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Yahoo is in the news this week because the board just hired Marissa Mayer away from Google to be its new CEO. Mayer, who by all reports is highly intelligent and creative, excels as a product visionary. Yet not surprisingly, short-term value investors are upset about this hire. This is because they want Yahoo to focus on cutting costs and milking the company for cash until a strategic buyer can be found. So who’s right and what’s the best strategy for Yahoo? Before I answer, let me explain how we can answer this question.

In Organizational Physics, we use a simple code called PSIU to tell what’s right, what’s wrong, and what to expect from situations or decisions. Like DNA, PSIU explains why things “show up” the way they do. It can be used to understand individual styles, analyze organizational design, and even to anticipate organizational problems well in advance of when they occur. PSIU can also be used to understand and design a business strategy in a simple, elegant, and effective way.

Effective strategy design starts with a simple premise. Play to your strengths. What is your organization exceptional at? Basically, a business can have a strategy that capitalizes on:

• Better customer service than its competitors (P)
• Cheaper costs than its competitors (S)
• Higher innovation than its competitors (I)
• Stronger organizational culture than its competitors (U)

No single company can be the best in all four. Why? Because any given strategy consumes finite time and energy. It’s expensive and time consuming to invest in any given track. Great companies recognize where they will place their focus and what they will sacrifice.

For example, Zappo’s focuses its strategy on having a stronger organizational culture (U) and providing better customer service (P) than its competitors. […]

In his thought-provoking book The Genius of the Beast: A Radical Re-Vision of Capitalism (2010), author Howard Bloom introduces the concept that nature explores and consolidates information using fission-fusion strategies. Fission refers to splitting apart. Fusion refers to bringing together. According to Bloom, fission and fusion are relevant to human systems as well. In other words, they apply to both human individuals and organizations. This is a powerful metaphor and it’s also useful for looking at tendencies within your business. Beyond the level of scientific frameworks, these two metaphors can help you to better lead and manage your organization.

Organizational “fission” and “fusion” don’t happen at the same time. Like a heartbeat, they happen in a rhythm. In-out, in-out, in-out. If your business is demonstrating a lot of activity involved in making new discoveries and attempting to drive things forward, we can describe it as being in “fission” mode. If it’s digesting its discoveries and consolidating people around them, we can refer to this as “fusion” mode. In other words, we can map fission and fusion onto our PSIU matrix.

If you look at the PSIU matrix of Organizational Physics below, you’ll see that Producing and Innovating forces are really fission strategies, while Stabilizing and Unifying are fusion strategies. Your organization needs a mix of both but, by law, these forces compete for available energy. Understanding that fact alone will help you to recognize and accept what forces (more fission or more fusion?) are really required for your organization and team at any given time – and why – and then give the system what it needs.

As a manager, […]

Technical skills are the knowledge and skills specific to a particular occupation. Programming is a technical skill. But so are sales, marketing, writing, customer service, accounting, and so on. The best way to evaluate high technical skills in any area is to not to interview for them but to test for them.

I first saw the testing approach many years ago by watching interviews for software engineers. A potential new hire gets invited to the company to meet with one or two trusted members of the existing software team. The interviewee is given a laptop and a series of software problems to solve. Right there on the spot, the interviewee must code solutions to those problems.

Two things struck me when I first saw this interview technique. One, it’s a fast method to assess someone’s technical skills. Two, why in the heck wasn’t this same approach being used when hiring for every other position in the company? Need a VP of Marketing? Test their technical skills on the spot by having them write a press release or create an ad campaign. What about a VP of Sales? Have them pitch the room as if it were a sales prospect. Need a secretary? Have him or her answer the phone and deal with an emergency.

Of course, assessing for cultural fit, PSIU style fit, and aligned vision and values are a different interviewing challenge. But using a technical skills test allows you to quickly assess someone’s capabilities so that you can focus on those other areas of alignment. So the next time you’re interviewing a candidate and it’s time to assess their technical skills, remember to use this simple approach: “Don’t tell me; show me.”

An entrepreneur wears many hats that change during various stages of the venture but these three questions that are always relevant:

1) Where are your energy drains?
2) What does the environment need now?
3) What are you inspired to do next?

Now I get that these questions may seem strange at first so let me explain why they’re actually really sound questions that lead you to focus on the right things, at the right time, and create breakthroughs.

1) Where are your energy drains?
Energy drains are a symptom of entropy, dissolution, decay in the system. By paying attention to the drains, and eliminating them, it frees up additional energy for you to kick-ass out in the world. If you don’t eliminiate the drains, they will steal from your top-line performance.

For example, notice that if you’re back is hurting that you’re less effective at work. Or, notice that if you and you’re co-founder no longer trust and respect one another that top-line business growth suffers. Why is this? It’s because energy flows from inside-out. At any given point in time, a system has a finite amount of energy. It must use this available energy to maintain itself, make decisions, and get work done. Only after those internal needs are met, and if energy is left over, can the system go forward into the marketplace and find, sell and service customers.

When you ask the question, “where are your energy drains?” begin with you and go from the inside out. How’s your physical health? Your mental and emotional state? Are you waking up thinking about something that’s troubling? If so, you better address it. How’s your primary love relationship? Any friction or drains there? What about your relationship with your […]

A better way to ask this question would be, “What are effective ways to assess if someone is good at ‘getting things done’ and at what cost?”

By “cost” I mean this: If you’re looking to hire someone with a high drive to get things accomplished, then you also need to know the cost of that drive. What kind of cost? It will show up in one of three areas. You can get a sense of which area(s) by asking yourself this question:

“If this person has a high drive to produce results (Producing force), then does he or she also…

1) Overlook the details, order, and structure in getting things done (Stabilizing force)? That is, is the work accomplished but filled with errors and sloppiness? It’s hard to get it done fast and at the same time, get it done right.

2) Overlook the creative opportunities in getting things done (Innovating force)? There’s a difference between lazy and entrepreneurial lazy. It’s hard to be both heads down cranking things out and heads up, looking around for the breakthrough idea at the same time.

3) Overlook the implications to the rest of the team (Unifying force) in getting things done. Are you hiring someone who works so hard to get it done that they can’t relate to or coordinate well with others on the rest of the team?

Everything has a cost. Your job in making the right new hire is to understand what style you need for the job function and to maximize the gains and mitigate the costs of that style. There is no superman or superhire that can be all things at all times. So just be aware of the cost in what you’re hiring upfront and design around […]

There’s an article in Harvard Business Review this week, “Why HR Still Isn’t a Strategic Partner.” In it, the author laments that most corporations are asking themselves why they even have an HR department and as a solution, encourages HR leaders to ask a simple question: “do my actions cause friction in the business or do they create flow?” Then act accordingly. It’s trite advice and it misses the core issue entirely. In fact, there are really two major reasons HR is marching towards irrelevancy and it has nothing to do with intentions…

The two major reasons HR is marching towards irrelevancy:

#1. HR is a loaded word that lacks a clear cultural definition. (If you do read Craig’s article, make sure to read the comments from other HR professionals to get a sense of the confusion). Is the function of HR to perform recruiting? Career development? Hiring and firing? Prevent the company from getting sued? team performance improvements? It’s like arguing about capitalism versus socialism without understanding what each word really means. Yes, a lot of opinions get thrown about but no real progress gets made until there’s clear and mutually understood definitions.

#2. Because of a clear lack of definition, HR is usually structurally misplaced in an organization and therefore doesn’t deserve a seat at the table with functions that are driving the business forward. Why would functions like sales or marketing or strategy ever want those lowly HR peons, well-versed in arcane employment law and specializing in telling the company what not to do, mucking up their meetings? Can’t blame them.

Here’s how to solve the HR problem:

Within your organization, NEVER, EVER co-join the short range efficiency and liability prevention functions of HR (things like following employment law, […]

Mehdi Arfaoui, a student at IESEG School of Management in Paris, France, asked me a question via Quora recently, “How is Change Management Different in Large Organizations Compared to SMEs (small and medium sized enterprises)?” Here’s what you need to know.

The principles of change management are the same regardless of how ‘big’ or ‘small’ an organization may appear to be. The answer lies in understanding Isaac Newton’s laws of motion.

All organizations have mass. Mass has little to do with the number of people or departments in an organization. It has everything to do with where the authority, power, and influence reside within the organization and how much resistance to change exists.

Even a gargantuan organization, like the United States, can move incredibly quickly when the mass is coalesced. Just remember 9/11 and the Patriot Act. But even a two person organization, like a bad marriage, can move incrediblly slowly, resisting any change that appears to benefit one partner at the expense of another.

When it comes to change management, don’t think ‘small’ or ‘large’ organization. Instead think in terms of inertia and what must first be done to gather in the organizational mass in order to enact a change.

Mr. Arafoui went on to ask, “So, according to you, we couldn’t say that there are existing differences in the management of changes between MNCs or SMEs for example? Because change will anyways be determined by the company’s culture and resistance?”

There are obviously some more complexities to managing multi-national’s (MNCs) but the fundamentals of enacting a change are the same, regardless of size.

So how do you manage the greater the complexities in an MNC? Every successful complex adaptive system uses a common framework, language, and sequence to operate. This framework, […]

Venture capitalist and renowned blogger John Greathouse reviewed my new book Organizational Physics – The Science of Growing a Business on Forbes.

Lex’s new book, Organizational Physics, is compelling, as it applies the fundamental laws of physics to the world of business. By viewing companies through this prism, one can diagnose organizational problems and identify corresponding solutions, irrespective of a company’s size, the markets it serves or even the personalities of its senior executives – which makes the book a powerful toolkit for business leaders.

Read the review.

Join Lex for a virtual book tour of Organizational Physics – The Science of Growing a Business.

During this 50 minute call, Lex will talk about the key concepts of his pre-release book (get a copy here), how to apply them, and answer your questions.

Space is limited to the first 25 callers. Copy and paste the phone number and code into your calendar.

Join in, ask questions, get inspired. I hope to hear from you on the call. Thanks!

