Less Than Optimal
Some years ago while working for a large corporation I happened to reflect on top management response to quarterly profits from the various businesses. I also happened to know significant details about five of the businesses and especially the history, the products, markets, manufacturing and the key decision-making procedures and management staff in each. My knowledge caused me to realize that, while profitable, four businesses were returning far less to the corporate bottom line than they should, because of their loss of market share through time, and in the last case, poor cost control tactics threatened future profits. It was obvious to me that top management expectations should be based both on available market and on successful capture and control of the majority of the market, not to mention strategically questionable and potentially unsafe cost control practices.
What I actually perceived was relief at the business level, for yet one more quarter, where juggling the books made four businesses look somewhat respectable and risking the enterprise helped make the fifth appear excellent. In fact, the war was lost for four of the five. Two of the businesses were later sold, due to top management perception that success could never be regained at a "reasonable cost." The third incurred terrible losses due to lawsuits, causing more than one thousand times as much expense as anything saved cumulatively from their chosen cost control tactics.
The other two limped along, but did not take basic actions to improve their situations. Instead, what they did was come up with new marketing "silver bullets" every few months, of which none worked very well. Meanwhile, they pinned their hopes on commercialization of new technology that wasn’t yet practical … a little bit like the new jet aircraft that Hitler hoped would turn the tide of WW II. They, like he, ran out of time and money, while their cash cows were dying.
I generalized in my thinking about lost opportunity and the sapping of vitality across many of our human enterprises. We cannot expect perfection often, but it was and is valid to put reasonable performance targets in front of all our endeavors, and to measure us, reward us or punish us accordingly. Unfortunately, as I looked deeper into how corporate life really operated, I realized that designated leaders do not have to perform particularly well because the expectations placed on them are too flexible. And their memories of past quarters were amazingly short. They had already arrived in the good old boys club, due to some success earlier in their careers, and they didn’t think to learn why their businesses were gradually declining in profitability, or how to stop that process, until it was too late.
There is a serious problem when the performance no longer merits the position. You must understand that there is no functionary at the business or corporate level that assesses the quality of management decisions in areas of omission or commission before the event of lost opportunity or potential disaster. It just doesn’t happen even when leaders try to stay current in their thinking, for there is a categorical problem with leaders considering others outside their business units as useful in evaluating the quality of their decisions.
So what is fair? The four lower profit businesses I referred to were not new ventures, but previously outstanding contributors. Can we not also say that about governments and religions and sometimes educational institutions? Have not each had their time in history, only to be replaced or evolved into lesser effectiveness? Is it not also true that new generations of people cause a cyclical effect? Well, for the most part, that notion is pure bullshit, for once headed downhill, most individual business units, governments, etc., continue down. Even more scary, consider that relative success during a given period of history is only that! All results are relative to all other results within a timeframe, but is that a fair measure of performance? Does anyone take a hard line view of market potential?
I concluded not. In my study of corporate evolution I realized early on that brilliant discovery and subsequent commercialization too often led to the creators being stripped of ongoing frontline management responsibility, sometimes by promotions and/or transfers to other businesses. The heirs, alas, were politically savvy inheritors but utterly unable to protect the castle or expand the domain for long-term business health. They lacked creative horsepower in key areas and most particularly fundamental knowledge about the businesses and technologies they were "appointed" to manage, and they gradually but surely brought successful businesses to their knees. It does become apparent through results that the old adage "a good manager can manage any business" is hogwash, for manage means administrate instead of grow when the individual lacks specific and sufficient fundamental knowledge of the particular business, technology and/or marketplace.
One must agree that enlightened self-interest should cause top management to oversee successful businesses such that they continue to succeed. History shows us, however, that the obvious is not dependable. In my book, Destiny, I wrote about business success and later failure using the example of the pig, which is highly variable in performance, based on its perception of need and actual understanding of the current surrounding environment. I wonder how many of us are able to see success as transient and wholly dependent on our continuing accurate perception of reality and commitment to follow-up? What vile process turns creative and productive pigs into swine?
Methinks it is too little useful imagination on the part of the inheritors, combined with too limited goals. Every boundary we place on ourselves, for fear of failure, betrays our lack of willingness to walk the extra mile towards continuing and new success. Reputation of success lures us into thinking in "less than optimal" ways, and surely brings us down for lack of vision, not to mention knowledge and motivation, for larger goals. We also get old and tired, and sometimes bored, much sooner than our career life span would indicate as reasonable. Finally, we can become too enamored of coming technology and divert so much capital to the pursuit of new technology that we undermine developmental efforts to keep current products and manufacturing facilities current. Then the competitors do eat our lunch in a price/quality war.
To be fair, I also knew about businesses that seemed impervious to the problems I mentioned above, and I put no small time into figuring out how ongoing success could happen for some but not others. My summary answer was less than pleasing in most cases, for while ongoing success demanded some level of sensible creativity and accurate perception of reality, I was hit with the realization that it is very hard, indeed, to kill a large dinosaur. The damn thing keeps moving because of its size relative to other competitors! You can kill part of it, or it can commit partial suicide, but it moves on unless somebody screws up a vital part. Sometimes we talk about this phenomenon as monopoly or cartels. And therein lies the answer, for sheer size and control of market or market segment masks major deficiencies for a very long time. We only need to consider the long overdue impact of Japanese steel and automobiles on USA steel and automobile companies from the 1960’s through the 1990’s and the point becomes obvious.
