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Knowing Me, Knowing You

What kills more companies than anything else" Lack of knowledge.

Managers in those companies that fail will say otherwise, of course. They will blame the market, or their customers, or their banks, or the regulators for problems that derail their businesses. These things play a role, yes, but they are only the proximate causes of failure. The real cause is the lack of ability to deal with threats as they emerge, and that lack of ability in turn stems from lack of knowledge.

Japanese strategy guru Kenichi Ohmae once described managers who don’t know how to deal with threats as ‘deer caught in the headlights’. They stand in the middle of the road failing to anticipate a threat, and when they do see it coming at them, they don’t know how to react. They stand, paralysed by their lack of understanding, until the car hits them and kills them. I’ve seen companies behave like this, too many times.

In my new book Managing for Success, I talk about cultures of ignorance that develop within companies, where the value of knowledge is either ignored and ignorance pervades decision making at high levels. Ignorance is not necessarily a pejorative word. There can be all sorts of reasons why we don’t know things: lack of experience, lack of education, lack of exposure to new things and new ideas. These aren’t always our fault, and our ignorance doesn’t make us bad people. But it does make us fatally underqualified as managers and leaders. Without knowledge, we are groping in the dark.

What happens to companies that lack knowledge" Very often they fall back on the little that they do know, and hope this will help through the darkness around them. Theodore Levitt in his famous article in Harvard Business Review talked about ‘marketing myopia’, the common practice among managers to shy away from trying to understand the market because it is too difficult and too uncertain and instead concentrate on the things we can control, like efficient production. But you can be the most efficient producer in the world and still fail, if you don’t know what the market wants.

All of this, or should be, common sense. And yet many companies still fail to privilege knowledge. They don’t invest enough in training and development, or if they do, they do in the wrong kind of training and development (I’ll have more to say on this subject in a later post). They don’t build up stocks of organisational knowledge, accumulated experience that everyone can draw on. Very few companies are good at tapping into the tacit knowledge of their employees in the way that Nonaka and Takeuchi advised.

One of the first steps to building a lasting business and avoiding failure must be to create a culture where knowledge is privileged and ignorance is not tolerated. If your staff don’t know what they are doing, you have a simple choice: train them, or fire them. The same goes for yourself. In Managing for Success, I state that if within six months of taking a job, you do not know everything important there is to know about your business, you should be fired. Your boss should also be fired, for not making sure that you got out there and learned.

Chinese strategy guru Sun Tzu argued that if you know the enemy and know yourself, you need not fear the result of a hundred battles. It’s the same in business. If you know what your customers want and know how to give it to them, you will win through adversity. If you don’t know either of these things, then your company is what Sydney Finkelstein calls a ‘zombie company’, dead on its feet. The end will not be far away.

Masters of the Universe

The most dangerous thing a business can do is become so successful that it outstrips its competitors and dominates the market. And yet, of course, that is what nearly every business leader dreams of doing.

In Managing for Success, I refer to cultures of mindless self-belief, one of the ‘toxic cultures’ that I mentioned in my last post. Cultures of mindless self-belief result when the company begins to believe in its own greatness. It becomes convinced that it is smarter, more innovative, more intelligent, more profitable and generally better than any of its competitors. This is the ‘smartest guys in the room’ mentality that we saw at Enron; in the book, I also describe Lehman Brothers and Ford Motors under Henry Ford, two companies that became enamoured of their own greatness and arrogantly – and wrongly – assumed that nothing could touch them.

Mindless self-belief manifests itself in a number of ways. One is a kind of Olympian detachment from the real world: everybody else can do what they want, but we’ll carry on as we are because we know we are the best. This in turn leads to complacency, the ‘too big to fail’ attitude we saw at Lehman Brothers but also more generally the belief, as Jagdish Sheth says in The Self-Destructive Habits of Good Companies, that ‘bad things can’t happen here.’

Sheth argues that complacency stemming from past success is one of a company’s most dangerous enemies. In Managing for Success, I go a little further. I also believe that past success can lead companies to become arrogant and contemptuous of others: including customers. I worry whenever I hear anyone in business talking slightingly or dismissively of customers, as if the latter were too stupid to know what they really wanted and should take what the company gives them and be grateful.

When people begin talking and thinking like that, then they are putting their business in jeopardy. Customers know when they are being played for fools, and especially in these days of social media, they know how to retaliate.

A degree of self-belief is of course important, and in another post I will talk about the corrosive effect of fear on businesses. Pride in achievement is important too. People need to feel that what they are doing is worthwhile. But pride alone is dangerous. Pride needs to be tempered with recognition that nothing is perfect, that no competitive position is secure for long, and that no business is invulnerable.

