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The Long Tail Small Giant Huge Box Wal-Mart Effect Shakes The World

The clunky title above represents an effort to combine the book titles of the Financial Times/Goldman Sachs business book award shortlist, and I’m throwing them all together because they really fit as a group. To read them all in a group (as I have—with the exception of one) leaves the clear impression that, while each of these books shares one clearly realized and distinctive story, they all inform one another in a fashion that is more than additive.

As Jack pointed out in a Publishers Weekly column, business books are increasingly aiming higher, with the best efforts redefining the big picture in which we work by telling smart stories informed with great reporting and animated by great writing. This group of titles certainly bears out his claim.

In his excellent essay describing the best candidates for the contest this year FT financial editor Andrew Hill writes that “there were far fewer ‘how-to’ manuals, which, though sometimes best-sellers of the genre, are mostly too ephemeral to make it to the shortlist, and more books aiming to become a durable addition to the library of great business works.� By the way, Hill did a thoughtful Q&A with us last year in which he expressed a hope that this contest would motivate business authors to “raise their game.� I think his dream has been realized.

Here are few conclusions that I’ve drawn from reading four of the five books. (Please forgive me, James Kynge, author of China Shakes the World, I’ll do a separate post on your book when I can do it justice.) One note: each of the books shines on its own. For more on the individual books, as well as excerpts from each, go to the FT site on the contest. The more I reflect on the range of these titles, the more that their collective power shines through. As noted, the books ultimately form a larger argument about the nature of big change over time that takes into account all of their findings.

Take the issue of scale: is big good?

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Certainly, as Bo Burlingham’s Small Giants argues, the measure of a great company has less to do with brute size than with something qualitative. This is a surprising message from a guy who was key to the success of Inc. Magazine, which for years celebrated insanely fast growing companies. Yet Burlingham has been around long enough to witness the hazards of growth, and his book chronicles companies with a powerful sense of purpose and meaning, a culture and spirit that binds itself together in a business sense by linking the company to the community, providing motivation for the employees, and maintaining what really matters for its customers. “When a company has charisma you want to be associated with it,� he says. And that charisma must always be consciously tended to.

There could be no more stark an illustration of growth gone mad than that described in Charles Fishman’s wonderfully written and researched “Wal-Mart Effect.� I really loved this book. For many of the early chapters, I was intrigued by the book, and fascinated by many of the stories. Yet at the same time I couldn’t help but feel that the author was somehow conflicted: while writing about the detrimental effects Wal-Mart has on everything from the environment to wage structure to the fabric of city life, Fishman never misses an opportunity to report on the remarkable innovations pioneered by Sam Walton, enabling the company to become such a force of nature.

It turns out that Fishman’s mixed tone results from an Inc.-like admiration of the policies and practices that enabled the company’s spectacular growth. Fishman reports on many of the common-sensical yet challenging practices of Ole Sam that made the company what it is today. Walton was a genius at delivering on the most basic of missions—to provide good goods at the best price. And during the crazy growth times he created a culture that kept employees motivated (and produced many Wal-Mart millionaires.) The company has always been single-minded—to grow by selling things ever cheaper than anyone else. And Fishman finds that most of the practices that it now finds itself skewered for are either unintended consequences and byproducts of that goal; or were elements of the business model that translated into qualitatively different results on a smaller scale.

Indeed, for much of its growth Wal-Mart might very well have qualified as a Small Giant, or Massive Behemoth, before it collapsed under its superweight. However, size, or super-size, finally sparks the conclusion that the growth process took Wal-Mart to a far more new and alien place than people recognize.

Today the sheer vast hulking bulk of Wal-Mart requires all of us in society to rethink what it really means. This company doesn’t merely play by the rules of capitalism as they are stretched to their logical conclusion; the company has become so dominant that it in fact creates the rules: it dictates what millions of companies do and tells millions of consumers how much they should pay. “Wal-Mart has outgrown its culture, it has outgrown its personality, but it has not yet come to terms with that new reality.� And his book does a great job of pointing out what that reckoning entails.

Fishman ultimately concludes that: “Wal-Mart has outgrown the rules—but no one noticed,� he argues. “At the moment, we are incapable as a society of understanding Wal-Mart because we haven’t equipped ourselves to manage it. That is the reason for our ambivalence, our appreciation and aversion, our awe and our nervousness, our confusion.� And so it needs a new set of rules, just as we have, over the decades, increasingly regulated the use of another profound American mechanism, the automobile.

The idea that an enterprise or practice that reaches a massively larger scale “tips� in a manner that creates a fundamental difference also resonates in the wonderful and thought-provoking The Box. This is a book about a box, albeit a massive shipping container. Levinson, a former editor at The Economist, applies his lively writing and reporting skills to explain how the efforts of one tenacious entrepreneur named Malcolm McLean transformed the shipping industry. While it took years (and ultimately the logistical needs created by the Vietnam war), McLean was able to convert the practice of transporting goods around the world from an almost craft-like hodge-podge of practices to a uniform process on a grand scale.

The impact of the change has been profound. Without the new shipping containers and the new conception of a global supply chain facilitating cheap overseas labor, there would be no Wal-Mart as we know it today. Here’s a key passage from Levinson when explaining the relevance of the container to the rise of Wal-Mart and Dell:

“The container, combined with the computer, sharply reduced that risk [of keeping large amounts of inventory], opening the way to globalization. Companies can make each component, and each retail product, at the cheapest location, taking wage rates, taxes, subsidies, energy costs, and import tariffs into account, along with considerations such as transit times and security. The cost of transportation is still a factor in the cost equation, but in many cases it is no longer a large one.�

There are powerful implications here on the Chinese labor market, and I must apologize for not applying them to Kynge’s book on China, at least not yet.

Yet how do these trends bear upon Anderson’s Long Tail? Certainly, the notion of scale once again comes to play, though here, in a more counter-intuitive manner. Anderson’s key argument, bolstered by the widespread adoption of the Internet, is that the power of the connected world to distribute digitized materials means that the dominance of blockbuster products, which rely heavily on bulky foundations like theater chains and massive retailers (such as Wal-Mart) will wane. Over time, he argues, individual items with smaller markets will find their audience in a profitable manner. In this regard, Anderson presents an implicit argument against the values of the Wal-Mart model and for the preservation of core values that keep an enterprise authentic (a la Big Giants.)

Fishman raises an intriguing point about the limits to growth in an economy that commoditizes everything. He reports that the one antidote to Wal-Mart’s unstopping attack on prices comes through style, fashion—that’s how Target has managed to score same-store increases at a time when Wal-Mart is facing declining growth in established stores. After the diapers, and the groceries, and the car filters have been purchased, then shoppers—those individuals who come not just out of a mission to purchase always the lowest—will seek something that speaks to them. And this Wal-Mart cannot provide today, in its great scale. The only cultural products the company can deliver are necessarily big hulking “blockbuster� items, whether in music, film, or books. Everything focuses on selling massive amounts of these skus at cheap prices at thousands of stores.

Anderson passionately argues that new forms of distribution, combined with his optimistic view of human nature, will lead to commercial success for cultural products with a more narrow audience. (As Spinal Tap’s manager Ian would say, products whose appeal is “more selective.�) It’s intriguing.

Of all the books, Anderson’s is the most speculative—I would say that it is more “true� than factual, since actual reality needs to catch up to his argument. And in this regard two other takeaways from the range of books should be noted.

First is the powerful principle that low-tech is high-tech. That is to say, the most powerful forces accounting for huge business success in all these tales are in fact not the micro-chip powered new machines information-izing our lives; rather, they are greater powers that have roots in say, the ancient Greek agoras.

What could be more low-tech than a very big box? Yet this new form of crate completely revolutionized shipping and eventually helped create much of the “flat� world we know of today. And, despite the many articles one can find about Wal-Mart’s fabled inventory-tracking information system, this company grew in the least high-tech of industries—retailing—through stubborn, inspired, persistence at a very simple plan: sell good things cheaply.

The other intriguing takeaway from Levinson and Fishman has to do with the pace at which real change happens. Both the Box and the Wal-Mart Effect report on a process of change and growth that created fundamental and qualitative change—yet it took many years for what was suddenly recognized as a whole new world. Should the Long Tail economy truly emerge, I suspect it will do so later rather than sooner, and in a fashion not entirely foreseen.