Category Archives: Decision Making

Accountability, Analysis, Decision Making, Empowerment, Leadership, Process Management

Judgement

I read an article the other day by Stephanie Vozza in “Fast Times”. (https://www.fastcompany.com/3068771/how-employees-at-apple-and-google-are-more-productive ) It was one of their “4 Minute / Work Smart” articles. I normally am not too inclined to read these types of articles, but for some reason I did read this one. While it was ostensibly about why employees at Apple and Google are more productive, there was a passage in it that both resonated with me, as well as rang significant alarms. It captured what I have been feeling, and writing about regarding business and leadership in such a succinct way that I felt I had to address it. In her discussion regarding Organizational Drag, and the associated costs and losses to business due to processes, Vozza said:

“This often happens as a company grows, as the tendency is to put processes in place to replace judgment.”

Wow. I think she hit the nail on the head. Process is implemented to replace judgement. I do think there ought to be a qualifier in ahead of that last statement such as “Most processes, when over implemented…”. Many processes when implemented as guidelines do provide a needed and efficient methodology for accomplishing repetitive tasks. It is when they are over-expanded, applied and relied on for all facets of an organization that they cause drag and sap judgement.

A quick Googling of the word “judgement” provides the following definition:

“the ability to make considered decisions or come to sensible conclusions.”

Let’s tap the brakes here for a minute. Are we really saying that we want to replace people’s ability to make considered decisions, or to come to sensible conclusions with some sort of follow by rote process? Isn’t judgement one of the key attributes of business leadership and business stewardship? And not just judgement, but good judgement.

There are a lot of people who have said something along the lines of:

“Good judgment comes from experience, and a lot of that comes from bad judgment.”

Will Rogers, the American humorist said it in the 1930s. Simon Bolivar, one of the great heroes of the South American Hispanic independence movements of the early 19th century, said it in the early 1800s. I think you get my point. A lot of people have talked about the need for, and how you get good judgement. We would all like to think we were just born with it, but that is usually not the case.

The primary method of gaining good judgement is to learn it through experience.

So, again let me get this straight. It seems that by implementing so many processes to avoid the potential costs associated with errors and bad judgement, businesses are both creating the incremental expense of organizational drag that Vozzie noted, as well as removing the opportunity for team members to practice and gain good judgement through the experience of learning.

I don’t know about you, but I came up through business hearing the mantra surrounding management’s desire that we take (reasonable) risks in our efforts to improve the business. This is in line with the risk and return economic model. This model would require the use of judgement to ascertain what the contributing factors to the risk were, and did the expected return justify the business decision in question. The process oriented model would remove these opportunities.

Process, when used as a guideline and milestone marker can be a powerful tool. It seems that whenever it goes beyond this and starts generating ever finer detailed steps, is when it starts to generate issues both in terms of organizational drag, and what I think is potentially the greater long term risk, the stunting of leadership growth.

The Fast Times article mentions the total cost lost to organizational drag associated with process at approximately three trillion dollars. That’s a three with twelve (count ‘em, twelve) zeroes behind it. This seems like a relatively expensive price to pay to avoid whatever the number of errors associated with bad judgement (the learning process) and the costs that they would generate. One would suspect that by just flipping a coin one would hope to be correct on average at least half the time.

By removing judgement in favor of process future leaders are no longer able to get the experience (and judgement) that they will need as they move into leadership positions. The process experience that individuals gain in its place may be useful in a more predictable or production line type organization (secondary type economy sector – producing finished goods, e.g. factories making toys, cars, food, and clothes), but as the economy continues its evolution further into a tertiary sector (offering intangible goods and services to customers) I would think that judgement, and in particular good judgement would not only be preferred, but a necessity.

I think one of the ways to deal with the “Process versus Leadership” issue may be to dial back the drive for process just a little bit. I think we have all heard the adage that if a little bit of something is good then a whole lot more of it should be better. I think we are all aware of the fallacy behind that type of thinking as well. But, it appears to be the creeping mind set of many companies as they grow in size and expand across different geographical and technological markets.

It is all too seductive to aspire to manage all sorts of diverse markets and technologies via standardized processes. If it worked once in one place it becomes a goal to make it work every time in every place. Once that process starts it appears to be a slippery slope of incrementing just one more step in each process to take into account each new business or market variation that must be dealt with. The desire for repetitive and interchangeable processes leads to both product and market biases that can result in multiple missed opportunities as well as the organizational drag that has already been noted.

I think leaders may need to start thinking of the drive for processes as points on a scale. On one end of the spectrum there is a fully structured, process oriented organization. This would be an organization where very little judgement is required, the function or market are stable and little variation is required.

Accounting comes to mind, but that might just be me.

On the other end of the spectrum would be a completely judgement based organization where each new opportunity is unique and would require its own new set of potential processes for implementation. I am sure there are other examples, but organizations that conduct search and rescue operations along the lines of the freeing of the trapped Chilean miners in 2010 might be a good example of such a unique organization.

Obviously, in reality most businesses lie somewhere between these endpoints. There will most likely be multiple organizations within the business that are distributed along the process – judgement scale. What concerns me is that as process continues to be implemented in greater detail and into new areas, business run the risk of both alienating their current leaders in that their judgement will no longer be desired, and hampering the development of their future leaders as the opportunities to gain judgment are replaced with the continually more complex process.

Businesses need to begin learning to resist the desire to replace judgement with process, and understand that there needs to be a balance between the two. Just as many organizations seem to have a built-in resistance to change, they also seem to have a built-in desire for predictability which process seems to satisfy.

However, nothing comes without a cost. The implementation of process can create a stable, repeatable, predictable organization, but its costs can be seen in the organization’s inability to quickly respond to changing conditions, the resulting costs associated with organizational drag, and reduction in the use and availability of good judgement.

Analysis, Business, Decision Making, Long Term, Sales, Time

The Short Horizon

As the pace of business continues to accelerate, there seems to be one aspect of the business process model that is struggling to keep up: The Business Case. There was a time where capital expenditures were looked upon as long term investments by the business. The life-cycle and pay-back processes, as well as the accounting amortization of these investments, were expected to last years, and in some instances, even decades. The average business case became attuned to these norms.

But those days are long gone. As the speed with which technology has changed has continued, by necessity the business case used to justify the new or incremental investment has needed to become shorter. If Moore’s law of eighteen-month capability doubling (it was actually Intel executive David House, who predicted that chip performance would double every 18 months. Gordon Moore, for whom the law is named, was the co-founder of Fairchild Semiconductor and Intel, and whose 1965 paper described a doubling every two years in the number of transistors per integrated circuit was the basis for the coining of the “law”) is to be believed, then the asymptote for the length of an acceptable business case should approach that eighteen month to two year limit as well.

That doesn’t mean that a product’s useful life is only limited to eighteen months. I think quite the contrary. There are aspects of the Public Switched Telephone Network (PSTN) that have been in place for more than fifty years, and are still providing beneficial service to the communications carriers and their subscribers alike.

