Deep Smarts: How to Cultivate and Transfer Enduring Business Wisdom

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Summary: An remarkable book for business managers.
Review: Leonard and Swap have written another great book. I gave their first book, When Sparks Fly, to countless frustrated managers with whom I've worked and have already told several VCs and, oddly enough, national security mavens, about this book. For those familiar with Leonard and Swaps's work, you will not be surprised by the useful insights they provide that are not written about elsewhere.

Their basic premise is that not all employees contribute equally to the success of a business unit or company. Some employees have an uncanny ability to identify profitable market segments before the competition, correct failed design plans before problems occur, or assemble a team quickly to solve difficult problems. They can't run the entire business by themselves, but their knowledge helps to keep their businesses in tact.

Unfortunately, managers often value these experts by their absence. When those with critical expertise leave the company, the void may not filled in time to stave off partial or complete collapse of a business unit or entire corporation. Those with deep smarts can be vitally important to a collective endeavor, and when they're gone the trouble just doesn't stop.

Harvard Business School emerita professor Dorothy Leonard along with Walter Swap, the former dean of Tufts and a professor of psychology, explored the world of "knowledge stars" by interviewing people at 35 companies in the U.S., Hong Kong, Singapore, India, and China from 2000-2002. Their interviews reflect the humanity of those involved in building businesses: the star talent, the aging egos, insecurities, cultural differences, social beliefs, and deeply useful skill sets embedded in those who are truly expert. These people include superstars, such as venture capitalist Vinod Kholsa who helped found Juniper Networks, to managers of projects with mixed success rates, such as the Mars Pathfinder missions, and those now anonymous entrepreneurs of defunct Internet companies. The authors dig deep into the structure of these companies to pinpoint how things went right, and where they took a turn for the worse.

The authors defined "deep smarts" as accumulated knowledge, know-how, and intuition gained from extensive experience. Deep smarts are more than competence, but "the ability to comprehend complex, interactive relationships and make swift, expert decisions based on that system level of comprehension but also the ability, when necessary, to dive into the component parts of that system and understand the details." These individuals have capabilities that those with less expertise do not have, allowing them to interpret small variations in data that elude novices, make decisions quickly, or know when they are encountering a rare event and evaluate its possible outcomes quickly. This level of expertise often requires ten years to develop and they get results that novices and those who are merely expert cannot.

Because the study took place at the end of the Internet boom, it's particularly helpful in sorting out the complicated reasons the world was infatuated with novice entrepreneurs and what we needed to have been looking for all along to build or invest in lasting businesses. Specifically the authors found that when the capital markets froze, the novices had little to no expertise in managing in times of scarcity. They contributed to the downfall of what could have been good businesses. Those with deep smarts had lived through both ends of the capital market swings as well as in a middling market. They could manage through scarcity and still identify good opportunities­at least they had a better shot at it than the novice managers.

For those structuring businesses, identifying employees who could work in a myriad of economic scenarios turned out to be more important than thought. It remains a critical lesson of the Internet boom for those who now working with different cultures or with complicated futuristic technologies or in universities where top talent is expensive to recruit and choices have to be made carefully.

Deep Smarts is an important book to read for both the argument it makes ­deeply expert people matter­as well as for the practical advice embedded in the "Keep in Mind" lists at the end of each chapter. These lists help managers recall the key findings of the study, something you'd want to take stock of when planning for the next year or in evaluating an expensive hire. The chapter "Assembling deep smarts" lists tick off the choices involved establishing a trust of talents. A list at the end of the section about developing expertise there's a section about why experts fail­overconfidence, an inability to communicate, or even ignorance. (In new markets, there may not be an expert.) And a section on "Transferring deep smarts" helps you realize what is realistic and how to establish appropriate goals. Such lists help a manager quickly focus on identifying pockets of critical business wisdom and how to structure a fighting chance of transferring these valuable skills while there is still time to effect such a change.

Swap and Leonard have compiled an impressive set of work on creating, structuring, and sustaining sources of innovation in businesses. Both independently esteemed scholars, their last joint effort, When Sparks Fly is a terrific read about group creativity and its challenges. (Leonard's groundbreaking Wellsprings of Knowledge remains one of the best books around on establishing, sustaining, and protecting corporate innovation.) Deep Smarts is an essential and important contribution to business literature, because it adds their careful research, clear writing, and their own significant deep smarts to the vital topic of business talent and wisdom transfer.