Why doing what everybody else does is asking for trouble
 

Leaders, we’re often told, are paid large salaries because their jobs require the exercising of personal judgment in the face of considerable risks. The risks are certainly there, as is the need for judgment, but a good many leaders—maybe the majority—typically exercise nothing more demanding that the willingness to imitate others and go along with the prevailing fashion. Their fear of being left out is far greater than their concern to understand what they are doing.

Imitation is the virus that cripples all too many of today’s organizations. It’s also a large part of what got the world into its current, horrendous mess. Like other viruses, it rarely kills quickly, preferring to spread itself through the weakened body of its host, waiting to infect whatever other potential hosts it comes into contact with.

As a result, you find whole industries where the principle form of leadership is watching to see what everyone else does and doing that. No one has an advantage, because no one stands out from the rest. It’s stable and comfortable, so long as nobody rocks the boat. It also feels safe and risk-free. In reality, it’s running a continual risk that everyone is going to go down together. What destroys one, destroys all.

Darwinian, Schmarinian!

Our prevailing orthodoxy assumes that businesses are subject to a strict ‘survival of the fittest’ pattern: that any organization doing something harmful to its future will soon collapse and be swept away by ‘fitter’ rivals (Obviously, those who hold to this idea have some kind of blanket exception for US automobile makers).

The reality is that you only need to work in some companies for a few days to see that the people in charge are immune to any concerns about destroying the business. Their sole strategy is to take good care to enrich themselves and boost their own egos. If you look at the financial world’s so-called ‘Masters of the Universe’, together with the leaders of most banks, insurance companies and hedge funds, you’ll be able to pull out scores of examples of such destructive leadership patterns, matched with the personal survival instincts of a sewer rat.

Left to itself—as those same people demanded—the financial world has embarked on an orgy of self-destructive behavior that would amaze any lemming. Far from acting on the principle of survival of the fittest, it has made imitative suicide into an art form.

What is at work here?

I think I found the answer in an article written by Freek Vermeulen of the London Business School.

He points out that deadly viruses survive, despite killing their host organisms (and thus themselves), because they spread quicker than they kill. They manage to reproduce themselves and infect another host faster than they kill the one they’re already inhabiting.

It’s this speed of transmission that allows pandemics both to spread fast and kill millions. So long as the virus or bacteria keeps on infecting new hosts before it kills the current ones, it can survive AND destroy simultaneously.

That seems to me to be exactly what happened in the run up to the present economic meltdown: bad ideas and crazy risks were imitated so quickly they spread to almost every corner of the financial world before they started to kill their initial hosts. By the time everyone caught up with just how deadly they are, it was too late.

Is there an antidote?

Indeed there is: the same one that can save any of us, in our own small lives, from going down the identical path that leads from fashionable imitation to ultimate misery and regret. It’s called thinking for yourself.

Our so-called leaders have proved themselves to be incompetent at best and plain stupid in many other cases. Far from exercising independent judgment, which was what they were paid to do, they simply followed fashion. When things went well, they claimed the credit (though most of it was dumb luck). Now they are up to their nostrils in the brown stuff—and us with them—they still can’t see that doing what everyone else did isn’t any kind of excuse.

Thinking for yourself won’t insulate you from every mistake, but at least the ones you make will be your own. And because you will know why you did what you did, you’ll have some chance of learning from your mistakes and doing better next time. Work out what’s best for you and don’t simply follow the herd.

The heads of banks and finance houses clearly had no idea why they allowed their businesses to ‘invest’ in toxic loans and incomprehensible ‘financial instruments’. They neither understood what they were putting our money into, nor seemed to think it mattered. Everyone else at their exclusive golf club was doing it. Who dared to be left out?

When the history of these times is written, people will once again marvel at human stupidity and the power of the herd instinct. They’ll ask the same question they always do: “How could anyone be so dumb?”

The answer will also be the same: “Those who don’t think and allow fashion to rule their lives climb to the top in good times and take us all into the abyss a few years later.”

Whether they are financiers or politicians, the world never seems to learn that allowing the ‘good old boys’ and the charming glad-handers to run things is putting the inmates in charge of the mad house. Electors take note!