On the other hand, people are known to line up and over-night camp out every eighteen to twenty-four months in order to be the first to get the next generation of the Apple iPhone.

It appears that customers who are being asked for either capital or operational expenditures associated with technology oriented products, are driving their partners and their vendors to ever more rigorous and aggressive value propositions and rates of return. This is the genesis of the short horizon business case.

The simplest definition of value is how much money is made or saved over what period of time. The more you make, or the more you save over a given period, the better the value. In the past it was acceptable for a business case to extend out over a long enough time period as to show an acceptable return. If the initial business case for the sale didn’t make sense for one period of time, it was easy just to lengthen out the time frame until it did.

What appears to be happening is that as the rate of technological based product change has continued at the speed of Moore’s Law, the period that a customer is willing to measure value has shrunk. Business cases still need to show the customer value, they now must do it in far less time. The tried and true form of extending the business case period to make the value and pay back equations work is now gone. Customers will no longer accept it, and are driving for shorter and shorter review periods.

I think there are several factors in addition to technical obsolescence that are helping to drive a short horizon on the business case:

As each new generation of technology arrives it almost exponentially drives down the (residual) value of previous generations. I think it is no secret that one generation old technology is viewed as old and disadvantaged, and that two-generation old technology is probably approaching the zero value state. We have all seen this in our consumer based technology purchases as well. Products get old so quickly that we have developed a disposable attitude toward them. With Personal computers now going for a few hundred dollars, what is the value of a two-generation old computer? What was once repaired and retained is now simply expected to be replaced.

How would consumers (and manufacturers) react if the same logic was applied to say, automobiles and two to three model year old car was considered almost valueless?

We also see (comparatively) decreasing operational returns as each new technology generation is introduced. This means that as each new product gets smaller and more efficient the value of generating operational savings associated with the previous generation of product also tends to get devalued.

The idea of saving something with what you have is not as attractive as the possibility of saving more with something new. I guess this is what they call “Marketing”.

I think one of the final evolution’s of the short horizon business case is the “Cloud”. I am sure everyone has heard of this thing. It’s in all the magazines.

One of the many ways that manufacturers and vendors have adapted to the evolving business case rules is to try and remove both the obsolescence associated with technology and to more closely align the delivered solution with the customer’s need. The idea being that if a customer only needs a four-unit solution but the technology only comes in six or eight unit increments, there is a delivered solution miss-match.

By delivering a function from the cloud as opposed to a product based solution, the vendor has effectively removed technology obsolescence from the customer’s decision process, as well as matched the required amount of solution with the required amount of need.

The net result is a much shorter period needed to achieve the required business case. Customer purchases can be made in smaller increments, which in turn only require smaller pay-backs. Future product purchases and existing product obsolescence are removed from the customer’s decision criteria as the customer is now only purchasing the product’s function, not the product itself. The obsolescence issue, and all the other costs associated with operation of the product are now retained by the vendor (and should be built into their business case).

The continued drive for more value has driven customers and business cases to the short horizon. Capital for technology can no longer be viewed as a long-term investment. It must be judged and justified by how quickly it can pay back on its cost and the relative business value it generates. It is this drive for better business returns that continues to reduce the time scale associated with the business case.

This trend would appear to potentially be a seed cause for future changes to the way business is conducted. On one hand it will continue to make the sale of capital based technology products more difficult. By demanding shorter pay-back and business case periods, customers are in essence expecting lower prices for products, and higher value delivered. That is a demanding and difficult environment for any supplier.

It should also continue to drive product virtualization and the Cloud as ways for suppliers to retain costs and risks, and hence remove them from the customer’s business case. This will continue to be an interesting market, but not all technologies and products may be potential candidates for the cloud.

It could also be argued that a potentially unexpected result of the drive to align business cases with product life cycles could be the reversal of Moore’s Law. It has long been expected that there is some sort of limit to the capacity doubling process. It has been going on for over fifty years. There are recent articles in no less than the MIT Technology Review, Ars Technica, and The Economist (to name just a few) that are now stating that Moore’s Law have in fact run its course.

And this may also be of benefit to business. If customers want to align their capital business case length with the product’s life cycle, and the current eighteen to twenty-four month life cycle of the product makes this increasingly difficult, then one of the solutions may be to lengthen the product life cycle to more than twenty-four months. If there truly is a link between business case length and product life cycle, then this could be a possible solution.

This will be an interesting cause and effect discussion. Is the potential slowing of Moore’s Law going to cause the reversing of the short horizon trend associated with customer’s business cases, or is the demand for short horizon business cases going to accelerate the slowing of Moore’s Law due to business necessities? Either way, customers are requiring businesses to change the way they put together the business case for capital technology sales, and that is having a significant effect on how business can successfully get done.

Alternatives, Analysis, Decision Making, Self Analysis

Instinct

It has been a somewhat interesting week. Many items have caught my attention and seemed as though they would be good topics to write about. I may save a few of these ideas for later articles. Some of them are probably better left out or forgotten. I don’t mind wandering off into some potentially arcane or hard to relate to business topics occasionally, but I don’t want to generate just another rant about this topic or that one and then try to relate it to business.

What I thought that was interesting today was the idea of instinct. I think we all have a basic idea of what instinct is, but since I am eventually going to relate it to business I think I may want to start out at a reasonable baseline. May favorite way of doing that is to go out to Merriam-Webster and retrieve the following “simple” definition of instinct:

“Something you know without learning it or thinking about it”.

Okay, a couple things here. First, when did Merriam-Webster start providing a “simple definition”? Really? Have we actually come to the point where we are abridging our definitions into the simplest of vernacular? I couldn’t make this up. There is now a “simple” and a “full” definition. I fear for where our society is going at this point, but I promised not to propeller off into some sort of a rant.

Second, I think I’ll go with the “full” definition, because I guess I am just that kind of person:

“A natural or inherent aptitude, impulse, or capacity”

Either way, I think you get my point. We have all met people in business that just seem to know what to do and when to do it. They make good business decisions. They can extrapolate limited data and input it into very good solutions. They make smart choices. They are said to have good instincts. But do they really?

We usually hear of “good instincts” as it applies to athletes. It seems to be some sort of method for describing why an athlete who is not biggest, fastest or most imposing physical specimen is so good at what they do.

I have mentioned in the past that I have become something of a hockey fan. Even I find this rather interesting since I grew up in the desert southwest and currently live in Texas, which as we all know is not considered a hotbed of hockey fandom. Go figure.

With that in mind, the best example of this good instincts phenomenon that I can think of is the hockey player Wayne Gretzky. The leading scorer in the history of the National Hockey League. The man who’s nick-named “The Great One”. The measuring stick for all other great hockey players.

He was not particularly big as hockey players go. He was not the fastest skater, nor did he have the hardest shot. He just scored, a lot. When he was asked how he did it, he said he didn’t go to where the puck was, but where he thought the puck would be. Based on his success it looks like he had great instincts.

Or did he? I’ll get back to this a little later as well.

