Sunday, November 09, 2008

Knowledge Begs Action; Culture Alters Reaction

Unless you have been hiking through the Congo and trying to avoid cholera you would see that the economic landscape of the world is extremely delicate and changes erratically with each passing day. During an extensive tour of Western Europe and attending the CFO conference in Brussels I was plagued trying to internalize, why some organizations simply fail to read the indicators of change.

Almost two years ago, the indicators of today’s economic meltdown were already making the news. Interestingly enough, while dining with a colleague I speculated that the economic sputters of 2006 would manifest into a meltdown. As I reflect on that conversation I remain dumbfounded how the indicators were there and so many organizations simply continued along – status quo. What is even more surprising, I along with countless others began writing on the importance of organizational change as a means of weathering the pending economic crisis, yet so many simply continued on the road of status quo, not taking advantage of this powerful knowledge.

Today, the inklings (I had) in 2006 have manifested into a global economic issue where so many organizations are saying, ‘what’, ‘huh’ and ‘what now’. It is almost as if these organizations have been living on a different planet for the past 24+ months. Now in a state of panic, they are downsizing, rightsizing, and all other forms of sizing. What they are not doing is revising!

One of my most favorite activities is meeting with organizational leaders to understand how they view their market and where they see their business going. Although in North America the variations are large between organizations and market niches they pale in comparison to those seen around the globe. The focus of the Brussels CFO conference was on Working Capital Management. As always, I have found, these CFO conferences provide a tremendous opportunity for learning as they attract some of the most brilliant minds in the financial/economic sectors.

With the wealth of indicators and a plethora of insightful analysis of these indicators it is a wonder why all organizations simply don’t have their act together. As I have written in the past, all organizations find their resting spot on this economic continuum. Their position, from the extremes of wildly successful or bankrupt, is self regulated and is based solely on their culture. Although I have professed this for years, the concept gelled during Mr. Schaafsma’s, CFO Europe of Royal Wessanen, presentation on Sharpening Staff Focus on Working Capital Management. Here is a company that built a culture that focused on tying results to the generation of cash. Here is a company that read the market indicators and acted; based on facts. This was in radical contrast to the story told by a CFO of an electrical components supply company. During our conversation, Helmut, explained to me how his company was so focused on market penetration that they bought back, from their resellers, almost 2000 electric motors which had a street value of almost €200 000. As we talked about this ‘strategic’ move I realized here is a company that was driven by ignoring market indicators and working on an ‘agenda’.

There are many market indictors, those which impact globally, nationally and geographically. They are endemic in our everyday life; one would be hard pressed not to be impacted by them. However, so many organizations simply choose to ‘go it alone’. Through my numerous conversations with many people, I realize that it is the organization’s culture that will place them on the economic continuum.

As the world dances on the economic self-destruct button and as the $3 trillion cash injection has failed to make a difference toward economic stability, it has become very clear, at least to me, that survival in these times must be based on acting based on the market voice. [A phenomenal presentation on the current credit crunch and how a company was dealing with it was hosted by Rafnur Larruson, head of treasury of the Actavis Group.] We should not be reacting to what ‘we feel’, or what ‘we want’. This reminds me of a flow audit engagement I was part of almost two decades ago. Our audit senior made five recommendations to this large multi-jurisdictional organization on achieving an immediate positive effect on their bottom line. The feedback was:

“We have been doing business this way for the last 150 years, and we are not about to change now”.

That culture has, whittled that organization down by almost 30% in the last two decades.

As a leader of an organization, you can choose to read the writing on the wall or not, it is completely up to you. Leading with knowledge and insight empowers you with the abundance of action. Leading from a self-righteous attitude where you ‘think’ you know better than the market will force the organization into an option-limiting reactionary mode.
Options that come from Acting are limitless; options that come from a need to react are limited.

No comments: