasingly expert
coaches. This underscores
the importance of carefully
matching knowledge coaches
and protégés. There are
often differences in what
each is looking for in a coach-
ing relationship. In a study
conducted by the authors,
coaches and entrepreneurs
were asked what they looked
for in a good match.
In general, the coaches want-
ed to know if someone could
be taught. They wanted to
know that they were invest-
ing their coaching efforts in
an individual or a team that
was willing to learn, and
that had the potential to do
great things with their newly
acquired smarts.
For their part, the protégés
tended to focus on a coach's
experience, availability, net-
work, and access to money.
But other, more perceptive
entrepreneurs recognized the
need for someone with deep
smarts, who had experienced
the various stages of growth
from a small company to a
billion-dollar corporation.
The study also found one
concern that was shared by
both coaches and protégés: a
desire for that elusive inter-
personal quality of compati-
bility or “chemistry.” By this
they meant that they were
seeking someone who had
compatible personal traits,
aligned goals, and a similar
thinking style. And both
parties also mentioned the
importance of integrity and
10
passion.
Even in the perfect coach-
protégé relationship, the sort
of deep knowledge required
to manage a complex under-
taking, such as leading a suc-
cessful enterprise, comes
slowly. In all knowledge-
transfer situations, the more
tacit knowledge is involved,
the harder it is for a novice
to bridge the gap and move
up the ladder.
Even at lower levels within
an organization, tacit knowl-
edge can be the most elusive
kind to transfer. This can
happen for one of four possible
reasons:
• First, it may not be possi-
ble to readily articulate
the experience, such as
how to ride a bicycle or
tie a shoe.
• Second, the expert may
not be aware of the tacit
knowledge himself. An
example is the fire lieu-
tenant who pulled his
men out of a burning
building before the floor
collapsed.
• Third, there may be
incentives to keep the
knowledge tacit. For
example, this may be the
case in a consulting firm
where one's standing
depends on being the
best expert in a given
industry.
• Fourth, the knowledge
may still be too primitive,
as in the early days of
biotechnology, when
determining how long
cells should remain in a
growth medium was
largely a matter of judging
from experience.
What then are the best
methods of transferring all
these bits of overt and tacit
knowledge? Although there
is no pat answer, there are
five increasingly effective
modes of knowledge transfer
that range from passive
reception on the part of the
learner to active learning.
They are:
1. Directives, presentations,
and lectures
2. Rules of thumb
3. Stories with a moral
4. Socratic questioning
5. Learning by doing
While it may seem intuitively
obvious that more active
approaches work best, many
companies still do the bulk of
their training at the passive
end of the scale, using
PowerPoint presentations
and lectures. But without
actively engaging the learner,
such approaches are generally
ineffective ways to develop
deep knowledge. As is com-
monly heard in college, a lec-
ture is a process by which
information is moved from
the notes of the professor to
the notes of the student –
without ever passing through
either's head.
Rules of thumb are useful,
shorthand statements that
summarize patterns into
memorable rules. Such rules
of thumb as "control the cen-
ter of the board" in chess are
often effective. One of the
most common rules of thumb
in entrepreneurship is:
Focus, focus, focus.
Stories are a natural human
way of transferring knowl-
edge. They are more engag-
ing than lectures or directives,
more memorable, and often
AUDIO-TECH
contain an element of expert
experience. If a lesson can
be embodied in a powerful,
memorable story, it can have
a lasting impact.
Socrates realized long ago
that his students would learn
far more if they had to dis-
cover the answers themselves.
This type of learning forces
the student to clarify his own
thinking and challenge his
own assumptions.
The last mode of learning
turns out to be so superior to
any other method that the
authors devoted an entire
chapter to it. Let's take a
closer look at how learning
accelerates through guided
experience.
å=å
RECREATING DEEP SMARTS
THROUGH GUIDED
EXPERIENCE
Experience, as the saying
goes, is the best teacher.
Having an expert guide you
through an experience is even
better. And there are four
types of experiences that
knowledge coaches can guide:
practice, observation, problem
solving, and experimentation.
Directed action, combined
with feedback from a coach,
captures the essence of what
has been called deliberate
practice. This is more than
simple repetition. It adds
the element of reflection and
analysis, and guided practice
adds the skill of the coach as
well.
When the entrepreneurs in
the authors' study were
preparing to go to investors
for money, their coaches took
them through their business
plans and presentations over
and over. The coaches gave
BUSINESS BOOK SUMMARIES
valuable feedback until
the entrepreneurs got the
message pared down to "ele-
vator-ride" length and were
ready for prime time. That
is guided practice.
The second method of recre-
ating deep smarts is through
guided observation. Everyone
learns through observation.
But having an expert serve
as a model adds a new
dimension. Shadowing an
expert is one way of experi-
encing guided observation.
The coach draws on a wide
experience repertoire to
guide and interpret what the
novice sees. Sitting in on a
client meeting with a senior
sales person, and then dis-
secting what happened, is an
example of guided observation.
Guided problem solving is
another technique for gain-
ing deep smarts through
direct experience. This
means working on a problem
jointly with a coach – who
may or may not already
know the answer. The point
of the exercise is to learn the
approach to problem solving,
not just the answer.
Guided problem solving com-
bines the best features of
focusing attention, practicing
process skills with feedback,
providing an opportunity to
mimic an expert, engaging
the learner actively in devel-
oping deep smarts, and con-
tributing to an experience
repertoire.
The last approach to recreat-
ing deep smarts is through
guided experimentation.
There are two types of exper-
imentation: hypothesis test-
ing and exploration.
Hypothesis testing is effective
for sorting through known
alternatives and discovering
which is most effective.
Exploration is a more open-
ended approach that will map
out territory and generate
options for future hypothesis
testing.
Knowledge coaches who have
experience in experimenting
can help protégés think about
how many resources should
be devoted to the experimen-
tation, how bounded it should
be, and especially how to
think about experimentation
in general.
Experimentation rapidly and
systematically builds experi-
ence. The more you do it,
the more efficient the process
becomes, as you build tacit
knowledge – or gut instinct
– of what will work and
what won't.
In the end, we are all experts
in some areas, and novices in
others. We all need to con-
front our knowledge gaps.
We could all learn from
knowledge coaches, and
serve as knowledge coaches
for others. We could all
learn more effectively, by
ourselves and from others,
and use our experience to
make better decisions.
This pursuit and transfer of
deep smarts is what sets the
best companies apart, and
gives them a culture of con-
tinuous innovation that is
enduring and difficult for
competitors to copy. The
future of your organization
depends on developing this
kind of lasting competitive
advantage.
å=å
11
 ABOUT THE AUTHORS

