At first they believed the fire would be easy to control. In August 1949, fifteen smokejumpers parachuted into a forest fire in a remote place called Mann Gulch, Montana. The situation appeared routine enough that the team's leader, Wagner (Wag) Dodge, paused to eat his dinner before mobilizing to fight the blaze. But circumstances quickly took a perilous turn. The fire gained in size and fury, and Wag Dodge suddenly realized that he and his men were in grave danger. He instructed the men to drop their tools in an attempt to outrun the fire. But it spread too rapidly, and in a brilliant flash of intuition, Dodge set a small fire in front of the raging inferno and called to his team to lay down with him in the ashes. The confused and terrified men failed to follow Dodge's lead and instead sprinted frantically to try to stay ahead of the conflagration. Thirteen of them died. Dodge's escape fire, however, deprived the main blaze of fuel, and it leapt over him. He survived unhurt.
In one dramatic instant at Mann Gulch, Wag Dodge demonstrated both the extreme potential benefit and the occasional adverse downside of using intuition in decision making. Dodge proved that as a leader, sometimes it is important to go with your gut- but not always.
In his bestselling book Blink: The Power of Thinking Without Thinking, author Malcolm Gladwell analyzes this powerful phenomenon of intuitive decision making, of gut-level choices made in a "blink." Gladwell explains that it is the part of our brain known as the adaptive unconscious that enables us to leap to frequently correct conclusions by quickly and efficiently processing huge amounts of data. Indeed, our very survival as human beings depends on our ability to engage in this process of rapid cognition.
Despite our general bias towards thoroughness in decision making- we usually assume that the quality of a decision is in direct proportion to the time and effort that went into making it- Gladwell says, "… decisions made very quickly can be every bit as good as decisions made cautiously and deliberately."
The key to making consistently good intuitive decisions is training and experience. In the case of Wag Dodge, he had spent many more years as a smokejumper than most of the men he led at Mann Gulch. He soon understood the fire was not routine based on pattern recognition from previous fires. His expertise told him that the team could not outrun the fire while carrying their tools and, soon, that they could not outrun the fire at all. While he had never seen an escape fire used before, again, something in his long experience told him that such a technique just might work. He was right. Gladwell says, "This is the gift of training and expertise- the ability to extract an enormous amount of meaningful information from the very thinnest slice of experience."
But it would be foolish for a leader to rely on intuition under every circumstance, for two reasons. First, our instincts can sometimes be disrupted and lead us astray. In other words, sometimes we are wrong. Second, if we rely on gut decisions but fail to communicate our reasoning to our teams and to bring them along- as the Mann Gulch scenario so tragically demonstrates- we will fail in our objectives.
Gladwell writes, "Taking our powers of rapid cognition seriously means we have to acknowledge the subtle influences that can alter or undermine or bias the products of our unconscious." For example, how often do you make a really good decision when you are in an emotional state of mind, frightened, angry or upset? What about decisions made when you are incredibly rushed for time? Self-awareness and open acknowledgement that conditions may not be ideal for a gut-level decision can go a long way toward guiding us to a more deliberative process and a potentially better outcome.
And if our team does not understand what we are doing or why, then we have failed a critical test of leadership as well. For Wag Dodge, a number of important factors worked against him in his effort to make an intuitive decision to save his team. Dodge was generally described as an extremely poor communicator, a "man of few words." The team therefore did not know him well to begin with. His team read his actions in taking time to eat his dinner as an indication that all was well. When Dodge quickly discerned that he was wrong in his initial assessment of the fire, he then became pressed for time to convey his urgency to the team. When he called to the men to join him in the escape fire, because they did not know or fully trust him, they could not make sense of his behavior. Disaster resulted.
In the end, we as leaders need to determine when to rely on our intuitive instincts and when to be more thorough in our approach. No two situations are exactly alike and there is no magic formula. Malcolm Gladwell argues that judgment and understanding are critical. He writes, "Judgment matters; it is what separates winners from losers," and, "The key to good decision making is not knowledge. It is understanding. We are swimming in the former. We are desperately lacking in the latter." In using our judgment and understanding, regardless of our decision making process, we need to communicate effectively to bring our teams with us. So the next time you face a critical decision, just remember: sometimes it is important to go with your gut- but not always.
Friday, January 29, 2010
Saturday, January 16, 2010
Show Humility
George Catlett Marshall was the U.S. Army Chief of Staff during the Second World War. In that capacity, he managed the astronomical growth of America's armed forces from a tiny pre-war entity to the thirteen-million-person juggernaut that defeated Nazi Germany and Imperial Japan. After the war, Marshall became secretary of state and oversaw implementation of his namesake Marshall Plan, which succeeded in rebuilding war-ravaged Europe. He went on to serve as secretary of defense and, later, as head of the American Red Cross. Despite these profound achievements during a lifetime of service, Marshall is perhaps one of the least-well-known leaders in our history.
Marshall's relative lack of name recognition today represents the natural outcome of his supreme selflessness coupled with his fierce and unwavering commitment to always putting the needs of the country first. George Marshall embodied a critical leadership trait that, unfortunately, we seldom see in sufficient measure: he showed humility.
When the Allied high command decided in 1944 to invade Europe via the Normandy beaches of France, President Franklin Roosevelt confronted a difficult choice as to who should lead such an important and complex operation. By all accounts, Marshall had earned the right to head up the effort, and very much desired the appointment. His superior leadership skills and strategic acumen were unmatched. Yet when Roosevelt asked Marshall whether he would prefer to lead the D-Day invasion or remain on duty in Washington as chief of staff, Marshall demurred. He told the president that whatever his decision, Marshall would "go along with it wholeheartedly. The issue was simply too great for any personal feeling to be involved."
In the end, Roosevelt told Marshall that he "could not sleep at night with you out of the country," and the assignment went to Dwight D. Eisenhower instead. Ike succeeded dramatically, became a national hero, and rode his fame all the way to the White House. Some people might interpret Marshall's actions as a sign of weakness, but nothing was further from the truth.
Indeed, in Marshall's case, his quiet and modest demeanor masked tremendous drive and a will of iron. Thankfully for the free world, his ambition and willpower were not personal or selfish in nature, but directed solely toward the purpose of serving his country by defeating our enemies. He was ruthless in his decision making when the issue of winning the war was at stake.
In his book Good to Great, noted business author Jim Collins describes corporate CEO's who embody this combination of extreme personal humility with great professional determination as Level 5 Leaders. Collins and his team studied companies that made a leap from good results to great results and sustained those levels of performance for at least fifteen years. These companies produced stock returns during those fifteen years that beat the general stock market by an average of seven times.
