Art Petty on Management

Art Petty on Management Has Changed and Moved

I don't like to do things small or simple, so in what I sincerely hope is the absolute last time I put myself and you through this, I have moved and changed the name of my blog. 

You will now find me at www.artpetty.com and the new name of the blog is Management Excellence.

As I'm writing this and realizing that most people that have moved blogs have basically had to start over from zero to build traffic, this seems like taking two steps in the wrong direction.  However, sometimes you have to step back to grow, and I've got some compelling reasons for making the move, including:

• Integrating my former corporate web site and my blog under one content management system.

• Creating a simpler url (artpetty.com...12 characters versus the almost 40 for this site).

• Gaining the tools and the control through a hosted blog so that I can easily add planned podcasts, webcasts, forums and other tools that I will roll out this year.

• Aligning my blog's name: Management Excellence with my personal mission to promote high performance, great leadership and the pursuit of excellence in business.  

All of the posts and hopefully, all of the comments have been moved to the new site, so 14 months,  160 plus essays and a tremendous number of thoughtful comments on best practices in leadership and strategy, project management, product management and marketing and sales, all remain part of the library. 

For those of you that subscribe via your favorite Reader or happen across this post via Search, please take the opportunity to visit the new Management Excellence site and click on the site's feed.  And don't forget to check out some of the new tools, including the live polls, free down-loadable tools and links and references to many other great resources.

Thanks so much for reading and referencing Art Petty on Management, and I hope to earn your confidence many times over in my new home at the Management Excellence blog!

Change or Die

Perhaps it is human nature, but we tend to eschew change either in our personal habits or in business settings until we are faced with mortality. 

In organizations, most significant change occurs during times of crisis when the threat of extinction sufficiently motivates individuals and groups to consider changing long-standing ways of doing things.   The crisis brings into stark focus the fact that it is easier and less costly to accept or embrace change than it is to suddenly become extinct.  Unfortunately, by the time this clarity is achieved at the top leadership levels, it is often too late.

As difficult as it is to follow the news everyday, we are living and working through a period of time when the extinction of firms and industries is taking place in front of us, like some business simulation game gone horribly wrong.  The game unfolds like this: focus only on short-term results, add in a measure of personal greed, consistently make the wrong decisions and act shocked as the results spiral out of control to the final act….a low probability of success, last ditch effort gambit (or bailout).

For some, the distance from the top of the Mount Olympus to the graveyards and swamps below is fast and furious.  The suddenness and rapidity of the fall is shocking, but perhaps easier to digest than those firms that have systematically planned their own demise step-by-step as they move from Masters of the Universe to what will soon be footnotes in our history books and business texts. 

As in life, there are no guarantees of survival…there is no prescriptive formula that says “if you do X then you survive and prosper,” but there are methods to improve your odds. 

How to Improve Your Odds of Survival

• Senior leaders must embrace the fact that survival and prosperity occur only at the pleasure of customers.  Instead of giving lip service to the importance of customers, you need to develop systems to constantly seek out, understand and translate into actions the Voice of the Customer.  This is remarkably difficult to do in practice and requires for many an impossible shift in culture and values.  Nonetheless, you must change or die.

• Senior leaders must embrace the fact that without motivated, dedicated employees they have nothing.  There can be no doubt that satisfied, engaged, respected, informed employees are essential for survival and success.  Why then are our systems and our managers and leaders so often at odds with what it takes to create an environment where employees will gladly give their best.   The poor leadership habits that are vestiges of another era must change or you will die.

• Call it total quality, performance excellence or whatever you want, but you must embed the notion of high performance and all that it takes to achieve it into the DNA of your organization’s culture.  Success can breed success or it can give birth to complacency.  An unyielding focus from the firm’s leaders on creating a high performance culture is required.  This means that the fire-fighting mentality must stop, clear performance/quality priorities  established and the systems developed to allow these to succeed and for people to learn in the process.  You must change to create a learning organization or you will die.

The Bottom-Line for Now:

Change or die.  It’s that simple.

Does Your Dashboard of Performance Measurements Include a Warning Light?

Count me as one of the last idealists.  Or perhaps the last of the naïve idealists.  In a world filled with Quality Management Systems and Performance Measurement techniques backed by legions of people trained to implement and sustain quality performance, it seems reasonable to me that organizations are capable of not only keep themselves from imploding, but that they are armed to the teeth with tools to ensure prosperity beyond the wildest dreams of  Dr. Deming. 

As an aside, Dr. Deming once famously indicated that it was his hope that his legacy was to keep U.S. companies from committing suicide.  Perhaps it is good that he is not here to see the firms elbowing each other out of the way in an attempt to get to the front of the line on the edge of the cliff.