Let’s fast forward to the opening day of the National Football league and the first game of the season for the Dallas Cowboys. I am not a particular Dallas Cowboys fan. That person in our house would be my wife. I am however wise enough to sit on the couch quietly while she cheers her team on. I guess it is our version of “together” time.

The game in question was a see-saw affair and was reasonably exciting. It was coming down to the last few seconds when a field goal could steal a victory for Dallas. With no time outs and just a handful of seconds left on the clock a pass was thrown to the Dallas receiver on the sidelines. All he needed to do was step out of bounds and stop the clock.

But this is where his instincts kicked in.

Instead of stepping out of bounds and stopping the clock, which in this instance was the most limited resource in the situation, the receiver turned and tried to run up field and gain a few more yards. I don’t blame him (my wife does however) because every receiver’s instinct is to maximize the gain on each individual play. Needless to say he was tackled in bounds, time ran out and Dallas lost.

It is apparent that in this instance his instincts were wrong.

Time was in fact the most importance aspect of the situation. He needed to understand that and adjust his behavior appropriately. He needed to think about where he was and the situation he, and the team were in and act accordingly.

This is easy enough to say when you are sitting on a couch next to someone who is cheering wildly, and not down on the field actually competing.

Now let’s go back to Wayne Gretzky. He gave us the definition of his “instinct”. He thought about where the puck was going to be and went there to meet it. Was the puck there every time he went to where he thought it would be? No. But he was right enough to become the leading scorer in the history of professional hockey.

The point here is that as he said, he “thought” about it. It was not instinct as we currently like and want to define it. He was able to process the game situation, formulate a plan and implement it in such a way as to be in the right place at the right time in order to score. He did not just skate around waiting for people to pass him the puck. He was always aware of the situation and adjusted accordingly.

It seems to me that Gretzky’s “instinct” was more related to the way he saw and thought about the game as he played it. He was able to process the various locations and movements on the ice and anticipate where he thought the puck would be. Then he would go there. Since hockey is a game of split second decisions as I said he wasn’t right all the time, but he was right more often than anyone else.

Now let’s talk about business. Businesses love predictability. When things are predictable, just about anyone can anticipate what is going to happen.

In hockey this would be the equivalent of everyone knowing where the puck was going with the result that all of the players would be clustered around Gretzky waiting for the puck.

But in business, like hockey, not everything is predictable. Most everyone thinks in different ways and reacts differently to different inputs. For every Wayne Gretzky or Steve Jobs, there are a number of different elite players or leaders in the game. After all, someone else had to pass Gretzky the puck in order for him to score.

I think “instinct” whether in sports or in business is not some unseen or unconscious force associated with performance, but rather the ability to process and make connections between multiple inputs and variables that result in good decisions. It is the ability to think, sometimes faster than your competition, and most times more accurately than your competition.

Knowing where to go to meet the puck, or when to get out of bounds instead of turning and running up field, or when to invest in a new product or technology comes from understanding the multiple inputs associated with each situation, thinking through the alternatives, selecting and acting upon the best one.

As I said, Gretzky did it a lot. Jobs seemed to do it more often than not. We all remember the iPod, Mac and iPad. Does anyone remember NeXT computer or the Apple Lisa? Just asking. I am sure the Dallas receiver has made many more good game play decisions than bad ones. It’s just that his last bad one had such an immediate and visible result.

Not everyone makes the right decision every time. Instincts or not, business is very much like every other game out there: How quickly can you get to the right decision. How people think and process information obviously has a great deal to do with the decisions that they make. Different situations call for different types of thinking and decisions.

I think it is our natural instinct to migrate towards people who think and act like we do. This is a normal sort of reinforcement behavior. We tend to like people who agree with us as it reinforces the decisions we make. We need to think a little more about that. I think we need to actively encourage contrary behavior and thought processes. I don’t think we should view this behavior as open defiance or insubordination, but more as a check sum verification.

In looking at a replay of the Dallas receiver’s last play of the game, one of his team mates can be clearly seen trying to get him to run out of bounds instead of up field. It seems he didn’t see him or if he did, he didn’t pay attention to him. Either way it was obvious someone else had thought about the game situation and come up with a different decision for that situation.

As I have said, not everyone makes the right decision every time. And sometimes our instincts are wrong. It’s always good to listen to and think about other possible solutions before relying on instinct and turning and running up field.

Accountability, Alternatives, Business, Decision Making, Risk and Return

Business Cases

“My mind is aglow with whirling, transient nodes of thought careening through a cosmic vapor of invention. My mind is a raging torrent, flooded with rivulets of thought, cascading into a waterfall of creative alternatives…”

(Hedley (not Hedy) Lamarr in Mel Brooks’ “Blazing Saddles”.)

Ditto.
Extra points if you knew who said that as well as who uttered the response.

I seem to have costs on my mind (as well as a lot of other things, apparently) these days. I didn’t know what I wanted to address in this posting: Cost Reduction, Business Cases, Business Predictability all seemed to have been foremost in my mind among the possible group of posting topics. It seemed like the best thing to do was get started and see where it went. It went to “Blazing Saddles”. I don’t know if it is recoverable from there, but I will try.

Since this is nominally a Business Blog, and I did at least tangentially address cost reduction as one of the primary growth industries in business in my last posting, I think that I will head over into business cases. However, do not lament the transition away from cost reduction entirely, as costs do play an important role in the creation of any good business case.

It appears that creating or generating a really good business case is becoming a lost art. Coming up with an idea, specifying the investment parameters, analyzing the markets and demands, and ultimately defining the returns and value to the company are some of the building blocks of a successful business. It is a rigorous process (and it should be) because it deals with the lifeblood of the business – money.

This is not going to be some sort of a “how to” do a business case primer. It’s more about what they are and why they’re needed. Simply put, a business case is the justification package that you put together when you want the company or organization to invest in something. This is a very high level definition. The “something” to be invested in can be almost anything: research and development for new products, production automation equipment to reduce the labor component associated with manufacturing, additional sales people in an effort to expand the addressable market and grow sales, are just a few of the fun ones that come to mind.

Business cases are all about what the company should invest in. Investing is all about money, specifically when you spend it, how much of it you spend, when you get it back and how much more of it you get back. Businesses are in business to make money. Like every good investor, when money is spent or invested, a return is expected on that money or investment. If that does not seem to be the case, then the business case process has probably broken down.

I do not claim to be a business case guru. I have put several of them together and have found a few topics that I look for in every good business case. If you want to find out all that should be included in a business case, just Google “Business Case Template”. I think you will get a little more than eight million results.

In my experience, every good business case should have the following three major components:

What is it that is wanted?
What are you asking for and how much is it going to cost? Every business case is about asking for money. In the examples I cited above you would be asking for a specific amount of money for either research and development (people, lab space, lab equipment, etc.), money for manufacturing equipment for automated production, or money for salaries for incremental sales people. This amount is known as the investment.

What is it that you get for the money?
Why would the organization or business want to give you this money? What are they going to get in return? If it is for research and development, what products are they going to get and how will they positively affect the growth of the company. If it is for an automated production line, how much are production costs going to be decreased. If it is for additional sales people, how much are sales going to increase.