While Collins expressly sought to avoid a conclusion that these stellar results were due primarily to great leadership ("Ignore the executives," he told his research team), he could not overlook the overwhelming data that proved that in fact Level 5 leadership was key. Every single company on the roster had Level 5 leadership at the time they made the transition from good-to-great.
Collins observes, "Level 5 leaders are a study in duality: modest and willful, humble and fearless. To quickly grasp this concept, think of United States President Abraham Lincoln (one of few Level 5 presidents in United States history), who never let his ego get in the way of his primary ambition for the larger cause of an enduring great nation. Yet those who mistook Mr. Lincoln's personal modesty, shy nature, and awkward manner as signs of weakness found themselves terribly mistaken…"
Collins identifies such CEO's as Darwin Smith, who led Kimberly-Clark from 1971-1991, and Colman Mockler, CEO of Gillette from 1975 to 1991, as classic examples of Level 5 leaders who achieved extraordinary results during their tenures, but who were also always quick to give credit to others (not surprisingly, neither man is a household name today). Collins was "struck by how the good-to-great leaders didn't talk about themselves… It wasn't just false modesty. Those who worked with or wrote about the good-to-great leaders used words like quiet, humble, modest, reserved, shy, gracious… and so forth."
Finally, in contrast, Collins also found that in two-thirds of the companies against which he compared the good-to-great companies, leaders with enormous egos not only did not perform as well, but frequently "contributed to the demise or continued mediocrity of the company."
Where do you, your boss, and the rest of the leaders in your organization fall on the humility spectrum? Today, the simple truth is that we need more leaders like George Marshall, Darwin Smith, and Colman Mockler-- people who show humility while striving to accomplish great things for the institutions they serve.
Marshall's relative lack of name recognition today represents the natural outcome of his supreme selflessness coupled with his fierce and unwavering commitment to always putting the needs of the country first. George Marshall embodied a critical leadership trait that, unfortunately, we seldom see in sufficient measure: he showed humility.
When the Allied high command decided in 1944 to invade Europe via the Normandy beaches of France, President Franklin Roosevelt confronted a difficult choice as to who should lead such an important and complex operation. By all accounts, Marshall had earned the right to head up the effort, and very much desired the appointment. His superior leadership skills and strategic acumen were unmatched. Yet when Roosevelt asked Marshall whether he would prefer to lead the D-Day invasion or remain on duty in Washington as chief of staff, Marshall demurred. He told the president that whatever his decision, Marshall would "go along with it wholeheartedly. The issue was simply too great for any personal feeling to be involved."
In the end, Roosevelt told Marshall that he "could not sleep at night with you out of the country," and the assignment went to Dwight D. Eisenhower instead. Ike succeeded dramatically, became a national hero, and rode his fame all the way to the White House. Some people might interpret Marshall's actions as a sign of weakness, but nothing was further from the truth.
Indeed, in Marshall's case, his quiet and modest demeanor masked tremendous drive and a will of iron. Thankfully for the free world, his ambition and willpower were not personal or selfish in nature, but directed solely toward the purpose of serving his country by defeating our enemies. He was ruthless in his decision making when the issue of winning the war was at stake.
In his book Good to Great, noted business author Jim Collins describes corporate CEO's who embody this combination of extreme personal humility with great professional determination as Level 5 Leaders. Collins and his team studied companies that made a leap from good results to great results and sustained those levels of performance for at least fifteen years. These companies produced stock returns during those fifteen years that beat the general stock market by an average of seven times.
While Collins expressly sought to avoid a conclusion that these stellar results were due primarily to great leadership ("Ignore the executives," he told his research team), he could not overlook the overwhelming data that proved that in fact Level 5 leadership was key. Every single company on the roster had Level 5 leadership at the time they made the transition from good-to-great.
Collins observes, "Level 5 leaders are a study in duality: modest and willful, humble and fearless. To quickly grasp this concept, think of United States President Abraham Lincoln (one of few Level 5 presidents in United States history), who never let his ego get in the way of his primary ambition for the larger cause of an enduring great nation. Yet those who mistook Mr. Lincoln's personal modesty, shy nature, and awkward manner as signs of weakness found themselves terribly mistaken…"
Collins identifies such CEO's as Darwin Smith, who led Kimberly-Clark from 1971-1991, and Colman Mockler, CEO of Gillette from 1975 to 1991, as classic examples of Level 5 leaders who achieved extraordinary results during their tenures, but who were also always quick to give credit to others (not surprisingly, neither man is a household name today). Collins was "struck by how the good-to-great leaders didn't talk about themselves… It wasn't just false modesty. Those who worked with or wrote about the good-to-great leaders used words like quiet, humble, modest, reserved, shy, gracious… and so forth."
Finally, in contrast, Collins also found that in two-thirds of the companies against which he compared the good-to-great companies, leaders with enormous egos not only did not perform as well, but frequently "contributed to the demise or continued mediocrity of the company."
Where do you, your boss, and the rest of the leaders in your organization fall on the humility spectrum? Today, the simple truth is that we need more leaders like George Marshall, Darwin Smith, and Colman Mockler-- people who show humility while striving to accomplish great things for the institutions they serve.
Sunday, January 3, 2010
Bring Out the Best in the People Around You
The two men could not have been less alike. One was a short, boisterous, cigar-chomping Jew from Brooklyn. The other was a tall, moody, intensely private African-American from Louisiana and Oakland. Yet over time, these two men found their common ground and formed a bond of friendship that became legendary.
Red Auerbach was one of the greatest coaches in the history of the National Basketball Association, and Bill Russell one of the game's all-time best players. Together, they led the Boston Celtics to 11 N.B.A. championships in 13 seasons. As chronicled in Russell's wonderful new book, Red and Me: My Coach, My Lifelong Friend, they became devoted to each other until Auerbach's death in 2006. Perhaps the most outstanding characteristic of these two leaders was their uncanny ability to bring out the best in the people around them.
Bill Russell said of his relationship with Auerbach, "Although we came from different tribes as men, we recognized early on that as professionals we had a common agenda: to win basketball games… Our core philosophies- of how to be men, how to be professionals, how to be friends- were in tune, so we never had to talk about who we were or how to conduct ourselves. We just lived it. Over the next thirteen years, basketball set the stage for our relationship to evolve from caution, to admiration, to trust and respect, to a friendship that lasted a lifetime."
Russell joined the Celtics in 1956 and ultimately became team captain. He was especially noted for his unique ability to bring out the best in his teammates. In a review of Russell's book for the New York Times, former basketball star and U.S. Senator Bill Bradley wrote, "[Russell] had thought about the game and his role in it so much that it was only a matter of learning his teammates' strengths and weaknesses before he was capable of elevating their games. It is a rare player who thinks, 'How can I help my teammate help the team?' Russell and Auerbach understood that in a winning culture, selflessness is just common sense."