• The U.S. auto companies are almost finished carrying out their joint suicide pact in a world where the rules for success as an automobile company are on display for everyone to see. 

• Motorola, an icon of U.S. electronics has systematically destroyed itself by flailing and flailing in the mobile device (read: cellphone) world, and stands a reasonable chance of failing to survive without drastic action.   (See my earlier post on the Dollar Bill Auction to get a feeling for Motorola’s problems.)  The fact that Motorola is a Baldrige winner, one of the founding fathers of Six Sigma and an organization staffed with brilliant engineers, yet it cannot seem to engineer success is both puzzling and frustrating.

• Earlier this week, Boeing indicated that they would again delay the launch of its now several years late and much hyped 787 Dreamliner.  The article indicated that the latest problem had to do with quality issues related to a new type of fastener required for the high tech and lightweight materials being used in the plane.  The advance sale of 900 of these puppies at $178 million a piece and the expected 20% fuel consumption savings has customers hopping mad over this latest in a series of seemingly endless project management and supply chain problems. 

• Financial services, banking, investment banking.  Ugh.  These icons of risk management succeeding in maximizing risk beyond their wildest expectations.

How does this happen in a world filled with balanced scorecards and legions of certified quality professionals constantly measuring, monitoring and striving to improve performance?  I suspect that my own answer is that while we have ample tools available for our use in building, the one tool that we haven’t yet mastered is staring back at us in the mirror.

In discussions and lectures with the up and coming generation of leaders, there is widespread cynicism over the intentions and the capabilities of many of their firm’s senior leaders.  There is little faith expressed that their leaders understand their firm’s key drivers and little confidence that the leaders are taking actions and measuring performance based on anything other than preconceived notions of what they think is right.  Fewer organizations than you might think are doing anything to engender employee satisfaction…which is ironic given the mountains of data that indicate that employee satisfaction flows through to customer satisfaction and strong financial performance.

This current generation of senior leaders is failing, and the very imbalanced scorecard is visible all around us.  The business cycle is one thing, but our problems go way beyond the business cycle to our preconceived notions of how to lead, how to run businesses, how to fuel innovation and how to create an environment where talent and calculated risk-taking are carefully cultivated. 

Many organizations are hives of activity with no vector and the output is chaotic. Firms and top leaders need to quit guessing and start using the tools available to identify key business drivers and to measure and monitor the efforts and outcomes of focusing on those drivers. 

The Bottom-Line for Now:

There’s nothing like a good old-fashioned crisis to engender creativity.  Well, we have one.  In spite of the difficulties, it’s a great opportunity for organizations and leaders to quit paying lip-service to cliché’s like customer-satisfaction, performance excellence and quality.  It’s a big world with a growing population and while the forecast is stormy now, the seas will eventually calm and the sun will shine.  It will be interesting to see who has the courage and fortitude to do the things necessary to make it through the storm.  Even money that we find a whole new generation of leaders in the process. 

 

Is it Time to Panic?

I suspect that anyone not concerned about the state of “things” going on in our world and specifically in our economy would reasonably be labeled as naïve.  We have big problems, they could get bigger in a hurry or maybe they won’t.  The loss of some long-standing financial icons is annoying, the potential for the choking off of access to working capital for otherwise healthy companies is downright disconcerting.  The issues being debated in Washington have long-since ceased being about Wall Street and are most squarely about mitigating catastrophic risk on Main Street.

You don’t have to look far for some pundit somewhere offering up the end of life as we know it, usually with comments about a worldwide depression the likes of which we’ve never experienced.  Hey, they may be right or they may not.  I’ve long since given up trying to peer into the crystal ball and prognosticate beyond the late George Carlin’s famous weatherman bit that called for a forecast of “dark, followed by widely scattered light in the morning.”  The sun will rise and it will still be in the east.

In spite of my inability to foretell the future, I do know one thing for certain, it is never good to panic.  For you science fiction buffs out there, Frank Herbert had it right when he wrote that, “Fear is the Mind Killer.”  Panic creates a fight or flight response, where rational thinking is replaced by instinctual flailing.  Individuals panic, participants in markets can panic, and organizations can panic.  More often than not, the panic results in dramatic or even fatal mistakes.

Unfortunately, we have recent experience with horrific scenarios.  What happened on 9/11 was unthinkable on 9/10.  There were no road maps for dealing with the grief and the anger, and for awhile no one understood what was next.  It was a time when the best that many could hope for was to process on taking the next breath.  In all likelihood, we are still dealing with the ripples of this unthinkable day, and those ripples will likely shape the lives for generations to come in some form and fashion.

