Category Archives: Decision Making

Starting Something

I have been blogging for a while (has it really been 10+ years?) about business and sales and the situations that arise in both. It’s been fun. I figured it was time to actually listen to some of the things I was saying and put them back into practice, again. As time passes and our work evolves it is easy to leave some of those things that we learned and enjoyed behind. To wit, a couple of weeks ago I opened my own little sole proprietorship business. I’ll spend a little time talking about it, what I learned, and what I relearned in the process.

First off, for those wondering, I didn’t quit my “day job”. I still enjoy it and need it to pay the bills, or more importantly pay for the medical insurance that helps pay for my son’s insulin for his Type 1 Diabetes. In case you were not aware, the price of insulin has increased one thousand percent in the last fifteen years. Yes, that means that insulin now costs ten times what it did then. But it’s actually cheaper now to make. Make of that what you will.

Without insurance it would be a significant financial hardship in addition the other problems it presents for him going forward.

In any event, I am still in the technology and services industry. I find that even though we can and probably should apply many of the things we learned before, to today’s issues, our new processes, outsourcings and corporate structures may make it a little more cumbersome to do so. We seem to have less and less capability to provide input into our own business decisions and directions in today’s process driven business environment. This is part of the reason I have taken on this additional endeavor.

The first order of business (if you pardon the blatant pun) was to get all the state licenses, company names and banking accounts set up. This is the equivalent of starting your company, putting your sign out on the door, and setting up the place where you get, and send your money. It needs to be separate from your personal finances. It would have been easier to just use the accounts we had, but if you are going to do it, do it right. It also makes it easier to keep score on how well, or poorly you are doing.

The business I chose was probably at the other end of the business spectrum from technology equipment and services. I wanted a full separation of functions. There can’t and shouldn’t be any conflicts of interest. This is strictly an after-hours business. I’m making game-boards and games out of various metals in my garage. I don’t think I can get much further afield than that from my day job.

Setting priorities and remembering whose clock you are on at any given time is a requirement. You cannot cheat those who are paying you when you are on their time, and you cannot cheat yourself when you are on your own time.

Like any good Product Line Manager, I had done my market research in looking at what types of similar products were out there (you truly can get just about anything from China, or eBay for that matter). I also looked at the relative prices to make sure that I could actually make a profit at the then going rates for competitive products (another business case). Finally, I looked at the various types of suppliers that I would need, both local and on the internet, for my piece parts. Thank goodness for Home Depot.

The next was acquiring the raw materials I would need to create the goods I would sell, as well as the equipment I would need to make and finish the products. These would be my sunk costs. Regardless of my success or failure, I will not get my money back from these expenses, unless I earn it back.

This brought up the first set of business cases. Do I go for the high-end expensive equipment that could make the work easier and help generate a higher quality product, or do I go a little less expensive, take a little more time, and rely more on my skills to save money, at least initially? I didn’t choose either end of the spectrum of equipment but did tend to go toward the less expensive brands and platforms to start.

I felt that these would get me started and reduce both my capital risk as well as my breakeven point for the business.

Then came the learning process. Just because I thought I had a good idea and a plan didn’t mean that I had it all figured out. As I started producing products the learning curve kicked in. I learned which components were better than others. I learned which manufacturing techniques worked best for me. After a few tries, I started to produce some products that I thought were of an acceptable quality level.

Now that I had products that I was happy with, it was time to see if customers would be interested in them as well. There were essentially two discrete paths to market for the products I was creating: Face to Face (F2F) at business and craft trade shows, and over the internet on the various electronic market places that were available. To start I selected the internet / electronic marketplace approach.

I made this selection for a couple of reasons: The start-up cost of this approach was minimal (basically the cost of creating a product listing on existing market place web sites), the charges were directly proportional to the amount you actually sold, there was a predisposed customer set that used them, and the mercantile systems (Credit card, charging, collection, payment) were already in place. The two I started with were eBay and Etsy. Both well known and respected

Trade shows require an investment / entry fee up front, regardless of whether or not you make any sales, as well as the investment of real-time attendance at the show in order to make any sales. I did not feel I could make these overhead investments at this point in time for the business I had chosen. They would also require some sort of Point of Sale (POS) system in order to conduct business with credit cards, the now preferred way for most to do business. I have signed up with one (Square, mainly again because the upfront investment was minimal, and the expense would only grow as my sales grew), but am still not fully operational yet.

I will continue to prepare and will eventually go to some of these F2F shows for a couple of reasons. One is to get the direct feedback from dealing directly with a customer. The other will be to test this channel to market for profitability. Could I actually sell enough at one of these shows where the profit (not the revenue) generated would cover the upfront costs of entry, and time spent and again provide profitability?

In addition, I needed to create a web site where I could both tell my story and display my products. This blog has been and is hosted by GoDaddy. I have written in the past regarding the quality of their service and support. Please look up “A Great Service Story” (March 7, 2019) for my views on them. I used them to create https://metalgames.biz/. They had some great tools to aid in the rapid set-up of the site.

Again, I held off on creating the commercial system for taking orders directly from my website due to the upfront costs associated with setting it up. Instead I opted for links from each product page to my Etsy site (https://www.etsy.com/shop/MetalGames?ref=ss_profile ) where I could take advantage of the existing commercial system. There may come a time where I do set up the Point-Of-Sale system on the web site, but for right now, I felt managing the business’ cash-flow was a little more important.

So, there we go. I’m now in business. https://metalgames.biz/ and https://www.etsy.com/shop/MetalGames?ref=ss_profile are both live and believe it or not doing business. It may be primarily for personal enjoyment, but that doesn’t mean I will not take it seriously. To date I have received two orders from eBay and four orders from Etsy. I don’t think that is too bad for having been up and operational for approximately three weeks.

This has brought up the next several issues associated with Inventory and Fulfillment when it comes to getting the product into the customer’s hands in a timely, efficient and economic manner. With such a small number of orders one would think that this would not be a significant issue, but it actually is. In fact it is a bigger issue than I had expected.

Marketing and Advertising will also be interesting topics for discussion.

All costs affect margins and profitability. Being a small business means that you cannot take advantage of any volume-based efficiencies, for either the components associated with production, or the costs associated with shipment and delivery.

I will go into these topics (and others) and what I learned about them some other time.

The bottom line is, that it is fun. Even though I am making games, I don’t want to treat it as a game. If it is going to be a business, even a very small one, it deserves the attention and respect that is required to make it successful. I’ll keep you all posted as this evolves.

Process Purpose

With the continued increase of the process-oriented approach to all facets of business, a new phrase has found its way into almost every business conversation and lexicon: “How do we fix the process?”. Immediately upon hearing this, it is not uncommon for multiple teams to set up multiple cross functional calls, across multiple geographies and time zones to discuss the problems. Multiple issues will be defined with the process, and multiple action items will be assigned.

We are no longer fixing business problems or issues. We are fixing processes. Much of the generated activity and churn associated with fixing the process might be avoided with the simple act of stepping back and first correctly understanding what the purpose of the process is.

Many times, we all take it for granted that the process is there to help employees perform their required tasks. We associate processes with making things go faster. Making tasks easier to complete. Sometimes this is the case. Many times, however, maybe not. I’ll provide a few generic examples.

Long ago, in a galaxy far, far away, back when I was relatively new to business, I remember there used to be a very special place where companies, business units, groups, teams, etc., kept a very special resource known as supplies. Supplies usually consisted of the little things that made it easier for employees to do their jobs, such as pens, pencils, paper, notebooks, staplers, tape and tape dispensers, highlighters and the like. When people needed these supplies, they would go find the person that had the key to the supply location, get access to it and select the supplies that they needed to continue efficiently performing their job.

As time passed and costs and cash flows continued to draw greater and greater attention from the company’s financial community, it was decided that this anachronistic way of providing employees supplies was not in the company’s best interest. It may have been efficient for the employee, but not for the company. Seemingly random and untracked amounts of money were being spent on supplies, and then these supplies would just sit idle (reference to the utility of money and cash flow) somewhere, waiting for someone to come by and use them. And then there was no specific process or methodology to be able to track who was actually using these supplies.

