Tracy Kim Horn: Welcome to the Disruptive Voice. I'm Tracy Kim Horn. Here at the Harvard Business School, Professor Clayton Christensen has been teaching his signature course, Building and Sustaining a Successful Enterprise for 15 years. As the course has grown in popularity, Professor Christensen has had to recruit a number of colleagues to help him teach the class in order to keep up with demand. Today, over half of each graduating class of 900 students enrolls in this elective course. Steve Kaufman, former chairman and CEO of Arrow Electronics, joined the HBS faculty in 2001 and has been teaching BSSE since 2005. In this episode, we share with you some reflections that Professor Kaufman recently offered to a group of alumni of the BSSE course who were recently on campus.

Steve Kaufman: Okay. I've had a dozen years teaching in the BSSE arena and Tracy asked me to talk a little bit about what I learned from the teaching part of it. Do I use any of the theories? And if so, how? And the first thing I tell you is that my undergraduate education was at MIT, so I learned a lot of science stuff including things like what's the speed of sound and what's the speed of light, stuff everyday important things. Well one thing I learned teaching BSSE is that since the light travels faster than the speed of sound, some people appear bright and until you hear them speak. That's not personal for any of you.

Steve Kaufman: My favorite theories and I'll warn you in advance, I'll do some cold calling or I'll do some calling. And if I don't see hands I'll do cold calling in a couple of minutes. I have three favorite theories. They're all important, but for me it was my experience, things I've seen. Three of them sort of stand out, resonate and I find I get to use in the non-HBS part of my life where I'm, I still serve on boards of directors of different kinds of companies.

Steve Kaufman: The standout, the single most, we've called it by several names, so some of you will know it as RPV which was "resources, processes and values". We melded that into RPP, which we now call "resources, processes and profit model". And because of the value thing, we weren't talking about values like ethical values or be customer centric and people didn't fully understand by values. And now by profit model we're talking about what's the essence of your profit model the issue of, what kind of gross margin do you need to have before people will be willing to invest in your arena, whether it's resources or money?

Steve Kaufman: What are the assets, turnover characteristics, what does it take to move the needle? Which is based on size. So that's the RPPs/RPV--that's my favorite and I've merged it with "Culture" which we study as a separate theory and we read and BSSE with a separate note and then we still continue to teach through the HEC, the Hospital Equipment Corporation case. And we still teach our RPPs, our RPVs through the Nypro case. There are some old favorites that, you know, you must've done a Nypro back when Moses was a child.

Steve Kaufman:

Steve Kaufman: And so when I teach it now, I actually put it on the board (P) + (P), parentheses marks are on both, times time equals culture. And while that it may seem silly to you and if it's worth a giggle, I think it's ... I've learned it's terribly, terribly important because in our business world, and now this is where I practice, among boards of directors. I'm a senior advisor at McKinsey for some of the emergent acquisition and integration client work. We too often I believe, attempt to achieve change in business by working on the culture.

Steve Kaufman: "We need a new culture in this company." Whether it's we've gotten faster, we've got to be more innovative. It's all about culture, so let's hire some culture consultants and let's work on changing the culture. To me that's bass-ackwards. It doesn't work that way. You don't change culture by saying I'm going to change culture. Culture emerges over time based on the processes in the company and the profit model of the company. Those two things baked together over time create the culture. If you do think that one of the elements of changing your cadence, your direction is a culture change, the place to start, and I apologize to any of you that are working for consulting firms that have a "change practice", I just think that's dead wrong.

Steve Kaufman: And that'll spin a lot of wheels, cost a lot of money and frustrate a lot of people. But people are working in the company. I have another little pet phrase that my students who have learned and that is "never try to teach a pig to sing. The music sucks and you frustrate the pig." And trying to change culture by itself frustrates the organization. You need to work on the processes, how you run the company and the profit model. What is the goal that you try and achieve and how are you trying to achieve it. Over time the culture will change that way or, and I'll get to it in just a minute, one other thing. So that's my favorite.

Steve Kaufman: Oh, let me do the other two and I'll come back. Second is what we now call "schools of experience". We had a different name for it back in the early days. "The Right Stuff" was what we called the first version of that note. But I found Schools of Experience to be the second most useful and leverageable concept and theory in the job things that I do as a board member because they don't let board members touch customers. They prefer not to let board members even touch employees if they can help it. They generally believe in the "mushroom theory of board director management" with that. How you grow mushrooms, keep them in the dark, shovel them with, you know what, and when they stick their heads up that's the time to cut off. That's how those companies want to manage their board of directors. Occasionally we speak out and we actually talk to employees, to suppliers, and to customers.

Steve Kaufman: And so, I find schools of experience very, very helpful. And third is "interdependence and modularity" in terms of how I can as a board member or as an advisor to young growing companies have impact. I talked a little bit about RPPs and culture because of the linkage and the importance of "don't try and change the culture, try and change the process and the profit-model". The second lesson that comes out of that that's usable is if you don't have the time for that because it's more important to do things more quickly. Or there are, if you're in an incumbent company, there are these little rug rats nipping at your ankles that are going to eat up your leg and shoot you. What do you do? You have to set up a separate business unit and I have found hammering that over and over and over again, A) it's absolutely right.

Steve Kaufman: I look back at my own career. I did that seven or eight times. At the times I did it, I didn't know what I was doing. I was acting on instinct. I had a sense that this new thing we would try to get going was getting overwhelmed by the regular business, pushing too hard. Putting your finger in the apple sauce, pull your finger out, the apple sauce didn't know your finger was there. Setting an aside, coming here working with Clay, gave me the understanding of what it was I was doing, allowed me to talk about it, think about it more objectively, but setting it up separately. And then again I'm going to cheat a little bit and add a fourth theory -- I'll build it in -- which is with a separate channel of distribution. Setting the business up separately requires also a separate channel of distribution. Driving those points home from the board of directors level to companies that are trying to deal with new initiatives, that's the leverage I found where if I create any value as a board member, it comes from that.

Steve Kaufman: Schools of Experience. In blunt terms, I'm willing to hire failures. I encourage the companies I work with to not toss out resumes because it is a failure. I'm using the F word quite deliberately. We always phrase it differently, but in fact there was a failure there. And many HR people, in fact, almost all of them just won't even look at it if there's any hint of a failure. My experiences, failure is wonderful. Failures--as long as you learn from it. Making mistakes is crucial. My father used to tell me, good judgment comes from experience, experience comes from bad judgment. Think about that one also. And imagine life is a cycle of making a mistake, confronting and learning from it by looking in the mirror and accepting them, and then creating what's necessary to avoid that the next time.

Steve Kaufman: The only real mistake is the one you make twice, and so my dad's second one was make new mistakes, don't repeat the old ones. I'm 75, he'd be very happy to know how much I can keep living that particular life of making new mistakes rather than repeating the old ones. I don't know when I'll run out. Probably never. Looking for people that have made mistakes, that have had failures, but can articulate how it happened, why it happened, can think about what did they miss or what questions did they not ask that will now go into their repertoire of questions is absolutely crucial.

Steve Kaufman: I think they make the best managers. We teach that with a couple of different cases, but being a voice to the CEO and the CFO and the CHRO, so on and so forth. One of your upcoming managers had a misfire, we don't toss them out. Actually, that makes that person more valuable. We have to make sure she, and we understand what went wrong and now let's put her back into another tough situation. We don't just toss them out. I find that very helpful. And third, the interdependence of modularity.

Steve Kaufman: There's the obvious, what is the business going to be? From the board level, that's a good question to ask. How much of it, but the big place, do not outsource. Quite so do not accept the consultants recommendations. Do not accept the Wall Street drum beating. Think very hard about what is core of the business, what you'll need in the next evolution of your business and refrain from that knee jerk let's outsource it because it's [inaudible 00:14:05] or it's sort of mechanical. Well, both of those things might still be very important to your differentiation.

Steve Kaufman: Oh, I'm near the end of my 15 minutes. So that's from a practitioner, what I've learned and what I've tried to use.

The Disruptive Voice is a production of the Forum For Growth and Innovation. A research project at the Harvard Business School, guided by professor Clayton M. Christensen, Kim B. Clark Professor of Business Administration. Follow us on Medium at HBS. FGI.