Friday, June 3, 2011

The “Gut” Revelation!

Before he became a billionaire, he was a paradox. Today, he’s both. Neither does his surname suit his waistline, nor is he ashamed of carrying around a “plastic wristwatch”. He owns over 222 companies and relies on his “gut-feel” more than numbers and computers. That for you is Carlos Slim, the richest man in the world. From his early stock-broking days to amassing a personal wealth of $71 billion (7.07% of Mexico’s GDP for 2010), he has not failed to put his intuitions to use. When he bought around 3% of Apple’s shares in 1997, the stock was trading at $10. Today, it stands at $355, and his empire’s value from Apple’s stock alone amounts to $9.76 billion. While most with years of experience even in the very world of technology failed to read Apple’s future, the non-tech savvy Slim allowed his gut to take control. Consider his purchase of Teléfonos de México (Telmex) in 1990. His company Grupo Carso bought a 21% equity stake (with 51% voting rights) in Telemex for a sum of $1.76 billion. It was considered an overpriced asset, but Slim thought otherwise. Only, he had little proof to support his claim. For years, sales of the 43 year-old company had stagnated around the $2 billion mark, its corporate structure was in need of repair, the sub-6% penetration teledensity had not improved for years, the employee base was overbloated & 10% of its lines were inoperable. The facts were worrying.

Today, Telemex (considered Slim’s crown jewel) controls more than 90% of the Mexican telephone lines and records an annual topline of $10.2 billion (FY2010). “I’ve always thought we got a very good deal on Telmex, even though people thought we overpaid at the time. We won because we paid more,” says he. Currently, his companies account for 33% of the value of Mexico’s leading stock market! Slim is just one of many entrepreneurs who scripted success stories by allowing their intuitions to take charge. When Bill Gates dropped out of HBS and started a business in a garage, there was no guarantee that it would work. It did not. His first business with Paul Allen called Traf-O-Data was a failure. His gut told him to try again. This time, Microsoft took off. Henry Ford & Walt Disney failed many times before they became successful. It was gut feel that told Akio Morita to launch Sony as a rice-cooker brand, and which convinced Bob Lutz to replace Chrysler’s Cobra’s engine with a heavy-duty truck’s (the car spurred Chrysler’s turnaround in the 1990s). Here’s how billionaire Donald Trump sums it up – “Experience taught me a few things. One to listen to your gut, no matter how good something sounds on paper...”

Last year’s analytics report by Accenture titled, Weak Analytics Capabilities..., drafted after interviewing top officials at more than 500 blue-chip organisations, concludes that senior managers don’t see “fact-and data-driven analysis as critical when making key business decisions and, instead, rely heavily on ‘gut feel’ and intuition.” Add Prof. Smith (University of Surrey) and Shefy (Academy of Management Executive) in their paper titled, The Intuitive Executive, that, “Intuition encompasses expertise, judgment and implicit learning, sensitivity and creativity.” Even a year 2009 paper by Choudharya (Surrey), Karlssonb (Reykjavik University) and Zoegac (University of London) titled, Evidence on Price Rigidity in Customer Markets, concludes that, “In many difficult situations [of decision making] managers go by their own intuition or gut feeling.” In his work titled, Implicit learning and tacit knowledge, Prof. Arthur Reber (University of Wales), concludes that, “Intuition is explicable, and can lead to improved executive decision-making capabilities through the development of a finely tuned intuitive intelligence.” Gut feel has as much say in hiring decisions. According to a 2009 HBR paper titled, The Definitive Guide to Recruiting in Good Times and Bad, Profs. Nitin Nohria & Boris Groysberg of HBS state: “When we surveyed 50 CEOs of global companies, along with executive search consultants who rated about 500 firms, we found that fully half the companies relied primarily on the hiring manager’s gut feel.”

The opening article in this issue of Strategic Innovators, titled, Strategic Intuition: The Key to Innovation, authored by Prof. William Duggan of Columbia Business School, talks about how “flashes of insights” lead to innovation. “Analysis and creativity work together in the whole brain, to give you a creative idea that makes analytical sense in a flash of insight. This is what I call intuition - gut feelling,” he writes. He further describes how GE under Welch (who himself was known for taking decisions depending on what his gut would suggest) practised the “insight matrix” team-exercise. No wonder, under him, the company became a powerhouse of innovation!