Technorati Tags: fashion, imitation, self-destructive behaviors, stupid financiers, viral ideas, economic chaos.reasons for financial meltdown

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What every leader and organization should be learning from Wall Street’s misery

“Shipwreck” J.M.W. Turner

People tend to over-value their assets and ignore embarrassing problems. Part of the problem with Wall Street is that corporations still can’t bring themselves to admit that most of the fancy derivatives and other so-called assets they are holding are worth virtually nothing. They hang on, claiming their businesses are strong and denying the truth, until it’s too late and the crisis threatens to overwhelm them, one by one.

It’s the same with personal strengths and capabilities: people tend to over-value their abilities and underplay their weaknesses. As a result, they become complacent about what skills and experience they have and what they can achieve with them.

Too many bosses convince themselves that their people like them more than they do; that they’re better, cleverer leaders than they are; that they are excellent communicators, when the reality is much less hopeful; and that they can run their part of the business better than is actually the case. Read the full story

It’s time to recognize that conventional management ideas are broken — and start thinking of something better.

Admiral David Farragut

In the American Civil War, Admiral Farragut achieved immortality with an order usually simplified as, “Damn the torpedoes! Full speed ahead!” During the Battle of Mobile Bay in August 1864, Farragut ordered his ships to charge into the bay, despite a minefield (mines were called ‘torpedoes’ then), to attack and defeat the Confederate force waiting there. His action pretty much sums up the attitude to management in recent years. Over more than a decade of short-term thinking, leaders have rushed, full-tilt, into action, ignoring the risks in a headlong charge for glory — and the huge personal rewards it could bring.

From hedge-funds to motor manufacturers, there has been only a single goal: to make as much profit as quickly as possible, more or less regardless of any other considerations. Such justification as any bothered to seek came from people like Milton Friedman, who preached notions of laissez-faire economics and the duty of ‘maximizing stockholder return’ without regard for anything else. In time, this was transformed into undiluted self-interest on the part of executives. It could hardly be otherwise, since the stockholders were increasingly impassive and disinterested in anything but profit themselves. When most of the shares in a corporation are owned by huge money funds who buy and sell on the basis of numerical analysis — or index funds who will own whatever is needed to match the chosen index, regardless of any other considerations — stockholders plainly have little or no direct interest in the business itself. Read the full story

Today’s fetish for competition is dangerous nonsense

If you are in business, how do you think of your competitors? Are they friendly rivals and people to measure yourself against; or are they enemies to be exterminated: the company driven out of business and the workforce thrown onto the streets? If you work in a large organization, how do you see your colleagues? Are they the people you need to work with to get things done, who may also be your friends; or are they bitter rivals for promotion and threats to the security of your own position? Would you do something underhand to make sure that it was them and not you who got the push?

Most people, most of the time, prefer cooperation to competition. They prefer teamwork to conflict, and they generally try to be fair in their dealings with others. If this were not so, the human race would have died out a very long time ago. But organizations these days try to inculcate an almost pathological competitiveness among their staff and similar attitudes against other organizations. All of which benefits nobody in the end, besides ruining people’s health, happiness and careers. Read the full story

Bam! Slam! Whack! Another business problem down. Where’s the next?

We’re delighted to welcome Douglas Ross as a guest contributor with this intriguing article on ‘Whack-a-Mole Management’.

The world is complex and moving fast. Demands are challenging and the consequences immediate. Unravel the challenges and the world is your oyster. Surrender to the challenges and the world swallows you. These are the systemic issues that are impacting virtually every organization in America. Yet, while some organizations are dealing with them successfully, many are not. They’re the ones using an approach that I call whack-a-mole management.

Whack-a-mole is a popular carnival game in which you try to hit ‘moles’ that pop up randomly on a board using a rubber mallet. Every time you hit a mole, you get a point. The objective is to get enough points to qualify for a prize.

It’s fun and people experience a ‘high’ as pent-up energy is released by whacking the moles. The challenge of not knowing where the next mole is coming from adds to the excitement.

Business whack-a-mole management is based on the same principles. The challenges are the ‘moles’. As each challenge presents itself to managers, they hit it hard and fast with the hammer of position and conventional wisdom. Slam! They get one. Slam! They get another one. It requires lightning-quick decision making in a fast moving game called “survival of the fittest”. It’s exhausting, but it’s also fun. Each night the players go home, knowing their job remains intact because they have successfully ‘whacked’ enough organizational problems to stay for another day. Read the full story

UK newspaper shows how management techniques supposed to cut costs are making public service workers’ lives a misery

Writing in The Guardian’s blog ‘Comment is free’, Gregor Gall explains how the introduction of private sector practices into government agencies, supposedly to gain efficiency savings, are provoking strikes and crushing employee morale (“In the name of efficiency”). But is it only the public sector that is suffering from today’s obsession with new management techniques aimed almost entirely at reducing costs — whatever that takes?