Unaccounted for money and expense was sitting in supply cabinets everywhere.

The result was that associated support teams and their supply budgets were reduced. And usually in their place a new process was created where individual employees would then have to access the on-line purchasing systems themselves where they could then order their required supplies.

Now admittedly the preceding topic has created an exacerbated issue in that it does require a change in employee behaviors. In the past, an employee would wait until their pen ran out of ink, or they used their last piece of paper before going to the supply location and getting more. Now they had to take into account the added time and complication of gaining access to the supply ordering system, and the delay associated with the supply provider delivering the desired supplies, and the internal delivery system to get desired supplies from the loading dock to their office.

What used to be a simple walk to the supply location to get any required supplies, had now become a multi-day, multi-system, multi-approval ordering process.

Now a days, if you need supplies, you had better plan ahead. Or you can just run by the office supply store yourself, and buy your own supplies. Either way, the corporate goal of the new office supplies process has been achieved: the amount of money the company spends on supplies has been reduced.

The point I am making here is that the supply ordering process was not implemented to make it easier to order supplies. It was put in place to reduce the amount spent on supplies. It was put in place to reduce the amount of money the company has tied up in supplies, sitting in some supply cabinet, waiting for someone to come by and get them.

The same can now be said just about any process that involves the expenditure of company funds. Travel approval policies are not there to make it easier for people to travel. Hiring processes are not there to make it easier to hire people. These processes are not put in place not to make it easier, or faster to perform these functions. They are in place for corporate tracking and control.

Just because they take extra time and require multiple approvals does not mean they are broken processes. In many instances it means that they are working as planned.

On the other side of the coin, we can look at those processes that are associated with the provision of the product or service that the company sells in its selected markets.

Sales people inherently understand that the relatively cheaper a product is versus its competition, the easier it is to sell and the greater the probability for a successful sale. Companies that vest too much uncontrolled authority in the sales arm have a tendency to experience lower margins and profitability, as sales tries to press for lower prices.

As proof of this point, would you be willing to go to the gas station across the street to buy their gasoline if it was five cents a gallon cheaper? How about two cents a gallon? There is always a point where convenience and timing can outweigh price differential, but in today’s cost intensive world price always plays a key role in everyone’s purchase decisions.

Sales and pricing processes are then normally put in place to enable business management to have greater influence on pricing in an effort to achieve desired profit levels. These are not processes designed to make it easier to create quotes and provide lower prices. These are processes designed to put checks and balances in place that protect the company’s profitability.

If you are a sales person attempting to compete for a customer’s order, they are an impediment and hindrance to your potential success. They are a broken process that is making it more difficult for you to obtain the order.

They are also probably the result of someone (or multiple someone’s) demonstrating bad judgement. Somewhere, sometime, someone probably knew that a price that was supplied to a customer was probably not in the best interest of the company as a whole, but did it anyway in order to get an order. The individual goal was achieved, but the corporate profitability suffered.

I have said many times that process is implemented as a substitute for judgement. In this case, bad judgement.

Sales people inherently know that the company must be profitable, if it is to continue in business. Margins must be at sufficient levels to meet the numerous business objectives such as paying for expenses, investing in new product development, paying sales commissions and providing a reasonable return to its investors.

Unfortunately, most sales incentive plans are focused solely on obtaining a top line order level. This is the objective that drives sales people to try and drive prices down, thereby making it easier for them to sell. It is also contrary to business objectives listed above.

In this situation there would be two key aspects of the business structure creating friction. The physics definition of friction is:

“… the resistance to motion of one object moving relative to another.” https://www.livescience.com/37161-what-is-friction.html

One trying to move price down, and one trying to increase prices. Process or not, this is inefficient for the company and creates waste.

Instead of creating a process to govern a function that generates corporate friction, which I would liken to the “stick” approach to problem resolution, (removing independent thought and decision making capability from those closest to the customer) I would suggest that It might be better to implement incentives that encourage the desired behaviors, or the “carrot” approach.

What might happen if the company offered the incentive of increased commissions to sales with higher margins, and at the same time offered the deterrent of significantly reduced commissions on sales with lower margins?

Instead of creating a process that can become an obstacle to the desired event (getting office supplies, or generating competitive customer offers and proposals…) which must be dealt with, or in some instances overcome, why not reexamine the event (and judgement point) that is driving the creation of the proposed process? Aligning individual, business unit and corporate goals, with appropriate incentives and deterrents for specific behaviors could be a much more efficient way of dealing with the issue.

With this approach in mind, it might be found that much of the effort that may be currently spent on “fixing the process” can be refocused on solving the underlying business issue and need. This is because, as has just been demonstrated, just because a process is not helping the individual be more effective and efficient at doing their job, does not mean that it is a broken process.

Globalization and Regionalization

I have had the opportunity to work for several different organizations in both global roles and regional roles. They are as diverse in their approaches to business as they are different in their drivers. As Captain Obvious might say “Well, duh”. However, I thought I might spend a little time looking at why they are so different. What factors contribute to what appears to be an ongoing, never ending conflict of business imperatives between the global business and the regional business unit.

Global businesses are driven to try and do everything only once. That means they try to create single products that can be sold and implemented in multiple regions. The same would also be true of their services. Global businesses try to create single business processes and business structures. They then try to make the regional business units fit this ideal as closely as possible.

This is all based on the global business’ desire to minimize costs and associated overheads.

If you can do things only once, you don’t have to put multiple products, or redundant business support infrastructures in place. This keeps your costs down.

It is also a very internally focused approach to doing business. As we have all seen, when your internal drivers outpace your customer focus, you are probably in for some difficult times in the very near future as your competition outplays you in the customer environment.

Regional business units are usually put in place to deal with a specific (regional) customer set. This can usually be due to language, regulatory, cultural, or any number of other factors associated with and specific to that region. By their very nature, and the limited customer set that the regional organization focuses on, they are primarily externally focused. They want products and services that have been specifically modified and adapted to their specific customers’ desires.

As we have all seen, when your customer focus overwhelms your internal cost concerns you are also probably in for some difficult times as your costs and support issues drive your profitability down.

I think herein lies the root of the “push-me, pull-you” issue between global and regional organizations. Global organizations want minimal diversification of their products, services and processes in order to keep the associated costs at a minimum, while regional organizations want multiple, specific customer and cultural variations that directly relate to their specific customers.

So, what can be done?

Sometimes one of the regions emerges as the “lead” region for the organization. Again, usually, but not always the lead region is the region where the global organization is located. This is the region where the provided product or service gets the most traction, or generates the most revenue. This “lead region” has a tendency to create a resonant “do loop”.

The lead region provides its input to the global organization as to the customer specific variations that they need or want, and the global organization responds to them first since they are generating the most return for the organization’s investment expense. Since the global organization wants to minimize the total number of variations that they must support, the other regions are usually left to try and adapt to the lead region requirements.

Customers within in the dominant region get their requests responded to first and hence maintain their lead position by then making the purchase decision, where the other regions’ and their customer specific requests are forced to wait, if they receive their requests at all. Since there is always competition in every region, those customers within the secondary regions tend to remain smaller since their product and service requests are not met as well or as quickly as those of customers in the dominant region. The secondary region customers have a tendency to utilize other suppliers if they wish to have their needs met on a level that more closely meets their needs.

This phenomenon is equally applicable to both the customer product (external and customer requirements) and business process (internal and cost directives) associated with both the regional and global organizations.

While Darwin was a champion of the survival of the fittest, that is little consolation to the secondary region within a global organization, when it is simultaneously told to grow, but cannot get the regional specific needs of their customers, or business processes quickly or adequately addressed.

As an example, there are few things more ubiquitous in the business world today than the laptop or personal computer. Everybody has one. And size matters. But not how you might at first suspect. In the business world, the smaller the laptop computer an executive has, the more important they are. The really important people do not carry a laptop at all. They have someone who carries it for them.

But I digress….

