Tag Archive for: Strategy

How Shared Vision Prevents Small Thinking

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When we’re not able to see that we are part of something bigger…We become part of something smaller.

Recently, I read the book Being Mortal: Medicine and What Matters in the End by Dr. Atul Gawande. Gawande is a surgeon and author.  The book is an excellent read about how individuals, cultures, and the medical profession deal with the concept of mortality.

In a decidedly challenging but altogether interesting narrative, Gawande surfaces an interesting concept that is directly useful to those of us thinking about strategy, talent, culture, and inspiration.

Namely, in one part of the book, Gawande outlines research by Laura Carstensen at Stanford University on how mindsets related to aging cause us to close off our horizons.

It seems that as young people with boundless time ahead of us, we (that’s you, me, and every other person in the world) think expansively, we seek new things, and we value unfamiliar experiences.  We “plug into bigger streams of knowledge.”

The world is our oyster.

Interestingly, as we age, and as we come to terms with the waning amount of time we have in the world, we become much more interested in spending time with people we know and love, focusing on what is tangible and immediate, and enjoying the things we are familiar with.

As you age, “your focus shifts to the here and now.”

Carstensen did multiple studies to test this hypothesis.  The survey based research on this topic shows that young people generally value adventure…expansive vision and activities. Older people generally value a smaller view of the world…their circle and its inhabitants.

But there is one shocking revelation about this that the book provides…

The closing off of horizons isn’t about age.

It’s about perspective.

For instance, among the ill, the age differences in mindset disappear. Young people who are terminally ill think “like old people”–small horizons, immediacy, and intimacy are important.

On the other side, when posed with hypothetical questions of how they would spend their life if a medical breakthrough extended it for another 20 years, old people think like young people–expansively and in terms of adventure.

Similarly, young people faced with major crises or uncertainty start to think “like old people.”  A great example is given from the research, which happened to bracket some very uncertain times for its subjects. To wit (and this is from Gawande’s book with my emphasis added):

“…A year after the [survey team] had completed its Hong Kong study, the news came out that political control of the country would be handed over to China.  People developed tremendous anxiety about what would happen to them and their families under Chinese rule.  The researchers recognized an opportunity and repeated the survey…Sure enough, they found that people had narrowed their social networks to the point that the differences in the goals of young and old vanished.  A year after the handover, when the uncertainty had subsided, the team did the survey again.  The age differences reappeared.

“They did the study yet again after the 9/11 attacks in the United States, and during the SARS epidemic that spread through Hong Kong in the Spring of 2003 killing 300 people in a matter of weeks. In each case, the results were consistent.  When, as the researchers put it, life’s fragility is primed, people’s goals and motives shift completely.

It’s perspective, not age that matters.”

People with a view of being part of bigger things–a longer future, for instance–think bigger, more creatively, and more adventurously.

People with no view of bigger things think smaller.

How this applies to you…

This insight is not about aging… It’s about how our minds deal with vision, purpose, and inspiration.

For instance, there are people in your organization right now who have no view of a bigger, longer term purpose for themselves in the organization.

It might be just a few…

…It might be every. single. one. of. them.

The research cited above says something very simple:  When people believe they are part of something bigger…that they have a future–No, strike that, even that they believe they could have a future that is long and interesting–they think more expansively and creatively.

When they don’t?

They worry about themselves.

Their world becomes smaller, intimate, and guarded.

So what?

You want to cultivate an organization that is creative, expansive, and vibrant?

Try helping people understand their future within it.  Be explicit about the long term, about how people are cared about; and about the prospects for the future for them and for the organization.

You want to cultivate an organizational culture that is insular, turf driven, selfish, dull, and dogmatic?

Try focusing people on the short term.  Ensure that word gets around that nobody is safe. Manufacture crisis and ambiguity. Conduct layoffs right along with your annual budgeting cycle. Fire people for taking risks. Create uncertainty and fear. Propagate a vision of the future that is inscrutable for the rank and file or simply insensitive to their goals.

The research cited above says that you and I think “old” when we undergo times of strife, uncertainty, and major change.

In short, we think “old” when we have no positive or stable vision for what the future holds.

Insularity, selfishness, and small mindedness are the insidious outcomes of a lack of vision.

So, when we’re not able to see that we are part of something bigger, we become part of something smaller…Namely ourselves and our own immediate circle.

A healthy vision of the future and what’s in it for the people in the organization just might be the key to keeping your organization forever young.

I’d be interested in your comments.

What Entrepreneurs Know that Corporate Execs Forget…

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By looking at what entrepreneurs do well, the rest of us can learn something about strategic decision making and action.

It was 1997.

I was lucky enough, though I didn’t know it at the time, to score an internship as employee number 5 or 6 at E-Loan, Inc.  Such was one of the benefits of being a college student in the heart of Silicon Valley:  There were a lot of start-ups, and there was a lot of work to be done; so a guy like me with no experience beyond manual labor, retail, and a stint as a bouncer could find himself uploading the entire database of lending products to the start-up’s website every morning–performing the critical action of the company’s existence.

In the months I spent at the company, which spanned the launch of the website and the tripling of the employee base, I gained a lot of respect for what high-pace entrepreneurship actually is.

The rest of the E-Loan story is a lot like many others of the dot com era:  Growth, then a hot IPO, then challenges, then acquisition, repositioning, and ultimately in the years that have passed, a company that resembles the original only in name.

The rest of my story is a bit different. I took that experience, along with some other quality early-stage investment experience, and ended up as a larger company consultant and diversified manufacturing executive.  Those experiences have been exemplar of the sort of yin and yang learnings that my own life trajectory has offered; and that frankly inform the bulk of this blog.