It seems that the UK equivalent of the IRS, Her Majesty’s Revenue and Customs, has introduced ‘hot-desking’ to maximize utilization of desks and reduce the existence of ’surplus’ desks. This has meant “employees are barred from having tea, coffee, sweets, crisps (chips) and paraphernalia like photographs of family and teddy bears on their desks because these suggest ownership and desk rigidity.”

Not content with acting like Scrooge on a particularly bad-hair day, management went further:

In one HRMC office in the north west of England, local management established what the workers there have labelled a ‘Guanteddymo Bay’. All staff’s teddy bears were removed, staff said, by ‘dawn raids’ and ’special rendition’ from their desks and placed in a locked glass case so the workers can still see their teddy bears but not touch them.

This would be laughably ridiculous were it not so sick — and so totally believable. Read the full story

(This is a guest post by John Fletcher. John is an Englishman now resident in Europe, with a long career in the public sector in several countries. He has spent a good deal of time in working environments outside the Anglo-Saxon world, and has written and lectured on organizational issues.)

Contemporary management is authoritarian, hierarchical and unconcerned as long as the money keeps rolling in. Now times are tough, its weaknesses are becoming apparent

There was a lot of excitement in the blogosphere recently about various reports of the increasing use of Macintosh computers in business. Now this is a management blog, not a technology one, so I’ll simply say that, as a confirmed Mac user, I was delighted to hear it. But the really interesting question is whether the move to Macs is just another purchasing decision — or whether it tells us anything about the way in which organizations themselves are changing.

Some stereotypes are at least partly accurate. PCs are often bought by anally retentive accountants, and Macs are often used by creative types. Bill Gates wears a suit. Steve Jobs doesn’t. But there’s more to the comparison than that.

The PC operating system is authoritarian, hierarchical and completely closed. It does things in ways which are arbitrary and difficult to understand, but must be followed implicitly, or the system will crash. It pesters you with things you don’t want to know, but it gives you no useful help or information when things go wrong. It’s just like the modern Anglo-Saxon organization, in fact. The Mac’s operating system isn’t perfect, but it does at last treat the user like an intelligent human being.

Likewise, the PC’s operating system is proprietary and closed, and battalions of itchy-fingered patent lawyers stand ready to keep it that way. The new Mac operating system, OS X, is built on a foundation of UNIX, a free, open-source, and less hierarchical system that has been added to and modified by teams drawn from academia and government, as well as the private sector, for decades. Read the full story

Why the most creative people usually fare worst under pressure from greedy bosses

In the fable by Aesop, a man and his wife had a goose which laid an egg of solid gold every day. After a while, they became too impatient to wait 24 hours for the next egg, and wondered how they could get more gold faster. “Where does the gold for the eggs come from?” the wife asked. “What if we could find the source of all that gold?”

So, imagining the bird must have an inexhaustible source of gold inside it, they decided to kill it and cut it open. Of course, there was no gold and they lost the daily egg as well.

I suspect almost every child in the developed world had this story read to them at some time, yet its moral seems to have been completely lost on our business leaders. Greed and impatience destroyed the couple’s source of wealth. The same two processes are destroying the wealth of millions today, especially in industries that rely on creative people. Read the full story

Psychopathic captains, promotion by intrigue and treachery, no job security, and a ruthless financial short-termism. Does that sound familiar?

(This is a guest post by John Fletcher. John is an Englishman now resident in Europe, with a long career in the public sector in several countries. He has spent a good deal of time in working environments outside the Anglo-Saxon world, and has written and lectured on organizational issues.)

When the finance company Bear Sterns went belly-up a few weeks ago, my first thought was, “what’s that?” I had never heard of it before; nor had most people, I suppose. But my second thought, on reading that apparently fourteen thousand people were going to lose their jobs as a result, was, “Fourteen thousand people? What an earth can they all be doing for a living?”

It was the collapse of Bear Sterns that made many people realize, for the first time, that there is an immense shadow financial system in the world economy employing hundreds of thousands, maybe millions, of people, and largely devoted to trading in all sorts of arcane financial products with other people’s money. The fact that this system has grown geometrically in the last generation has had some significant, and unforeseen, consequences — and even for how we think of work itself.

