"Are the benefits greater than the cost of the spin-off problem?”

If you resolve a problem successfully, then you generate a spin-off as a consequence of your success. However, the skills and talent necessary for the former may not be the most appropriate for the resolution of the latter.

For example, reducing global high overhead costs by consolidating the back office operations may reduce fixed expenses, but it produces the spin-off problem of reduced flexibility in response to local pricing and product opportunities.  

Or the obverse.  To overcome the inertia of centralised decision making, you may delegate the majority of operational decision making to a country level.  The spin-off problem may be the absence of a centrally co-ordinated research strategy. This will lead to a reduced return on R&D investment as long-term R&D resources are re-directed to short-term tech support.

It is part of the human condition to underestimate the spin-off problems to the solutions we generate.  We've hurled our intellectual muscle at the problem, examined it from a variety of angles, consulted with experts and those with experience, and considered all the downsides.  We then marshall our confidence and make the big decision.

We think we have conquered the problem but in reality we are still in the foothills.

The larger and more complex the problem, the greater will be the spin off problem—and the more substantial the cost of its dismissal. 

But we have a weakness.  When trying to spot the spin-off problems to our brilliant plans, we are handicapped by our biases and preferences.  If we generate an innovative solution, we typically underestimate the adaptive operational challenges of implementation.  If our solution is more adaptive in nature, we typically focus on the efficiency of our solution, and underestimate its diminishing efficiency as it is replaced by alternative technology over time. 

CEO's and senior managers are more vulnerable than most. They are expected to be outstanding all-rounders without deficiency or imperfection.  This forces some to display behaviours which hamper the reporting of bad news until it is of a size that can be no longer hidden. 

How do CEO’s typically deal with the consequences of their success?

According to David Nadler, the CEO lists four choices;

1. They can refuse to change—and eventually be replaced;

2. They can find a successor who’s skills better match the newly arising problems;

3. They can reduce their role to reflect their skills and bring in additional better qualified support (ie remain within their problem-solving domain preference); or

4. Develop their personal leadership skills and widen the pool of problem-solving resource to better reflect the new challenges.

According this report, the number of CEO’s choosing option 1 is increasing.  In 2011, nearly 14.2% of Fortunes top 2500 CEO’s were turfed out.  If you were a CEO of a top 250 company operating in turbulent markets (such as Electronics and Utilities), there was a 1 in 5 chance you’d not make a full year’s employment.

Option 4 requires the most development, the highest motivation, the greatest introspection, self-awareness, self-belief—and yields the greatest return. It is the essence of the transition from good to great leadership.

So what can CEO’s and Senior Executives do to minimise the impact of spin-off problems. 

1. Recruit input from the widest feasible array of perspectives when defining and solving important problems.

2. Test aggressively and robustly for consequences of the solution with processes such as Devil’s Advocate or Ritual Dissent. Update the solution accordingly.

3. Engage a network of colleagues and peers with different but trusted perspectives and interact regularly with ‘nay-sayers’ during implementation.  They will inform you of the spin-off problems before anyone else.  

4. Ask yourself constantly, “are the benefits of the solution greater than the cost of the spin-off problem?”

Simon LuntComment