Reflecting on past success often tells us that we succeeded only because the other guys made even more mistakes than we did; or, simply, we got lucky, were in the right place at the right time with the right idea. But that kind of reflection is rare among managers and business leaders. Far too many look in the mirror and think only of how handsome they are, without pausing to count the wrinkles.

 

In management as in medicine, prevention is better than cure

Managing for Success, my new book which comes out April 23rd with Bloomsbury Press, has a somewhat ironic title. In fact, the bulk of the book is about management failure and – especially – how to avoid it. The rationale is simple: there are various traps and pitfalls waiting for unwary managers and companies, and if you want to succeed, you need to avoid these.

When I talk about avoiding failure, I’m not talking about the small, often harmless mistakes that we all make, all the time. Some business activities positively demand an element of failure. In research and development, for example, the lessons of previous failed experiments are often of real value in creating new products and services. I’m a great admirer of Tata’s ‘Dare to Fail’ scheme which rewards employees who try things that don’t quite work, but nonetheless show great potential. That kind of failure does little if any harm and, through the learning it generates, quite a lot of good.

No, I mean the big failures, the seismic catastrophes that destroy millions and even billions in value, that bring companies to their knees. A number of books already on the market talk about how to rescue companies on the brink of collapse and bring them back to health again. That’s great; but not every company can be rescued. I’ve just finished reading Winthrop Smith’s Catching Lighting in a Bottle, the story of Merrill Lynch. This very large and very proud company was wiped out in 2008; there was no way back. There was no way back for Lehman Brothers either, or RBS, or Northern Rock, or many, many others that have fallen by the wayside in recent years.

Management failure destroys value. It wipes out investments. It destroys jobs, throwing people into unemployment and families into poverty. It destroys potential. And sometimes, in cases like Titanic or Deepwater Horizon or Bhopal or Minamata, management failure kills people. That is the kind of failure we need to become better at identifying and eradicating.

One of the conclusions of Managing for Success which may surprise people is that leaders are seldom solely to blame for failures on this scale. They are responsible, of course; the failure happened on their watch, and they doubtless took actions that contributed to the failure. But organisations have a habit of getting the leaders they want; or, you might say, the leaders they deserve. Leaders are sustained in their positions by supporting cultures, whose values the leaders usually share. So at Merrill Lynch and Lehman Brothers, Stan O’Neal and Richard Fuld did not single-handedly drive their banks to destruction. The seeds had been sown long before, when both men were still in relatively junior posts. The culture of both these organisations turned toxic, and it is culture, as much as anything, that kills companies.

I will have much more to say about these toxic cultures in subsequent posts, so as they say, stay tuned.

 

Let other people know what you do

I was interested, though not really very surprised, to read the results of a recent poll in the UK which suggested that more than 80 per cent of workers believe that they could do their boss’s job better than the boss himself/herself (http://www.fmj.co.uk/83-per-cent-dislike-boss-believe-can-better-job/ ). The question is, what does this actually mean" That the great majority of managers are so incompetent that anyone could do the job better than they could" Or that four out of five workers don’t really know what their managers do, and therefore aren’t able to evaluate properly the contribution that managers make"

Grumbling about managers who sit around and do nothing while low-paid staff do all the work has been going on since the days of Middle Kingdom Egypt, at least, and probably before that. Everyone likes to complain about those who have been put in authority over them, for understandable reasons. But how many workers on the shop floor, be it a steel mill, a call centre or a department store, know what their managers do all day" Do they recognise the coordinating role that managers play, bringing people and resources together to achieve a job" Quite often they don’t because, especially in cases where work is very divided, few staff ever have the chance to see beyond their own silos.

That’s not the fault of the workers, of course, but a result of how the business is structured. And workers are entitled to ask what managers do. Rather than brushing them off or telling them to mind their own business, managers should engage with their staff and make clear what their own role and contribution is. For example:

Managers need to get out and talk more with their staff and explain, in non-patronising and non-self-pitying terms, what they do and the pressures they are under. If they can do this well, they may find staff coming up with suggestions and offering to help.

Managers need to make sure that staff get out of their boxes from time to time and have a chance to look around and see how the organisation, or at least their part of it, really functions. Consulting staff about major decisions, job exchanges or swaps and cross-functional project teams are all ways of helping staff to see the bigger picture.

Managers need to recognise that there is a partnership between themselves and their staff, and the only way that goals will be achieved is if all pull together. If staff feel that they are part of a team rather than subordinates requiring constant direction, they will often begin to feel more involved and interested in what they do – and what others do around them.