When do they get their money back?
No, the organization is not “giving” you money. Think of it as a loan. Every loan needs to be paid back, with interest. This interest is usually in the form of increased profits for the company, either in the form of margins from increased sales or reduced costs. If you don’t believe me on this repayment with interest thing, just ask the bank or financing company the next time you want to invest in a car or house. I think they will be quite specific regarding the interest you will be paying on the loan and the expected repayment schedule that they will require you to comply with. This money that is given back to the company is known as the return on investment.

Business Case Tip #1.
One of the guiding principles of a good business case is that the return on investment should be greater than the investment itself was.

I don’t think there are many (any?) other business case tips that can be given that have the same importance as this one. A proper business case requests a specific amount of money. It defines what the money will be used for (spent on). It specifies what will be produced (new products, cost reductions, increased sales, etc.). It also forecasts when and how much the returns will be. It is all about the numbers.

It is this last part which is especially important. When are they going to get their money back. It is during this discussion when you may hear a term such as “pay-back”. Pay-back is when they get all of their original investment back. This is the break-even point. After this, everything that is returned to the company is a benefit or profit.

Business Case Tip #2
No matter how soon or how quickly the business case hits the “pay-back” point, it will not be soon enough.

Contrary to what some may believe, money in a company is not free. A company must pay for its money, one way or the other. A company can fund a business case investment via either debt or equity financing. In debt financing it is the interest and overheads that it must pay on the loan (debt) it takes out to get the money. In equity financing it is the relative risk and return it must pay in the form of stock appreciation or dividends to the equity investor in order to attract them. This is called “the cost of capital”. It is in effect the interest or discount rate that the company must use in the business case when it looks at the future returns on its investment.

The longer it takes to reach pay back to the company, the more the amount of discount that is applied to the return. The greater the discount, the more difficult it should be to make the business case work.

Remember that there is a limited amount of investment money that is available to any company. There is only so much that the company can borrow before the financial position of the company is adversely affected by its debt position and only so much stock that can be issued before the market adversely affects the equity price and expectation for the stock.

There are also other businesses and organizations within the company that would like to invest in their opportunities as well. That will create a competition for those investment funds. So how should the company decide where to invest?

There are usually two instances where a company will invest. One of the easiest is to invest only in those business cases that provide the greatest return on the investment. That would be those opportunities that have the best business cases. You have just seen above what should be expected at a high level for a good business case.

The second place that a company usually invests is in those strategic initiatives that may not provide the best return but are required for the long term health of the company. What are these strategic initiatives you may ask? That’s a good question. I have found business cases to try to define themselves as a strategic initiative when they contain a request for funding that does not show a reasonable return on the requested investment.

That’s probably not entirely true. There are investments for things such as core technologies that other products are built from that could be defined as strategic (among the many others of this type) as well as initiatives outside of the financially definable realm such as the reduction of carbon footprints or diversity that may not contribute directly to the financial well being of the company, but should be done none the less for the greater good of the company.

Companies expect and need to make money. Otherwise they normally do not get to remain companies for very long. I think a great deal of any company’s success can probably be attributed to how strong their business case process is, and how well they adhere to it. Having people who understand what a good business case is can go a long way to attaining that success.

Adversity, Change, Change Management, Decision Making, Expectations

A Soundtrack for Change

I got to thinking about change recently. I was concerned that it might be a little bit of a trite topic to discuss. There has already been an incredible amount written about change and I was concerned about what I might be able to add. Be that as it may, I still kept coming back around to it. I guess if there is already so much written about change then it won’t hurt if I decide to write a little more about it.

I did a quick search (gosh, things like this have become so simple thanks to Google) and found that there have been no less than one hundred and four songs written that have “change” in their title. This is by no means an exhaustive list. I did a quick scan and did not see “The Times They are a Changin’” by Bob Dylan. How could they leave that one out? I did however see “Things Have Changed” by Dylan. I have never actually heard that one. Guess I will have to head to YouTube after this to check that one out.

There were some interesting song titles in this list, as well as some rather unexpected artists, at least to my way of thinking. There were no less than eleven songs with just the word “Change” as a title, and another eight with just the word “Changes” as the title. The late David Bowie’s “Changes” was the only one out of these groups that I really recognized.

I thought about looking up all the songs that had change as part of their lyrics, but I decided that I really didn’t need to go to that level. There are a lot of songs written where change plays a major role. I haven’t even tried to approach all that has been written in the business world with respect to change. When I thought about it I decided it would be better to use music as the allegory instead of referring to all the business management change books. That way we can all have a song run through our collective heads whenever I try to make a point.

Besides, song writers are so much more “lyrical” in how they write.

What I got from looking back at all the changes that I have been through was that change in and of itself was usually neither good nor bad. It was whatever I expected it to be. Think about that. Change is usually what we make of it, not something inherently good or bad. It is probably impossible not to look at a change without some sort of concern. After all by its very definition change means that we will be doing something different than we have been doing.

Change: verb (used with object), changed, changing.
To make the form, nature, content, future course, etc., of (something) different from what it is or from what it would be if left alone

I think we have all been in roles where doing something different might have been preferable to continuing to do what we had been doing. There would be two ways to affect this type of change: Change what we had been doing in the role we have, or change the role we have.

About this time I have Sheryl Crow’s “A Change Would Do You Good” running through my head.

The idea here is that when we want to make a change we expect that change to improve things. We see what may be wrong with the current role or process we are in and we act to try and improve it. We expect it to get better and it invariably does, at least to our way of thinking. We either change the role we are in to improve it, or we change roles we have been in to a hopefully improved role.

My idea of expectations of outcomes is very similar to what the economist in me knows as “Expectancy Theory”. Expectancy Theory states that an individual will behave or act in a certain way because they are motivated to select a specific behavior over other behaviors due to what they expect the result of that selected behavior will be. Basically stated this theory explains peoples behaviors based on the rewards they expect to receive.

This is why sales people who are only commissioned on orders (volume) really won’t care much about the margin (profitability) on those orders. If you want to modify that behavior then you will need to add a profitability / margin factor to the sales compensation plan.

What I am saying about expectations of outcomes is that if you expect the outcome of change to be good, your behavior will be such that usually the desired good outcome can and will be realized. My point here is that how we approach things, including change, is a significant determining factor in the outcome of that change.

Brandon Flowers, the lead singer for the band “The Killers” has a solo project song out called “I Can Change” that has suddenly popped into my head.

On the other hand, many times we must go through a change that was not the result of our own action or decision. Someone else has made a decision or taken an action that has caused a change in our environment. Sometimes we don’t get to choose to change. Sometimes we just have to deal with it.

It may not be relevant how well we think we have been doing or the goals that we have achieved. We may or may not have been consulted regarding the change. Regardless of any contributing factors we will occasionally find ourselves reacting to a change stimulus instead of acting on one.

I am going back a little ways here, but I now find myself humming “A Change is Gonna Come” by Sam Cooke. I started hearing “Victim of Change” by Judas Priest, but I never really was a metal head and again that one doesn’t go along with my premise regarding expectations for success in change.

In many instances our normal reaction to an imposed change is to fight it. We want to see a justification or reason for it. It may not have been decided with any input from us. At that point in time it doesn’t matter.

It is at that point in time where I again believe in the expectation of outcomes having a significant contribution to how successfully an imposed change will be dealt with. Resistance and unhappiness will lead to a difficult and unpleasant change. Acceptance and alignment will almost always lead to a much more palatable transition.

That doesn’t mean give up. Sun Tzu in “The Art of War” wrote many times of when it was proper to engage in battle, and when it was not. Many times his objective was that it was just as important to “not lose” as it was to “win”. If he recognized that he could not win, he would not engage in battle, and therefore would not lose. When it comes to battling change, it is almost impossible not to lose.

Now I can’t seem to get REO Speedwagon’s “Roll With the Changes” out of my head. There is a really great keyboard solo in that one. I actually saw them perform it live in concert once, back when I was in college. By the way, this one was not on the “change” song list that I looked up either.

By accepting that sometimes we will have to change, whether we want to or not, we can identify a key to making a successful change. The positive approach that we can choose to take when making that change is one of the determining factors in how successful we will be in making the required change. Leaders need to infuse their teams with the ability to react and adapt to change, instead of resisting it.

Sometimes we get to choose to make a change. Sometimes we are told we have to make a change. Either way, how we decide to make that change is up to us and that will be a significant contributing factor to our success in changing.

Accountability, Decision Making, Questions

Their Answer

Most of us in the business world these days would be classified as “knowledge workers”. We all have some members on our respective teams that may challenge this point, but for the most part this means that we make our livings and do our jobs predominantly by using our brain power as opposed to our muscle power. It doesn’t take a great deal of effort to sit behind a desk, but it does take a reasonable amount of knowledge to read, understand and appropriately act upon the information contained in a balance sheet or a profit and loss statement. When you think about it, this is interesting on several levels. This would mean that those with the most knowledge, and presumably the most experience would be the most valued employees. It would also mean that when someone asks a question that they would want the answer that is the result of utilizing the best brain power, knowledge and experience available.

Most people would think that this is obviously the case in business. The right answer is usually the best answer. Experience (as opposed to Knowledge) will teach that this is not always the case.

Answers are somewhat like ideas in that everybody has them in one form or another, and they are invariably proud of them. I have also heard that ideas are like children and that your own are always beautiful, whereas those of others are usually judged with a little more skeptical eye. Such is also the case with answers.

We are all usually very proud of the answers that we create (and will hence defend them vigorously from anyone that would have the temerity to posit a different answer), and we are all usually somewhat skeptical of the answers that others create (who will also vigorously defend them from any positions and questions that we have).

It’s funny how that works. We expect everyone to see and accept the beauty in the answers we have created, and we also expect everyone to accept and acknowledge any flaws we may identify in the beauty of the answers that others have created.

This brings me to the topic of “their answers”.

Whenever any question is posed, it is always best to “reflect” as Mark Twain would say, before answering. Is the person asking the question looking for the best, most knowledgeable answer to the question, or are they looking for a ratification of their answer to the question. Are they looking for a solution or are they looking confirmation of their solution.

It is possible that their answer and the best answer are one in the same, but that is probably not probable since after all, it is their answer at this point and not yours.

Another item to be aware of in the “answering the question” scenario is the forum in which the question is asked. This can provide a significant clue as to if a true answer is being sought as opposed to the confirmation of an answer already divined. It is a good bet to assume there is an inverse relationship between the desire for a genuine answer and the size of the audience in which the question is posed.

That means that if someone calls you on the phone and privately asks you a question or your opinion on a topic, they are probably looking for you to provide them your answer. If they send out an email with a wide distribution, or pose the question in some sort of a group or public forum, they are probably looking for you (and possibly others) to provide them “their answer”.

People who provide the desired answer in the group forum will have a tendency to see their response reinforced and those that don’t will usually be challenged to provide supporting logic.

It took me a while to learn this as a new hire directly out of graduate school. In school when you are asked a question you are relatively sure that there is usually a “correct” or “best” answer. It can be open to some opinion, but this is usually the basis of our advanced educational system. We are in essence trained to provide our view of the best answer.

What we miss here is that not everyone provides the same, best or correct answer, even in school. In business there is usually no predefined correct answer that is the accepted response by which all others are measured against. So there is no way to determine who actually had the right answer until the topic under discussion has actually come to pass and the proposed answers can be measured against the reality that has occurred.

This is where experience can come in to play. People who have matriculated up into leadership positions where they are enabled to ask questions have usually gotten to those positions by answering the past questions posed of them correctly more often than not. This past positive reinforcement of their answers is one of the key ingredients associated with the potential defensive reaction to other answers that are not entirely aligned with their own.

Put simply, people who have been right in the past have a tendency to think they will continue to be right in the future. They like trust and support their answers.

Herein lays one of the dichotomies of leadership: sometimes leaders have to temper some of the very traits that enabled them to attain the leadership position. What leaders must recognize is that as they have risen in the management ranks by their very success they have both moved further away from the issues that demand answers, and they have become responsible for a greater breadth of issues that need and demand answers. Most leaders no longer have that direct and intimate interaction with the issues that affect their businesses. They need to learn to rely on those members of their teams that do.

Very few of us get to be right all the time. A leader has to have faith in the answers that they generate, but the leader must also encourage the team to generate the best answers, not their answers. Moreover, the leader needs to know when someone else has generated a better answer. The leader has to learn to step away from generating all the answers (the very process that got them to the leadership position) and learn to trust others (the future leaders) to start generating the answers.

Leaders will always generate their answers. The key is for that leader to accept and expect their teams to potentially generate something other than their answers. It takes a strong leader to ask questions and accept something other than their answers. Letting go of their answers and listening to their team’s answers is the way things can get changed. It is also the way that an organization continues to find the best answers to its questions.

Decision Making, Leadership, Performance, Sales

When Sales Fall

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We all know that senior management likes to see a sales volume graph that is a smooth line sloping upwards from the lower left of the chart to the upper right. If the economy and the market are growing and the customer demand grows along with the economy and the competitors don’t change their product’s or price and the government does not change any of it regulations and none of the multitude of other demand affecting factors changes, it is possible that this utopian state can exist…for a little while. However any unanticipated change in any of the listed (or any of the large number of unlisted factors) can and will change the profile of the slope from its desired direction.

Senior management must then lead and decide if the change is just a normal process within the market cycle, an aberration in an otherwise stable situation, or a longer term portent of an ongoing decline. As with most management decisions and strategies, only time will tell.

If time shows that it is indeed either a part of the normal market cycle or an aberration in an otherwise stable market, then there is no problem. Sales improvement can and will continue. On the other hand, if sales do not improve and the downturn turns out to be part of a longer term economic, market, customer or competitive event then significant business issues will ensue.

