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Nine out of ten business cases that cross my desk contain material errors, which often lead to incorrect recommendations worth tens of millions of dollars. If you ever wondered why two thirds of change initiatives fail, here’s your answer: many of them are based on a fallacy, a case that does not exist.
The issues run the gamut from poor understanding of objectives to complete disregard for the established methods of economic analysis, from strategic ignorance to financial ignorance.
Decisions on outsourcing and insourcing are also not immune from this flawed approach. In fact, many of them are deficient for one specific reason which I will outline here.
Later this year, I am conducting a webinar on the art of dispute as a part of the Excellence in Leadership series. If you have ever been in a situation where you knew that your opponent was wrong but couldn’t effectively argue his point of view, you know why this is a highly valuable skill. This morning, I was jotting down some most salient points for this session and thought that I should share one with you today.
We make decisions on a daily basis, many times a day: how to get to Memphis, what to have for dinner, what to wear, which espresso maker to buy and so on. Similarly in a business settings, people make operating and investment decisions: which project to select, how to enter a new market, who to hire, and so on. Why doing so, in life and in business, decisions are influenced by recommenders – friends, family, experts, employees, superiors, vendors, consultants, and others.
Although not a debate per se, a recommendation is similar to it in that the other party offers an argument to support their point of view. A decision maker listens to recommendations and makes a decision.
Here is my point. Never ever accept a recommendation or an argument that you don’t understand.
I see a lot of people in a lot of organizations all charged with making decisions. It’s a commonplace occurence that they make decisions to the tune of millions of dollars based on recommendations they don’t understand: a financial workup, results of a marketing survey, sales projections, etc. It only so happens that the financial workup contains errors, the methodology behind the marketing survey is flawed and the sales projections are based on best case scenario assumptions.
The resulting decision cannot possibly be sound. The result: wasted resources, lost time, overlooked opportunities.
I think the following is in order when listening to what recommenders have to say:
- if you don’t understand something, ask for an explanation. It is not a weakness but a sign of a confident decision maker
- probe and examine the recommender’s data and assumptions carefully
- understand the recommender’s interests. What do they stand to gain from your following their recommendation? Does it influence their recommendation?
- in cases where you are not in a position to validate an argument (e.g. a financial cost-benefit analysis), ask an authority on the subject to do it for you.
- never let yourself to be forced into the thinking that there is only one alternative to be considered
- think critically and ask critical questions.
In my observation, accepting the argument that is not well understood is even more of a problem in a group setting, such as a meeting. There is an implicit pressure to agree and no one want to look ignorant by asking for an explanation. (Since everyone else is quiet, they MUST understand it. I don’t want to look stupid, so I will pretend that I do too.)
Don’t let this to happen to you. Ask questions, make the right decisions, and thrive!
A local photographer decided that he does not like selling and marketing as much as he liked taking pictures, so he outsourced it to a small local firm. We received a call from them today, which in its abridged version went something like this:
Saleswoman: “Hi, this is Brenda from Such-n-such Photography. We would like to come to your home and take a picture of your baby – free of charge.”
Kim: “Sounds good. How many pictures are included?”
Saleswoman: “Oh, just one pose, one picture”
Kim: “Can additional pictures be ordered?”
Saleswoman:”Yes, packages start at $120″
Kim: “What is included in a package?”
Saleswoman (miffed): “I have no idea, I just book appointments”
Kim: “Thank you. Not interested”
Outsourcing is as old as the hills and we all do that – I don’t deliver my correspondence in person but the postoffice and courier companies do – but remember that judgement needs to apply.
You should consider outsourcing non-core activities that others do either better or cheaper (while maintaining acceptable quality) than you do in house. For the vast majority of businesses, relationship with clients is a core activity and should never be outsourced. The issue in this particular case is therefore twofold: not only a third party is retained to perform a core activity but, also, they cannot do it well.
You may be reading this and saying to yourself, “but of course, it’s asinine!” You may feel that what I am saying is just common sense.
The trouble is, even large and sophisticated business often make outsourcing decisions that seem to be against this very common sense.
It turns out that common sense can be remarkably uncommon…
Decision making is often skewed by cognitive biases. Among the wide array of such biases is the survivorship bias, which is the tendency to assign qualities of a sample to the full population. For example, prominent lawyers may make millions, giving rise to a widespread belief that all lawyers are dirty rich. In reality, half the lawyers in the US earn less than $100,000.
Take a look at this commercial. Those who switched, saved big, it says.
However, the very same commercial can be adopted by any insurance company. Each company’s rate tables will inevitably favour some groups of drivers and those who switch (because they saw a decent enough saving to do so) do indeed save. In fact, there are likely many more (even 100x or 1000x, it really doesn’t matter) drivers who found the company’s rates unfavourable and did not switch.
The commercial capitalizes on the survivorship basis which pushes viewers to imply superior rates across the board.
Disclaimer: I do not represent interests of Allstate or any other insurance company or their agent. The video used in this posting merely illustrates the main point of the article.
Dan Pink discusses motivation and refers to some of Dan Ariely’s surprising results.
Frederick Herzberg and David McClelland have done a significant amount of work in this area and if motivation is of interest to you, I suggest reading about their work. Herzberg’s hygiene theory, in particular, is absolutely solid
What Pink describes supports my own findings. For a practitioner, the gap between the scientific findings and the regular management practices are both apparent. The lack of volition among the vast majority of managers to change their practices is disconcerting. I am posting this to inspire enough people to reflect on their work and find their way to new exciting heights.
Here are ordinary people making incredibly stupid decisions on behalf of their children. I trust this is not staged and I hope many parents walked away from this.