Insight from all of that brings me to this:

Larger company leaders can learn from entrepreneurs how to occupy the “pinnacle” of strategy.  That pinnacle is the moment of decision.  It’s the decision seat.

Entrepreneurs do this well because, in essence, it may be all they have.

Large company executives do this poorly because they have the luxury of resources and time.

But they (perhaps, you?) can get better at it.

The Pinnacle of Strategy

What’s the pinnacle of strategy, and why the mountainous metaphor?  In short, it’s the decision seat that stands atop the mountain or molehill of data, insights, analysis, and synthesis of a point of view.

As a McKinsey alumnus, I have been well steeped in (and am a proponent of) Barbara Minto’s “Pyramid Principle” method of thinking and communicating.  The top of the “Pyramid” in action-oriented logic is a synthesis of a point of view. Only far too often, a point of view at the top of a pyramid lacks a pinnacle. That pinnacle is occupied by a decision maker, steeped in the rest of the pyramid, but willing to drive a decision.

Often–particularly in large company bureaucracies–the seat is vacant.  That reality is what gives so many consulting reports their negative dust-collecting reputation.

The difference between entrepreneurs and executives

When it comes to occupying the pinnacle, entrepreneurs have no choice.

During my time at E-Loan and around numerous other start-up businesses, one thing became clear:  Somebody was going to make a decision.  E-Loan was in the business of underwriting mortgage loans in California when it started up.  It, like many dot com businesses of that era, had no real automation when it came to processing the actual deluge of loan applications that came through its website.  We were processing loans on paper.  The popularity of the web being what it was, and the peculiarity of discount mortgages offered online being what it was, the company was quickly overwhelmed.

So, what happened?  Did the founders ponder the data?  Think about talent strategy?  Run endless spreadsheets?  Set meetings in order to plan?  Call a board meeting?

Nope.

They made decisions.

Hire 5 people. Set pricing at x. Weed out bad applications by doing y.  It was all heady, seat of your pants decision making that was grounded in a strong appreciation for what had to be done and for the business model they thought would win.  There was no “stop and study it.”  It was “study it as we go.”

The greatest entrepreneurs, therefore, occupy the pinnacle of the pyramid even as the pyramid is being constructed.  They sit on the scaffold, not on the bricks.  They are hypothesis driven.  They are (and I apologize in advance for going here) fundamentally inductive in their reasoning.

In short, they are action-oriented.

Contrast that with today’s executive management culture.  Executives across industries lock into linear thought processes.  They go from data, to facts, to insights, to risks, to options, to strategies, and ultimately to a hypothesis.  And, then, they may or may not occupy the pinnacle.   They are fundamentally deductive.  

They have that luxury.

In short, they are, on average, ponderous and cautious.

What do big companies get wrong in their leadership cultures that entrepreneurs get right? 

This is a story of incentives and how we respond to them.

Most of this difference comes down to the old adage about “messing up a good thing.”

For the entrepreneur, the “good thing” is still out there in the primordial soup of opportunity.  She has to act in order to realize opportunity.

For the executive, the “good thing” is the here and now.  It’s far too often the salary and bonus that accrue from just nudging the controls this way or that.  The upside of taking a risk is minute in comparison to the downside of losing power, position, or prestige.

And, that is what large companies ultimately get wrong.  They provide incentives for executives to protect their position, to manage risk vs. capturing opportunity, and ultimately to guard the status quo.  Big, strategic decisions come with millions of dollars of study and sign off not because it’s necessary for large companies, but rather because no one really wants to sit on the pinnacle.

Entrepreneurs know that they get paid when they act.

Executives often get paid not to act. Often, they get paid very well, in fact.

This simple fact is evidenced by the bloated cash positions on some companies’ balance sheets (coupled with latent debt capacity) these days. Corporate executives, faced with decisions whether to invest or wait, have the luxury of waiting.

In the worst of cases, corporate executives earn rents based on time.  “The longer I’m in the seat, the more money I’ll make.”

In almost every case, entrepreneurs create value based on action. “I’d better hire/build/sell or I’m out of cash.”

Would that a little bit of the latter mindset could seep into the former.

So What?  

We are all strategists.  Given that, we should all beware the “study further” cul de sac and focus on a healthy approach to action orientation.

Taking some tips from entrepreneurs, a few things come to mind that might bridge the gap between endless study and deductive processing of strategic problems and efficient, inductive decision making.  These are applicable for you as an individual professional and for the highest level executive leading the most complex multi-national.

  • Know what you (or your business lines) are about – I never met an entrepreneur who didn’t have a strong view of what his business is.  I have met, dare I say, thousands of corporate employees who couldn’t tell you the financials of their company and, worse, how their job connected to them. I’ve also, sadly, met numerous executives whose point of view on what they or their company is about amounts to meeting a budget connected to a bonus structure even when they know it is destroying value (again, rents vs. value).

 

  • Size up your pyramid – Study is a good thing.  Finely considered decisions can be fantastically successful.  The dirty little secret is that a healthy proportion of momentarily considered action is also successful in creating value.  Know when enough study and analysis is enough.  If you are building a pyramid, know whether you really need one made of bricks that will last 10,000 years or one made of Legos.  This matters.

 

  • Match pace of decision making with pace of business – If you and your competitors are slow moving, perhaps you have more time.  Or, perhaps, you have an opportunity to outrun them.  During the dot com era, the frenetic pace of decisions was matched to the land grab that was the growth of the Internet.

 

  • Occupy the pinnacle – Every strategic act worthy of study is worthy of a decision.  This is true whether you are thinking about your personal career or thinking about how to steer your business.  Be willing to occupy the pinnacle of the pyramid; and remember, in the immortal lyrics of Rush‘s “Freewill,” if you choose not to decide…You still have made a choice.