Instead of making country specific laptops and computers, vendors make a generic computer with country specific plugs and charger cords, since very few countries enjoy using the same wall outlets or power structures. They have a global product with specific regional, or country adapters. It works great.

Unless you take your laptop to another country. Then you need another adapter.

What I’m getting at here is that even something as ubiquitous as the laptop needs to be adapted to almost every region and country. And when a laptop that was designed for one region is taken into a different region, it needs another adapter.

I think that sort of implies that almost every other product, service or process will probably need the same type of adaptation treatment for each of its targeted regions.

On the other side of this argument, it can be said that not every country has a market opportunity sufficient to support its own specific product or process set. It is in these types of instances that again as Captain Obvious would again say “well, duh”. Hence, relatively similar countries get grouped into regions where similar market characteristics can be addressed.

This doesn’t mean that they are all the same. Just similar. We all know the basic beak-downs, North America, Latin / South America, Europe, etc. Within these regions we might see some further specification such as Caribbean or Southern Cone in the Latin American region, or Benelux and Scandinavia in Europe.

So why all this grouping and sub-grouping of regions and their respective organizations? Partly to reduce redundancy and overlap of cost structures, but also to more clearly enable what should be that bastion of business, the business case.

By accreting organizations upwards, (hopefully) business cases can be made for the appropriate level of diversification / specification of the products, services and processes to specifically service that region. Or at least one would hope that this is the case.

Again, the problem here will be that the business cases of the lead region / country will almost always be stronger than even those of the secondary regions. So, what can be done?

The solution will lie with the business focus.

If the business focus is on cost containment, increased profitability and process unification, the needs and desires of the regions will be deprioritized in favor of global approaches and processes in the name of cost containment and simplification. This will normally be the case with both “cash cow” and lower margin businesses. Businesses associated with older technology products as well as businesses associated with services will usually try to drive to this one size / one process fits all reduced investment and increased earnings optimal state.

In this case, the desires and needs of the lead region will probably drive the directions and processes of the entire global business.

If the business focus is on revenue growth, that means specific customer requests and requirements must be responded to in order to obtain the desired customer commitments. This means the specific needs of each region will need to be addressed within the global organization plan. Prioritizations regarding which customer demands are responded to first will still be made, but there will be an extensive set of delivery plans to make sure as many specific regional requests as possible are met within the desired time frames.

The net result of globalization versus regionalization is that neither organization will ever be entirely happy. Regional business units will never get all that they want in the way of customized products, services and processes that are adapted to their specific needs. Global businesses will never be able to get their one size fits all cost utopia. There will always be a spectrum along which these items will lie.

The more internal the focus of the topic or the business, the more globalized the approach. This seems to particularly be the direction for anything associated with internal organizational systems and processes.

Businesses associated with older technology will probably also find themselves with less R&D funding available for region specific developments, as that funding will probably be utilized on newer products.

Services businesses, which normally also operate on a lower margin business case will also probably find themselves trying to regionally find a way to adapt as closely the one size fits all approach of the global structure as possible.

It will probably be only those high growth or high margin businesses that will enjoy the opportunity to access full customer responsive regionalization. This will normally be because they are the only types of products (and services) that can afford the investments that regionalization requires.

This further supports the golden rule of business: Those regions that deliver the gold, get to make the global rules.

Not Making Decisions

I think we have all probably had the opportunity to work either for, or with people who when presented with a decision-making opportunity would actively avoid making the requisite decision. This is an interesting phenomenon in business, and one that seems to be far more common than anyone might expect. We all have been indoctrinated (well, obviously not all, the subjects of this article seem to have avoided this indoctrination) from early ages that leaders advance in business because the make good decisions. They are right far more often than they are wrong. They seize the moment. They are proactive, not reactive. They are the masters of their own fate. Why then does it seem that there so many managers around in what should be positions of what should be leadership, if they actively avoid making a decision when the time comes to make one?

I had been contemplating this decision-avoidance management style for a while, when I saw a Facebook posting that pushed me over the edge into writing about it.

Yes, Facebook.

I mean, after all, if you see it on Facebook, it has to be true, right? Twelve thousand Russian internet trolls can’t be wrong, can they? But I digress….

The following is the post I saw (It was actually re-posted by a friend of mine. Below is the actual URL):

(https://www.facebook.com/REALfarmacyCOM/?hc_ref=ARTa6SNGQ99wX_NW_jDp2bf-MzzSqL-Lr1SXCVjnWX09uq0fonu7AiT5_p8DhES1MLM)

It was originally a much larger post, in what was obviously an effort to assure attention, not to mention veracity, by being that much larger than anything else on the screen at that time.

It is also in my opinion, patently wrong.

It has been my experience that the decision avoidance approach to management must be a viable approach to business, especially for those with what is referred to as “bad judgement” (or judgment challenged, if you prefer) based on the number of managers who seem to avoid making decisions. Many have survived and even flourished in business without being decisive. More on this in a moment.

Peter Drucker is a famous business management leader, consultant and writer in the twentieth century. He said:

“Whenever you see a successful business, someone once made a courageous decision.”     (https://www.goodreads.com/quotes/451403-whenever-you-see-a-successful-business-someone-once-made-a)

On the surface, this is correct, but only as far as it goes. Making decisions is good really only when you make the right decisions. Being courageous and wrong in your decision making is probably a good way to end your employment. Drucker probably should have said:

“Whenever you see a successful business, someone once made the correct courageous decision.

The difference is small, but crucial.

Almost every business will try to tell you that they value risk takers and encourage their teams to take risks, and that risks are good, and we should all risk, and so on and so forth.

What the business is really saying is that they want you to take risks, as long as you are correct, and the risk works out. What I have observed is that while companies say that by taking risks and being wrong, there can and will be a learning experience, the usual item that is learned by the risk taker is that they shouldn’t have been wrong. This conclusion is invariably arrived at later, normally in the process of looking for their next opportunity.

This would then lead us to the slight modification of the Facebook post, so that it would read in the following way:

Be decisive.
Right or wrong,
make a good decision.
The road of life
is paved with
Flat Squirrels
Who made a
Bad Decision

This revision of course begs the question:

Who wants to be a flat squirrel?

We now understand how the decision avoidance approach to management has come about. The up-side to making multiple good business decisions is that you may get the opportunity to make more, larger and more important business decisions. The down side is that if you make one bad decision, there is the potential to become a flat squirrel that will not be given the opportunity to make any further business decisions in the future. This sort of risk-return associated with business decisions results in driving many to avoid making decisions.

So, with this in mind, how do managers who won’t make a decision appear to become leaders?

The answer is the same with all questions of this type: Very carefully.

When presented with a decision-making opportunity, instead of making a choice, most managers will opt for pseudo-decision-making activities that will give the appearance of taking action, but will not directly subject them to the decision making risk. Examples of these activities can be:

Socialization, where the decision options, criteria and possible outcomes are presented to multiple other entities. This can result in opinions and responses with suggested options, or even just general feedback that can be used to diffuse the decision source and responsibility.

Discussion, where a meeting is called where the decision options are discussed and presumably the best option will be chosen. This process can actually take multiple meetings, depending on the amount of research that may be called for. Again, the result here is the diffusion of the responsibility for the decision. It is no longer a single manager, but now a team or group decision.

Escalation, where a decision avoiding manager can escalate the decision, either directly or indirectly, to a more senior level where it can then be made. This usually happens when a decision / risk averse manager reports to a decision inclined supervisor. In this situation, this kind of decision behavior may actually be encouraged.

And delaying, where the decision is put off or postponed long enough for the required decision option to become self-evident enough that there is relatively little risk in finally selecting it.

There may be many other behaviors and responses that can be observed by decision avoiding managers, but I think these are probably the most prevalent.

So, what does this all mean? Is decision avoidance an acceptable management style?

I think the answer is yes, and no. It has proven to be a workable strategy for many either risk averse, or judgement challenged, people. The proof lies in how many of these decision avoiders exist in management. But I think it is by nature a strategy of limited potential. If the goal is a middle management low risk and lower reward position and career, then it can probably be a workable approach. However, I think regardless of your preferences or career position there will always come a time when a decision will need to be made.