Hierarchy is very unforgiving when presented with harsh realities about performance. We have but one example of one culture where "top dogs take the pipe" for lack of performance. Yes, I am talking about Japanese corporate executives and government leaders. Where else do you see high level failure approached with candor, exposure, apology and suitable punishment via resignation? Okay, I really don’t know how soft they land when they resign. Perhaps there is yet one more "good old boy" structure that reassigns the failed executive or government leader to some other corporation or government function, such that failure has another opportunity to be repeated in a less visible place. Our USA executives create scandals like Enron® by criminally hiding their poor performance to the extreme detriment of their employees and investors.
Hierarchy tends to produce ingrown thinking as well. Power from success leads to the belief in invincibility and to the state of unwillingness to stay open-minded, and particularly to remain curious about new opportunities or potential weaknesses. Mistakes and declining results are swept under the carpet or explained away as unavoidable. Pressure to produce higher profits leads to short term thinking and tactics instead of concentrating on long-term viability, strategy and expansion. When new competitors appear and eat your lunch, you know you have evolved to ineffectiveness, and that your business is the victim of "second-string" management. Alas, you may even be one of those people.
I think about some businesses that appear immune, like banks and credit card companies. Major banks are occasionally embarrassed from large, high-risk overseas loans that are made in greed but result in loan default. Yet, they go on, as their capital loss is not life threatening, and their market doesn’t disappear. Credit card companies have historically bumped up their interest rates in a smoke and mirrors game to cover losses from giving credit to people who have not demonstrated ongoing financial responsibility. But they also go on, as they have a marvelous cartel, and would-be new competitors find the up front cost to compete entirely unreasonable. Think about how few credit card operations exist today. We have Visa, MasterCard, American Express and the relative newcomer, Discover, and a few giant transaction processors like MBNA. I suppose one might look at the "financial" sector as immune in a similar way to a utility company, who services must be used.
So what might we conclude from my musings? Is this subject simply one more example of human weakness applied to our leadership? Or, maybe we can start to understand the silliness of protected hierarchy. On one hand, we seek security and tend to favor and show respect for leaders in established businesses, governments, etc. And so we should, for our survival depends on the intelligence and goodwill of the successful, as we are commoners. Conversely, one of the major benefits of a free market and capitalism is that less effective operations fail and are replaced by better operations. Are they? I think not, at least not in a timely manner, and eventual demise creates a high disruptive cost to the commoners. Our history and our present do more than suggest that power inevitably leads to preservation of power and not to growth or consideration of the commoners.
I have always been less than impressed by leaders having the audacity to evaluate performance of employees negatively as a group when the leaders are fundamentally responsible for business success or failure on a grand scale. All of us need to be critically evaluated to learn our weaknesses and to act to strengthen ourselves and improve our results, especially the leaders. The business contract we enter when we become employees is not one-sided regardless of what you may be taught to believe.
As an employee you do have the right to demand good performance from your leaders, all the way up the hierarchy, as your personal business success and security depend on their performance. Excuses are made to convince employees that, as the investors own the company only they have the right to replace the leaders. That is legally true and mostly pure bunk, as investors seldom get involved in operating a company unless they hold so much stock that they are already on the Board of Directors, in which case they are part of the problem. It doesn’t take a genius to understand this simple fact. I am amazed that employees are such sheep and so willing to be led to slaughter, when they could exert strong influence as a group in helping correct poor management decisions.
We need to change our thinking about power and the way it is maintained at the expense of progress and security, and with too few performance measures with penalties. Our best efforts in corporations and governments do not reliably lead to continued and expanded success, at least not by honest or morally considerate means! Our models for successful and healthy enterprise lack the key ingredient of external objective assessment of sensibility and creativity in the current timeframe. No, it isn’t enough to hire a "consulting" company! Our fundamental model is wrong because it fails to look inward and outward quantitatively and thoroughly to find realism and act on it. We simply favor continuation of the existing power structure and that structure’s strengths and weaknesses.
Therein we find a potential reason for fear … that of static life based on ultimate power denying change, or of forcing it in dominions previously unaffected. I suppose that theme is familiar to some of you, for it squeals of some religious practices and of old enterprises like the Roman Empire. But the very truth of business failure indicates that static life is not yet a foregone conclusion. And you better hope that situation doesn’t change. The waste, however, is a tragedy.
I find it ironic and pleasing that our common and least inspired efforts in business and government and religion to maintain power result in the loss of power. The imposition of power costs the powerful the willful and creative output of their highest-potential followers, who become aggravated with the combination of ignorance and force. We are "less than optimal," we lack models or behaviors that support ongoing optimization, and you should delight in the fact of our failure when we are weak between the ears. It is that failure that gives us or others alternative chances to succeed. If that situation changes, we are lost. And coalescing of power into far fewer larger companies through major acquisitions is a sure sign we are headed in the wrong direction.
Whew! Have I come full circle in my thinking about poor business performance within a corporation? Is it good to fail? Of course not! It is, however, wonderful to see failure (in the other guy’s company) when the leaders do not lead from wisdom. But wouldn’t it be much better if our practices supported external objective and realistic assessments of management plans and decisions? Think about your relationship to your employer, your government and your church. How much do you want them to succeed, based on their demonstrated beliefs and behaviors? What value do you place on deserved failure when your financial or physical security is adversely affected? You really need to think about that, as do I and most of the rest of us. There are some of us who are quite bright and experienced and who would willingly help prevent major mistakes if only the leaders would subject their ideas to the same critical review processes to which we are subjected.
No, I am not talking about running companies as pure democracies, and I believe that notion to be foolish. The issue is that very few people make the major decisions that impact all of the employees, and the weaknesses of those leaders relative to their responsibilities is notable. They do need help, but we lack any business model or societal practice to make them receive that help.