In addition to the pundits and talking heads, some really smart people that I know are beginning to let fear creep into panic.  Discussions of how to grow, how to compete better and even discussions about the pursuit of excellence are being replaced with focus on retrenching, battening down the hatches and/or boarding up the windows for the storm on the way.  Again, we would be naïve to ignore the signs and we would be naïve to think that anyone actually understands the impact of this horrific financial mess unfolding in front of us in real time, albeit drawn out over the past few weeks.  It’s time to focus on taking one breath at a time.

While there is some probability that the worst cases will play out, I will place my bet on widely scattered light towards morning.  There are many reasons why the world’s global capital markets cannot stop and why the earth’s burgeoning population and the world’s rapidly growing economies will not stop consuming, investing and yes, even growing.

As you look at your own firm and your own situation, it is not a time to take foolish risks.  Frankly, it’s never a time to do that, so nothing has changed.  It is a time to adopt a philosophy that seeks to find opportunity in chaos.  It is a time to carefully evaluate your strategies and check your assumptions.  It is also a time to consider making some hard calls on your future.  Working for a firm in the post 9/11 world where the board and leadership had the courage to invest in reinventing the firm’s core offerings at a time when our competitors were scaling back R+D efforts, was a brilliant learning lesson. 

It’s always time to improve your talent…either by investing in growing their knowledge and capabilities and by culling the herd.  It’s a great time to evaluate spending, to hold marketing accountable to genuine measures of value creation and to deploy the best-trained, solutions focused sales force to serve your customers.  It’s also a remarkable time to scale up your communications with your stakeholders and with your employees and provide them opportunities to share their many great ideas.   

The Bottom-Line for Now:

At the end of the day, people must eat, people must clothe themselves and frankly smart people will figure out how to use the opportunity to challenge themselves and their organizations to improve.  The rest will start boarding up the windows to hunker down for a long, agonizing wait.  I know which team that I want to be a part of. 

The Hubris of Leaders

It takes a strong reserve of self-confidence to be an effective leader.  It’s also remarkably easy to get comfortable crossing the fine but dangerous line between self-confidence and arrogance.  The best leaders are conscious of that boundary and walk along it but resist the lure to cross into this self-gratifying but credibility destroying country.

Being an effective leader requires the self-confidence to deal with constant ambiguity, to put faith in people and to recognize that success comes through others.  Unfortunately, all too many leaders get the formula wrong.  They begin to believe their own press clippings.  They convince themselves that they are in a leadership role because they are better than others, and they begin to lead and manage according to that premise.  When times are good, the positive results reinforce this behavior and feed the out-of-balance level of self- confidence of these individuals.   When times are bad, the debts created by this leader’s hubris come due, and like many of our struggling financial institutions, they do not have the currency (=credibility) to make the payments.  They default on their role as leaders.

Suddenly it appears that times are challenging.  That’s OK.  Great things and great people emerge from difficult times.  In particular, challenging circumstances are proving grounds for leaders of all ages and all levels, and those that emerge will be those that understand the difference between self-confidence and arrogance. 

The effective crisis leader exudes confidence, not based on a false view that all will be alright, but based on a genuine belief in the ability of smart people to work together to solve any problem.  Imagine Winston Churchill at the peak of the Blitz when enemy bombs were dropping all around London, and he had to summon the will to believe that the British people would persevere to survive and win.  His self-confidence fed the nation for a time, and the actions of his countrymen under his leadership won the day. 

If you are a leader facing tough times, check your hubris at the door and remember your job as a leader is to get things done by appealing to the hearts and minds of others.

The Dollar Auction and a Failure of Rational Judgment

One of the more fascinating social experiments that I have observed is a game credited to Martin Shubik, called The Dollar Auction.   My context for this auction has been in groups of senior leaders (classrooms of 30 or more) during Executive Development events.  In these settings filled with lofty titles carried by people driving nice cars and wearing expensive suits, the auction is actually for a $20 dollar bill…not just a lowly $1.

The game works like this:

-Everyone in the room is eligible to bid on the $20 bill.  The bidding starts at $1.00.

-The second place bidder must pay the amount of his/her losing bid.

Things start out as expected.  Someone opens the bidding, it quickly escalates to the risk-free level of par value and then pauses for just a second as the players ponder their strategy.  Often, the  $19 bidder recognizes their risky situation and decides to stick it to the fool willing to pay $20 to get $20.  After a momentary pause, this group of executives is off to the races. 

