We have all heard of the perfect storm, an event where a rare combination of circumstances will aggravate a situation drastically. For a business to perform optimally it must create the “perfect calm.” However, just as the perfect storm is a rare occurrence so is the perfect calm.
Successful businesses must have vision, goals, strategy, strategic objectives, tactics, action plans, execution, and follow up. These components must be both clearly articulated and effectively communicated to align the organization. If a business is not performing all of these activities effectively, even a small storm will create problems. If all of these activities are being effectively performed and there is no external storm a perfect calm is created. Everything goes according to plan. As I said, perfect calms are as rare as perfect storms.
Businesses will always have to deal with problems or challenges. Issues may be internal or originate externally such as from competition. How management responds to these constraints differentiates winners from losers. Fundamentally, a business must have the right culture and processes in place to seek the truth when solving problems. It must have the will and methodology to identify the true issues and deal with them no matter how uncomfortable. In other words, management can deny that the wind is blowing or just hope that it stops blowing, or it can adjust the sails and take advantage of it.
However, sometimes problems are not so apparent.
The following example illustrates how difficult it is to find the root cause and develop solutions.
Consider Specialty Gadgets, a middle market company that manufactures and sells gadgets to small businesses to enhance office productivity. The company’s revenue growth has recently declined, leading to thinner margins. Management has indicated the reduction in revenues is attributable to a competitor offering a similar product at a lower price. The issue before the executive team is how to reduce prices while maintaining market share and margins.
The first step in reversing the declining growth is properly identifying the problem. Let’s assume that in this case a consultant was hired to bring forward an objective perspective, broad business experience, and the appropriate tools and methods. The consultant determines it is true that (1) growth is down, and (2) a competitor has reduced its price. However, deeper analysis showed it was more complicated than that.
Digging into the sales numbers revealed that one sales territory has actually increased revenue growth in spite of the competition Upon further investigation, it was determined that this specific sales team discovered the competitor’s product was less expensive but also inferior. They created a product comparison brochure and trained the sales representatives on how to sell the difference in benefits and value. Specialty Gadget’s higher quality product results in lower overall operating costs over time. This was well received by local small businesses.
One might now assume that the problem is a lack of a centralized competitor analysis and training program that works with all sales teams to best position Specialty Gadgets against its competition. This was true but there is an even more fundamental problem. A corporate scorecard that enables managers to drill down on key metrics did not exist. With this information, management would have been in a better position to ask different questions and not assume the root cause of the growth reduction was the competitor’s price actions.
At this point, we have determined that the root cause of the declining growth was a lack of clear metrics and a scorecard that was available to the executives and the functional leaders. Had a scorecard been in effect, management would have caught the declining revenue growth in a timely manner and created specific sales training to combat the competition across the company. The obvious question is: why there was no scorecard?
It turns out that the Founder/CEO is a brilliant man but not a “quant.” He has a feel for the business having been in his position for a long time, and makes decisions based on his observations. He thinks spreadsheets are a waste of time. The CEO is an engineer by trade and spends most of his time working with the product team improving the gadgets. He rarely gets out to the field to visit with customers and sales teams.
The CEO is well liked and he sets the informal culture. The company’s family-like culture was an advantage when the company was small and everyone was in one building and had access to the CEO. However, as the company grew and opened offices across the country, sharing information, and understanding the vision were more difficult to achieve. Therefore, the reduction in sales growth was rooted in the misalignment of the culture, originally set by the Founder/CEO that no longer fit the more mature company.
Obviously, this is a difficult problem to solve. The Founder/CEO has three options as follows: (1) lead a change that keeps the best of the family-like culture but instills more discipline and control in analysis and decision making, (2) hire a CEO to make the necessary changes and limit his work to product development, or (3) keep running things the way they are and hope for the best. We at C-Level Partners do not believe that hope is a good strategy for any company.
Implementing either of the first two actions is much more difficult than the original decision to reduce prices and take out cost to maintain margins. However, had the original diagnosis been acted on it is likely business results would have worsened. Lower revenues per unit offset by cost reductions would likely have resulted in lower product and/or service quality. In this case, a resulting reduction in growth would be much more difficult to turn around.
Furthermore, if the current processes and culture of the company did not change, additional problems would arise as the business continues to grow. Eventually, results could deteriorate to the point where replacing the CEO outright will be required to save the company.
Although the story above is fictional, I believe it is realistic. Too often, companies see a problem and they assume they understand its root cause. They then take action only to find that the problem recurs or results actually get worse. I believe this is due primarily to the following:
1. The executives are too close to the business and can’t see clearly through their biases
2. The business does not have the right decision-support tools and processes to effectively monitor and analyze the key metrics driving performance, including a dashboard to provide early warning signs of problems
3. The executive team believes anything less than decisive action is bureaucracy (“analysis paralysis”)
4. Accountability for results is unclear or shared among different groups
5. Cultural orthodoxy prevents the organization from considering and implementing new ways of approaching the business
In this fictionalized example, the problem was a combination of several of these five items.
In many cases, business problems aren’t adequately addressed because management is overly confident. In fact, sometimes managers are unwilling to look in the mirror and admit what they don’t know, or ask for help.
The moral of the story is that sustainable business performance starts and ends with executive humility. Whether you are responsible for your own work or that of an entire company, success depends on staying open minded. Successful executives are not afraid to seek help or look at new ways to conduct business. As Andy Grove, former Chairman and CEO or Intel has said, “Only the paranoid survive.”
Having the right culture and processes that ensure problems are accurately described, and the root cause identified may not create the “perfect calm” but it is a critical first step to sustained success. The perfect calm may akin to perfection - not a bad goal to pursue.
We are interested in hearing about your experiences in solving problems. Is the fictitious example described above realistic in your experience? How do you go about making sure you solve the right problem? Feel free to contact me at email@example.com to discuss.