 

  • Know what incentives you are giving people– My final shot is at incentive structures.  Do your company’s or your personal incentives (and by that, I don’t mean bonuses, I mean the holistic set of incentives a given person has) drive you toward action or inaction.  Do people get rewarded for taking action, or for avoiding it? Do you?  Whether you are an HR executive or a Board member, build a healthy appreciation for opportunity costs into your incentive system.  Some incentive structures, if shareholders knew the behaviors they engender, would embarrass the board members and executives who enact them.

 

By bridging the gap between the “corporate risk manager’s” strategic approach and the entrepreneur’s approach, we can learn a lot about how to inject a little more action into our approach.

Occupy the pinnacle of strategy.

Leonard Nimoy and the Warmth of Spock

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Spock, as portrayed by the late Leonard Nimoy, has resonated through the generations because he married two things that we never get right:  Perfect logic, and heart.  

Today is a sad day in the hearts and minds of many fans of science fiction, and particularly fans of the Star Trek franchise.

Leonard Nimoy, whose portrayal of the iconic half-human half-Vulcan character Mr. Spock, has died.

I won’t dwell on the life of the man, because there are plenty of tributes out there doing that. Here’s a fitting one from the New York Times. I appreciate the art he both portrayed and brought to the screen.  Many forget that Nimoy was also a writer and director in the series of Star Trek movies.

What I will dwell on is this:  While the character Spock is a shoo-in for the hall of fame of science fiction characters; it’s not on the strength of a couple of prosthetic ears and tricked-out eyebrows, but rather on a stunning mix of logic and warmth he was able to bring to the screen.

This is a character smart enough to decipher the most cryptic stratagems, ranging from the evil of Kahn to the songs of whales.

This is a character so dispossessed of emotion as to have uttered such remarkably useful phrases as:

“Insufficient facts always invite danger.”

Ridiculously applicable to strategic thinking…

And,

“Change is the essential process of all existence.”

Directly applicable to organizational thinking…

And,

“I realise that command does have its fascination, even under circumstances such as these, but I neither enjoy the idea of command nor am I frightened of it. It simply exists, and I will do whatever logically needs to be done.”

Directly applicable to leadership thinking.

And, there are many more quotes like this.  Just Google “Spock quotes” today for a smattering of tributes.

But, the one that stands out; comes from Star Trek II: The Wrath of Kahn.  In that film, once Spock has made the ultimate sacrifice for his comrades and ship; he says to Captain Kirk:

“I have been, and always shall be, your friend.”

I believe there is one reason that Spock has so resonated throughout the years; and it isn’t his mind.

It is that he was a friend.

This quote is a good reminder that no matter how smart we are–how perfectly logical and coldly calculating we may be; we must connect with others to be truly effective.

Spock managed to do it.

Maybe as we push to a higher level of strategic and financial perfection, we should keep in mind that the people around us are what create resonance with our excellence.

Rest in peace, Leonard Nimoy.

May we all “live long, and prosper.”

Are We Undervaluing Specialists in Our Organizations?

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Thanks to a timely share on LinkedIn, I recently stumbled across an insight published by Kellogg at Northwestern titled Everyone Loves a Generalist.  It’s about how we may have a systematic bias for people with generalist skill sets; and therefore a bias against people with deep specialties.

Your LINK

The article outlines implications for management and talent strategy, with a parting shot summed up as this:

“A few words of advice for managers? Try to keep the comparisons between generalists and specialists to a minimum. (Indeed, in some of Wang and Murnighan’s studies, the researchers found that the generalist bias can be reduced when participants are encouraged to judge specialists on their own terms, as opposed to comparing them to generalists.) And above all, says Murnighan, be that conductor: “There I am, there’s my team, let me look at the interactions from a distance and say, ‘What is it that I need to change? What do I know that I’m too close to the process to really see?’””

So, if we are to build a talent model for an organization, are we thinking about where the all around athletes belong vs. where we need deep subject matter expertise?

More importantly, are we thinking about what the value vs. cost of that all around athlete is vs. the specialist?

This insight would suggest we are overpaying for generalist talent when we hire, and perhaps under-developing specialists within our own midst. Most importantly, we may all too often try to equate or compare the two.

The article offers a stealthy but scathing indictment of managers who only want to hire the all-around athlete, calling them “myopic,” risk averse, and somewhat narcissistic (no, that last word isn’t used, but it is implicit in the article…look for it).

File this one under talent and strategy…They go together nicely.

Belling the Cat Part 2: Greece’s “Innovation”

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Interesting commentary from Yanis Varoufakis, Finance Minister of Greece, published in the NYT a few days ago.

YOUR LINK

In the midst of a highly academic treatise on why his motives are really not to engage in any games, but rather to do “the right thing,” Varoufakis meets the strain a writer always does when he is forced to come up with the “SO WHAT?” to his argument.

What is his “so what” to the question of what Greece must do?

Well… Let’s let him tell you:

“Against such cynicism [about Greek motives] the new Greek government will innovate.”

Innovate.

In the midst of a house afire, the Greek finance minister proposes to pull a rabbit out of his hat.

In corporate environments, innovation has become a sort of conjured savior within strategic plans.

All that is left is to define what innovations, where, and when.

The Greeks are suffering from the same delusion, it seems.

This is another great example of high-minded rhetoric being used to avoid discussion of tough choices.

It’s belling the cat, all over again.

All that is left is to find the mouse who will bell the cat.