It is no bad thing for workers to hold their managers to account and demand to know what they do all day. Good managers will always have an answer when workers ask this question. Great managers will engage with their workers so closely that the latter will have no need to ask.

What business can learn from the military

I’ve spent the last three days running a course called ‘Leadership Matters’ at the Strategy and Security Institute at the University of Exeter for officers in the British armed forces. People take this course because they want to learn more about how the ‘civilian world’ regards leadership and gain some different perspectives on leadership. Their view is that the world of business, in particular, has much to teach the army, navy and air force.

That may be so, but after three days working with these men and women, I am convinced that business leaders also have a great deal to learn from the armed forces approach to leadership. Here are some of the thoughts that came to mind; see what you make of them.

First, the British armed forces have a very strong system of values, and good officers live those values to the full. A lot of companies claim to have a strong system of values, but don’t really do so. In the armed forces those values are real. The people on the ‘Leadership Matters’ programme knew how important those values were, for reminding their services of their real purpose and ensuring everyone concentrated on getting the job done.

Second, the armed forces are very good at change. A big company might have one or two change programmes going on at once; the army and navy might have as many as twenty. Also, units, and individual officers and men, move around constantly on deployments to all parts of the world. People are used to change and ready to deal with it; change is part of the culture.

Third, the armed forces are resilient and bounce back quickly when faced with adversity. That is part of the training that every officer receives.

Fourth, and related to this, leadership permeates down through the organisation to the lowest levels. In business, there is too often a tendency to separate managers and leaders, and to assign leaders lofty roles at the head of the organisation. In the forces, everyone leads, and there is little if any distinction between management and leadership.

Fifth, the armed forces are very good at focusing on the task in hand and getting it done, often with meagre resources. One officer with experience of civilian organisations described the difference like this: ‘In the military, people decide what to do, get the job done, and then have a cup of tea. In the civilian world, people decide what to do, have a cup of tea, and then get the job done.’

Sixth, officers in the armed forces have a duty of care to the men and women who serve under them, and take this duty very seriously. They help their soldiers and sailors and airmen, and look after them when they are in trouble. They don’t send them links to counselling services and leave them to get on with it. The forces look after their own. The result is greater loyalty and greater trust between everyone.

There of course differences between business and the military. But some lessons and ideas can be transported across the boundary between them. Both sides can learn from each other.

Drive out fear

This is a bit of a follow-up to my last post about fear and tolerance, and was prompted by my re-reading an old chapter on W. Edwards Deming - something I wrote for a book called Fifty Key Figures in Management some years ago. Deming is probably best known as one of the gurus of quality management, but his thinking ranged far beyond quality and right across the spectrum of management.

In his book Out of the Crisis, Deming set out ‘fourteen points’, his philosophy of management in general and quality management in particular. Reading down Deming’s list of points one sees familiar ideas such as ‘undertake continuous improvement’, ‘institute training on the job’ and ‘institute leadership’. Then comes one that makes you stop and blink. Point 8 is simply, ‘drive out fear’.

Deming did not believe that fear and coercion had any place in organisations. True quality, he said, could only be achieved by people who believed in quality as a goal and worked willingly towards it. Discipline, threats, bullying, arrogance and the setting up of some people over others, anything which disrupts the harmony of the workplace, these are all threats to quality; and in the absence of quality, there is a threat to the organisation itself.

I thought a lot about Deming while writing a chapter about fear in Managing for Success, my book that is now going through production at Bloomsbury. There is so much fear in organisations: fear of failure, fear of uncertainty, fear of the unknown, fear of ‘the other’, people who don’t fit in with our preconceived notions of how the world should be and therefore represent a threat. Sometimes fear masters an organisation completely and a defensive culture of ‘protect and survive’ becomes rooted.

In The Republic, Plato uses the metaphor of people sitting in a cave, unable to see the outside world; all they are aware of is shadows as other people pass to and fro by the mouth of the cave. When taken out of the cave and into the real world, they become so frightened of what they see that they flee back into the cave and stay there, preferring the shadows of illusion to reality.

In business that can be a very damaging mentality, and yet it is all too common. Fear of the unknown, for example, is one of the reasons why we adopt increasingly complicated metrics for almost everything, in the mistaken belief that numbers never lie. ‘Not unless the spreadsheet says so’, becomes the mantra. And if it turns out we make the wrong decision; well no matter, it wasn’t our fault. We followed the rules, we read the numbers. (I ran across some interesting research which concluded that 94 per cent of all spreadsheets surveyed had some form of error in them – so guess what, numbers do lie.)