It may be small, or it may be large, but there always comes a time in business that will call for an answer. Those with decision making experience (analytical skills, judgement, etc.) will have an advantage. Those that don’t, won’t.

These instances are definitive examples of what is known as “The Peter Principle”. The Peter Principle stems from:

“Observation that in an hierarchy people tend to rise to “their level of incompetence.” Thus, as people are promoted, they become progressively less-effective because good performance in one job does not guarantee similar performance in another. Named after the Canadian researcher Dr. Laurence J. Peter (1910-90) who popularized this observation in his 1969 book ‘The Peter Principle.’”
(http://www.businessdictionary.com/definition/Peter-principle.html)

The Peter Principle would lead us to believe that eventually a decision averse manager will find themselves in a position that will require the ability to make good decisions. After all, as Peter Drucker noted, business will eventually come down to making a courageous (read: correct) decision. Unless they have been keeping this ability in reserve, or well hidden, they will have then reached their upper limit on their management mobility.

It would appear that the successful method of applying a decision avoiding management strategy is to not desire or aspire to a role of such a level of responsibility that it requires a number of high visibility decisions to be made.

I don’t know of many business managers that knowing opted for the decision avoidance approach to business. I do know of some (I think we all do) who may have drifted into this business approach. It would seem to me to be a seductive, but probably slippery slope that could lead managers in this direction. The avoidance of issues instead of the difficulty of dealing with them can be attractive. If the opportunity and capability to do this was made available, there would of course be some who would take advantage of it. Matrixed organizations and well rooted processes for dealing with all manner of issues that will ultimately require a decision of some sort to resolve, may actually begin to drive this type of behavior.

It is at times like these that I hear the lyrics to the Rush song “Free Will” off of their 1980 released “Permanent Waves” album.

Yes, I listen to and appreciate Rush. I also applaud their finally being inducted into the Rock and Roll Hall of Fame in 2013.

The passage that comes to mind is:

“….You can choose a ready guide
In some celestial voice
If you choose not to decide
You still have made a choice….”

(https://www.rush.com/songs/freewill/)

Wow, Facebook (Decisions), Peter Drucker (Decisions), Laurence Peter (The Peter Principle) and Rush (Decisions) all in one business article.

Question Everything

One of my favorite shows just started its eleventh season. It is the X-Files. Watching agents Moulder and Scully deal with various supposed conspiracies, monsters and other abnormal behavior associated with aliens (the science fiction ones, not the terrestrial, international border crossing ones), the various hidden agendas and conspiracy leaders obviously got me to thinking about all the parallels that can be drawn between the television show and what actually goes on in business. In the X-Files it is said that “the truth is out there”. That may not truly be the case in business, although one would hope so. With that being said, when searching for answers out there in business, it may be best to remember this little gem: Question Everything.

Since we are crossing the science fiction with the business schools of management here, we probably ought to start with a quote from one of the greatest science fiction writers of all time, Robert Heinlein. He said:

“If “everybody knows” such-and-such, then it ain’t so, by at least ten thousand to one.”

There have been many instances in my career where I have taken on a new role where the phrase “Challenge and opportunity” was involved. At first, I thought this was a management code phrase for a bad thing because that was what those around told me it was. They all knew that the issues and challenges plaguing the operation were deep rooted, endemic and impossible to fix. Many had gone before me and none had been successful.

What I learned was that these challenges and opportunities really are opportunities. They should be sought out, not avoided. They are not easily solved or corrected, but few issues in business ever are. The truth that was out there, was that the solution was not to be found in fixing the issues that others had supposedly identified and already (unsuccessfully) dealt with. Everybody knew that those were the only real issues, and everybody knew that none of the solutions that had been applied worked.

And as Heinlein noted everybody was usually wrong.

When I first take on a new opportunity and challenge, I probably ask a bunch of dumb questions. There are many who think that is the only type of question I am capable of asking. I could see the exasperation on the faces of those that I asked. I was new to the role. I wasn’t fully experienced in it. My questions were probably dumb. It is not a bad thing to own the truth.

That was okay. As I got smarter about the situation, so did my questions.

Invariably I ended up coming back to the original dumb questions. These were the ones that were usually answered with lines such as “That’s the way we do it” or “That process evolved over time” or “It was the result of an event that occurred several years ago”. These were in effect the “everybody knows” we do it that way response.

The eventual solutions invariably came from questioning these “everybody knows” basic tenets of the unit’s operation. Just because that was the way it has been done, doesn’t mean it is the correct, or proper way to do it.

I found that most issues associated with the “challenge and opportunity” performance of a business stemmed from the basics of how the business was set up to run. Too many times it is the symptoms associated with the improper basic assumptions or alignments of an organization that are focused on. These are the easiest things to see, and hence the most visible to treat.

Notice that I said treat, not cure.

If a business performance issue is large enough to be visible to management to the extent that it is felt that a change is needed, it is usually not a superficial, easily recognizable symptom, that is the cause. It usually relates to a basic way that the business is done. Treating a symptom does not cure the problem.

When it comes to this level of business examination, everybody becomes a stakeholder. Everybody has agreed to do it “that way”. And as a result, there will be resistance from everybody when it comes to questioning, and even changing what has been viewed by so many as basic to the way the business has been run.

This means that when questioning everything, be sure to do it on an individual level. When digging in to any organizational or operational can of worms it is best to do it on an individual basis. Jumping back to our science fiction, alien based school of business management thought, Tommy Lee Jones summed up this phenomenon best when he was discussing whether or not to let everyone on earth know that the earth was in danger of being destroyed by aliens in the first Men in Black (MiB) movie. He said:

“A person is smart. People are dumb, panicky, dangerous animals, and you know it!”

He was pointing out that people in a group will do, say and act differently than they do as an individual. There is much that has been written about the psychology of groups (and mobs). Most of what has been written is succinctly summed up in what the quote from MiB.

This is no different in business. Almost every individual, will separately acknowledge that a change must be implemented, However, when the individuals are placed in a group, the group will almost always unanimously state that no change is possible, or if change is in fact needed, it is the other groups, and not theirs that must change. This is the group fear of change and the unknown.

We have to remember that science fiction and change in business actually have a lot in common. I think Arthur C. Clarke, another great science fiction writer put it best. He said:

“…science fiction is something that could happen – but usually you wouldn’t want it to.”

When it comes to change in business, it can also be described as something that could happen, but usually most people don’t really want it to. Change means incrementing in risk on both an individual and group level. It is doing something that hasn’t been done before. It requires leaving the current comfort zone. It is as Captain Kirk intoned in the prolog to Star Trek (both the original series and the movies):

“To boldly go where no one has gone before….”

Not everybody is built to be that adventurous. Either in space exploration, or business. That is why process has been created, introduced, and flourished in business. Process is designed to reduce the need for judgment, and add predictability and hence comfort. It in effect, tries to remove the adventure from business.

As such, it also adds impedance and resistance to the need, introduction and acceptance of change. If everyone in the process knows and accepts their role in the process, then any change introduced to the fundamental functions associated with the business will probably affect all of their roles. No one likes to have their role affected by an external entity, regardless of who or what that entity is. Hence, they will either directly or indirectly resist or impede the proposed change.

This effect is usually the genesis of the everyone knows it can’t be done phenomenon.

This brings us to the final intersection between business and science fiction (at least in this article). Terry Pratchett, author of the satirical and humorous “Discworld” series of books put it best:

“It is well known that a vital ingredient of success is not knowing that what you’re attempting can’t be done.”

Not knowing that an issue “can’t be fixed” is probably the key to fixing it. If everyone knows that is the way that things are done, then it is probably a very good place to start looking for solutions. If everyone is resistant to change, then it is probably a good bet that change is what is needed most in that organization.

When changing, you have to question everything. Especially those topics which everyone believes don’t need to be questioned. This is precisely because all the topics that everyone does believe need to be questioned, have probably already been questioned, and didn’t provide the solution. The truth is probably out there, but if you don’t question everything, there is a very good chance that you will miss it in favor of the more easily digested and implemented symptomatic solution, which is probably the one that everybody knows is the right one.

