Congress

Business and Politics: Avoiding Your Organization's Fiscal Cliffs

One of my areas of expertise is tracking how business and politics intersect in the ways they operate - and, most importantly, what we can learn from both. Over the years, I've written strategy papers on the subject as well as having advised senior members of United Kingdom political parties on how business strategy can be applied to create political party success.

With all that's been going on in US politics recently, I've decided to begin posting on the subject - only in this case, focusing on what business can learn from how politics operates, at its best and at its worst.

There are important strategic, operational and profit-related lessons to be learned and applied to your business, so, no matter where you live or what your political affiliation might be, put it aside and just look at the process.

I'll look forward to your thoughts and comments.
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On January 1st, 2013, a few minutes after 11 pm, the United States House of Representatives voted to accept the Senate's bill (approved some 21 hours earlier) averting the so-called "Fiscal Cliff."

As markets around the world opened for their first trading day of the new year, they upheld the conventional wisdom that a global economic catastrophe was averted. Markets and futures were immediately up and could well stay that way. At least until the already known next 'cliff' occurs in two to three months.

So, good for Congress. They did their job. They saved the world. For the moment.

They should also be ashamed of themselves.

The reason why they deserve real scorn is because it was this exact same Congress that agreed to the "cliff" in the first place. That was in December, 2010.

Twenty-five months ago.

Why did they create the cliff? The logic was that it would motivate the elected officials to work together to solve the debt and deficit problems the US is facing.

From then until now - while those twenty-five months passed with the cliff always looming - they weren't willing to do what needed to be done for their own country as well as those world markets and economies. Right up until the last minute - and only then because it was the last minute.

Okay, so that's the politics of it. What does this have to do with you?

Like it or not...admit it or not...but you have your version of a cliff playing out in your organization on a regular basis.

It's those things that you and your employees at every level see and know and recognize out on the horizon that you'll take care of later. Some day. Soon. You're sure of it.

Only those 'things' - both little and big - grow to outrageous proportions the closer they get to whatever time limit within which you're working.

Maybe it's when your customer needs an order filled. Or you've got a new product or service launch that needs that one more thing to make sure everything goes smoothly. Or there's an expert you know you're going to need to hire to make sure that the strategy you're currently working has a chance in hell of actually succeeding.

It's anything that escalates from knowledge to emergency - simply because you or someone in your organization let it get that far.

And it gets worse.

You may well have someone you trust who has made a success of their career swooping in at the last moment to save the day.

That's all well and good when the emergency is a true emergency - not a manufactured one. If it's the latter, then whoever is playing 'hero' is anything but. In fact that person - man or woman - is the equivalent of an organizational sociopath...allowing that particular cliff to loom and get ever closer for their own purposes, frankly, not caring how it might impact others.

Including you and your business.

Because if the 'thing' escalates far enough for long enough - at least to suit your local sociopath - even with a save, you'll lose your reputation as a trusted provider. There go the orders, customers and jobs. And there goes your business.

So, as this year begins, spend some time on your own and with your leadership team to:
  1. Take a look back over the past six to eighteen months
  2. Identify those situations that escalated into crises
  3. Determine how those crises occurred (real or manufactured)
  4. Define how long in advance the problems were known
  5. Determine in each case how long it took to get from knowledge to action
  6. Specify the outcomes in each case - including but not limited to impact on operating costs, revenues, profits, customer relations, market share, reputation, etc.
  7. Identify the specific functional areas and their respective managers/team members involved in each crisis
  8. Determine whether there is a trend of occurrences by any of the people or functions involved.
As well, if you have a Lean initiative going, take the time to review the teams' measures to identify any trends from the data that show highly risky levels of variation in your processes.

Once you have the information in hand - as uncomfortable as it might be - you'll know what to do. Do it. While you still have the time.

Because the biggest difference between business and politics is that the politicians who took the US to the edge of the fiscal cliff have at least two years before there is a remote possibility of being held responsible and accountable.

For business...for your business...you don't have that luxury. 

Figure out your cliffs now - and then manage your organization so that you're designed never to get close to them again.

BP and Goldman: You Manage What You Measure

It is a truism that "you manage what you measure."

The reasons why are simple:

  1. The measures are deemed important enough to warrant the effort to manage directly - which means that the right information at the right time is required.
  2. What is being managed is deemed to be tied directly to the success - or failure - of the department/division/enterprise to warrant the effort.
  3. Someone's - or more than one person's - compensation and/or future existence within the enterprise are dependent upon how that particular area is performing - based on the measures.
In those cases, not only are those measures managed, but they are known by enough people to be usable for everything from strategic and operational decision making to succession planning or terminations.  

There is, however, an obverse to this as well.  Sometimes, you measure and you manage - but you don't tell.  At least not many.

Sometimes, that's necessary.  I'm a great believer in information management.  In fact, I think that not enough thought - and forethought - is put into either measurement decisions or the ways that the information from those measures are being disseminated (or not) in the enterprise.