 

Belling the Cat Part 1: ISIS Root Causes

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If you follow anything around U.S. foreign policy, you have probably seen the highly publicized comments from Marie Harf on how the root causes of the U.S. State Department cannot “kill our way” to victory over proponents of an Islamic state.

Here’s the video:

https://youtu.be/sSHbv0_O01k

 

Steering clear of the politics that tend to bloom around comments of this type, Harf’s talking points are a striking instance of strategic leapfrogging.

First off, Ms. Harf is in all likelihood “right” about needing to address the root causes of ISIS’ ease of recruiting.

Second off, Ms. Harf is probably right about what the root causes may be.

However, her talking points ignore the reality of today, where ISIS is already marauding.  She leapfrogs to high concept and ignores low reality.

This happens often when unsavory or necessary tactics get in the way of high minded strategic nirvana.

Don’t want to talk about the ugly business of killing people who are, themselves, killing at will?

Start talking about how the root causes of the killing are in the socioeconomic dynamics in the free world and in the communities the killers reside within; and how it’s important to solve those…

This is a classic example of a speaker spouting high minded (and probably “right”) strategic principles to skirt the need for low-minded (and probably “necessary”) tactics.

Ms. Harf has been beaten up in the media plenty for her talking points, and in my opinion rightly so…  She is propagating a narrative that is essentially a redux of the old “belling the cat” fable.

To wit, from Wikipedia:

“The fable concerns a group of mice who debate plans to nullify the threat of a marauding cat. One of them proposes placing a bell around its neck, so that they are warned of its approach. The plan is applauded by the others, until one mouse asks who will volunteer to place the bell on the cat. All of them make excuses. The story is used to teach the wisdom of evaluating a plan not only on how desirable the outcome would be, but also on how it can be executed. It provides a moral lesson about the fundamental difference between ideas and their feasibility, and how this affects the value of a given plan.”

Strategists have to keep practicality in mind

Or else, even when they are right, they can be wrong.

 

 

 

Leadership and the Infinite Monkey

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The vision-less leader is like the proverbial monkey on a typewriter…Or even worse.

Options are a good thing. We all want options.

Chocolate or vanilla?

White or wheat?

Paper or plastic?

Options, to a point, are the spice of life.

But, there’s a breed of leader out there whose approach to leadership amounts only to options.

Too many options.

Options without conviction.

Options without vision.

Options without time boundaries, rules, triggers, or values. Just options.

“Try them all” says he,

“One of them might work.”

Generally, this leader has limited concept of or care for the burden “trying them all” comes with; but revels in the knowledge that something might happen.

He doesn’t know what.

But, perhaps when it happens he’ll know.

This leader’s style is a manifestation of the so-called “infinite monkey theorem.”

And a tortuous style it is.

What’s an infinite monkey leader?

The infinite monkey theorem states that a monkey on a typewriter, banging away, will eventually bang out the complete works of Shakespeare…If only given enough time.

He won’t know he has done it, and he will certainly have wasted a lot of time and energy in the process; but still, with enough time, he believes he will find success.

An infinite monkey leader works the same way: Bang away on enough keys and something good is bound to happen.

Call on enough random phone numbers and you are bound to make a sale.

Invest in enough projects and one is bound to “pop.”

Keep plugging away at a given project providing no financial returns and producing only noise because, you know, it is bound to straighten out.

Churn through enough people and you are bound to find a good subordinate.

The defining characteristic of an infinite monkey leader is the lack of conviction to narrow down and attack.

Instead, the leader only arrays resources against broad fronts, never narrow; and only attacks in rolling waves, never in thrusts.

In short, the leader never commits. He just bangs away.

The scary part?

Get this: A leader with Infinite Monkey affliction can often persist and even prevail.

Savvy ones refer to neat sounding investment terms like “portfolio effects” and “diversification.” These are worthy, useful terms in the real world of strategic management, to be sure. However, the infinite monkey leader takes them to the limit… Wasting time on things that should be stopped, never driving hard against things that should be over-invested, and ultimately missing the boat.

But, these leaders are out there, they are in senior positions, and in some cases they lead successful organizations.

It’s remarkable, but true.

In those cases, a few things are common. Most of the time, the strength of the organization overcomes the leader’s weakness. Some of the time, the leader has a strong “second” who corrals the mercurial or passive tendencies (yes, you read that right) of the infinite monkey leader.

In any case, there will be consequences. One only need look for them.

What are the consequences?

The consequences of infinite monkey leadership are substantial, but take time to manifest themselves, especially for the ones who find success through their organizations as noted above. They include

  • Frustration – particularly as every part of the organization realizes that any part of the organization might or might not be on the leader’s agenda–who can tell?
  • Wasted time and money – it goes without saying…keep banging away.
  • Lost opportunities – too often, the infinite monkey leader has a focus on meeting a budget versus building value; and that can lead to lost opportunities.
  • Lost people – particularly those who know better, so it’s a double whammy.

This is an article about opportunity costs and leaders who ignore them.

Opportunity costs are often very hard to prove in an organization. What if we hadn’t spent that extra year working on that project that everybody knew was a dud? What could we have done?

Tough to say.

Can this affliction be overcome?

I believe this affliction can be fixed…to a point.

In larger organizations, the fix comes from constraints and processes. Other people put constraints on the infinite monkey leader, and processes provide structure and required inputs for testing whether the options are real.

It’s bureaucracy, and it contributes to the longevity of the infinite monkey leadership style (it’s just a manifestation of a “strong organization” as I noted above), but it can work.

Over time the leader learns what constraint and conviction are, and starts to understand what truly constitutes a portfolio versus just a grab bag.