I have long been an advocate of the axiom: The best way to generate a good bottom line is to start with a good top line. This only makes sense. The more good revenue you have, the easier it is to generate good earnings. Good revenue is defined as revenue that includes a business sustaining profit margin. However if revenue has fallen, and the cost structure has not followed suit, then earnings too must eventually fall.

Senior management, the market analysts and the stock market in general do not like it when earnings fall in a company. Like the sales and the earnings, the price of the stock will also fall. Soon the investors and stock holders will request that senior management take action to improve their investment’s stock price, or they will request that they get a new senior management team.

When sales are stagnant and costs are relatively high with respect to sales, there are usually two paths that management can choose from in trying to rectify the situation. They can try and cut costs in order to resize the business to be more in line with the new revenue levels and hence generate a reasonable profit on the new lower revenue levels; or they can try and embark on a growth strategy in order to drive the revenue levels back up to where the desired earnings can be generated with the current cost structure.

Several factors can influence which path management may decide to take. Is there a cyclic nature to the sales profile where downturns and following upturns are common? How deep is the downturn? How prolonged is it? Is it industry wide? Is it part of a greater economic event? The answers to all of these questions, and many others can influence management’s decisions and responses to the reduced sales levels.

The general response to a sales downturn is to refocus on sales, but also to begin reducing costs. While layoffs are painful and take their toll on both the employees and the company, they do invariably succeed in resizing the company’s cost structure to be more in line with its current revenue levels.

This is cold. This is hard. It is also the truth. If we are to assume that the company must survive in the face of a prolonged reduction in sales, then this is in general the selected way to assure that a business is moved back into a profitable state as quickly as possible. Focusing on sales while reducing costs will eventually generate the earnings that a company needs for continued operation.

However some businesses decide that they may not want to adjust their cost structures in response to a downturn in sales. There can be any number of reasons for this. They may decide that the downturn is only seasonal, or will not be prolonged and sales will recover. They may decide that they were understaffed prior to the downturn and hence are right sized for the reduced sales levels. They may be culturally averse to the separating of employees. Regardless, they may choose to embark on a sales growth strategy as the solution to a sales downturn and the accompanying earnings and profitability issues.

While sales growth strategies are laudable approaches to a reduced revenue / high cost base issue, for the most part they generally prove unsuccessful. This again is directly due to the fact that sales levels have already fallen. Something must be changed in order to get sales levels to increase. This new event can take the form of adding additional sales personnel to address and sell to a larger number of customers, modifying the product offering to make it more appealing to the market, increasing marketing programs and promotions in an effort to generate more demand in the market, or a number of other modifications to the business equation.

The point here is that all of these and many of the other sales improvement modifications require that incremental investment and cost be put into the business in an effort to drive more sales out of it. Adding sales people, modifying or redeveloping the product, creating and implementing marketing programs and promotions, reducing prices, etc all take incremental investment and increase costs.

That means that even if you were successful and found a way to drive sales back up to the previous levels where they sustained the previous cost levels, the very act of driving the sales back up increased the cost basis. That means that you cannot be satisfied with just getting back to the sales levels you were at, in order to maintain the desired profitability levels, you must drive sales to levels above their previous amounts.

This too could be a good plan except for the fact that the market like nature, abhors a vacuum. There are relatively few “green field” opportunities where growth and market share can easily be obtained. Unless the overall size of the market is growing, it usually means that new business must be taken at the expense of another market competitor.

Obviously no one likes to lose customers and market share.

Market research has shown that in general it is five times easier to sell to existing customers than it is to sell to anyone else. This makes sense as you would suspect that if a customer has already made a buying decision in your favor in the past, that they would probably be disposed to make a similar decision in the future. But in a market growth strategy you are not only trying to sell more to existing customers, you are trying to sell to new customers. Someone else’s customers.
Logic would show that if it is five times easier to sell to your own customers that it would be five times more difficult to sell to someone else’s customers. This logic does not bode well for a growth strategy.

Sales and business growth are always part of the objectives of any business. Sometimes however, businesses fall short of their sales and growth objectives. This can and does happen in even the most stable of markets. Leaders must actively recognize and anticipate what is occurring. If the change is cyclical or just an aberration, then normal business processes should continue. If it is judged that there are other forces in the market affecting sales and that recovery is not imminent or expected of its own accord, than action must be taken.

As always, the sooner that action can be taken, the less severe it usually needs to be. Increased sales focus or cost reduction activities taken in March or April will avoid the desperation and severity of actions that must be taken later in the year. Regardless of when actions are taken, the costs associated with a business must be in line with the profitability objectives and existing sales volumes of the business. To focus on just the growth component of business solution (or just the cost component for that matter) would be similar to trying to adjust both the volume and the tuning of your car’s radio by turning just one dial.

Analysis, Data, Decision Making, Leadership, Recognition

You Don’t Know

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Over time I have learned that I don’t know everything. I am going to pause for a minute here for several reasons. The first is for effect. The second is so that I can let the hysterical laughing and rampant applause in general die down. The third is so that I can go and pick my wife up off the floor. I believe that she was so convinced that I did in fact know everything that my admission that I didn’t has created such a shock to her system that she fainted. That must be it. I am sure of it. It is one of those things that I do know. Doesn’t every wife believe in the infallibility of their husband?

At least that is the interpretation of her response that I am choosing to believe.

The next thing you know I will be asking for directions when I am lost, or reading the instructions on how to put something together before I actually start to do it.

Nah…..

Now remember I said I didn’t know everything. I didn’t say that I didn’t know anything. (My wife is now looking at me out of the corner of her eyes again. This time I am not sure how to interpret her behavior.) I would like to hope that after all the experience that I have gotten (Randy Pausch, the author of “The Last Lecture” said “Experience is what you get when you don’t get what you wanted”, and there are so many things that I have wanted and not gotten that I could conceivably be considered one of the most experienced people around) and all the book learning that I have done in college and elsewhere, has enabled me to know a few things.

One of the things that I do know is that there is more information out there about every business topic, business issue and business opportunity than can ever taken into consideration when a decision is to be made an action taken. I didn’t let this fact stop me. I openly suggest that you don’t let it even slow you down. I do think that you need to be aware of it, and prepare for that rarest of rare days when one of your assumptions, decisions or actions turn out to be the wrong one. There is also one other thing that you need to be aware of when making decisions or taking actions in business.

Everyone is fighting a battle that you don’t know about.

I saw this line on a LinkedIn splash page of all places. Like so many other seemingly non-business related comments or topics, this got me to thinking about business, sales and how to lead.

I have stated in the past that business is all about the person to person interactions between people. All too often we have our decision made and our actions decided. All that is left is to align everyone else with our obviously well thought out and logical approach to things. It should be easy. We are already on to the next topic in our minds. Only the people who should see the obvious wisdom of our leadership, don’t seem to be catching on as quickly as we would like or expect. They seem to have their own views as to what should be done.

It’s hard to have a broad view of things in business when you don’t have a broad responsibility. You have to think in terms that are larger than the topics and areas that you can affect. Not everyone does this. That is an understatement. Very few people seem to do this. You have to understand something about the battles that other people are fighting. You have to do this while understanding and fighting the battles that are your own. It takes extra effort.