Russell's ability to influence the play of his teammates started, very importantly, from the rock solid foundation of his own formidable skills as a player. He was a five-time league M.V.P. and physically gifted with great height and leaping ability. Beyond his obvious athletic skills, he was a true innovator on the basketball court. He focused on defense as the key to a team's morale, in a way that had never been tried before. In an era when players were coached never to leave their feet while playing defense, he became the game's preeminent shot blocker, dominating opposing offenses and forcing them to adjust to his intimidating new tactics.
Russell's sheer competitiveness also intimidated opponents, and won the respect of his teammates. Bradley said, "He wanted to win every matchup, every game, every title. He waged psychological warfare, on and off the court." Because of their high regard for Russell's outstanding ability and fierce desire to win, his teammates were very open to his energetic attempts to push them to improve their own games. He consciously studied the play of every Celtic and willed his teammates to perform to their highest potential. The result was an unprecedented string of championships.
Auerbach, too, appreciated the importance of each individual in the whole grand scheme. Bradley observed, "[Auerbach's] genius was to relate to each player individually. What worked for one player didn't work for all players." Auerbach even handled Russell differently, allowing him to rest during practice once the regular season began for purposes of keeping him fresh for an entire grueling N.B.A. campaign. Russell's teammates did not resent this preferential treatment because they knew, once the game began, no one was more committed to winning than their captain.
As a peer colleague, do you ask yourself Bill Russell's very important question, "How can I help my teammate help the team?" It is the rare person who does this. It starts with one's own skills and performance. Outstanding results engender credibility and respect. From this foundation, it becomes possible to help even the worst performer on the team get better. But the selflessness, motivation, and energy must be there.
As a leader, like Red Auerbach, do you understand that each member of the team needs to be led differently? Do you take time to get to know your people as individuals and to adjust your approach accordingly? Do you work to get the best out of each person on the team, taking into account their unique skills and abilities? Such a model makes life more complicated and requires time and hard work, but outstanding results will follow.
Bill Bradley won championships with the New York Knicks and he recalled the joys of being part of a team, like the Boston Celtics, where people made a concerted effort to bring out the best in each other: "… the bond among players lasts a lifetime… You never forget your teammates' loyalty and how you returned it in full measure, and how that trust and mutual respect allowed you to be a champion."
Red Auerbach was one of the greatest coaches in the history of the National Basketball Association, and Bill Russell one of the game's all-time best players. Together, they led the Boston Celtics to 11 N.B.A. championships in 13 seasons. As chronicled in Russell's wonderful new book, Red and Me: My Coach, My Lifelong Friend, they became devoted to each other until Auerbach's death in 2006. Perhaps the most outstanding characteristic of these two leaders was their uncanny ability to bring out the best in the people around them.
Bill Russell said of his relationship with Auerbach, "Although we came from different tribes as men, we recognized early on that as professionals we had a common agenda: to win basketball games… Our core philosophies- of how to be men, how to be professionals, how to be friends- were in tune, so we never had to talk about who we were or how to conduct ourselves. We just lived it. Over the next thirteen years, basketball set the stage for our relationship to evolve from caution, to admiration, to trust and respect, to a friendship that lasted a lifetime."
Russell joined the Celtics in 1956 and ultimately became team captain. He was especially noted for his unique ability to bring out the best in his teammates. In a review of Russell's book for the New York Times, former basketball star and U.S. Senator Bill Bradley wrote, "[Russell] had thought about the game and his role in it so much that it was only a matter of learning his teammates' strengths and weaknesses before he was capable of elevating their games. It is a rare player who thinks, 'How can I help my teammate help the team?' Russell and Auerbach understood that in a winning culture, selflessness is just common sense."
Russell's ability to influence the play of his teammates started, very importantly, from the rock solid foundation of his own formidable skills as a player. He was a five-time league M.V.P. and physically gifted with great height and leaping ability. Beyond his obvious athletic skills, he was a true innovator on the basketball court. He focused on defense as the key to a team's morale, in a way that had never been tried before. In an era when players were coached never to leave their feet while playing defense, he became the game's preeminent shot blocker, dominating opposing offenses and forcing them to adjust to his intimidating new tactics.
Russell's sheer competitiveness also intimidated opponents, and won the respect of his teammates. Bradley said, "He wanted to win every matchup, every game, every title. He waged psychological warfare, on and off the court." Because of their high regard for Russell's outstanding ability and fierce desire to win, his teammates were very open to his energetic attempts to push them to improve their own games. He consciously studied the play of every Celtic and willed his teammates to perform to their highest potential. The result was an unprecedented string of championships.
Auerbach, too, appreciated the importance of each individual in the whole grand scheme. Bradley observed, "[Auerbach's] genius was to relate to each player individually. What worked for one player didn't work for all players." Auerbach even handled Russell differently, allowing him to rest during practice once the regular season began for purposes of keeping him fresh for an entire grueling N.B.A. campaign. Russell's teammates did not resent this preferential treatment because they knew, once the game began, no one was more committed to winning than their captain.
As a peer colleague, do you ask yourself Bill Russell's very important question, "How can I help my teammate help the team?" It is the rare person who does this. It starts with one's own skills and performance. Outstanding results engender credibility and respect. From this foundation, it becomes possible to help even the worst performer on the team get better. But the selflessness, motivation, and energy must be there.
As a leader, like Red Auerbach, do you understand that each member of the team needs to be led differently? Do you take time to get to know your people as individuals and to adjust your approach accordingly? Do you work to get the best out of each person on the team, taking into account their unique skills and abilities? Such a model makes life more complicated and requires time and hard work, but outstanding results will follow.
Bill Bradley won championships with the New York Knicks and he recalled the joys of being part of a team, like the Boston Celtics, where people made a concerted effort to bring out the best in each other: "… the bond among players lasts a lifetime… You never forget your teammates' loyalty and how you returned it in full measure, and how that trust and mutual respect allowed you to be a champion."
Saturday, December 19, 2009
Corporate Social Responsibility Is Good Business Strategy
Lou Miller has owned and operated Big Apple Bagels in Apple Valley, Minnesota for the past eleven years. At the end of each day, she donates whatever bagels she has left over to a variety of non-profits, such as food shelves, veterans groups, and schools. While Lou can't say for sure whether the donations have significantly improved her bottom line, she does know that this small gesture of giving away excess food on a daily basis has generated good will for her business. Most importantly, to Lou, it just feels like the right thing to do.
Some business leaders believe that their only obligation is to their shareholders. The sole objective in business, these managers assert, is to improve profitability for the benefit of the owners of the firm. Increasingly, however, American consumers are rewarding businesses that see their mission more broadly. Many companies, big and small, are becoming aware of and acting upon an important economic reality: corporate social responsibility is good business strategy.