In smaller organizations, or organizational cultures where the top of the organization rules (and that doesn’t mean the CEO, it means the top of every function, work team, cell, and unit); leaders have to be good at asking a few questions in a structured…perhaps in a very structured way.

  • Do we know what we are doing?
  • Do we know why we are doing it?
  • Do we know the burden imposed in terms of time, money, and energy?
  • Are we spending our time, money, and energy on the right things?

As with most activities, sorting and scrutinizing works.

The real challenge for the infinite monkey leader is the last question…the “right things” question.

Usually, the infinite monkey leader can’t make that call.

That’s why he’s an infinite monkey leader!

He needs help. But, he has to admit that he doesn’t necessarily know what “right” is; and in some organizations that can be political suicide.

Perhaps he needs someone who can provide an interpretive framework for what “right” is. Perhaps he only needs to stop and think about what he believes.

It’s tough to tell.

Good, structured thinking and follow through is the requirement; because the leader lacks an intuitive feel for priorities and burden.

A parting thought…

I have framed this article around the concept of the leader being the monkey on typewriter.

For most of us, that’s a fun an engaging way of thinking about a significant leadership failure mode.

Sometimes we are the monkey leader, banging away on a keyboard, thinking we are making progress…

But, those of us who try to practice disciplined followership know the uglier side of this leadership affliction: Most of the time, the leader isn’t the one banging away at the keys…It’s his followers. He’s only ordering them to keep banging away.

Don’t be a monkey, in either case.

Know what you believe.

(And, yes, the chimp in the picture above is not a monkey…it’s an ape…But, still.)

Where strategy gets real

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A company’s budget shows what its strategy really is.

Geoff Wilson

Imagine a world where you have full view of all budgets and resource allocations in every organization you could possibly want. You could read any company’s press releases, strategic statements, and marketing collateral—and then immediately assess whether that company is doing anything special with its resource allocations to reflect its “special-ness.” What do you think you’d find?

Let’s take a topic like share buybacks. What if a company told you its strategy was to accelerate share buybacks when prices are high, and to slow them when prices are low? Would you call that company crazy? Of course. Nobody says that. Yet FactSet publishes this:

Here’s the CliffsNotes version of this chart: S&P 500 executives and boards execute vastly more share buybacks (blue bars) when share prices are high (purple line) than when they’re low. Though there are many explanations for this seemingly nonsensical reality (most importantly the timing of capital availability in the cycle), the fact remains that corporate leaders exhibit the exact same pro-cyclical bias that any investor on the street does. It turns out that manias for tulips, dot-com stocks, real estate, and share buybacks have this in common.

Now, suppose an honest CFO were to slip up and say “We’re going to budget to buy back shares when everybody is really excited about our stock because that’s when we are excited about it, too!” Would you be impressed with the company’s strategic acumen? No. You’d just have the truth.

The practical insight

Because executives, managers, and employees would be crazy to admit their biases and lack of certainty publicly, a deft analyst or owner has to find other ways to unveil strategic intent. Here’s one to live by:

An organization’s budget is the honest expression of its strategy.

It’s Occam’s razor for discerning strategic intent. More than words. More than magnificent manifestations of PowerPoint prowess. More than organization charts and stated goals. The budget is the message. It’s the narrative applied. Follow the money.

Corporate finance practitioners are reading to this point, nodding vigorously, and probably wondering why such a concept merits a full article. Here’s why: The vast majority of stakeholders in and around an organization place a lot of weight on the words and fancy marketing messages that come with strategy. All the statements of intent to “be the best at” this and “compete the hardest on” that accompanying a typical organization’s vision get delivered liberally.

Those minor messages are extremely important to align and encourage the organization. They are the audio of the strategy. However, the video of a strategy is an organization’s resource allocation. And any stakeholder—employees, board members, executives, owners, and sometimes investors—needs to discern strategy from it as a sort of check on the words. Just like the old Russian proverb: Trust, but verify.

A side note on results

Note that I don’t confuse an organization’s budget or resource allocation with its “results.” A company’s prospective budget or resource allocation is the expression of strategy. Results, on the other hand, come from the confluence of position, potential, competitive actions, regulatory changes, customer idiosyncrasies, fluctuations in weather and commodity prices, luck, happenstance, and any number of noisy and ambiguous factors.

Results are measures of performance, but not of a healthy (or even discernible) strategy. They can be spun into a hindsight strategy, but aren’t necessarily the results of a prospective strategy. In other words, organizations with bad or nonexistent strategies can deliver good results, but not for long. The key is to find executives who recognize when they’re lucky.

Results are real and provide for the present. They are a must have. Strategy, however, aligns resources for the future. It’s a must have, too.

Unpacking the insight

On one level, a budget is simply numbers. It’s not strategy. Saying that you’re going to grow earnings or tamp down costs or grow the revenue line through a budget does exactly that. It shows those things mathematically. It doesn’t establish how you intend to use the resources.

More importantly, a budget shows what you expect to achieve, but it doesn’t show the opportunity cost of that achievement. Strategy is about choices. A budget isn’t a choice. It’s math. It’s the scoreboard, not the game, and certainly not the playbook. Math isn’t strategy. But on the other hand, the math is the simplest view of an organization’s aims. In this basic view, budget is, in fact, strategy.

Let me rephrase that: A budget, and the actions it enables, is the most honest expression of strategy. Show me a company’s three-year plan and budget, and I’ll be able to articulate the company’s strategy to an 80/20 approximation—though it may not match what’s printed on the marquee.

The really interesting part is when you put the strategy and the budget together. Your strategy says you want to grow. OK, what’s your investment in growth? The budget shows that. Your strategy says you expect to be a superior marketer. OK, what’s your allocation to marketing spend? The budget shows that.