Dorothy Leonard is the William J. Abernathy Professor of Business Administration emerita at Harvard
Business School. Her teaching, research, and consulting for major governments and corporations have
focused on innovation, creativity, new product development, and knowledge transfer. Her more than one
hundred publications appear in academic and practitioner journals and in books about innovation,
knowledge assets, and human resource management.

Her book Wellsprings of Knowledge was published in 1995 and 1998

by Harvard Business School Press. Harvard Business School Press
also published When Sparks Fly (coauthored with husband Walter
Swap in 1999).

Walter Swap is Professor of Psychology emeritus and former

Chairman of the Psychology Department at Tufts University. His pro-
fessional life has been divided among teaching, research, and adminis-
tration. He was a founding member of the universityÊs innovative
Center for Decision Making, where he introduced undergraduates to
the complexities of choice and group dynamics, and conducted work-
shops for midlevel managers from a variety of industries.

Dr. Swap is the coauthor, with wife Dorothy Leonard, of When Sparks Fly (1999). Among Dr. SwapÊs
other publications are Group Decision Making (1984), numerous book chapters, and articles in profes-
sional journals, including The Journal of Personality and Social Psychology and Personality and Social
Psychology Bulletin, on topics including group dynamics, attitude change, personality theory, altruism,
and aggression.

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Deep Smarts, summarized by arrangement with Harvard Business School Press, from Deep Smarts:
How to Cultivate and Transfer Enduring Business Wisdom by Dorothy Leonard and Walter Swap.
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