Corporate social responsibility (CSR) involves the array of steps that a company can take to contribute back to the community: philanthropy, product donations, volunteerism, cause-marketing (for example, providing business expertise to non-profit groups), and citizenship, especially around environmental sustainability. While it is no doubt more difficult to precisely measure return on investment for these types of activities, abundant data demonstrates the economic benefits of CSR. DePaul University conducted a study in 2002 that compared the performance of the 100 Best Corporate Citizens from Business Ethics magazine against the remainder of the S & P 500. In measurements such as sales growth, profit, and return on equity, the socially responsible companies exceeded the competition by ten percent.
A Time magazine article from September 2009, entitled "The Responsibility Revolution," cites a 2007 Goldman Sachs report that concluded that companies with a focus on sustainability outperformed the overall market, frequently by a significant margin. PricewaterhouseCoopers recently completed a study that showed a better return on assets for companies that reported sustainability information over those firms that did not share such data.
Time conducted a poll which showed that more than 60 percent of Americans have purchased organic products since January 2009. Almost 40 percent say that they bought products this year because of the social or political values of the company that sold the merchandise. Time says, "What we are discovering now, in the most uncertain economy since [the Great Depression], is that enlightened self-interest- call it a shared sense of responsibility- is good economics… We are starting to put our money where our ideals are."
Many organizations have long understood the importance of CSR. More than 30 years ago, 23 Minnesota companies formed the Keystone Program. Participating firms each contribute at least 2 percent of annual pre-tax earnings back into their communities. Today, there are more than 200 members of Keystone.
Target Corporation- a charter Keystone member as Dayton Hudson- contributes 5 percent of pre-tax earnings, in good times and in bad. I recently spoke with my friend and former colleague Gail Dorn, who was for many years the Vice President of Communications and Community Relations at Target.
Gail talked about the enduring culture and tradition of giving back at Target, and indicated there were many times when it would have been easy to cut the program. She recalled, "Analysts would challenge us, asking Why are you giving away 5 percent? [Target leadership] ignored their pleas. Even though a return on investment was difficult to measure, Target's community programs generated incredible good will. Our customers loved that we always took the extra step to become integrated in the community. This was particularly helpful in 1987 when Dayton Hudson sought public support to fend off a hostile takeover attempt."
Another mighty Minnesota corporation that appreciates the importance of CSR is the Best Buy Company. An article in the December 7, 2009 issue of Fortune magazine describes Best Buy's free recycling program. Since March, when Best Buy began offering free recycling of TVs, computers, and any other electronic gadgets, more than 25 million pounds of old devices have been turned in at Best Buy's 1004 U.S. store locations. Fortune says, "The company's massive recycling program seems expensive to run, until you look at all the benefits: a green reputation, a focus on service, and a fresh way to get customers into the stores. No wonder Best Buy has learned to love old TVs and eight-track tape players."
Best Buy's leadership understands that the take-back program will probably be, at best, a break-even proposition. Nevertheless, P & L consequences aside, Best Buy CEO Brian Dunn described how he feels when a customer drops off an old TV set: "I'm happy because it helps make the connection between Best Buy and the customer and the community."
Sometimes, financial outcomes are not the most important consideration in business.
Small and medium-sized companies should take heed of the responsibility revolution as well. Time points out that shoppers consider not only the nature of the product they buy, but where it came from. More than 80 percent of consumers say they have deliberately supported local and neighborhood businesses (like Big Apple Bagels) that demonstrate a corporate conscience and concern for the environment. Also, there are more than 250 socially responsible investment mutual funds (consisting generally of companies that do not profit from tobacco, oil, or child labor), that today manage approximately $2.7 trillion in wealth.
Time concludes, "… Americans are recalibrating our sense of what it means to be a citizen, not just through voting or volunteering, but also through commerce: by what we buy… That's evidence of a changing mind-set, a new kind of social contract among consumers, business, and government. We are seeing the rise of the citizen consumer- and the beginning of a responsibility revolution." Indeed, smart companies today have seen the future and are taking action. These companies know that corporate social responsibility is good business strategy.
Some business leaders believe that their only obligation is to their shareholders. The sole objective in business, these managers assert, is to improve profitability for the benefit of the owners of the firm. Increasingly, however, American consumers are rewarding businesses that see their mission more broadly. Many companies, big and small, are becoming aware of and acting upon an important economic reality: corporate social responsibility is good business strategy.
Corporate social responsibility (CSR) involves the array of steps that a company can take to contribute back to the community: philanthropy, product donations, volunteerism, cause-marketing (for example, providing business expertise to non-profit groups), and citizenship, especially around environmental sustainability. While it is no doubt more difficult to precisely measure return on investment for these types of activities, abundant data demonstrates the economic benefits of CSR. DePaul University conducted a study in 2002 that compared the performance of the 100 Best Corporate Citizens from Business Ethics magazine against the remainder of the S & P 500. In measurements such as sales growth, profit, and return on equity, the socially responsible companies exceeded the competition by ten percent.
A Time magazine article from September 2009, entitled "The Responsibility Revolution," cites a 2007 Goldman Sachs report that concluded that companies with a focus on sustainability outperformed the overall market, frequently by a significant margin. PricewaterhouseCoopers recently completed a study that showed a better return on assets for companies that reported sustainability information over those firms that did not share such data.
Time conducted a poll which showed that more than 60 percent of Americans have purchased organic products since January 2009. Almost 40 percent say that they bought products this year because of the social or political values of the company that sold the merchandise. Time says, "What we are discovering now, in the most uncertain economy since [the Great Depression], is that enlightened self-interest- call it a shared sense of responsibility- is good economics… We are starting to put our money where our ideals are."
Many organizations have long understood the importance of CSR. More than 30 years ago, 23 Minnesota companies formed the Keystone Program. Participating firms each contribute at least 2 percent of annual pre-tax earnings back into their communities. Today, there are more than 200 members of Keystone.
Target Corporation- a charter Keystone member as Dayton Hudson- contributes 5 percent of pre-tax earnings, in good times and in bad. I recently spoke with my friend and former colleague Gail Dorn, who was for many years the Vice President of Communications and Community Relations at Target.
Gail talked about the enduring culture and tradition of giving back at Target, and indicated there were many times when it would have been easy to cut the program. She recalled, "Analysts would challenge us, asking Why are you giving away 5 percent? [Target leadership] ignored their pleas. Even though a return on investment was difficult to measure, Target's community programs generated incredible good will. Our customers loved that we always took the extra step to become integrated in the community. This was particularly helpful in 1987 when Dayton Hudson sought public support to fend off a hostile takeover attempt."