You have to understand the issues that external competitors are visiting upon sales opportunities as well as the unknown / political issues that the customers themselves are bringing to bear when arguing pricing or deal desirability with the sales team. Having been there, it should be understandable why so many sales teams seem to get more frustrated with their own companies than their competitors, when they focus solely on one internal metric instead of the broader customer requirement.

Conversely, the same can be said about the sales team that only looks at the sales volume and does not take the time to understand the company’s cash flow or profitability issues when they bring a customer opportunity to the table. Orders are always good, but it is the answers to the questions such as if and when the company will get paid that will keep the company in business. It may be hard to understand or even believe, but there is actually some business out there that is not worth having. The key is to be able to identify and differentiate it from the other more desirable types of business.

The point that I am so clumsily trying to make here is that we all are going to encounter resistance in the normal course of the execution of our business responsibilities. How we deal with that resistance will have a great deal of impact on how we are to be perceived as leaders. We all have a tendency to only examine issues from our own specific perspective or point of view. The leader will try to understand the larger issues, even if they are not responsible for them. The leader will try to understand what the unknown battle is that the other person is fighting.

The question that then arises is how does the leader know what they don’t know?

Despite the very Zen sound of this question, it is somewhat the basis of leadership. It is not enough to know that someone is providing resistance to a desired course of action. It is more so knowing why they are providing resistance and how to resolve, reduce or avoid it altogether.

Fortunately, there are few people who are so contrary in nature as to oppose our every idea solely on the basis of who made it. Those that do behave this way are normally referred to as “spouses”, and again fortunately, most of us do not work in business with our spouses.

What that means is that in general, there will probably be either a known or unknown battle that people are fighting that will be a cause for any perceived resistance to your plans and activities. Understanding what the external pressures and unknown battles are will enable the business leader to position their requirements in such a way as to avoid the conflicts associated with these unknown battles.

It’s not enough for the leader to say what they don’t know. They have to understand why they don’t know. Continue reading You Don’t Know →

Analysis, Decision Making, Performance, Risk and Return, Self Analysis

Is Phil Mickelson Ruining Business?

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I was watching the U.S. Open golf tournament the other day. I enjoy doing that because it gives me the chance to watch people who really know how to do their job which in this case is to play golf. Believe it or not I think I actually learn a little when I watch them as well. Not much, just a little. I feel the only thing that truly separates me from them is talent. They have it and I don’t. That and age, and flexibility, and focus, and drive and probably a few other traits that I am not currently aware of.

What I noticed about this broadcast was that they seemed to focus on the players’ recovery shots. The course was set up so that if you weren’t in the fairway you were in trouble. What I saw was a lot of miraculous recovery shots that were attempted from this trouble, and only a select few that were successfully executed. However, the guy who eventually won didn’t seem to attempt the miraculous on every shot. Truthfully he was probably not in trouble as often as the others, but when he was, sometimes instead of attempting the miraculous he just chipped out. He then tried to put the ball on the green and make a putt to save par. He did that a lot. The other guys didn’t. He won by like eight strokes, which in golf terms is the same as lapping the field, or a knockout.

Let’s get this straight right up front. Phil Mickelson is an amazing golfer. He has won forty two events on the PGA tour. He has won five major championships. He has spent over seven hundred weeks in the top ten of the world’s golf rankings. I cannot hit my driver as far as he hits his six iron, maybe even his seven iron if he decides to hit it hard. He is a crowd favorite everywhere he goes because of his demeanor on the course and his willingness to interact with the fans. So why do I think that he is ruining business? I think of him as the father of the miraculous recovery golf shot. He makes a lot of them and they are all highlight reel material. When we see what we think of as an “everyman” like Phil Mickelson pull off the miraculous recovery, we think we can all do it, and not just in golf.

David Feherty on the other hand, is a former professional golfer. While he did win five times on the European golf tour, he has never won on the PGA tour and may not have spent a single week in the top ten of the world’s golf rankings. He retired in nineteen ninety four to become a golf announcer. It is widely accepted that he is far better as a professional golf announcer than he ever was as a professional golfer. Why do I bring up David Feherty in responding to my question as to why I think Phil Mickelson may be ruining business? It is simple. David Feherty provided the following quote regarding Phil Mickelson:

“Watching Phil Mickelson play golf is like watching a drunk chasing a balloon near the edge of a cliff.”

We are now getting close to the point. 

Phil Mickelson will hit some of the most incredible shots in golf that will end up getting him into some of the deepest trouble possible on a golf course. He has been known to get a little wild, or to make some foolish decisions at the most inopportune times imaginable. What is amazing about him is that he can then hit some of the most amazing recovery shots humanly possible and put himself right back in the game again. Notice that I said he “can” hit amazing recovery shots. That doesn’t mean that he always does. Sometimes it works and he is almost unbeatable. Many times it doesn’t, and then things only get worse. Golf, like business is very unforgiving of compounded mistakes.

While it is true that he has won so many times on tour, what is not so widely publicized is the number of times that he lost when he should have or could have won, due to the erratic nature of how he plays the game of golf. In 2006 Phil Mickelson lost the U.S Open on the seventy second and last hole. He came to it leading by one and needing only a par to win. It was not an especially long hole, but as with all major championships it was not easy.

Instead of being a little conservative, and probably winning or at worst tying, he went for it as he always does. He teed off and knocked his drive into the trees.

Instead of playing it safe and smart (as this year’s U.S. Open winner did on several occasions), and pitching out to the fairway where he could then rely on his well documented and much acclaimed pitching and putting skills to get his par, he went for the fabulous recovery shot. Mere mortals could not have hit the shot he was going to try and hit.

He was going to bend a shot around some trees and knock it on the green from more than two hundred yards away. It didn’t work. He hit another tree and the ball came rolling back toward him.

Now he is laying two, and he needs a four to win or a five to at least tie, and he is no better off than he was before.

He goes for it again because now he has to. This time he gets it around the trees, but misses the green and it ends up in a difficult lie in the greenside bunker. Now he needs to get it out of the bunker and in the hole in two shots just to tie.

He gets it out of the bunker, but misses the putt to tie and just like that he loses the tournament.

While Phil Mickelson is renowned for his miraculous recovery shots, there will always be the question of should he have avoided the trouble in the first place. Could he have played it smart and not hit his sometimes erratic driver, opting for a club that he could have more easily used to hit the fairway? Once in the woods could he have made a better choice that would have taken losing the tournament outright out of the equation, while still giving him the chance to win? Mistakes in golf, like in business can always happen, and when you do find yourself in trouble is it always the best course of action to go for broke on the recovery?

History has shown that most attempts at miraculous recovery shots fail, otherwise it would not be considered so miraculous when they succeeded. If they always succeeded they would just be recovery shots, not miraculous recovery shots.

Too many times it seems that businesses can find themselves in a difficult situation and instead of playing to their own strengths and capabilities, play for the miraculous recovery. Most of the time when they try the go for broke recovery in business, the business does indeed go broke. There are examples of successes using this approach. They usually end up in some business school case study where they are captured and passed down to future generations.