A leader who truly expects growth but cuts productive growth spend is suffering from cognitive dissonance. He’s living two lives, but only one can survive. One side of the argument will win.

And these days, with incentive structures being what they are, what wins? It’s often the spreadsheet. It’s the budget—the accounting—that wins.

How to apply this knowledge

All of this is easy if you see the resource allocation and statements of strategic intent and can make the comparisons. If you’re on the outside looking in, it can be tougher. Here are a few practical points.

To test strategy and budget alignment, consider the following hot spots:

  • Capital allocation: How is the company allocating its capital investment? Is the company in a mature market yet overspending on growth capital? Is the company pursuing a cost-driven strategy but starving assets of even minimal maintenance capital in order to drive earnings? These things can be discerned in most cases through even the highest-level financial reviews.
  • Overhead allocation: Does the company allocate overhead to the right places within its strategy? Is overhead allocated to administrative and risk management activities more than growth and renewal of the franchise? Is that what is supposed to happen?
  • Capability building/initiative spending: Can you find strong evidence of investment in capability building or renewal toward the stated strategic intent of an organization? If the organization is pursuing cost leadership, do you see evidence of investment in cost-leadership capabilities? Ditto for growth and innovation. Do you see it? Do they walk the talk?

Often, strategic discussions focus on the words of a strategy. Financial discussions frequently center on the math—forecast amounts of spend and investment vs. types.

In order to understand strategy applied, seek out the allocation of resources in the companies you own, serve, or work for.

Executives should use this sort of check on the strategies and budgets of their organizations. Avoid fooling others with and being fooled by clever narratives overlaying misaligned operations. Shoot for integrity.

Employees can use this as a test of whether the direction their organization is taking is actually the direction stated. That’s an important inkling when deciding where to ply one’s trade. They can vote with their feet. (Side note: Candidates can use this notion effectively as well. Does the company you’re interviewing with understand its resource allocations toward its aims vis-à-vis the competition? Does the audio match the video?)

Owners, board members, and investors simply need to ask the question and look for a satisfactory answer: What are the ways and means being applied to meet the ends being stated. They can also vote with their feet or, of course, with the stage hook.

The budget is an honest interpretation of strategy. It’s not the strategy, but it’s close. It’s Occam’s razor—the most direct path to strategic intent.

Follow the money.

What do you think?

Strategic Implications of Clark Griswold’s Turkey

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Clark Griswold’s turkey was an object of art on the outside, and a hollow mess on the inside. So are some strategic plans. Have the courage to call them what they are.

‘Tis the season. So, I figure…why not take advantage of it?

Remember that finely-crafted 1989 cinematic masterpiece, National Lampoon’s Christmas Vacation?

It provided us with such insightful and penetrating quotations as Clark Griswold’s “Hallelujah! Holy S#*@! Where’s the Tylenol?” It also gave us that indelible image of Randy Quaid as cousin Eddie poolside with his t-shirt tucked into a leopard print Speedo.

And, who can forget Eddie, the RV, and the storm sewer?

On a more serious note, the movie has a couple of meaningful lessons for leaders.

Yes, there’s the “Jelly of the Month Club” fiasco and the classic (and useful) quote by Clark’s boss about how things sometimes “look good on paper, but lose their luster when you see how it affects real folks.”

That’s a good one for all of us to ponder as we tweak our spreadsheets this Christmas season. But…

…I’m taking on the turkey.

Remember the turkey? It was beautiful…stunning even. Ask anyone who has labored near an oven, basting a roast turkey for hours on end, and they can tell you how difficult it is to achieve the golden brown visual perfection that is the Griswold’s turkey. See for yourself:

But then, the test.

Clark puts the knife and fork to it. And, well, click here if you don’t know the story.

It’s the letdown of letdowns–a finely tuned visual feast followed by the disgust of a dry, empty, cracked, steaming hole of a broken promise.

What are the leadership implications?

For those of us who are the cooks–the ones charged with compiling and crafting strategies, plans, visions, and ideas–the siren song of great visuals with no substance constantly beckons. We have the tools to create a symphony of perfectly prepared sights, sounds, and steam. We also have the pressure to perform and incentives to placate those we answer to, whether they are managers, executives, boards, or shareholders.

For those of us who are the carvers–those charged with reviewing such plans and possibly eating the cooking–such placating visuals can be blinding, especially if they confirm our desires.

In working with more than 30 large organizations and countless small ones as employee, consultant, investor, and executive, I have had the opportunity to witness and test countless executives’ abilities to cook up a plan, if you will.

A majority of the time, the cooking survives the knife and fork. It is grounded in facts, shaped to the reality of markets and constituencies, and staged thoughtfully. It is represented by people who know what they believe and can articulate it carefully.

But, every now and then, I’ve run across Griswold’s turkey. And, it’s not always obvious. Careful use of numbers, mindful (or at least artful) omission of realities, and tight stage management of the presentation all combine to create a golden brown shell of a vision or plan that anyone would want, supported by a scaffold of…nothing.

In those cases, two things became apparent (but, again, not always obvious..keep that in mind):

First, for the executives who knew that the plan was a, well, turkey; the immense focus of their time was on parrying the knife and fork. They delay, obfuscate, rotate the turkey five different ways, or just keep saying “it’s still in the oven.” They waste time. They aren’t all bad people, but they do tend to lack the courage to call it what it is. In some cases which one could consider unethical, they avoid examination of the underlying realities because they are playing a timing game due to misaligned incentives.