Another mighty Minnesota corporation that appreciates the importance of CSR is the Best Buy Company. An article in the December 7, 2009 issue of Fortune magazine describes Best Buy's free recycling program. Since March, when Best Buy began offering free recycling of TVs, computers, and any other electronic gadgets, more than 25 million pounds of old devices have been turned in at Best Buy's 1004 U.S. store locations. Fortune says, "The company's massive recycling program seems expensive to run, until you look at all the benefits: a green reputation, a focus on service, and a fresh way to get customers into the stores. No wonder Best Buy has learned to love old TVs and eight-track tape players."
Best Buy's leadership understands that the take-back program will probably be, at best, a break-even proposition. Nevertheless, P & L consequences aside, Best Buy CEO Brian Dunn described how he feels when a customer drops off an old TV set: "I'm happy because it helps make the connection between Best Buy and the customer and the community."
Sometimes, financial outcomes are not the most important consideration in business.
Small and medium-sized companies should take heed of the responsibility revolution as well. Time points out that shoppers consider not only the nature of the product they buy, but where it came from. More than 80 percent of consumers say they have deliberately supported local and neighborhood businesses (like Big Apple Bagels) that demonstrate a corporate conscience and concern for the environment. Also, there are more than 250 socially responsible investment mutual funds (consisting generally of companies that do not profit from tobacco, oil, or child labor), that today manage approximately $2.7 trillion in wealth.
Time concludes, "… Americans are recalibrating our sense of what it means to be a citizen, not just through voting or volunteering, but also through commerce: by what we buy… That's evidence of a changing mind-set, a new kind of social contract among consumers, business, and government. We are seeing the rise of the citizen consumer- and the beginning of a responsibility revolution." Indeed, smart companies today have seen the future and are taking action. These companies know that corporate social responsibility is good business strategy.
Sunday, December 6, 2009
Be Aware of Cognitive Roadblocks to Good Decision Making
Perhaps the most important skill of an effective business leader is the ability to make good decisions. Yet as leaders we are susceptible to cognitive biases that can hinder the decision making process. Cognitive biases are simply distortions in our perception of reality that can occur when we use traditional shortcuts to help us make choices. Most of the time, shortcuts allow us to arrive efficiently at a good decision. Sometimes, however, making choices in the most economical manner based on familiar rules of thumb is not the right thing to do. Even competent, knowledgeable, and experienced business leaders can get caught up in this trap. Because we are human, we will never completely overcome our natural biases, but we can learn to make better choices by simply being aware of cognitive roadblocks to good decision making.
Cognitive biases can take many forms, but in the case of the Mount Everest tragedy of 1996, three types of bias contributed significantly to a disaster in which two expeditions were trapped in a storm near the top of the mountain and five people died. Those cognitive biases are:
• The overconfidence bias
• The sunk-cost or escalation of commitment bias
• The recency effect
In May 1996, two commercial expeditions consisting of customers who paid up to $65,000 each to be professionally guided to the summit of Everest (the world's tallest peak) became trapped in a blizzard high on the mountain. This tragic event was immortalized in Jon Krakauer's famous best-seller, Into Thin Air (Krakauer, a journalist, accompanied one of the expeditions). Two of the world's best-known and most experienced mountaineers, Scott Fischer and Rob Hall, served as expedition leaders. In addition to the financial outlay, the effort to reach the summit of Everest requires a huge time commitment; climbers must spend six weeks acclimatizing their bodies to the high altitude. The two teams established a series of base camps at ever-increasing heights, and then embarked on an arduous 18-hour round-trip to reach the summit. An unexpected and violent storm moved in, killing both Fischer and Hall, and three other climbers.
In a pamphlet entitled, The Art of Critical Decision Making, Professor Michael Roberto of Bryant University identifies the three primary cognitive biases that reared their ugly heads to contribute to the Everest disaster.
First, both Fischer and Hall demonstrated the overconfidence bias. Research shows that human beings have a consistent tendency to be overly optimistic. For example, even experienced physicians tend to be unrealistically positive in their diagnoses. In talking about Everest, Scott Fischer said, "We've got the Big E completely figured out, we've got it totally wired. These days, I'm telling you, we've built a yellow brick road to the summit." Other members of the team became cocky as well. Jon Krakauer described several of the highly inexperienced amateur climbers as so overconfident in their own abilities as to be "clinically delusional."
The second cognitive bias is the sunk-cost effect. A rational actor makes choices based on the marginal cost of pursuing one choice over another. In contrast, the sunk-cost effect causes people to continue in a sometimes disastrous course of action in which they have invested significant time, money, and/or effort. On Everest, expedition members refused to allow their huge financial expenditure and many weeks of herculean effort to be for nothing. With the blessing of their leaders, they pushed ahead to the summit, even in violation of well-established turnaround times. A number of climbers reached the top too late in the afternoon, and were forced to descend the mountain while negotiating a furious storm in the dark.
Another common term for this same basic phenomenon is the escalation of commitment bias. Consider America's experience in Vietnam, or the current debate about Afghanistan. We have spent eight hard years fighting in that troubled country at great cost in blood and treasure. To be sure, all of our choices there are tough ones. Yet the argument still centers not on whether we should withdraw, pursue a different strategy, or otherwise cut our losses, but rather at what level we will continue the effort.
The final cognitive bias is the recency effect, which simply refers to the tendency to place a disproportionate value on information obtained recently. This data is most salient to us, but can cause us to overlook other relevant information. On Everest, team leaders were fooled by a string of years in which good weather had prevailed on the mountain. One commentator said, "Season after season, Rob [Hall] had brilliant weather on summit day. He'd never been caught in a storm high on the mountain." No one prepared for the worst case scenario. Disaster resulted because of this failure on the part of leadership to consider ample data that demonstrated that in past years, deadly storms had been a common occurrence on Everest.
Think about your own decision making as a business leader. Have you ever allowed overconfidence, sunk-costs, or recency to sway your mind one way or the other? Don't be too hard on yourself if the answer is yes. Despite what economists would have us believe, none of us are perfectly rational actors. We all occasionally yield to a lifetime of biases. Nevertheless, we can improve our decision making if we develop the self-knowledge to be aware of these tendencies and, wherever possible, to overcome them.