The notion of getting more energy than you give from your key relationships can be a hard one for successful, driven people to embrace. It’s especially hard for entrepreneurs in the heat of battle to even fathom. How will a company that’s cost so much blood, sweat, tears, and capital ever pay back more than its cost? But making this shift from energy-costing to energy-adding is not only the key to greater happiness, it’s also the key to successfully scaling a business. Let me share a story to explain why.

A few weeks ago, I had lunch with a thirty-something entrepreneur and CEO. He runs a medical device company with revenues of about $10M. As we got talking, I learned a little about his history. He had started the business six years prior and fought through incredible challenges and turmoil surrounding his team, the market, and the investors. Like many entrepreneurs, he is in significant debt and double mortgaged on his home because every spare penny goes to the business.

Like every good entrepreneur and CEO, he was incredibly determined and willing to fight it out to make things work. But I could also tell that he was feeling worn down, beaten up, and resentful from the constant grind. His plan was to raise some more capital, get the company to profitability, and sell it off to a strategic acquirer. Then he could “take some time off, rebuild my marriage, and figure out what I want to do next,” he said.

Even though I knew he didn’t have the answer yet, I asked him, “Imagine you do sell the company. What do you think you’ll do next?” “I know I should know this,” he […]

When I was growing up, my grandfather used to tell me: “The key to communicating a new idea is to kiss your audience. Do you know what kiss means?” “Ah, no Gramps, I don’t think so and I’m sure you’re going to tell me anyway, so what does it mean?” “It means ‘Keep It Simple Stupid.'”

Grandpa was right but he didn’t go far enough. If I had to respond to him today, I would tell him the secret is “MAPS: Make a Picture Stupid” instead. This is because I’ve realized that, when trying to communicate and get buy-in for a new idea, it’s not enough to keep things simple. You can actually accomplish much more – and more quickly – by using concept maps, or visual representations of your idea. In fact, I would go so far as to say that if you can’t describe your new idea in one elegant picture, you haven’t thought it through well enough. You need to go back – literally – to the “drawing board.”

We live in a world of extraordinary complexity and noise – and the things that capture our attention tend to be the most iconic. In other words, it’s the memorable visual representations that stick with us the most. The data also shows that most of us are visual learners and thinkers. By translating complex concepts into simpler images and mind maps, we allow others to better grasp and conceptualize – as well as remember – them. Using images also allow us to bridge any gaps in background, context, vision, and values between us and those around us. It’s not surprising that the proverbial picture is thought to be worth a thousand words.

In the workplace, we’ve all suffered […]

If you’re like me, the journey to finding alignment between expressing a meaningful life purpose and growing a business has been arduous. On the one hand, you crave that deeper sense of meaning and contribution that comes from living your life on purpose. On the other, you need to make a living, support your family, and pay the mortgage – not to mention your desire for financial and time freedom. Too often these things seem diametrically opposed.

So how do you do it? How do you live your life guided by a deep sense of purpose and, at the same time, have a meaningful and prosperous career? Although it took me years to find the answer, I ultimately realized how anyone can find that alignment. In this article, I’m going to show you how. But first, I need to debunk an all too common myth about money.

Do What You Love and the Money Will Follow? Not Even Close

“If you do what you love, then the money will follow.” I know you’ve heard that one before. Is it true? Nope. I admit that it sounds great. I know it sells a lot of books and tapes. But you’re doing yourself a huge disservice if you think that doing what you love will bring in the dough.

So what is the secret to financial prosperity? The answer lies in how you answer three simple questions:

1. Do you operate in a large and growing market opportunity?
2. Does this market perceive that you have unique capabilities that it desperately needs?
3. Do you meet those needs efficiently and in a repeatable manner?

Financial prosperity is pretty simple. If you can answer “yes” to all three questions above, […]

The following is an excerpt from Organizational Physics – The Science of Growing a Business.

If you’re a growth-oriented CEO, entrepreneur, or department manager, then you’re naturally under pressure to lead your business to greater levels of performance. You also need to do this in a fast-moving, turbulent, evolving marketplace. A lot is riding on your judgment and leadership and there’s little room for error. There’s time pressure, money pressure, market pressure—not to mention work/life balance pressure—that can all add to the difficulty of achieving success.

Complicating matters is that there are never enough time and energy available to accomplish everything that needs to get done. Using limited resources, you must drive success, build powerhouse teams, set the right priorities, and execute fast. And because the right plan is only as good as your team’s commitment to implementing it, you have to ensure constant buy-in and continually lower any friction that gets in the way.

That’s a tall order. If you’re honest with yourself, you’ll admit there are countless times when you’re feeling stressed, doubtful, unclear, or simply stuck. Sometimes your job can feel so thrilling, you can’t imagine doing anything else. Other times it feels so frustrating that you want to quit, move to Tahiti, and take up painting. All in all, you’ve chosen a career path filled with adventure, danger, excitement, and the opportunity to manage one mini-crisis after another.

As a wise leader, you have learned to trust in your own experience. But you also keep an eye and ear open for valuable insights and perspectives. In this regard, there are countless management theories and organizational practices that you can choose from. There are top-down, bottom-up, agile-iterative, data-driven, design-first, customer-oriented, outcome-based, decentralized, centralized, democratic, autocratic, process-driven, lifecycle-stages, […]