I’ve personally witnessed corporate executives of all types escalate the bidding into the hundreds of dollars.  I’ve also watched as groups came back to their senses and stopped short of $100.  I’ve not yet witnessed any group stop at $20 or below.  (Full disclosure: you should know that the executives were told in these settings that the winning bid above par will be donated to charity and the losing bid payment used for drinks that evening.)

Shubik commented on observing the same behaviors above that, “game theory alone will probably never be adequate to explain such a process.” 

While I am unqualified to offer clinical commentary on this pathological behavior, we don’t have to look far to see it at work in the current financial crisis.

• AIG is admitting on the day following the $85 billion (billion with a “B”) federal government bailout of this global giant that they had no idea how bad things really were.  I thought that firms that dabbled in insurance had a good handle on risk. 

• The overnight dissolution of Lehman, Bear and billions of dollars in partner equity was created on the back of exotic mortgage-oriented financial instruments that are so complicated that few understand them.  Hmm, how many over-educated people willing to bid more than a dollar for a dollar does it take to destroy a financial system?

• The housing industry and mortgage financiers built the real-estate bubble and catalyzed the credit crisis by effectively enticing unwitting individuals into paying more than a dollar for a dollar.  Hey, I’m all for caveat emptor, but why did the builders and mortgage bankers/brokers/underwriters think that they could extend this auction indefinitely without someone or something calling a sudden, rude halt to these people printing their own money?

The Bottom-Line for Now:

The common outcome of The Dollar Auction offers an interesting perspective on human behavior.  We are seeing similar manifestations of this behavior at work in what we are slowly learning about the events leading up to this historic (not in a good sense) financial crisis.  For some reason, common sense, prudence and good, old-fashioned principles of  risk management fly out the window when it appears that the magical money-making machine has been turned on.  Whatever happened to making money by developing goods and delivering services that meet and exceed customer needs?

I’ve long spoken openly about my perspective that the destruction of a business and the abuse of stakeholder trust are crimes punishable by imprisonment.  Ditto that for the destruction of a financial system.

Looking for Leadership Lessons in the Wake of Wall Street Crisis

The greatest spectator sport available the past few weekends has been the systematic dismantling and reassembly (of sorts) of many of America’s financial icons and of America's capital markets. 

In case the return of college and pro football the last few weekends kept you from paying attention to the financial news, the American financial infrastructure (or at least the world’s confidence in the American financial infrastructure) has teetered on the brink of disaster.  Last weekend, the U.S. effectively bailed out the FNMA and Freddie Mac and this weekend, we watched as Lehman Bros. was sent into oblivion, Merrill Lynch was sold (at 66% less than a reported buy-out offer in 2007) and AIG, the venerable insurance giant scrambled for liquidity.

I’ve chatted with a number of my financial friends and I ask my naïve and still unanswered question: “How did this happen?  After receiving some elegant explanations backed by all sorts of terms like derivatives and mortgage backed securities etc., etc., I invariably derail the discussion by saying, “Oh, so you’re saying that greed run amuck is at the root of this problem.”  I’ve yet to receive anything other than shoulder shrugs and comments like,  “Yeah, that’s the bottom line.”  And while we should take comfort in the fact that humans are at least predictable and consistent, I’m still left wondering where the true leaders were during the build-up of this mortgage-backed house of cards.

I’m left wondering how some of the world’s supposedly smartest and best educated professionals managing the firms that have created the world’s most effective, efficient and liquid capital markets allowed this mortgage-driven disaster to systematically destroy confidence and credibility in their firms and in large part, in the U.S. financial system.  What happened to risk management?  Heck, what happened to sanity? 

Where were the leaders making the hard calls on their firm’s activities?  Whose job was it to take away the punch bowl? How did the activities of quasi-public and private but accountable publicly traded institutions seemingly operate in a black box?  Who was writing and approving the compensation plans that said that the laws of finance and risk were suspended and it was everyone’s right to crank up the money machine.  Who forgot to highlight that there are no money machines?  Where was the accountability?

The Bottom-Line for Now:

While leadership on Wall Street seems to have taken most of the decade off, there are some remarkable opportunities for new leaders to stand up, deal with the crisis and begin restoring confidence by imposing accountability and sanity on their practices.  Additionally, the tendency of society and government will be to potentially move too far in the wrong direction towards regulation and governmental intervention.  The credibility and ultimately the liquidity afforded by the American capital markets are at stake.  The implications for global economic health are significant the implications for health on Main Street profound.  While I take comfort in my naïve faith in the long-term survival and success of a free market system, prudent and deliberate leadership is required to keep this system free and effective.