And remember what Heinlein said about what everybody knows…..

Engineering Solutions

There can be no question that engineers are one of the cornerstones of any successful technology oriented business organization. It doesn’t matter if they are hardware, software, electrical, mechanical, chemical or even civil engineers. Their role and importance cannot be overstated. We need to be very clear about that. I will try to walk the fine line of discussing the work of engineers in business without sliding into the realm of picking on engineers in business. Wish me luck.

It has been said:

“With great power comes great responsibility”

The origin of this quote is attributed to two wildly different sources: Voltaire, the eighteenth-century philosopher, and Uncle Ben, the Spiderman character, not the instant rice one. Both are acknowledged as saying something close but not quite like this, hence the somewhat open-ended attribution.

If I have a choice I’m going with Uncle Ben. Just because I haven’t seen that many entertaining movies about Voltaire and the French Enlightenment. However, I am sure that Marvel Comics will eventually get around to it. Probably after Thor – Thirteen, or some such time.

Mark Twain however, is widely acknowledged as the source of this quote:

“To a man with a hammer, everything looks like a nail.”

I believe the modern technology equivalent of this statement is now:

“To an engineer, every question looks like it needs an engineering solution.”

Herein is where we get to the topic of engineering solutions. Engineers have a great power and responsibility when it comes to finding solutions to today’s customer based technological opportunities. A solution usually cannot be created, or implemented without them. Somebody usually has to put them together, and that somebody is usually an engineer.

Engineers have been trained starting in school to create the best solution. It usually entails a single variable. The strongest solution. The highest. The most secure. The longest. The tallest. Very seldom is there a scale or constraint added where there is some sort of trade off versus another variable. This can have a tendency to be the mindset that engineers use when creating real world solutions.

But even in this high technology, engineering dependent environment, it must be remembered that engineering is only part of the solution, not the entire solution. We are no longer in a time where a president can challenge a country to reach a goal, and the engineers can spend whatever is necessary to reach it. Doing things because they are difficult is a great challenge, but doing them within a budget is even a greater challenge.

About this time, I will have lost all readers that have an engineering degree, an engineering role or even just an engineering predilection. To mention that there are items other than engineering that are important to customer solutions, in their eyes can border on blasphemy. Unfortunately, that is the business world that we now live in. I have talked about this evolution before. It is the transition from the best solution, to the solution that is good enough. This idea is likely to drive engineers crazy.

Little things like money, time and resources must also be taken into account when creating a customer centric solution. This is because, contrary to standard engineering thought, the customer does not necessarily want the best engineered solution. They want the best solution that matches their money, time and resource constraints.

Engineers must be continually reminded of these real-world business constraints: money, time and resources. Otherwise it is not uncommon for them to develop the ultimate engineered solution, that is wholly implausible or unimplementable in the real world. It may be the best technical solution, but there will be very few that can afford to buy and implement it.

When engineering customer solutions, it is best not to think in terms of “absolutes”. Words like the “greatest”, “most” and “best” need modifiers otherwise engineers have a tendency to take them as literal objectives and work to them accordingly. This can result in some of the most elegantly over-engineered solutions imaginable.

Pareto Analysis is a statistical technique in decision-making used for the selection of a limited number of tasks that produce significant overall effect. It uses the Pareto Principle (also known as the 80/20 rule) the idea that by doing 20% of the work you can generate 80% of the benefit of doing the entire job. (https://www.projectsmart.co.uk/pareto-analysis-step-by-step.php)

Many think that it was the Italian economist Vilfredo Pareto who created the Eighty – Twenty rule. To a certain extent this is somewhat true. Pareto first observed that 80% of income in Italy was received by 20% of the Italian population. However, it was management thinker Joseph M. Juran who actually suggested the principle and its far wider applications. Because of Pareto’s observation and work, the technique was named for him. (https://www.entrepreneurs-journey.com/397/80-20-rule-pareto-principle/)

Business, in all its simplest forms, is about investment and return. How much you put in versus how much you get out. This is the basis for employment decisions (if the company thinks that a person will generate more value for the company than the company will have to pay that person in compensation, then the company makes the hiring decision), and it is that way in purchasing decisions (amount paid versus expected return), and it needs to be that way in generating customer solutions.

Customers are not blessed with infinite resources. As I have said, in many instances they cannot afford to pay for what may be considered the “best” solution. Time and money always come into play for them. How much must they pay for each solution? What definable value does the solution generate (reduced costs, increased sales, etc.)? When would they expect to see these returns (the sooner the better)?

Engineers are excellent at the quantifiable. It is the nature of their work. However, if left unchecked they do have a tendency to view costs, time and resources more as “variables” instead of “constraints”. This is where business and leadership reinforcement is required.

When working with engineers, boundaries and constraints are a necessity. An upper limit on costs must be set. This can be in the form of a specific number (The cost cannot exceed…) or a derived relationship (the customer requires a pay-back period of….) based on costs, value generated and specific time frames. This will enable the engineer to modify various combinations of these business variables, but also provide a limiting constraint on the solution.

This customer pay-back period can also be used to help generate the value limit as well. If as Pareto has asserted that first eighty percent of the value can usually be derived with the first twenty percent of the effort, then it should follow that each additional amount of engineering effort (or any effort for that matter) will only provide a continually decreasing return. If the desired customer pay-back is based on returns and time, there is a limit as to what can be engineered within the constraint. Only so much can be done before the cost or pay-back period are exceeded.

It should be noted that not all engineers are so single-mindedly focused on engineering solutions. I have had the opportunity to work with several who understood that good customer solutions are the result of many, sometimes opposing forces in the solution creation process. These are the engineers that have recognized that real world issues and solutions have both a cost and a value associated with them.

A few final comments and observations on the engineering of solutions:

The optimist will look a glass that is half full of water and say that it is indeed half full.

The pessimist will look at the same glass and say that it is in fact half empty.

The engineer will look at it and say the glass is twice as big as it should be, and will set about trying to engineer a smaller glass that will be much more efficient in the holding of that specific amount of water.

Before they are allowed to do that, it is best to check to make sure that the customer wasn’t all that thirsty to begin with, and the amount in the glass is all the water that they wanted at this time. It might actually save more time, money and effort than the solution the engineer would create.

There are probably many engineers that would like to argue this point of view. I have found that for an engineer, the next best thing to trying to engineer the best solution to a problem, is to argue about what is the best engineered solution to a problem. For those of you that have not had the opportunity to argue with an engineer, this is a good time to remember the following quote:

“Arguing with an engineer is a lot like wrestling in the mud with a pig, after a couple of hours you realize the pig likes it.” (anonymous).

Looking a Little Farther Ahead

I almost got hit by a truck the other day driving home from golf. Now a lot of you may be wondering what that kind of statement has to do with the nominal topics of business management and sales that I usually deal with here. I’ll get to that in a minute. For those of you that live here in Texas, you know that the word “truck” can cover a lot of territory. Everything from a go-kart with a toy wagon bed welded on, to a Peterbilt cab-over semi tractor-trailer. In this case I’m pretty sure that it was a Dodge Ram 2500 Crew Cab since the badging was at eye height as I looked out the window at it. In Texas, this qualifies as a “standard” sized truck. Anything smaller and you’re considered either a poser or a city-boy. Still, it outweighed my full-sized car by close to a ton.

Driving on the freeways in Dallas can usually best be described as a cross between bumper cars and playing a game of “chicken” at seventy miles an hour. As long as everybody abides by the same rules and speed, traffic seems to flow along reasonably, bumper to bumper at seventy miles an hour with a minimum of bad language and hand gestures.

However, occasionally there are those that appear to be unfamiliar with the freeway rules of the road, and opt for what I am sure they feel is a little more intelligently safer speed when changing lanes or taking exit ramps, and other such things. They also usually use their turn signals when performing these maneuvers, and equally importantly, turn off their turn signals when they are done. These people are easy to identify in that they usually have a very long line of impatient drivers behind them.

