THE RIOT POINT

The Lab

The fruits of riotous experimentation.

If you're a leader directing talent, be careful what you wish for

Recruiting your brightest and best to solve the more intractable challenges facing your business is the right thing to do.  But proceed with forethought. Failing to act upon their recommendations doesn’t develop your team, it opens up Pandora’s box. 

Here is an example of what not to do.

Company A has annual revenues of $700m.  It has an average market share of 36% in selected sectors of the Aerospace and Transport industries. The business is growing at market rates or below—to the dissatisfaction of the Board. 

The company has ambitions to grow but has limited resources. Cash flow is healthy but provisions for pension and historical product liabilities drain much of this. Consequently, capital programmes would have to be funded by external sources and the owners, a venture capital consortia, are reluctant to extend their commitments.

However, despite their desires for enhanced prosperity, the fundamentals of the business are rocky. Profitability is declining and set to fall further without radical intervention.  The company provides logistical support to government agencies in five countries and these contracts generate 53% of the total sales, and 40% of the profit. Each government contract contains annual cost reduction targets, and missing these targets for two successive years triggers a re-bidding contest.  The company has held these contracts from six to eight years, and has failed to hit cost saving targets for three agencies in the past two years.

With 30% of the business in peril, and with pressure from the Board, the CEO delegated a three month strategy review to selected direct reports, supported by a (flattered) select group of the company’s high-potential talent.

The team, headed by the global marketing director, presented their recommendations; 

1. Concentrate short-term activity to drive out costs on the contracts in jeopardyeven if these costs were re-allocated to other units in the short term.

2. Aggressively shift the business portfolio into (identified) adjacent markets.  This has to be done within twelve months as the business has to reduce dependency on governments contracts.  The contracts were badly negotiated and long-term profitable growth is unlikely.

3. Consolidate the eight business units into five, and reallocate the unit heads to Business Development, Commercial Technology, and Efficiency Driver. Their respective roles would be to develop opportunities in adjacent markets, to modify existing technical competencies to meet market needs but with minimal investment, and to drive down operational costs quickly.

 All very sensible, of course, and an outcome that could have been predicted, but the CEO rejected all recommendations but the first.

 The CEO was fearful of failure.  Uncertain on how to manage Complex problems appropriately, he associated Business Development with ‘betting money we can’t afford to lose on horses whose form we don’t know.’ Fear prevented him from recognising that business development can be done with little exposure. He failed to accept that you can grow your business by thinking big, spending small, and getting quick wins. 

 Fear forced him to cling to the one activity he knew he could control; cost reduction.

 As a result, the business received a short term profit boost, retained the contracts for a further two years, and was forced to make an acquisition in order to sustain profitable top-line growth. 

 But the repercussions of rejecting his teams recommendations went much deeper. By participating in the exercise, the organisations highest performers were now cognisant of the enormity of the business challenge ahead, and fully aware of the CEO’s lack of courage in dealing with the critical issue.

  The outcome could have been quite different. The brightest and best were aware of the challenges and highly motivated to overcome them.  Had they been allowed to do so, both they and the business would have been improved. But because of the fearfulness of the CEO, the business declined until decisions were made in desperation, and the disillusioned talent either left or waited to hone their skills in managing Chaos. Within three months of rejecting their recommendations, the global marketing director, the head of the largest business unit and two of the six high-talent potential talent had left the company.

 So what should you do? 

 1. Be fearful of hurricanes, earthquakes, physical violence and poisonous spiders. Do not fear bosses, peers, customers, suppliers or making business decisions. Success in the Complex domain arises through involvement, thinking big, spending small and getting quick wins. 

2. Be prepared. Before starting a strategy review and engaging others, place your challenges (and possible responses) onto the Cynefin framework.  If you’re not prepared to provide the climate and mechanisms to solve the problems appropriately, do not engage others.  If you cannot deploy their energy for good, don’t involve them at all, for the energy of expectation it releases, cannot be restrained, constrained or reversed.