Decision making is often viewed as a rational process, particularly in traditional economics. I fail to find any rationality in this particular setting.
What goes through these people’s head remains a mystery to me. Take a look.
Do you know what the altitude effect is? I’ve coined this term to signify the misalignment in decision making that exists between the layers in organization. Those standing on the lower rungs of the corporate ladder often make decisions that are misaligned with the priorities, musts and wants of the top leadership.
I am not going to cite any examples because if you think carefully, you should be able to come up with at least a few. But here are the top three recommendations on getting rid of the altitude effect in your organization:
- Disabuse yourself from the fallacy that decisions are made entirely at the top, while other layers merely execute them.
- Lay a foundation for distributed decision making by adopting a corporate vision and values and ensure they are known and subscribed to at all levels of the organization.
- Act as the exemplar by adhering to the set vision and values in all decisions and actions, not merely in words.
A week ago, I spoke at a Project Management Institute event in Toronto, in front of a room full of project management professionals. The talk was about the key success factors in communicating with executives, a topic that has proven highly popular. I shared the top management perspective gathered during my consulting work.
It is because of the strong response I have received that I am going to outline the key points from the speech here. Whether or not you are a project manager, I believe you will find them useful.
Twelve suggestions that will make your communication with senior executives successful.
1. Speak your audience’s language. Minimize the use of professional jargon. Describe impact, benefits, ramifications, costs, etc in business terms. Don’t confuse this with “dumbing down”, which is unacceptable.
2. Prepare for the opportunity which will come as one of the following three types of scenarios .
- You bump into them in the elevator or on the floor – 30 seconds
- They want to know a little bit more – 5 minutes
- They want a full blown conversation – 30 minutes
On your way to work every day, think of what you could say if the scenario were to materialize. Come up with a message that is pithy, assertive and upbeat. The full blown conversation rarely comes as a surprise, so you will probably have the time to prepare, but it is not the case for the first two scenarios.
3. Understand the priorities, pressure points, and political landscape. Do not confuse what is said with what is thought.
4. Communicate confidently and establish a partner relationship. Your counterparty is not omnipotent and you don’t want to appear as an obsequious supplicant but as a confident, knowledgeable and reliable partner.
5. Do not let them tell you how to do your job.
6. There are several types of power that an individual can hold within the organization, such as legitimate, reward, coercive, referent and expert. The last two are most potent. Know a lot about your project – be on top of things, know everything there is to know about your project. If you don’t, people will go around you.
7. Don’t merely bring up issues. Suggest solutions, give options but imply freedom to choose. Be a solution, not a problem.
8. Geert Hofstede developed a framework for assessment of world’s cultures. Among the five dimensions comprising it is the Power Distance Index (PDI), which denotes how the less powerful members of organizations expect and accept that power is distributed unequally. In Australia, a low PDI country, subordinates view their superiors as equals. In Malaysia, a high PDI country, the superior is looked at as an authority not to be argued with. While it is dangerous to stereotype, understanding the prevailing beliefs within a given culture allows you to communicate with executives with different backgrounds more effectively.
9. Always get an agreement on next steps, responsibilities and timing. You will not be able to be in control unless these are set.
10. Know when to escalate. Too early and you may be talking about something which should have been addressed at your level; too late and the opportunity to rectify the problem may be forever gone.
11. Decide on the communication medium based on the executive’s personality, preferences, proximity, as well as the time constraints.
12. Choose the right level of detail in your message given the professional realm and the preferences of your counterparty. A CFO is likely to pay close attention to numbers, while a CEO may prefer to stay at a high level (but remember not to stereotype). It is always safe to start at 30,000 feet being prepared to quickly descend into the nitty-gritty. Have the numbers and other detailed info ready in your back pocket.
“Fudge!” exclaimed I when I saw the present that my wife’s parents brought for us from their recent cruise.
It was, indeed, excellent vanilla fudge in an ornate tin box. While no fudge can sneak into the close proximity of yours truly unscathed, and despite this particular fudge’s superior quality, it is not really the main actor of this post. But the tin box, which contained it, is.
How do customers make a decision to purchase (or, not purchase) your products or services? Why do they choose you over your competitors? If you understand their decision making process, you can influence it, improving the likelihood of the outcome you prefer. This is the point of intelligent marketing. Businesses that do it well, do well.
It is customary to bring little gifts from a trip, especially for friends and family who enabled your happy travels by looking after your kids, house, garden, or pets. The choice of souvenirs is infinite on the one hand and difficult on the other. Knickknacks, confectionary, alcohol, art, books, and small kitchen implements are ubiquitous, yet the choice is often paralyzing as no one wants to appear obvious (shot glasses, anyone?). Then, there is a chance that you forget altogether until you about to board the return flight. This is why airport shops are overpriced.
The fudge people did something very cool – take a look at the picture of the tin below. When you see it on the shelf, you are guaranteed to remember that someone back home is looking after your cat and that a box of fudge is as about a perfect of a gift, not too big and not too small. A simple message jogs the memory and, unless the kitty-sitter is anti-fudge (or a dentist), you cannot help to reach for the wallet.
Then, it is a clear differentiator. Without the box, it competes with a wide array if like products. In the box, it is pretty much the only logical choice. Great marketing at work.
If you run a retail business frequented by tourists, order nice packaging which reads “Thank you for looking after my cat /dog /iguana / garden /plants /house.” Display it prominently in your store.
If you run any other business, take this as an idea of precise market segmentation for your products or services. No, it does not create a sustainable competitive advantage, but it can make a great deal of a difference.