In this case, I was the then last car in such a line of several cars behind one of these drivers, as we all were taking an off-ramp which connected one high-speed freeway to another.

This position is the most feared position in all of Texas driving. You are going slower than everyone behind you, with little to no options of avoidance in front of, or to the side of you. You have a tendency to watch your rear-view mirror rather closely in such situations.

The SUV immediately behind me was a little slow on the recognition of the situation, but was still able to slow down and pull over to the left side of the ramp, but remained behind me. This maneuver on their part took them out of harm’s way and still left me fully exposed. The truck in question behind them however, did not seem to be as alert to the situation.

Did you know that even though they do not cause the loud, wailing skids that we are all accustomed to on television, you can still hear anti-lock brakes as they try to stop a large truck coming toward you? It’s sort of a staccato noise as the brakes bite and release as they avoid the skid. It is not something you really want to hear as it gets louder or closer.

At the last moment before hitting me, the driver of the truck swerved up over the curb on the ramp to the right of me. His truck came to a stop alongside my car, where as I noted earlier, I could very clearly see its name and size outside my passenger side window.

As traffic started to resume speed, I went ahead and let him pass me on the right. This is not usual protocol for Texas driving, but in light of the circumstances, I felt an exception might be in order. After a moment’s hesitation, the truck drove off and my journey home resumed.

So, here is where the business lesson for this event comes into play.

Most of the time we are all focused on what we are doing at that particular time. We are minding our own business. We are focused on our deliverables. We are paying attention to our deadlines. We have our own worries.

Occasionally we look up to see what the next step is. We have a process. We are preparing for what we must do next. We are looking ahead, but only at what comes next. We are aware that there are other factors that are coming into play. We are in effect checking the car in front of us.

For the most part, this approach will keep you out of most of the trouble that is out there. However, there will come a time when the expected events will not occur. The situation will present itself with alarming speed.

In other words, you could find yourself driving along in your big Texas truck, minding your own business, when suddenly the car directly in front of you dodges out of the way and you find yourself presented with the opportunity to smash into me from behind.

It’s not enough to only be aware of what you are doing and what those immediately around you are doing. On occasion, you need to be looking up and checking the horizon. What is coming into view? What are the competitors doing? Are they adding or deleting resources? What are the customers doing? Are they buying and spending, or are they delaying purchases? What are the analysts saying about the market in general and the company in particular?

Are there multiple cars up ahead with their brake lights on, and should you be prepared to, or possibly already be in the process of slowing down?

The combination of the increased reliance on process, along with the seemingly continuous growth in the reverence for the corporate fire fighter when the process fails, does not seem to mesh with this anticipatory approach to things. Processes have been implemented for the most part to reduce the reliance on this kind of judgement. It almost seems that the corporate fire fighter has been integrated into the process for those times when the process breaks down.

Sort of a “In case of Fire, Break Glass” kind of thing.

The lanes in business continue to be further refined by process. Dotted lines become solid lines, become multiple solid lines, become fixed dividers. If you don’t believe this to be the case, just look at any inter-organizational process flow chart.

It is very easy to focus solely on what you are doing. To perform your function in the process. The organizational structure and incentives now focus on that type of professional behavior. And for the most part, things can and do go relatively smoothly. Until they don’t.

Inevitably someone will miss a step, or improperly hand-off an incomplete work project, and things will unexpectedly slow down. Customers may decide to postpone their next purchase and wait for the next generation of product. Competitors may introduce new technology ahead of when it was expected. Foreign competitors may decide to instigate a new competitive approach based on price.

Processes are resistant to change, and will take time to adapt. They don’t come with anti-lock brakes. They have an inherent amount of momentum associated with them. Just like a speeding full sized, crew cab Texas truck. It’s not enough to be performing your operational duties in a vacuum. You need to be looking forward at the traffic and events in front of you.

Markets don’t provide plenty of warning when they are going to change. Customers rarely tell you when they are going to slow down or stop buying altogether. Companies usually don’t give you a pre-notice when they are going to have to react to the changes in customer and market status.

Looking out, looking forward, anticipating the changes in the business environment are still key to navigating in business. Processes are helpful in simplifying the immediate and making it somewhat more predictable, but it is still your responsibility to be anticipating those future needs and directions that the business environment will present you.

Now if I could just get the people in those large trucks when they following me to do that a little better.

Solutions, Costs and Confirmation Bias

It is said that beauty is in the eye of the beholder. I guess it can also be said that the best solution is also in the eye of the beholder. It probably also depends on who you ask. The problem is that the best solution depends on the relative criteria associated with the issue that requires a solution. It also depends on the lens that each individual looks through when they are trying to craft a solution.

Abraham Maslow was an American psychologist who was most notably remembered for his ideas on the hierarchy of human needs. That in and of itself is pretty cool in my book, but that is not why I am citing him here. He also said:

“if all you have is a hammer, everything looks like a nail”

and variants thereof, which is from Maslow’s The Psychology of Science, published in 1966.

And here-in lies the issue.

What seems to occur is that if you are trained as a lawyer, you are taught to view every issue from a legal standpoint. If you are a marketer, you view every issue from a marketing point of view. If you are in finance it is always about money. The view you have of business influences the view you have of issues and their respective best solutions. And so on.

This is absolutely the case for engineers. It seems that if you are an engineer, everything is an engineering problem, and therefore an elegant engineering solution is probably not only possible, it is highly desirable. For engineers, it doesn’t seem to matter what the specific issue criteria are. Topics such as cost and time required take a back seat when it comes to engineers. It always comes back to engineering the best engineering solution.

For those of you (like me) who are not engineers, and who have argued with engineers in the past, you will probably very clearly understand the following. For those of you who have not yet had the opportunity to argue with an engineer, be patient. I am sure that you will get your opportunity to argue with one in the near future.

There is an old saying regarding arguing with engineers. It is so old that no matter how I researched it (two or three variants of searches on Google) I could not find any direct attribution as to the original author. The saying goes:

“Arguing with an engineer is a lot like wrestling with a pig in the mud. After a while you realize that the pig is enjoying it.”

But I have digressed enough. With the possible exception of noting that engineers are usually much more associated with costs than sales. I’ll get to that in a moment.

The point that I am trying to make here in my own clumsy way, is to point out that regardless of what the defined criteria may be regarding an issue’s potential solutions, we all have a bias as to how we would go about creating our best solution. This type of bias has a specific psychological name: confirmation bias.

Between my earlier discussions regarding Maslow, and now confirmation bias, I seem to have taken on quite a psychological bent here.

Shahram Heshmat (Ph.D.) in his blog states confirmation bias occurs when we have formed a view on a topic, we embrace information that confirms that view while ignoring, or rejecting, information that casts doubt on it. Confirmation bias suggests that we don’t perceive circumstances objectively. We pick out those bits of data that make us feel good because they confirm our prejudices. Thus, we may become prisoners of our assumptions. (https://www.psychologytoday.com/blog/science-choice/201504/what-is-confirmation-bias).

I brought this idea up to an engineering friend of mine. He said every problem should be viewed as an engineering problem, and started arguing with me again. Having just cleaned the mud off from the last time, I didn’t engage.

Confirmation bias is an interesting topic when it comes to management, leadership, and issues. This is especially true when it comes to looking at two very important aspects of any business: sales and costs. I will hedge my comments here with the qualifier “for the most part” in that there are definitely exceptions to every generalization. But for argument’s sake, I will go ahead and generalize a little.

When it comes to setting sales targets, who sets the goals?

Those of you that said sales are wrong.

Management usually sets the sales goals. They ask for bottoms up forecasts and expectations from the sales teams, which they will usually review and find lacking in that they do not meet the financial and or growth expectations for the company. They will then ratchet up the targets to be more in line with the company’s needs and requirements, and issue them to the sales team to achieve.

The confirmation bias here is that management believes and expects that sales will provide them with a lower set of sales forecast targets because it provides the sales team a higher probability of achieving those targets. When sale provides a forecast, regardless of its veracity, that is lower than management expectations, this bias is confirmed.

