‘Insanity is continuing to do things the same way but expecting different results’. Thus wrote the genius Albert Einstein. Rewording is required to fit the bewildering onrush of change: ‘Insanity is continuing to do different things the same way but expecting different results’. In today’s world, and far more in tomorrow’s, every aspect of operations and strategy is or will be up for grabs.
By now most people understand the meaning and power of Moore’s Law. The co-founder of Intel, Gordon Moore, postulated that the number of transistors on a silicon chip would double roughly every two years. He was bang right, and the vast consequences of that validated prediction are changing the world as I write and you read. As the great man said more recently:
‘The first microprocessor only had 22 hundred transistors. We are looking at something a million times that complex in the next generations - a billion transistors. What that gives us in the way of flexibility to design products is phenomenal’.
You need look no further to understand what is causing a tsunami of new products. The simple and perfectly satisfactory mobile phone of only a year or two back has been superseded by a device - no larger and maybe even smaller - that still makes phone calls and sends messages, but also plays music, takes photographs, calculates, handles data, and so on. The proliferation has made it impossible to take a rational decision on which wonder is the ‘best buy’.
MORE COMPLEXITY
To put that differently, the whole process of buying has become more complex and requires more skills from the buyer. What applies to consumers is also changing management. Simple solutions do not exist. Outsourcing provides an excellent, not to say chilling example.
The logic of buying in services from outside suppliers may seem irrefutable. Why should an airline pose as a catering company when outsiders are clamouring for business - firms whose concentrated skills promise better quality for lower costs?
Promises, promises. No doubt that sales pitch was swallowed whole by British Airways before handing its in-flight catering to Gate Gourmet. The practices of the supplier, as many hundreds of miserable would-be passengers can testify, led to a strike whose support by BA’s own workers brought the airline to its knees and lost the customer £40 million. BA is by no means alone in having to digest unforeseen and unpleasant truths about outsourcing - witness two research findings.
According to Deloitte Consulting, 70% of survey respondents had ‘significant negative experiences’ with farming out their work. One in four, what’s more, were bringing the out-sourced work back home. Gartner’s findings are even more damaging. Four-fifths of its respondents saved no money at all from outsourcing. Any economies of scale, etc. were devoured by the defections of dissatisfied customers and other concealed but real costs.
The management of outsourced activities is a complex response to complex changes. It may appear simple at first. Thus, placing your key business processes in the hands of dedicated partners may seem the easy way of coping with burning need to make full use of revolutionary advances in IT; and to do so, moreover, while making significant savings. But it’s deeply irrational to expect these economies.
Ask yourself what Geoffrey Colvin, a writer for Fortune magazine, would surely list among the ‘dumb questions’ he recommends. Given that the outside IT supplier will be using much the same hardware and hiring the same software skills deployed by people who are paid the same salaries (if not more), costs must be similar. But the outsider also wants a margin on sales. The dumb question must be, how can this extra cost to the customer be financed?
SIMPLE QUESTIONS
The true answers of Gate Gourmet and all those IT outsourcers differ not at all. They are driven towards reaping their due rewards either by squeezing costs or lowering quality or both. What Colvin calls ‘the wisdom of dumb questions’ is the starting line for meeting the challenge of change management. Even a brilliant thinker like Peter Drucker, he points out, reduced the complex to simple questions to which useful answers can be found…
• What business are we in?
• How’s business?
• Who are our customers?
The dumb questions were much more powerful, of course, for being asked by a consultant of Peter Drucker’s piercing intelligence. But it’s amazing how many companies can’t answer the questions. In one survey chief executives in leading British companies were stumped when asked to say why customers should buy from them and nobody else. They expect consultants to provide the answers to dumb questions they should have asked and answered themselves.
Writing in The Observer, Simon Caulkin sums up the dismal general consequences: ‘a whole ecology of improvers - consultants, IT vendors, out-sourcers and peddlers of tools of all descriptions - has grown up with a promise to make it better’. By ‘it’ he means the fact that the promises aren’t kept, but the intervention sets in motion the next set of interference, destined to have the same unhappy results.
Caulkin’s conclusion is that nothing can work effectively in the ineffective world of over-centralised business management. Thinking Managers has long sung the same tune. In a sensible and therefore effective world, you fit the organisation to the purpose, not the other way round. But the centralised way in which most organisations are run takes priority over (see Drucker’s first question) their raison d’etre.
LAUGHABLE RESULTS
The results would be laughable, but for the fact that real people with real lives, handling real assets, are involved. Recently the way in which intelligent people are stultified by absurd norms was brought home to me by a role-playing exercised arranged by Extensor, a top-class UK training consultancy. To illustrate the effectiveness of its methods, Alistair Schofield got the participants to act as employees of three different companies, each having to cope at speed with a different, difficult business situation.
The executives were divided into Tops (the boss class), Middles (who must seek to serve both superiors and subordinates), and the Bottoms (who carry out the work, but have neither control nor influence over its design).