Of privateers and pirates

When we try to make sense of this shadow financial system, it’s tempting to compare it to a casino. That’s understandable, but not really accurate. At a casino, nearly all the players lose nearly all of the time, which hasn’t been the case with the bond dealers of the world until recently. Perhaps there’s a better analogy, and one that is more worrying for what it suggests about many of the world’s economies.

The late 17th and early 18th centuries were the great age of piracy in the Caribbean. The pirates, operating, oddly enough, from the sites of some of today’s hedge funds, like the Caymans, preyed on respectable traders in precious metals, as their successors do today. Indeed, the comparison between the two is one that today’s traders seem positively to invite, with their vocabulary of dawn raids and buccaneering CEOs, their backstabbing, wealth-at-any-price ethos.

In spite of their “yo-ho-ho” Hollywood reputation, real pirates were parasites who preyed on anyone weaker than themselves. But they were a very small part of their economy compared to their equivalents today.

Economics textbooks try to persuade us that commerce works because far-sighted entrepreneurs recognize demands and respond to them. That may have been true, to an extent, in the past, but much of today’s economy is itself parasitic in nature, trying not to address a demand, but to create one. The new-style financial services industry — getting on for a quarter of the US economy — has been a particularly extreme case.

Whatever was true in the past for old-fashioned lending banks and insurance companies, the industry today is one huge pirate flotilla, ripping off the world economy by selling people debts they can’t repay so that they can buy things they don’t need. As a result, there are factories, shopping malls, and residential areas today in danger of being as gutted by pirate financiers as any port ever raided by Blackbeard three centuries ago.

Some disturbing comparisons

What are the consequences for an economy where so much is owed by so many to so few? Can people really be happy working for organizations which exist to rob and pillage? We don’t know much about the personnel management and career development practices of pirate ships, but we can assume they weren’t particularly enlightened. Reports from the time speak of psychopathic captains, promotion by intrigue and treachery, no job security and a ruthless financial short-termism — a short life and a merry one, as the famous pirate Bartholomew Roberts put it.

In the end, it wasn’t just government intervention that closed the pirates down; it was also that there was nothing left to steal. Shipments of gold and silver from the New World had slowed almost to a trickle. Similarly, the financial services industry today has no more money to lend, and people can’t take on any more debt anyway.

But whereas there were, at most, only ever a few hundred pirates, their modern descendants must be numbered in many, many thousands — and many are now faced with the task of finding a legitimate job as their industry collapses.

If the financial services companies are forced to walk the plank in the next few years, it’s going to be sudden death for most of the new pirates of the Caribbean. What — and who — else will they take down with them?

Technorati Tags: financial piracy, financial system, speculators, pirate financiers, macho management, rogue traders, super-capitalism, financial short-termism

The pressure for quick and simple simple answers, more powerful computers, and easy access to analytical software are luring managers into “flying on instruments” most of the time.

In recent years, the rise of macho, “grab-and-go” management has been accompanied by a huge increase in the use of numerical or statistical indicators as the basis for management decisions. It’s easy to blame IT for almost anything, but, in this case at least, there’s a good deal of truth in the charge. The success of IT in providing powerful computing software, with terminals on every manager’s desk, makes it all too easy to rely on “what the numbers say” in place of taking the time needed to think about what is really happening — and why.

Numbers have such allure: they don’t answer back, they operate according to fixed rules, and even the most challenging choice can be cut down to size by stating it as a series of abstract equations, rather than painful human dilemmas of who loses his or her job and who is forced into excessive working hours. To say, “We must reduce labor costs by 15%” not only sounds scientific and dispassionate; it allows you to feel better than you would if you phrased it as, “I’m going to fire 200 innocent people tomorrow morning and make the rest work longer hours without extra pay.”

Bad, easy measures soon take over from better, harder ones

In February, Simon Caulkin of the British newspaper The Observer wrote a perceptive article about just this issue. In it, he said:

“If there’s one management platitude that should have been throttled at birth, it’s ‘what gets measured gets managed’. It’s not that it’s not true - it is - but it is often misunderstood, with disastrous consequences.

The full proposition is: ‘What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so.’ In the truncated version, there are two lethal pitfalls. The first is the implication that management is only about measuring . . . Here we encounter the second problem with the measurement-management equation. All too often in a kind of Gresham’s law (which said bad money drives out good), the easy-to-measure drives out the hard, even when the latter is more important. Strategy writer Igor Ansoff said: ‘Corporate managers start off trying to manage what they want, and finish up wanting what they can measure.’”