Second, for those who had to eat the cooking (that is, live with the choices of the first group)–the shareholders, boards, and true fiduciaries–the surprise of the broken promise leads to needs for hard decisions. They finally put their knife into the plan to carve it and eat it; and it turns into a dry, cracked shell. When the carvers finally do take action, people are fired and in the worst of cases investigated. Boards are turned over. Divisions or entire companies are sold or shut down. Shareholders, employees, communities, vendors and customers all lose.

I’m not necessarily talking about fraud, mind you, I’m talking about window dressing on a brick wall. For example: Griswold’s turkey could be the metaphor for the vast majority of companies founded and funded during the dot com era. They had beautiful plans with no reasonable path to profit. These were not (typically) fraudulent. They were, however, absolutely built on the back of willful blindness to reality peppered with really difficult incentive issues related to agency and timing.

What are we to do?

Step 1: Admit when you are looking at Griswold’s turkey. If the plan looks nice on the outside, but is a steaming mess of emptiness on the inside, be willing to call it out no matter where you sit. Have courage.

Step 2: Go to the knife and fork every now and then. For those of us who review strategic plans and are charged with poking around, be willing to poke with more than a finger. Ask the penetrating questions about the numbers, the dynamics, and the actions underlying the shiny shell of the plan. Learn to spot the obfuscation or honest ignorance that comes with Griswold’s turkey. Really think about the responses you get to your questions.

Step 3: Be careful as an executive or board member not to inadvertently provide incentive for others to bring you Griswold’s turkey by being soft, lazy, or simply too busy to inquire. Management claims to pursue a local market strategy but can’t name the markets, segments, or tailored approaches? Hmmmm… Maybe you’ve been too easy to fool or too comfortable with current performance.

Step 4: Be willing to slow down, start over or exit. So many instances of the Griswold’s turkey come from the need to show progress or a plan in the face of intense time pressure and expectations. It’s easier to polish up a PowerPoint and parry every question with “I’ll come back to you on that” than it is to know what you believe. If you are on the team, be willing to say when a plan isn’t ready. If you are reviewing the team, be willing to order them to go back to the clean sheet. If you are making strategic decisions, be willing to know when it’s time to stop cooking–to change leadership or exit.

These steps represent a critical aspect of leadership and a key learned skill: Calling a golden brown shell surrounding a hollow hot mess exactly what it is.

These particular turkeys are, as mentioned earlier, the letdown of letdowns. They are a visual tease. They lead to the disgust of a broken promise.

Learn to spot them, have the courage to avoid them, and role model the discipline to prevent them.

Hallelujah! Holy S#*@! Where’s the Tylenol?

Merry Christmas!

What’s Your White Whale?

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The types of goals we set, and the manner in which we pursue them, have consequences for us and for the people around us.

“…to the last I grapple with thee; from hell’s heart I stab at thee; for hate’s sake I spit my last breath at thee…”

– Captain Ahab, in Moby Dick by Herman Melville

And like that, a captain lost his life, a ship, and all men aboard save one left to tell the tale.

Call him Ishmael.

Focus, intensity, and drive are all fantastic things. Identifying a goal and driving toward it can differentiate a professional in the earliest stages of their career. Such drive and focus is valuable for teams, organizations, and yes, families.

But it is in how we define our goals that we establish our course and set sail.

Sometimes…sometimes we choose goals that–when played out–are destructive to us and to those around us. They are outwardly worthy, and inwardly virulent.

The more senior we are, the more influence we have, the more damage we can do.

Ahab did this when he let a blinding, to-the-marrow hatred of a monstrous white whale cause him to lead his men to the edge of the earth and ultimately to death. He took his ship off its profitable whaling mission to pursue an obsession, a blood vendetta against a big mammal that took his leg.

Of course, you or I would never do that, right? Ahab is fiction.

Well, not really.

The way we define our goals–or help execute the goals others define for us–defines us; and the more driven we are in achieving misguided goals, the more destructive we can be. We might not kill our crew, but we could very well kill an organization, a partnership, or a marriage.

Take a moment and think: Do you harbor a goal like Ahab’s lust for killing the white whale?

Worse yet, have you, as a board member, senior executive, or manager, provided people with incentives to pursue a white whale goal?

A white whale goal is one of two things: In its first and simplest guise it’s an obsession. It is a goal that is so deeply held and so exclusively pursued that its pursuit alone is destructive to relationships, damaging to professionalism, and ultimately distracting from real performance. A foolish, simpleminded pursuit of money, power, position, prestige, image, “winning,” or–wait for it–the moral or intellectual high ground are all examples.

Yes, that last one is a doozy that we too often forget or forgive. Self-righteousness blows up as many relationships as most any other thing listed.

In its second guise, a white whale goal can be a misguided goal propagated by proxy, where boards and senior leaders provide a framework of thinking (for example “grow profits”) without guidance on and transparency in boundaries, value, or values; or with specious accounting and accountability.

This second version of the white whale can lead both to brutal decisions by middle managers “just doing their jobs” and to baffling decisions in the ranks where people struggle for clarity. All the while the board and senior managers maintain the real innocence of propagating “good” goals. Or, at least, they maintain plausible deniability.

The epitome of these two types of white whales playing out–an obsession that leads to a vicious goal by proxy–is the assassination of St. Thomas Beckett of Canterbury.

King Henry II, obsessed with the church as an interference, is reported to have said “will no one rid me of this turbulent priest?”

After which, of course, somebody did; to the ignorance of the historical significance of the act.

But, the King didn’t order the martyrdom of a future saint…Did he?

You as a senior executive didn’t really order the curtailing of investment in pursuit of current earnings…Did you?

You didn’t handicap the sales team by introducing turgid administrative tasks in the name of greater openness and transparency…Did you?