The answer to fear is not numbers, but courage. Don’t let the numbers rule you; follow what your own experience and wisdom tell you. You’ll make mistakes, everyone does; but you will probably make fewer than you will by slavishly following the numbers. Have courage, and have faith in yourself.

Deming was right, we need to drive out fear. We need to start by driving it out of ourselves.

 

Fear and loathing in the dressing room

I’ve recenly read Michael Atherton’s excellent article about what happens in the dressing rooms of sports teams ( http://www.thetimes.co.uk/tto/public/cricket/article4230937.ece ). The article focuses around cricket, but it is equally appropriate to any sport – and to any team. Team leaders in every environment, business included, could usefully read this article.

Atherton’s article was provoked by the recent publication of a book by Kevin Pietersen, a former England cricketer who was effectively fired from the team earlier this year and is now taking his revenge on his former team-mates and the England cricket establishment. Atherton, himself a former captain of the England team, makes the point that the pressures of international sport played at the highest level, generate incredible tensions within and between people. Dressing rooms, properly used, are places for blowing off steam and letting those tensions evaporate. Pietersen complains in his book (according to the extracts; I have not read it) that those tensions amounted to a culture of bullying and abuse. Atherton’s response is that these tensions are part of international sport: get used to them.

I think Atherton’s column has some really important lessons for teamwork, not just in sport but anywhere. In particular, we need to remember that all teams are under pressure: in business this can be to produce results, to get a job done, to make a project happen, to come up with new ideas, whatever. Pressure produces tension. There will be times when members of a team disagree. Although everyone should try to remain within the bounds of civilised decorum, there is always the risk that relationships might become more...fractious, shall we say.

There is no actual harm in that, provided that the team has a safe space where it can engage in dispute without those disputes becoming public property. I would offer a strong recommendation for team leaders: create that kind of safe space, physically or virtually, where people can be candid with each other and say what they really think, rather than hiding behind platitudes. The results can be remarkable. Once people reveal their real feelings, rather than nodding along, all sorts of things come out which might otherwise have remained hidden.

However, when you create such a space you also have to manage the consequences. Make sure that the team respects the sanctity of that space, and that the Chatham House rule applies: what happens in that space stays there, and at the end of the day everyone shakes hands and is friends again. Tough to do, but again, the value at the end is worth the effort.

Free thinking means better risk management, more creativity, broader and better ideas. The process of achieving free thinking is not easy and is not cost-free. But then, no one ever said managing people was easy.

Winning has no place in business

In my newly finished book, just dispatched to the publisher and out from Bloomsbury next April (see previous blog), I make what I am sure will be a fairly contentious statement: the word ‘winning’ has no place in business.

I was provoked into this statement after reading Playing to Win, by A.G. Lafley and Roger Martin. Mr Lafley is of course the much admired former CEO of Procter & Gamble; Professor Martin is a well-respected business academic who has written a lot of really good things (i.e. things I agree with). But this book appalled me.

Everything in the book is about ‘competition’ and ‘winning’. You can get the impression that the only goal of a business is to ‘win’ over its competitors. The title, Playing to Win, is quite an accurate description of the book. Business is a game, like football or cricket or rugby. The only purpose is to get on top. He, or she, who dies with most market share wins.

Okay, except...what about customers" Don’t they count" Or are they just bystanders in the game, or pawns to be moved around" That’s how it sometimes seems in this book, and to be fair, that is how a good many businesses treat their customers.

In my view, this is entirely the wrong way of looking at business. Business only has one purpose, to serve customers. Peter Drucker made this point too: ‘the only valid purpose of a business is to create a customer.’ Society enables businesses to exist because people have wants and needs. Business serve those wants and needs. Those that fail to do so disappear, often quite quickly. Customers are the basis of income, profits and prosperity; without them, the business dies.

Why, then, is it so difficult to get managers to concentrate on customers" Why this obsession with winning, with competition, with triumphing over others"

Do artists go out and engage in fistfights with other artists in order to include their own painting techniques" Do poets fight duels with other poets to prove the superiority of iambic pentameter over free verse" Do airline pilots play chicken with each other on the approach to runways to see who can get their plane on the ground first" Then why should managers distract themselves from the vital task of serving customers go to and play silly games competing with other companies"

Management is hard enough without this nonsense. Yes, sometimes companies do need to compete, for scarce resources, for talent, for the attention of customers. Even then, though, if they stopped and thought about it they might well find that collaboration might yield better results in the end.

I’m not arguing for the creation of monopolies or oligopolies and I know some degree of competition in a market is healthy. What I object to is treating competition as the end goal. If we all start playing to win, then we will bury ourselves. Business isn’t a game. Take it seriously, and focus on what matters.