Cognitive biases can take many forms, but in the case of the Mount Everest tragedy of 1996, three types of bias contributed significantly to a disaster in which two expeditions were trapped in a storm near the top of the mountain and five people died. Those cognitive biases are:
• The overconfidence bias
• The sunk-cost or escalation of commitment bias
• The recency effect
In May 1996, two commercial expeditions consisting of customers who paid up to $65,000 each to be professionally guided to the summit of Everest (the world's tallest peak) became trapped in a blizzard high on the mountain. This tragic event was immortalized in Jon Krakauer's famous best-seller, Into Thin Air (Krakauer, a journalist, accompanied one of the expeditions). Two of the world's best-known and most experienced mountaineers, Scott Fischer and Rob Hall, served as expedition leaders. In addition to the financial outlay, the effort to reach the summit of Everest requires a huge time commitment; climbers must spend six weeks acclimatizing their bodies to the high altitude. The two teams established a series of base camps at ever-increasing heights, and then embarked on an arduous 18-hour round-trip to reach the summit. An unexpected and violent storm moved in, killing both Fischer and Hall, and three other climbers.
In a pamphlet entitled, The Art of Critical Decision Making, Professor Michael Roberto of Bryant University identifies the three primary cognitive biases that reared their ugly heads to contribute to the Everest disaster.
First, both Fischer and Hall demonstrated the overconfidence bias. Research shows that human beings have a consistent tendency to be overly optimistic. For example, even experienced physicians tend to be unrealistically positive in their diagnoses. In talking about Everest, Scott Fischer said, "We've got the Big E completely figured out, we've got it totally wired. These days, I'm telling you, we've built a yellow brick road to the summit." Other members of the team became cocky as well. Jon Krakauer described several of the highly inexperienced amateur climbers as so overconfident in their own abilities as to be "clinically delusional."
The second cognitive bias is the sunk-cost effect. A rational actor makes choices based on the marginal cost of pursuing one choice over another. In contrast, the sunk-cost effect causes people to continue in a sometimes disastrous course of action in which they have invested significant time, money, and/or effort. On Everest, expedition members refused to allow their huge financial expenditure and many weeks of herculean effort to be for nothing. With the blessing of their leaders, they pushed ahead to the summit, even in violation of well-established turnaround times. A number of climbers reached the top too late in the afternoon, and were forced to descend the mountain while negotiating a furious storm in the dark.
Another common term for this same basic phenomenon is the escalation of commitment bias. Consider America's experience in Vietnam, or the current debate about Afghanistan. We have spent eight hard years fighting in that troubled country at great cost in blood and treasure. To be sure, all of our choices there are tough ones. Yet the argument still centers not on whether we should withdraw, pursue a different strategy, or otherwise cut our losses, but rather at what level we will continue the effort.
The final cognitive bias is the recency effect, which simply refers to the tendency to place a disproportionate value on information obtained recently. This data is most salient to us, but can cause us to overlook other relevant information. On Everest, team leaders were fooled by a string of years in which good weather had prevailed on the mountain. One commentator said, "Season after season, Rob [Hall] had brilliant weather on summit day. He'd never been caught in a storm high on the mountain." No one prepared for the worst case scenario. Disaster resulted because of this failure on the part of leadership to consider ample data that demonstrated that in past years, deadly storms had been a common occurrence on Everest.
Think about your own decision making as a business leader. Have you ever allowed overconfidence, sunk-costs, or recency to sway your mind one way or the other? Don't be too hard on yourself if the answer is yes. Despite what economists would have us believe, none of us are perfectly rational actors. We all occasionally yield to a lifetime of biases. Nevertheless, we can improve our decision making if we develop the self-knowledge to be aware of these tendencies and, wherever possible, to overcome them.
Saturday, November 21, 2009
Diversity Is Strength
From 1804 to 1806, Army officers Meriwether Lewis and William Clark led an amazing team known as the "Corps of Discovery" on an 8000-mile journey over 863 days into the unknown reaches of the western United States and safely home again. They were commissioned by President Thomas Jefferson to find an all-water thoroughfare- the fabled "Northwest Passage"- to the Pacific Ocean. Though they failed in that mission (no such waterway existed), they succeeded in exploring and documenting virtually everything they saw along the way, establishing the boundaries of the young nation, and opening the great American West to future expansion.
What is perhaps most remarkable about Lewis and Clark and their incredible journey of discovery is that they achieved this feat- in a day and age when people gave no thought to the importance of celebrating and incorporating differences- with a team of talented individuals who were truly diverse in the broadest sense of the term. Lewis and Clark dramatically demonstrated a fundamental principle that all modern-day business leaders should know and understand: diversity is strength.
We all remember the story from our school days of Sacagawea, the sixteen-year-old Shoshone Indian woman who accompanied the expedition. She was the wife of Toussaint Charbonneau, who had been added to the team en route as an interpreter. Sacagawea was a nursing mother who traversed 5000 miles with her infant son Jean Baptiste (known as "Pomp") on her back. There is a common misconception that she guided the expedition throughout the journey, which she did not, but her value to the Corps of Discovery was nevertheless profound. She was skilled and knowledgeable in field craft: building shelters, making and repairing clothing, and finding food. Through her quick thinking, she once saved valuable equipment and supplies when a canoe nearly capsized.
Most important, Sacagawea served as the physical embodiment of the Corps of Discovery's peaceful intentions. She was instrumental in securing necessary cooperation from Native American tribes along the way. Meriwether Lewis described Sacagawea as "our only dependence for a friendly negotiation with the Snake [Shoshone] Indians on whom we depend for horses to assist us in our portage from the Missouri to the Columbia River."
Another important member of the team was York, who was William Clark's black slave. In a time when it was a criminal offense for a slave to be taught how to operate a gun, York carried a musket throughout the expedition and used it with great skill to hunt. York was valuable during the many months spent rafting on a river because, unlike other members of the expedition, he could swim. York physically accompanied Clark on all of the most dangerous phases of the mission, suggesting that Clark fully trusted York's ability to handle any perilous situation. Finally, by virtue of his skin color, York fascinated the Indian tribes encountered on the journey. They referred to him as "Big Medicine." He was perceived as having greater value because of his uniqueness, and made negotiations with the Indians easier than they would otherwise have been. In the end, because of the special gifts they each brought, Sacagawea and York became regarded, in effect, as fully equal members of the team.
The Corps of Discovery was also diverse in less obvious ways. In an era when social status mattered a great deal, Lewis and Clark did not select a single member of the expedition based on any criteria other than merit. They cast their net far and wide in search of people who were not just physically strong, but who also possessed intelligence, discipline, and distinctive skills. One of the men they hired was a master carpenter; another was a veteran blacksmith. They recruited a tailor, a fisherman, a boatman, and several excellent hunters. They hired interpreters who would help them in their discussions with Native American tribes. The team members came from a variety of cultures: Irish, German, French and English. There were several men who were mixed-race, half-white and half-Native American.