You didn’t order leaders to take unacceptable safety and fire risk by curtailing costly planned outages and maintenance…Did you?

Surely, there are honest-to-goodness unintended consequences; and then there are white whales.  Sometimes they are hard to tell apart. Foolish or obsessive pursuit and propagation is the sin qua non of the white whale.

Remember Enron?

Consider the Enron scandal. The tragedy of Enron was equal parts a criminal lack of professionalism (which has been well publicized and rises to the level of obsession for some people involved) and a broad based propagation of and adherence to financial frameworks and incentives that many people in the ranks knew made no sense–misguided goals.

This second part gets missed and dismissed, especially as the Enron case recedes into memory as a quaint blip preceding the global financial crisis of 2007-’08.

The second aspect–the misguided goal set–is actually the most important aspect of the Enron case for professionals to consider these days.

A good example of the incentive issue was where “mark to market” thinking led leaders to be paid handsomely on the modeled Net Present Value of development projects, but not on the actual fulfillment of the projects themselves. Baffling? Yes. Still, senior management–operating within a framework endorsed by auditors, consultants, and board members–defined the goals. Those goals played a big part in destroying the company.

Sure, a few Enron employees went to jail and many professionals were sullied forever; but the true “crime” that gets missed is how top down incentives drove otherwise professional people toward behaviors that they wouldn’t have even paid themselves for.  They were white whale goals acted on by proxy.

That is perhaps the best test of a white whale by proxy. Would you pay yourself to fulfill the incentive set you have?

White whale goals by proxy are usually present when you hear people lament that they are “just doing their job,” or “doing what they are told,” or “doing what they get paid to do,” or in the worst of the worst cases “protecting the company.”

Massive autocracies and ignominious genocides stand on the shoulders of white whale goals by proxy, particularly when they are proxy to an obsessed leader. Let’s not participate in or propagate them.

What do some simpler ones look like?

To keep this closer to home, here are a few modern goals that can become white whales in our professional lives, and a brief explanation of why:

1. A superlative image and “personal brand” – The phony focus on image in the mold of “fake it ’til you make it.” If pursued as an end in itself, vs. an outcome of a life of substance, then…well, it’s a deleterious focus on a goal that is ultimately not merely self interested, but selfish in a harmful sense.

2. Great pains for small wins – The dominance of the clean desk, starched shirts, pursuit of dominance on every point in the negotiation. Basically, this is idealizing stuff that doesn’t matter. In WWII U.S. Army slang, foolish adherence to critical standards on things that didn’t matter to the mission was known as chickenshit. I’m not sure what it is called now, but whatever it is it’s damaging to the mission and morale.

3. Rent-seeking – Seeking wealth without the creation of wealth. Placing defense of title, position, and income ahead of principle and value. Jerry Pournelle’s Iron Law of Bureaucracy puts in pithy words this white whale; and provides an explanation for countless managers’ sometimes oddball behaviors: They defend the bureaucracy at the expense of the mission. It’s a classic white whale. Similarly, acting purely on incentives without regard to the value they create (or destroy) can be a white whale goal as outlined in the Enron case. This is often the case when incentives are based on individual drivers (like revenue growth or headcount or output) in isolation that systemically create no value.

4. Temporal goal misalignment – Addressing the “now” without a focus on the “later” or vice versa. How often do we see short term decisions made that have a readily measurable, net negative long term impact; but that are characterized and lauded as magnificent wins. So, you closed the deal and got paid. Was it a good deal for shareholders and employees–the people who live with the longer term decisions? Interestingly, the opposite is the case as well: Many bankrupt companies lie foundered on the rocks of “long term investment.” How often do we see 5-year plans that lack a 1 or 2-year plan component?  The white whale lies in the lack of explicit balance.

5. Vengeance – I’m just going to go ahead and list it because, well, I started with Captain Ahab; and this was his issue. Pursuing personal vendettas, particularly those that drag your organization, family, or friends along with you; is the ultimate in white whale thinking. 9 times out of 10, the bitter pursuit of revenge against other people or other organizations only serves to take your eye off the ball. To be clear, this doesn’t mean simply the pursuit of crushing vengeance a la Ahab. It can also be as simple as an overweening need for one-upmanship or the constant need to be seen as ahead of the object of your bitterness. All this is wasted motion when it comes to life and performance.

So what?

Knowing whether you are pursuing a white whale is tough. Generally, the white whale looks like a worthy goal to the person obsessed with it.People who are genuinely obsessed can’t generally be reasoned with. But, they can be removed from their position…and, that’s worth pondering.

The best way to spot a white whale is to lay out the “True North” that everyone agrees to–what winning really looks like from a fiduciary, professional, and values standpoint; and then to identify how far off that azimuth your immediate goals are.

White whales pop out easily at that point as twisted and torqued visions of winning. They link to True North via paragraphs of logical backflips instead of a sentence fragment of concise clarity.

Like any other blind spot, these goals require reflection on your own part to spot. They also require willingness to tolerate a person or two in your midst who will challenge your view, your goals, your passions, and your obsessions. That person might be a trusted friend, a mentor, a pastor, or–if you are lucky–a spouse. In a really functional team, it can also be a subordinate or a peer.

In any event, you have to listen to them.

The gist of Melville’s story about Ahab and his hatred of the whale was that Ahab destroyed everything and everyone around him in pursuit of a definitively odd goal: Revenge against the single whale that took his leg.

There were many other whales in the ocean.

But, the white whale did him and his crew in. No–strike that–Ahab’s obsession with a white whale goal did it.

Don’t let a white whale–yours or somebody else’s–do you in.

What are some examples of white whales from your own professional, political, or personal lives?