I really don’t think I have ever been part of an organization where the sales team ever provided a sales forecast which was greater than management expectations. Perhaps my own confirmation bias is that management sales expectations will always exceed the sales team’s expectations, regardless of the market conditions.

On the other side of the spectrum lie costs. When it comes to setting costs, it is usually engineers that set them. While there is usually a similar process of setting up costs and budgets associated with products and services (I am not going to look at specific disciplines or functional groups here, just the costs associated with deliverable products and services) where the cost groups (usually containing at least some engineers) are consulted regarding their input into the costing model.

Herein is where the processes begin to diverge. Management has the ability and bias to step in and alter or impose their sales demands on the sales experts, but does not have nearly the same inclination to alter or impose their wills on the cost experts and groups.

Their confirmation bias is that the cost groups are doing their very best to keep costs low, even though the cost group has the same rationale as the sales group when it comes to setting targets. Higher cost targets for the cost group are obviously much easier to achieve than lower cost targets.

The resulting higher costs drive higher prices and a sales team that is invariably told to “sell value, not price”.

This may have been an acceptable mantra when there was discernable value (and price) differences associated with products and services. In some instances, there still may be, but the race to the bottom regarding minimally acceptable product quality and service levels at the lowest compliant price seems to have mitigated all but the basic pricing and functionality topics as differentiators.

Customers do not particularly care what a supplier of products or services costs are. They care about the supplier’s price. And quality. In that order.

A colleague of mine mentioned that the incentives and commissions associated with sales incite the striving behaviors associated with good sales teams, while there is no similar incentive plan in place to incite a similar striving approach to reducing cost budgets for the cost groups. Sales teams make at least partial commissions, proportional to their sales target achievement, even if they don’t fully meet their sales objectives.

Perhaps it is time to rethink the compensation plans associated with the cost teams so that they more accurately reflect the need for continued cost budget reduction instead of the current cost budget achievement structure.

Nominally the market sets the price for a good or service. The market is made up of customers. Even Apple with its ubiquitous iPhone faces market challenges from the likes of Samsung, LG and other smartphone producers. If Apple raises its price too high they risk losing share, and profitability to competitors.

Apple is immensely profitable. They are also a veritable tyrannosaur when it comes to working and controlling their costs. If you don’t believe me, try becoming one of their suppliers and selling them something. I have been a part of organizations that have done this. It can be a challenge, to put it politely.

It would seem that Apple’s culture may have evolved out beyond the confirmation bias dichotomy associated with sales and costs to the point where they continue to challenge themselves with respect to their cost structures, and engineering solutions. They seem to have created a market cache, expectation and demand that may have enabled them to restructure their cost model focus in order to maximize their profits.

That is truly speculation on my part, but it is a theory that would seem to be supported by the empirical observations of them in the market.

Companies that are looking to maximize their profit potential probably need to do a little internal analysis to understand their own costing processes and capabilities. There are many that are still looking at them from a bottom up, confirmation bias based point of view. Apple has recognized that their costs and their product price really have very little relationship and should be treated as almost totally unrelated items.

This approach would allow product and service providers to focus on their sales strategies and their costs strategies in separate, but similar ways. It would seem that the best solution has proven to be to engineer your products and services, not your costs, and instead to treat your costs with the same type of aggressive objective setting that you treat your sales.

Off-Shoring

One of the hottest debates going on in business these days is the debate regarding what work, if any, will stay in the supposedly high cost country and what work will be sent to the supposedly low cost country. This is the function that is usually referred to as off-shoring. There are many factors that seem to be taken into account with this decision, but there are also several factors that don’t seem to be included. It appears that the only major factor that companies really consider in the off-shoring decision is the relative wage differential of the existent workforce versus the prospective workforce. Having gone through, worked with and reviewed some of these types of working environments, it has made me wonder if there are other factors that should be reviewed before these decisions get made.

The bottom line in all of these out-sourcing or off-shoring decisions seems to be doing what is perceived as best for the organization’s bottom line. This is also somewhat subjective depending on which of the shores you find yourself. The idea is to save money. All other factors will be dealt with or considered in due course. And one of the best ways to save money is to try and reduce the cost of your labor associated with the function in question. Are there other people in other places in the world that can and will be paid less per person to do the work in question?

On the surface the answer to this question is almost always “yes”.

If the only factor to be considered is the wage rate paid to the resources doing the work, then the decision is always an easy one.

But things are usually never that easy.

The first jobs to experience this sort of movement were the production and manufacturing jobs. Production lines and repetitive functions were sent elsewhere. Business cases were built containing the incremental cost of building a new factory as well as the reduced cost associated with the low-cost labor to staff it. Questions were answered about how long the pay-back was on the needed off-shoring investment and decisions were made. Factories and production lines were built in these low-cost countries. The production of simple and basic products was then moved.

I am not going to continue too far down this line of thinking because we all know where it goes. More and more, and more production functions have been off-shored. These are finite directed positions that perform repetitive processes at a fixed rate, to create large numbers of similar products.

Let’s now fast forward a few decades.

Almost every business function is now subject to the discussions associated with which shore it should be on. One of the biggest issues associated with any proposed move now, is that the work being considered is usually more variable than the production work of the past, and it is more subjective in its execution.

While a production line will move along at a fixed rate enabling all participants in the production line to work at the same rate, the same cannot, and should not be said about knowledge based disciplines. Do all people who write software code, or design hardware do it at the same speed? Are they all equally proficient at their respective disciplines? Are all accountants or financial managers at the same competency level?

On an even more basic level, do all locations have the same financial drives, work culture, language fluency and associated work styles when it comes to delivering the required work products? Remember now we are discussing complex or service oriented work products, not physical products such as consumer electronics or other real goods.

It is no longer just a question of the difference in the hourly wage rates, or salaries of the teams involved. The question now moves into the somewhat murkier areas of work force effectiveness and work force efficiency.

Efficiency and effectiveness refers to how many resources it takes in each relative location to accomplish the desired work, and how long it takes them to do it. Too many times it is assumed that one workforce is as proficient as another. This might have been the case on the fixed speed production line (after appropriate training and time to come up to speed), but is it correct to apply these same principles to non-production line types of work and service products?

This is neither a case for or against the off-shoring and cost reduction push. These are tidal type forces that will continue until some sort of economic equilibrium is reached. This is more a question of identifying, accepting and analyzing the total costs associated with each proposed workforce location decision.

Just because it takes ten highly motivated, well educated, relatively expensive resources in one global location to deliver a satisfactory work product, does not mean that it will take the same number of similarly motivated, similarly educated relatively inexpensive resources in another global location to deliver the same work product in the same amount of time.

Research has shown that it usually takes more people, and more time for the lower waged (and supposedly lower cost) locations to accomplish the same tasks and deliver the same work products. (https://cs.stanford.edu/people/eroberts/cs181/projects/offshoring/failures.html)

What this means is that it is not just the relative cost of each hour of work that must be examined in the off-shoring decision. It is also the relative number of hours of work that are required at each location that must be included in the equation. That means that the relative number of people (spending hours on the work) and the length of time that they spend (how many hours) should also be taken into account.

If it takes five people one month to do the work at a higher cost location, and it takes eight people two months to do the work at lower cost location, the resulting total cost of work delivery may yield a very different work location decision that just the straight hourly wage comparison that has been so popular in the past.

On the other hand, it should be noted that if the relative wage differential is great enough, even these types of labor inefficiencies can be overcome.

I try to focus on real and definable costs. The relative number of hours used and the relative wage rates at each location in question are either known or can be estimated with some relative amount of accuracy. These are usually real numbers that deliver real relative costs. As always there are other factors that can be associated with the off-shoring question. I’ll list a few of them, but as they are less quantifiable in their effect, it will be difficult assign an actual value to them.

Are there incremental but hard to quantify costs associated with the increased complexity of the operations, IT, infrastructure and security associated with an off-shoring. In today’s hacker infested world one would think that adding facilities and resources in other global locations would have an effect on these types of costs. However, it is hard to add them into any comparative costing discussion.