In his wonderful book, Into the Unknown: Leadership Lessons From Lewis and Clark's Daring Westward Expedition, author Jack Uldrich says, "It would be unrealistic to say that Lewis and Clark started their selection process with diversity as an end goal or even a deciding factor. As products of the late-eighteenth century, this was not how they thought. The lesson, however, is that by focusing on their end goal- reaching the Pacific- they were led, by necessity, to assemble a diverse team. As the famous architect Ludwig Mies van der Rohe said, 'Form follows function.' And to conquer the unknown, that 'form' manifested itself as a diverse team."
Even Lewis and Clark themselves possessed complementary skills as co-commanders of the expedition. They were both seasoned soldiers, strong, and experienced in the ways of the wilderness. They were also both curious, ambitious, and excellent leaders. But Lewis was better educated, and a superb hunter and botanist. Clark was a talented boatman and cartographer. Lewis tended to be reserved, humorless, and even prone to bouts of depression, while Clark was warm and engaging, with an easy manner that made him popular with the men. Together they formed a formidable duo, arguably the most successful leadership team in American history.
Do you belong to a diverse business team? A team that is diverse not just in the obvious, visible sense, but that possesses diversity of skills, backgrounds, and experiences? Or does everyone on your team more or less think and act alike? With the increasing complexity of business missions in today's global economy, leaders who ignore the imperative to seek diversity in their approach will lose. As Lewis and Clark taught us so ably more than 200 years ago, diversity is an absolute necessity, because diversity is strength.
What is perhaps most remarkable about Lewis and Clark and their incredible journey of discovery is that they achieved this feat- in a day and age when people gave no thought to the importance of celebrating and incorporating differences- with a team of talented individuals who were truly diverse in the broadest sense of the term. Lewis and Clark dramatically demonstrated a fundamental principle that all modern-day business leaders should know and understand: diversity is strength.
We all remember the story from our school days of Sacagawea, the sixteen-year-old Shoshone Indian woman who accompanied the expedition. She was the wife of Toussaint Charbonneau, who had been added to the team en route as an interpreter. Sacagawea was a nursing mother who traversed 5000 miles with her infant son Jean Baptiste (known as "Pomp") on her back. There is a common misconception that she guided the expedition throughout the journey, which she did not, but her value to the Corps of Discovery was nevertheless profound. She was skilled and knowledgeable in field craft: building shelters, making and repairing clothing, and finding food. Through her quick thinking, she once saved valuable equipment and supplies when a canoe nearly capsized.
Most important, Sacagawea served as the physical embodiment of the Corps of Discovery's peaceful intentions. She was instrumental in securing necessary cooperation from Native American tribes along the way. Meriwether Lewis described Sacagawea as "our only dependence for a friendly negotiation with the Snake [Shoshone] Indians on whom we depend for horses to assist us in our portage from the Missouri to the Columbia River."
Another important member of the team was York, who was William Clark's black slave. In a time when it was a criminal offense for a slave to be taught how to operate a gun, York carried a musket throughout the expedition and used it with great skill to hunt. York was valuable during the many months spent rafting on a river because, unlike other members of the expedition, he could swim. York physically accompanied Clark on all of the most dangerous phases of the mission, suggesting that Clark fully trusted York's ability to handle any perilous situation. Finally, by virtue of his skin color, York fascinated the Indian tribes encountered on the journey. They referred to him as "Big Medicine." He was perceived as having greater value because of his uniqueness, and made negotiations with the Indians easier than they would otherwise have been. In the end, because of the special gifts they each brought, Sacagawea and York became regarded, in effect, as fully equal members of the team.
The Corps of Discovery was also diverse in less obvious ways. In an era when social status mattered a great deal, Lewis and Clark did not select a single member of the expedition based on any criteria other than merit. They cast their net far and wide in search of people who were not just physically strong, but who also possessed intelligence, discipline, and distinctive skills. One of the men they hired was a master carpenter; another was a veteran blacksmith. They recruited a tailor, a fisherman, a boatman, and several excellent hunters. They hired interpreters who would help them in their discussions with Native American tribes. The team members came from a variety of cultures: Irish, German, French and English. There were several men who were mixed-race, half-white and half-Native American.
In his wonderful book, Into the Unknown: Leadership Lessons From Lewis and Clark's Daring Westward Expedition, author Jack Uldrich says, "It would be unrealistic to say that Lewis and Clark started their selection process with diversity as an end goal or even a deciding factor. As products of the late-eighteenth century, this was not how they thought. The lesson, however, is that by focusing on their end goal- reaching the Pacific- they were led, by necessity, to assemble a diverse team. As the famous architect Ludwig Mies van der Rohe said, 'Form follows function.' And to conquer the unknown, that 'form' manifested itself as a diverse team."
Even Lewis and Clark themselves possessed complementary skills as co-commanders of the expedition. They were both seasoned soldiers, strong, and experienced in the ways of the wilderness. They were also both curious, ambitious, and excellent leaders. But Lewis was better educated, and a superb hunter and botanist. Clark was a talented boatman and cartographer. Lewis tended to be reserved, humorless, and even prone to bouts of depression, while Clark was warm and engaging, with an easy manner that made him popular with the men. Together they formed a formidable duo, arguably the most successful leadership team in American history.
Do you belong to a diverse business team? A team that is diverse not just in the obvious, visible sense, but that possesses diversity of skills, backgrounds, and experiences? Or does everyone on your team more or less think and act alike? With the increasing complexity of business missions in today's global economy, leaders who ignore the imperative to seek diversity in their approach will lose. As Lewis and Clark taught us so ably more than 200 years ago, diversity is an absolute necessity, because diversity is strength.
Saturday, November 7, 2009
Lead Courageously in a Challenging New World
There are some positive indicators that we are currently rebounding from the worst economic crisis since the Great Depression. The stock market is thriving. Manufacturing activity is increasing. Retail sales are up. With that said, unemployment now exceeds ten percent. Many experts predict the recovery will be slow and arduous at best. We all hope for a better future. But I think we also know- regardless of how the future takes shape- things will never be the same again. To quote the great philosopher Dorothy Gale from The Wizard of Oz, "We are not in Kansas anymore." For business leaders, the critical new skill set will be the ability to lead courageously in a challenging new world.
Survival in a deeply recessionary economy and building for a healthy future requires leaders to take on two important tasks. The first involves stabilizing the current situation. The second involves adapting to a new and uncertain future and seizing opportunity wherever it presents itself.
The old adage "when you are up to your [posterior] in alligators, it's difficult to remember the original objective was to drain the pond," has come to my mind often during these trying times. The down economy has very understandably caused businesses to focus attention on the immediate task of survival. Research shows that both people and organizations are far more highly motivated to take action by the possibility of loss than by the prospect of gain.
