Books don’t get written in the order they ultimately appear in their published form; the title, sub-title and introduction may well be the last pieces that are created. When contemplating to write what is now CEO Adventure, I titled the book “It Depends”, as a reference to a consultant’s idiosyncratic answer to most of the questions s/he is typically asked.
I chose that title because it puzzled me that people would think that “it depends” as an answer is strange or unusual, given the nature of the questions that get asked. After all, no one thinks the following section from Lewis Carroll’s Alice in Wonderland is weird or unusual:
Alice: “Would you tell me, please, which way I ought to go from here?”
The Cheshire Cat: “That depends a good deal on where you want to get to.”
In other words, the quirkiness of the exchange is not in the answer but it the question. For example: “How far is it from here to where I’m going?” That is―according to a journalist’s article―a true question a motorist once posed to one of Maryland’s Bay Bridge toll booth attendants. That question implies that his/her interlocutor is already familiar with matters such as the purpose of the road-trip―business, pleasure, or family emergency―the exact destination, and the desired itinerary―the fastest or the most scenic route.
As a consultant myself, I get asked, and I overhear, and read similar questions all too frequently. Most of them take the form of a comparison or a ranking of tools or skillsets. Question: is technology abc better than technology xyz? Or, is change management more important than project management? Answer: it depends! More specifically, it depends on you who asked the question.
What prompted you to ask the question; what is the context? What is your objective with this comparison or ranking? Why did you choose these two for comparison or ranking? Why did you exclude other alternatives? Why do you think you need any of these? What is it you intent to accomplish? Etc. Answers to any of these questions may result in a different reply to your initial consulting request. The quality of a consultant’s advice is thus dependent on the client’s anticipated outcome, or the purpose―desired state―of his/her business.
The reason why a consultant is asked for advice on a comparison or ranking lies in the fact that―generally speaking―the business has a problem; something is not working as intended and/or the CEO wants to steer the business into a different direction.
The definition of a problem is a discrepancy between a business’ current state and its desired state. A good consultant is capable of identifying the current state of a business but a description of the desired state must come from executive management. However, it is not uncommon to experience there is neither a conclusive answer nor is their consensus regarding the business’ Anticipated Outcome a.k.a. purpose; the reason why it was created. Then, what IS the problem?
Keep It Simple
Dr. Albert Einstein said: “Everything should be made as simple as possible, but not simpler”. And yet, time and again, that’s what I experience; insistence on making the complex simplistic. Perhaps the most prolific and egregious example of simplism is the statement that “making money” is the purpose of one’s business. First of all, it is blatantly untrue; in the United States, there are only two businesses whose purpose it is―amongst other things―to make money, and they are the Bureau of Engraving and Printing (BEP), and the United States Mint; both are government agencies within the United States Department of the Treasury. Secondly, every business―other than the BEP or the US Mint―is designed, organized/structured, implemented, maintained, and managed to produce products and services other than legal tender. Thirdly, generating income and being profitable are the means―or prerequisite―for operating a sustainable business. Confusing means and ends is a common mistake; it would imply that every business has the same purpose as any other business. If that were the case, then how would you differentiate yourself from competitors? Well …
The origin of most established businesses is entrepreneurship. The word entrepreneur or enterprise has its origin in the French verb “entreprendre”, which means ‘to undertake’, and refers to the designing, organizing/structuring, implementing, maintaining, and managing a business system. The advantage of developing a system is the creation of routine processes as opposed to having to invent the wheel every time you make a sale.
It should be obvious that continual system development results in greater effectiveness, which translates into greater efficiency―reduction of waste, re-work, warranty claims, etc.―and superior product/service quality―uniformity―, which increases customer satisfaction and profit margins. Satisfied customers are more likely to become loyal repeat buyers who are less likely to haggle over price―demanding a discount. Also, loyal customers require less spending on marketing, advertising, and sales. In short, superior business systems command superior profitability. Unfortunately, this line of reasoning is not the current dominant level of thinking.
Downside of Simplism
The simplistic perception of a business is a collection of component parts that interact with each other like cogs in a machine. Every cog is interchangeable for another of the same specification. Everything goes well as long as every cog plays its own part.
When the purpose of a business is perceived as making money, every department can be given the same goal, and department leaders can even be incentivized to compete for being first in achieving their goal. Because profits are defined as income minus cost, every leader can be held accountable for reducing cost by x% per year, as the annual benchmark for success. Only the sales department can be tasked with increasing income. Notice a clear emphasis on growth―increasing a business’ financial performance for shareholders―as opposed to development―increasing the business system’s capability and capacity to serve its intended target audience.
Consequently, industry groups are stimulating the development of tools that reduce cost for departments that belong to their industry, such as Leadership, Information Technology, Human Resources, Marketing, Finance, etc. Subsequently, competing operational efficiency products can then be celebrated for and compared based on their features and benefits that promise to reduce cost, or―in plain jargon―for their “contribution to raising bottom-line results”.
However, as Dr. W. Edwards Deming explained, optimization of every component part according to its own industry benchmark for success, will not optimize the system as an organic whole. Building a car from the best available component parts, developed by the best manufacturers for the best brands, has very little chance of success if those parts don’t fit together and function as a harmonious system. Successful deployment of a component part depends on the extent to which it contributes to the purpose of the system as a whole! And, the specific contribution a system requires from an individual component part might not mesh with the ideal features and specs that an industry group developed for that part.
Since every dollar can be spent only once, it is understandable that decision makers want to know which tool, technology, or best-practice is most important and thus promises the highest Return on Investment (R.O.I.). Notice how the HR industry group came up with a method to measure R.O.I. of employee training and development recently. And yet, the question of ranking is completely futile. It’s like asking if your heart is more important than your lungs. You cannot live without one or the other; you need both, period!
Hierarchy of Objectives
The downside of optimizing operational efficiency of each individual department separately, and in isolation of each other is sub-optimizing operational effectiveness of the business system as a whole. After all, the money you are so desperate to “make” will have to come from customers, and none of them gives a flying flip about your efficiency. They only care about your effectiveness―can you deliver on your promises! If you can give them more in USE Value than the CASH Value of the payment you take from them, you’ll be profitable. And, delivering superior USE Value commands superior CASH Value―including a superior profit margin.
There is a hierarchy of objectives; every hierarchical objective is derived from the business system’s purpose―a.k.a. its anticipated outcome. That means that every department must support the objectives of those on the next higher hierarchical level. Now you know why defining your anticipated outcome correctly and sharing it with everyone is of vital importance to operating a successful enterprise. May this posting also serve as an explanation for naming my business Anticipated Outcome.