I think they are more like lightning strikes in a rain storm. They are relatively rare, individual events, and as the saying goes lightning doesn’t usually strike twice in the same place.

Actually in golf getting struck by lightning even once is not considered a good thing. That’s normally why we go inside when it starts to rain. Getting struck by lightning of a golf course will usually ruin your round, and probably any future rounds you had ever planned on playing.

In golf a steady performer is known as a “grinder”. A grinder is someone who works at minimizing their mistakes and maximizing their opportunities. A grinder usually doesn’t have less talent; they usually just don’t take as many risks. When a grinder makes a mistake or does find themselves in a difficult position, they weigh all the risks and rewards with an eye toward realistically minimizing the downside risk. They understand that they may not be able to win the tournament with a good decision, but that they can certainly lose it with a bad one. Making par after a mistake is not a bad score.

Tiger Woods is a possible example of the ultimate grinder. He has been the best golfer in the world for almost as long as Phil Mickelson has been in the top ten. He rarely makes mistakes to the point that it is extraordinarily uncommon that he ever beats himself. The majority of the other top ten golfers in the world are probably best described to one exten
t or another as grinders also. This means that the riskier, more swashbuckling approach to golf that Phil Mickelson so successfully uses is much more the exception than the rule for the truly successful.

Miraculous recoveries are attention grabbing by their very nature. Few of the attempts are really ever successful despite the numbers that are tried. Those that are successful however are very widely reported and seem to take on an image and a life all their own. Miraculous recovery attempts seem to have become the standard against which we want to measure all performances, be it in golf or in business.

A business that finds itself challenged might better learn from this year’s U.S Open winner. He calculated when to go for the miraculous, and when to play it smart and just chip out of trouble and play on. Phil Mickelson has finished second six times in the U.S. Open indicating he definitely has the talent and capability, but has never won. This year he was sixteen shots back. Businesses are also always competing and need to understand that while the miraculous is usually widely reported, that by its very nature cannot be expected to regularly occur.

Setting realistic goals for each shot a business is going to take is a key to a business’s ongoing success. It’s better to leave the miraculous recovery shots to the golfers.

Accountability, Decision Making, Finance

Do The Math

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I can’t tell you how many times I have kept myself, my team or my business group out of trouble by doing something as basic as simple math. You know, adding, subtracting, multiplying and dividing. The sort of math that we were all supposed to learn starting in elementary school. It seems many of us think that we now have computers or other people who are responsible for this sort of activity. In just about every business that I have been in, it has always been brought home to me that knowing and understanding the numbers is everybody’s job. In almost every instance where this tenet has been forgotten or ignored, things have turned out badly.

I think part of the issue may stem from the fact that we don’t seem to use real numbers anymore. In the spirit of speed, or simplicity, or possibly laziness, we leave all the appropriate zeroes off of our numbers when we work with them for business. So now when we are working with say, twenty four million, six hundred thousand dollars (a reasonably large sum by just about any standards), instead of writing out $24,600,000 we put down $24.6 M. I know and you know they mean the same thing. However, I probably have $24.6 in my wallet. I know I don’t have $24,600,000.

Perhaps this trend has promoted a more relaxed attitude toward the numbers. Twenty four point six as opposed to twenty four point seven is only point one difference, right? It’s a rounding error. In reality its one hundred thousand dollars. How many more people could you hire or what more could you do if you had an extra hundred thousand dollar rounding error in your budget or in your wallet?

This example is just one of many possible reasons why people and businesses may have evolved this tendency toward what seems to be a more lackadaisical view of the numbers. There are probably many more. The point here is that the numbers and the math behind them represent the scoring system for the business game. It has been my experience that business eventually always boils down to the score.

In most other games you get to start tied with your opponent at zero and start counting upwards. The scoring only goes one way. Those that score the most usually win. The one exception that comes to mind here would be golf. It seems I never miss the opportunity to mention golf. In golf everyone starts at zero and starts counting and it is the one with the lowest score that wins. The point here is that you cannot do worse than zero. That is not the case in business. In business you can in fact end up with less than you started with.

This is called a “loss”, as in you have lost money.

Here in comes that math thing I mentioned at the start. Not only are there things that add positively to your score (this is called “Revenue”) unlike other games, in the business game there are things that can be and are subtracted from your score (this is called “Costs”). In sports you have a “loss” if your opponent ends up with a higher score than you. In business you end up with a loss if costs you more to provide your good or service than you get paid by customers for the good or service.

Here’s the kicker: the numbers don’t lie.

Bill Parcells, the famous football coach is credited with the following quote, when asked if his team was actually better than their record indicated. He said: “You are what your record indicates you are.” If you lost ten games and had a losing record that meant you were a ten game loser with a losing record. It didn’t matter how well you played. The numbers didn’t lie.

Any time you are looking for ways to improve your or your team’s performance, start with the numbers. Do the math. Look at the revenue (value) that you or the team generates or is responsible for. Don’t generalize regarding what you affect. Don’t try to take credit for associated work. Don’t claim “enablement” of someone else’s revenue. Be specific. Math is about specifics, not generalizations. Games have specific scores. Look at the costs you or your team generate as well. These are going to be the reductions to the score. You can’t hide them. They too must be figured into the score.

Leadership is about recognizing what needs to be done before it needs to be done.

Anyone can recognize that something needs to be done when the score indicates that the business is losing at the game. It is the leader who will have already done the math that will anticipate that something will need to be done. They will plan for it so that they can take full advantage of any potential opportunities and minimize and mitigate any potential risks.

The math is really pretty simple. If you want to change the business score there are basically two things you can do: Increase the positive score (revenue) or reduce the negative score (costs). Just about everything you can do to affect the business will fall into one of these two categories.

The usual seduction occurs when the manager focuses on only one or the other category. It is very difficult to grow an unprofitable business into a profitable one. Costs tend to grow along with the growth in revenue, hopefully at not the same rate, but they do grow. If you started out unprofitable and tried to grow without changing anything else, chances are you would still be unprofitable after any growth.

On the other hand it is impossible to cut costs all the way to prosperity. You can reduce costs to profitability (hopefully) but you cannot reduce your way to growth. However, a business left unchanged will continue on in the same direction, in the same manner that it has before. I have referred to this phenomenon in the past a business momentum. There have been too many instances in the past of managers not taking or delaying appropriate actions on the cost side in either the hope or expectation that something would change of its own accord.

It usually doesn’t and the score only gets worse.

It takes both the “pluses” and the “minuses” to change the score in a business. It takes looking at what has happened and using it to anticipate what will happen next. It takes the numbers. And if you are going to utilize the numbers you are going to have to do the math.

Investment firms have a wonderful disclaimer that states that past performance is no guarantee of future success. This is true. However in business it is a good indicator that without a change to the elements that make up that business’ scoring system on both the plus and the minus side of things, of what can be expected. When you start changing the factors that affect the score, you definitely need to first do the math.