Indeed, it makes sense during tough times to take every reasonable step to protect the existing business. Is your financial house in order? Are there opportunities to trim costs or otherwise gain efficiencies? Are you staffed and organized correctly? Does your product mix make sense? Is your product or service priced right? Are there opportunities to divest? These are all important questions that should already have been part of a rigorous review of your current business model.
The risk in undergoing this kind of crisis-mode analysis involves the inclination to hunker down and wait out the storm once near-term steps are in place. All of us as leaders have a tendency to rely on skills and abilities that have worked for us in the past. We look for recognizable patterns so we can respond to them just as we have successfully done before. We want to be able to reassure our teams that things will return to normal soon. But there is great danger in this mindset because the future that we face will be unlike anything any of us have ever previously experienced.
The businesses that will go beyond mere survival and thrive into the future are those that aggressively seize opportunity. They see lean times not as a disaster to endure, but as a challenge to overcome. During the last recession, approximately one in three industry leaders lost their perch at the top of their fields as savvy competitors maneuvered skillfully during the downturn. Those who follow bicycle racing know that in an event such as the Tour de France, the ultimate winner frequently overtakes the leaders during the mountain phase- the toughest part of the contest.
Do you have an opportunity to rethink your business model? In the recession of the early 1990's, IBM experienced its first revenue decline in over fifty years. Losses mounted year over year. CEO Louis Gerstner took time during the downturn to seriously reconsider a business model based on sales of mainframe computers. IBM shifted its focus from hardware into computer services and solutions, and it flourished.
Are you continuing to think about the future by investing in research and development? In 2001, the beginning of a two-year recessionary period, Apple Computer experienced a revenue decline of 33 percent. Yet Apple bravely chose to increase R&D expenditures by 13 percent, and continued to maintain that level of investment throughout the downward cycle. Such innovative technologies as the iTunes music store and software, the iPod Mini, and the iPod Photo were developed during this period. Rapid and healthy growth resulted for Apple.
Are you continuing to invest in your people? Remember, even during bad times, your top performers have other options. Do you have the right players in place? Are you encouraging them in their development? Do they see a future with your organization? I believe that one of the most short-sighted moves that many companies make when the going gets tough is to immediately cut training and development dollars.
Finally, these pragmatic steps of rethinking your business model, investing in R&D, and taking care of your people should not just be one-time responses to a crisis, but rather an ongoing part of how you do business. In a Harvard Business Review article from 2003, business authors Gary Hamel and Liisa Valikangas state that the strongest businesses are those that continuously "reinvent business models and strategies as circumstances change," rather than just making singular adjustments in reaction to an emergency. The authors argue that those companies that work incrementally to try numerous different ideas on a micro scale- while involving many people in the discovery process- succeed over time. Businesses "should steer clear of grand, imperial strategies and devote themselves instead to launching a swarm of low-risk experiments."
No matter how we cut it, the future is daunting and unknowable. But it is also richly abundant with opportunity. Those leaders who work hard to strengthen their organizations in the short run and then courageously look to the future will end up on top of the mountain when the economy improves. A continuous cycle of scrutinizing the business model, investing in lots of new ideas, and developing people will bring success in a challenging new world.
Survival in a deeply recessionary economy and building for a healthy future requires leaders to take on two important tasks. The first involves stabilizing the current situation. The second involves adapting to a new and uncertain future and seizing opportunity wherever it presents itself.
The old adage "when you are up to your [posterior] in alligators, it's difficult to remember the original objective was to drain the pond," has come to my mind often during these trying times. The down economy has very understandably caused businesses to focus attention on the immediate task of survival. Research shows that both people and organizations are far more highly motivated to take action by the possibility of loss than by the prospect of gain.
Indeed, it makes sense during tough times to take every reasonable step to protect the existing business. Is your financial house in order? Are there opportunities to trim costs or otherwise gain efficiencies? Are you staffed and organized correctly? Does your product mix make sense? Is your product or service priced right? Are there opportunities to divest? These are all important questions that should already have been part of a rigorous review of your current business model.
The risk in undergoing this kind of crisis-mode analysis involves the inclination to hunker down and wait out the storm once near-term steps are in place. All of us as leaders have a tendency to rely on skills and abilities that have worked for us in the past. We look for recognizable patterns so we can respond to them just as we have successfully done before. We want to be able to reassure our teams that things will return to normal soon. But there is great danger in this mindset because the future that we face will be unlike anything any of us have ever previously experienced.
The businesses that will go beyond mere survival and thrive into the future are those that aggressively seize opportunity. They see lean times not as a disaster to endure, but as a challenge to overcome. During the last recession, approximately one in three industry leaders lost their perch at the top of their fields as savvy competitors maneuvered skillfully during the downturn. Those who follow bicycle racing know that in an event such as the Tour de France, the ultimate winner frequently overtakes the leaders during the mountain phase- the toughest part of the contest.
Do you have an opportunity to rethink your business model? In the recession of the early 1990's, IBM experienced its first revenue decline in over fifty years. Losses mounted year over year. CEO Louis Gerstner took time during the downturn to seriously reconsider a business model based on sales of mainframe computers. IBM shifted its focus from hardware into computer services and solutions, and it flourished.
Are you continuing to think about the future by investing in research and development? In 2001, the beginning of a two-year recessionary period, Apple Computer experienced a revenue decline of 33 percent. Yet Apple bravely chose to increase R&D expenditures by 13 percent, and continued to maintain that level of investment throughout the downward cycle. Such innovative technologies as the iTunes music store and software, the iPod Mini, and the iPod Photo were developed during this period. Rapid and healthy growth resulted for Apple.
Are you continuing to invest in your people? Remember, even during bad times, your top performers have other options. Do you have the right players in place? Are you encouraging them in their development? Do they see a future with your organization? I believe that one of the most short-sighted moves that many companies make when the going gets tough is to immediately cut training and development dollars.
Finally, these pragmatic steps of rethinking your business model, investing in R&D, and taking care of your people should not just be one-time responses to a crisis, but rather an ongoing part of how you do business. In a Harvard Business Review article from 2003, business authors Gary Hamel and Liisa Valikangas state that the strongest businesses are those that continuously "reinvent business models and strategies as circumstances change," rather than just making singular adjustments in reaction to an emergency. The authors argue that those companies that work incrementally to try numerous different ideas on a micro scale- while involving many people in the discovery process- succeed over time. Businesses "should steer clear of grand, imperial strategies and devote themselves instead to launching a swarm of low-risk experiments."
No matter how we cut it, the future is daunting and unknowable. But it is also richly abundant with opportunity. Those leaders who work hard to strengthen their organizations in the short run and then courageously look to the future will end up on top of the mountain when the economy improves. A continuous cycle of scrutinizing the business model, investing in lots of new ideas, and developing people will bring success in a challenging new world.
Subscribe to:
Posts (Atom)