You can’t remove the human element in business

Even if all the measure were relevant ones, properly applied — an unlikely situation given the limited math and statistics skills of most senior managers — you would still be left with that all-important, non-measurable item: human feelings and perceptions.

No one has ever been able to predict individual human behavior; probably no one ever will. Forget all the nonsense you read about “average behavior” and what people do en masse. A prediction based on some abstract generalization might hold good in purely arithmetical terms (an average is always the total dived by the number of observations, regardless of whether that produces a logical or believable outcome), but it tells you next to nothing about what any individual might do.

Besides, to allow for statistics to be used at all, “random” elements, such as emotions, personal beliefs, and irrational choices, have to be removed from consideration. Take economic theories. Conventional economics assumes that all choices are made on the basis of rational self-interest, and sets out its equations accordingly.

Think about this. Has every choice you have made, even in financial matters, been based rigidly on the most logical course to maximize your self-interest? I very much doubt that even 10% have. If you’ve ever refused to buy because something about the person selling put you off, been swayed by fashion or what you’re friends said, or jumped to a choice without bothering to work out all the possible alternatives and carefully analyze every one, you have behaved like a typical, irrational and emotional human being — and undermined economic theory by doing so.

Business is about trust and mutual satisfaction, not spreadsheets

It’s surely true today that what is measured is what gets managed. That’s why so many mistakes are made and so many choices go terribly wrong.

By taking away the acceptance that business is about human relationships, and depends almost entirely on trust, the proponents of “management by numbers” produce simple-seeming answers to most of the wrong questions.

“Return on investment” for example, is easily calculated, but — like most management ratios that can only be found after the event — tells you nothing useful about why you got a pay-back and why it was the amount it was. Worse, by the time you get the number, it’s way too late to change anything. Even the business climate may have changed enough to make the number useless as a guide to future action.

Did you get your return because customers loved the product? Or only because it was cheap (until your competitors cut their prices to undercut you)? Was your service good or fashionable? The one may suggest a stable basis for future success; the other a temporary boost that could disappear overnight.

Management by numbers is like painting by numbers. Both produce lifeless, unnaturally perfect reproductions of what has already been done by someone else — and cannot produce anything fresh, or creative, or appropriate to changing circumstances.

When people feel insecure, they spend more time justifying what they did in the past than planning what to do next

Management is not about justifying the past; it’s about deciding what to do for the future. While some numbers can be useful to help you sort out what’s important to look at, amongst all the mass of useless information, using them to make future-oriented decisions is generally a bad idea.

I have sympathy for people forced to waste time producing figures to justify past decisions; none for those who demand the justification. What’s done is done. Mistakes cannot be reversed, only used to learn how to do better. All the hours spent looking at charts and numbers displayed on endless Powerpoints is time wasted, unless it leads to increasing the time allowed for thought and introspection.

Managing the wrong “measure” can be fatal — literally

I’ll let Mr. Caulkin have the last word with a frightening example:

“What happens when bad measures drive out good is strikingly described in an article in the current Economic Journal. Investigating the effects of competition in the NHS (Britain’s National Health Service), Carol Propper and her colleagues made an extraordinary discovery. Under competition, hospitals improved their patient waiting times. At the same time, the death-rate following emergency heart-attack admissions substantially increased. Why? As targets, waiting times were and are measured (and what gets measured gets managed, right?). Emergency heart-attack deaths were not tracked and therefore not managed. Even though no one would argue that the trade-off — shorter waiting times but more deaths — was anything but a travesty of NHS purpose, that’s what the choice of measure produced.

As the paper observes: ‘It seems unlikely that hospitals deliberately set out to decrease survival rates. What is more likely is that in response to competitive pressures on costs, hospitals cut services that affected [heart-attack] mortality rates, which were unobserved, in order to increase other activities which buyers could better observe.’

In other words, what gets measured, matters. Measures set up incentives that drive people’s behaviour. . . Imagine the cost to NHS morale (one of Deming’s unknown and unknowable figures) of the knowledge that managing to the measure resulted in more deaths — the grotesque opposite of its aims. Hospitals are the extreme example of a general case. As such, they allow us a definitive rephrasing of our least favourite management mantra. What gets measured gets managed — so be sure you have the right measures, because the wrong ones kill.”

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