Information just moves...as if it has a life of its own.  

(Just so you know, it doesn't.  Whenever and wherever information moves - or doesn't - there is a purpose on the part of the person making the distribution decision.  And that purpose is not always in line with what you want or are working to achieve.)

But when information - particularly measures - are seen as being purposefully withheld, more and worse questions arise.  In those cases, you're asking for trouble.  You may well deserve it.

You've entered into the world of "transparency" - and a murky, distrusted world it is.

We're watching this happen now - and you've got your choices of which organizations deserve to join the "Corporate Perp Walk Hall of Fame."  (This is the next iteration of the "Executive Perp Walks" so popular a few years ago.)

Right now, we have two major corporations tied for first place.

To start, there's Goldman Sachs not quite being upfront with their customers about what they know and when they know it - not least whether the firm is betting against what they're selling with as good as insider information.

That decision has led them to being sued by the Securities and Exchange Commission for fraud - which has led to a 26% drop in their share value (to be fair, that includes a lot of other variables causing a market correction) and the possibility - if they can pull it off - of getting away with only a $1billion settlement.  (That's Goldman chump change.  In fact, they'd undoubtedly see it as a good investment.)

(On a side note, Warren Buffett has it completely wrong when he defends Goldman.  That's self-serving - he has a really big investment making lots of money from Goldman - and disingenuous.  This is an ethical issue and he well knows it.)

And, in a tie position, you've got BP - who are making a worse mess of their mess than they already created in the Gulf.

Because BP's executives are so concerned - now - with what will happen later when the litigation really hits, that their unaccepted, disingenuous replies range from:
  • "It's their fault" (not a good strategy in a Congressional hearing with the counterparts sitting next to you doing the same thing) to 
  • "It's only a moderate spill" (which is patently untrue - and sounds even worse to an angry American audience when it is said by the British accented CEO to a British television network) to 
  • "It's impossible to measure the amount of oil being spilled" (which has now been completely debunked by a quartet of scientists who figured out a way all on their own).
It doesn't matter what industry you're in - or, for that matter, what country or sector.  The problem that comes from all of this activity is that there is less and less trust extended to you by your customers.  In their eyes, they have no reason to trust you.  You're probably just like all the rest.

So, before you make your next set of decisions or as you start reviewing the most recent data being handed to you, stop and think for a moment.  Then ask yourself:
  • What are we measuring?
  • Are those measurements giving us the best, most useful information?
  • How do we know?  How are those data tied to strategic and operational goals?
  • How are these data being disseminated - and to whom?
  • Who else should get them?
And the seminal question:  What are we hiding?

Because you can count on it.  If you're hiding anything - then something is being hidden from you.

And you really don't want that keeping you up at night.


Bigger Does Not Equal Better

There's an interesting article in today's NY Times about Senator Christopher Dodd (D., Conn.) wanting to create a new financial services super-regulator. It would be established by combining four existing regulatory agencies while, simultaneously, reducing the authority and reach of the Federal Reserve.

Interestingly, there is a similar argument being put forward in Britain by the Conservative Party.  Their Shadow Chancellor of the Exchequer, George Osborne MP, wants to combine all financial regulatory responsibilities under the auspices of the Bank of England.  In the process, two other agencies would be incorporated into what would become one exceedingly large one.

The problem in both countries, from what is described, is not one of size, power or remit of the individual agencies.  The problem is coordination, clarity of responsibility and authority - as well as systems of accountability - among and between the existing entities.  That's what needs to be addressed - and it won't happen as a result of combining groups that don't mesh.

To get my drift on this, think M&A gone bad and you'll know where I'm going.  Better yet, if you're in the States, think Department of Homeland Security and you'll know exactly what I mean.

Too many organizations - public and private sector - are convinced that bigger equals better.  Not always - and especially not in a case like this.

Sometimes it is in the organization's (for which, in this case, read country's) best interest to allow each entity that owns part of a larger system to be specialist in exactly what it does.  That way, it can go narrow and deep in its activities to ensure that those within its remit are being well and clearly looked at and after.

The responsibility then lies with the corporate parent (for which, in this case, read Congress or Parliament) to ensure that those responsibilities are laid out clearly, lines of accountability are drawn and no competition for "favored" status exists or can be offered those being regulated  (a particular problem in financial services regulation).  Most importantly, the agencies should develop and execute proactive plans for coordinated, ongoing information sharing and joint action.

It's that last one that is the deal-breaker - because it is the lack of that planning that has caused politicians on both sides of the Pond (as well as their citizenry) to be so dissatisfied with the status quo.

Putting together the financial services agencies in either country isn't going to net the politicians what they say they want.  Nor will it give the public what it needs.  In the words of W. Edwards Deming, "The intent is noble.  The method is madness."

My recommendation to any executive who is considering going this "bigger is better" route is to go back to the drawing board and look at your intent - then look at your organization as it is and how you want it to grow.  Then you'll be able to decide how to get there - just as big as you want - without creating chaos and lost opportunity in the process.