The role-playing ran to type. The Tops didn’t relate to the other two tiers, and the Middles didn’t relate to their subordinates. The plain commonsense of working together to achieve sensible and agreed ends only came to the fore when a fourth party, the Customers (played by observers), exercised their final power to force the Tops to begin to lead.
Extensor uses the succinct, five-point Kouzes-Posner model as a leadership tool. How does your organisation rate against the five criteria? Does the leadership…
• Model the Way?..... (being clear about personal values; setting the example and planning small wins)
• Inspire a Shared Vision?.....(envisioning the future; enlisting the support of others)
• Challenge the Process?.....(searching for opportunities; experimenting and taking risks)
• Enable Others to Act?.....(fostering collaboration; strengthening others)
• Encourage the Heart?.....(recognising contributions; celebrating accomplishments)
If all five elements of leadership are present where you work, congratulations. But even one negative is not allowable. The absence of any one positive could well vitiate all the other four. Note, moreover, that the five phases of leadership are not high-tech, the paradox being that you must unlock the five to survive and thrive in a high-tech world. Also note that these self-evidently desirable behaviours carry negligible costs in money terms. They cost time and trouble, of course, but that’s not the reason for failure on these fronts.
Emotions connected with status and the fears created by hierarchical management come to the fore and muffle the natural drives to achieve and improve. As Schofield observes, ‘Management hierarchies have been the traditional way of organising companies since the Industrial Revolution, when the process of management was exclusively ‘top-down’. But althought his predominantly top-down approach is no longer appropriate in today’s fast-moving environment, where decisions need to be taken at all levels in the organisation, it is proving very resistant to change.’
PROBLEMATIC AREA
True, there is a problematic area among the five: envisioning the future. As behavioural psychology teaches, you can’t live in the future, because it hasn’t happened; and because you cannot know what will occur in advance. Even if you do know the future (or think you do), the action to take may be unclear. For example, what do you do about this forecast?
‘By 2030, biomedical technology will have advanced to the point where it will be possible to halt the body’s ageing process. Tiny robots the size of red blood cells will patrol our circulatory systems and rejuvenate tired cells. Soon after that, around 2050, we should be able to reverse-engineer a human brain and upload it into a robot. People willing to give up their “wet” bodies - we’re 50% to 60% water - could not only live forever but also think at electronic speeds’.
The author, quoted in Business Week, is Raymond C. Kurzweil, who will be a mere 82 in 2030. But what can you do to profit from his prophecy, other than imitate the prophet by diet and exercise and swallowing scores of supplements? You could, of course, seek to share in the predictable enormous sales of supplements.
But what about the very strong existing and potential competition? What about the possibility of sales being hit by regulation of these currently (and perhaps dangerously) unregulated substances?
You could seek to answer such questions, and to exploit the spectacular onrush of new technology and new ideas - many, but by no means all, using the former – by outsourcing. In a special report , ‘Get Creative’, Business
Week extols the ‘Magnificent Seven’ innovation gurus, six of whom operate as consultants. The odd woman out is Beth Comstock of GE, who is charged with ‘driving innovation’ through the group. The obvious point is that unless the low-tech management behaviours are radically improved, the high-tech outsourcers can achieve little.
CREATIVE MANAGEMENTS
If Comstock achieves a lot, she’ll be a rare bird, to judge by the success rate of US industry. Failure rate is much more like it. The Doblin Group reports an overall rate of only 4.5%. That covers a sorry range from a negative 1% - in toys, for heaven’s sake - to a mere 7.5% positive return for pharmaceuticals, another industry you’d expect to do much better. There are no comparable results for consultants. But industry returns are left far behind by the 31% success rate of venture capitalists.
What do the VCs have that corporations lack? First, they have no continuing businesses to distract their attention from the innovations. Second, they have developed stern, effective criteria for where they will and won’t invest. Third, they make key judgments of the merits of the management team. Fourth, they leave the latter alone to concentrate on developing and growing the innovative businesses, subject to strict monitoring of results. Fifth, they understand that financial success grows out of successful innovation, not the other way round.
Finally, the VCs understand the true nature of ‘risk’. The true innovator is not taking a gambler’s risk, which depends on the workings of chance. An innovator like Steve Jobs of Apple and Pixar believes passionately that the latest innovation is bound to succeed. The only risk he runs is that he may be wrong. The VCs know that their judgment may prove faulty nine times out of ten. But the tenth investment, producing a tenfold return in five years, will pay for the failures, and the financial model will support the strategy at all times.
Contrast that with the conduct of Schofield’s hierarchs. They can’t see beyond existing businesses and allow these interests to stultify innovative investment. They have no criteria to guide their choices. Even if they stumble across a good team of managers, they interfere with its efforts all the time. They judge progress largely on financial metrics and under finance their inadequate ventures. Small wonder that they fail. To succeed, go thou and do otherwise - obey the Five Elements.