There are considerations that should be observed regarding the relative quality of the work product generated in each location. Are there bugs in the software? Are there differences in the way customer support is provided that affect customer satisfaction? These are difficult issues to quantify, at least prior to having to try and resolve them.

Communications will also become more difficult. What was once a real-time conversation may now become a series of emails, depending on the relative time zones associated with the differing locations, potentially across multiple days. The overall speed at which things are accomplished, or issues resolved can become problematic.

The cost of management should also be expected to increase as well. At least initially, expatriate management will need to be present at the off-shore site to setup the new functions and oversee them. Depending on how things progress, their presence could extend over a significant period.

For those of you not familiar with the expatriate role, these people are expensive. They are normally paid at the “high cost” location salary rate, and their expenses for staying in the low-cost location are usually also covered by the company. They are in effect paid close to twice for the inconvenience of living in one location and working in another.

The final “soft” cost that I will address is the public perception of moving jobs out of their current location and to another, as well as the potential exposure associated with future governmental regulations associated with this activity. Market movements associated with drives to “Buy Local” and legislation designed to increase the expense associated with off-shoring are gaining traction in multiple locations.

It is easy to see why low wage rates in other parts of the world may be attractive. As companies continue to become more virtual in their natures’ Virtual Office can mean an office anywhere on the globe. The initial success and savings generated by moving the simple and repetitive off-shore has given rise to the desire to move more and more complex and unique functions as well. This complexity and uniqueness affects the efficiency and effectiveness of the model.

While the relative wage differential will continue to be an important factor in the off-shoring equation, other factors will continue to increase in importance as the off-shoring drive continues to move up the business complexity curve.

The Review Process

I got to thinking about all of the reviews that I have had the pleasure of sitting through, or have been sentenced to, as the case may be. Both the ones that I conducted and the ones that I just got to attend. They are a sometimes interesting, and sometimes not so interesting mix of development, product, marketing, finance, sales, operations and ultimately business reviews where there was a little of each of the previously mentioned disciplines covered. They have ranged in length from the relatively short one hour to the interminably long multiple days in length. I have traveled internationally to attend, present or conduct them as well as done the same over the phone. Throughout all of these reviews, the most important thing that I learned is that it is up to the review leader, not the review process, to make the review useful.

I think it is reasonably apparent that no one likes to be the bearer of bad news in a review. We all like to feel that we can and should be able to march triumphantly into the review and present as well as receive only good news. Schedules are being met. Sales are up. Earnings are good. Enough said. Take a bow. Let’s get out of here.

Admittedly I have been in only a few reviews like that, very few.

However, most of the time I have found that a review usually contains some good news, some bad news and more than a significant amount of extraneous information. Extraneous information is the information that is presented about the activities conducted by the presenter, that are other than the assigned topics that they were given to present on. Extraneous information is what fills up the extra charts and time in almost every review. It has evolved to almost become and expected part of the review process.

I think this might be another opportunity for the coining of another one of the specifically not famous “Gobeli Laws of Business”:

“If allowed to go unchecked the amount of extraneous information that is included in each successive periodic review will grow to a point where it renders the review almost useless.”

Since everybody likes to present good news, and since not all news is good news, people will almost always try and compensate for any possibly perceived bad news in a review by presenting more and more other extraneous information. This information, while possibly interesting to the presenter, and is usually positioned to sound like highly functional activity levels and good news, while in reality it is likely of limited use to the person conducting the review.

This type of information distracts from and obfuscates the important information to be imparted at the review, while continuing to maintain the appearance, flow and process of the review. Unless it is specifically cited and prohibited, almost every presenter at a review will probably include some of this type of information “filler”. The result will be overall less time available to deal with any potentially germane or relevant review topics.

I think I have mentioned before that I matriculated through management within the General Management business model as opposed to the seemingly more in vogue Process Oriented business model of today. It seemed then that objectives were mandatory and processes were guidelines as opposed to the current structures where the reverse seems to be the rule. Ownership of an end to end deliverable objective made reviews that much easier. Progress against an objective is always easier to measure than progress on a process.

The purpose of objective oriented reviews is two-fold: the avoidance of surprises, and the identification of actions for the resolution of issues. They are not and should not become opportunities for everyone to tell everyone else what they are doing.

One of the first rules of business is that there should be no surprises when it comes to performance. Everyone should have an objective, know how they are doing against that objective and be able to succinctly report that information. This approach should be applicable to every business discipline. There can be no excuse for “surprise” misses to sales targets, or budget overruns, headcount and staffing levels, profitability, etc. Providing this type of information is the responsibility of the review presenter.

Once a potential issue or objective miss is identified in the review, a plan of action to bring the objective miss back under control should be the next function of the review. A specific set of activities, and activity owners need to be identified and assigned. Performing this type of function is the responsibility of the review owner. Notice that I didn’t say solving the problem is the review owner’s responsibility. I’ll get back to this point later.

I think this also might be another opportunity for the coining of another one of the specifically not famous “Gobeli Laws of Business”:

“The best type of issue to have in business is one that you prepared for, and avoided.”

This is the focus of reviews. To enable the team to foresee, and take action to avoid issues associated with objectives. It should be with these review objectives in mind that reviews are conducted. If the material covered does not directly apply to these objectives, it should not be included.

There may also be a secondary focus on understanding the cause of the identified issue so that steps can be taken to avoid similar issues in the future, but I have found that these types of root cause analyses should probably be taken outside the review. This has the benefit of keeping the review to a shorter more manageable length, as well as minimizing the impression among all attendees of creating a negative environment for reporting issues.

Everyone has issues at one time or another in obtaining their objectives. A public examination of why they missed as opposed to a public plan on how they can recover will usually generate a more conducive environment where issues are identified and discussed as opposed to being glossed over.

If a review is allowed to become a matter of process, where the purpose of the review is lost in the extraneous information that each presenting group imparts to the other presenting groups detailing all the activities they are doing, but precious few of the issues they are encountering, then its value is lost. They should be times to challenge both management and each other. They are opportunities to do better.

I always looked at reviews as opportunities for the team to suggest solutions to issues. Issues are to be expected. Field Marshall Helmuth Karl Bernhard Graf von Moltke, who was Chief of Staff of the Prussian General Staff in the mid nineteenth century is credited as saying:

“No plan of operations extends with any certainty beyond the first contact with the main hostile force.”

This has also been simplified and paraphrased down to:

“No battle plan ever survives contact with the enemy.”

What this means is that once you start the implementation of anything, stuff happens that requires you to adjust both your plan and the way you implement it. In short, issues occur. And how you deal with them will directly affect the success of the endeavor and the achievement of the objective.

The sooner the issue can be identified, and the more information that can be supplied about it, the better the resulting response can be.

This again, should be one of the driving goals of the review. Everyone wants to avoid issues. The best way I know how to do this is to get them identified as early as possible and then take the requisite steps to mitigate, and hopefully avoid them.

I think the hidden key to the review is that each reported or identified issue needs to be accompanied by an associated solution. It should not be the review leader’s responsibility to solve all the issues. This is a situation that seems to have evolved in a process driven organization, in that it is usually only the leader that has purview over the entire system. Hence any issue associated with any step falls to them to resolve.

In an objective oriented review, it should be the responsibility of each individual that identifies an issue to also provide a suggested course of resolution. They are the ones who identified the issue. They should be the ones closest to it and in the best position to affect its resolution.

It will be the leader’s responsibility to accept, reject or modify the recommendation. It should not be the leader’s responsibility to generate the recommendation.

It seems more and more common that reviews are becoming just another step in a process. A box to be checked off. They seem to have lost some of their true purpose. That is a shame.

I have been in plenty of reviews where the time was spent and the motions gone through, and not much else was accomplished. But I can also remember many of the reviews where issues of substance were identified and dealt with. Where team members got to display their leadership capabilities when it came to solving their own and others issues. And where things got done.

They were challenging reviews where performance against the objectives was reviewed, hard questions were asked, and answered, and where the results were what drove the process.