Tuesday, November 18, 2008

Stop the bleeding, connecting with Cassandra

I have always professed that organizational profitability is very easy once you embrace the three vital elements to any business. For a business to be successful, the product or service offering must make sense, the product or service must be sold at a price greater than its production, and there must be enough buyers for the product or service to continue into the future. If you apply these rules to products it is easily understood how some businesses become wildly successful and others fail. Compare the life of the garbage bag to the life of the famous Pet Rocks of the 1970’s.

Once an organization can get beyond the vital elements, then those savory terms of every MBA move the organization from a rudimentary business into a viable entity. The likes of decision making models and S.W.O. T analysis forms the foundation of strategic modeling which puts organizations on the economic continuum; which I have discussed so much in the past. However, somewhere at sometime organizations lose focus of the road they have traveled and other subjective approaches to management kicks in.

During a recent conversation with a senior partner of a global law firm, it became evident that management of the firm went from being objective through verifiable facts to subjective with ‘gut feelings’. This multi-million dollar organization prided itself on assimilation of the latest technology. In their eyes, it made them more efficient and effective in producing their services. In reality, however, all of the expected efficiencies were really masked by the atychiphobic behavior of the product evangelists.

It is in the fear of admitting failure that many of the firm’s project evangelists continue down the road of doom, pushing harder and more determined. These project evangelists drag their colleagues down a blood-letting experience of downward spiraling profits. David Maxwell contends that the signs of project failure are being read by the very people who are installing and often initiating the project; this is known as the Cassandra Curse. In his research of 589 project managers, the Cassandra Curse is alive and well. He contends that project managers often see the future, but are simply unable to convince others to change the course of action. It seems that saving face is more important than saving the organization, in the eyes of the project evangelist.

During lunch with this distinguished litigator, I came to understand how his firm had undertaken so many projects that either got stuck in the bureaucracy of perfection or never yielded the expected windfall professed when they were launched. I believe these emotional interjections in the decision making process leads to organizations losing millions of dollars. It is almost as if management gets caught up in Confirmation Bias (Plous, S. The Psychology of Judgement and Decision Making, New York: McGraw-Hill, 1993). I believe it is the degree to which organizations allow emotions to alter their decisions, which roots them in their economic continuum.

A huge amount has been written on the decision making process. In a very simplistic view the extremes can be defined as subjective and objective. A purely objective decision model would be likened to automatic stock trading algorithms; when certain criteria are met, an action is initiated. Conversely subjective decision making can be all feeling based. In business, and most MBA’s are trained this way, the objective side of decision making is the mantra. Figures don’t lie.

Many years ago, I articled with an accountant who ultimately took a position with an oil exploration company. During our many conversations, I learned that these types of companies are run by objective decision making. The finance role in these organizations has a wealth of technology and very sharp individuals that are constantly reviewing the ROI of every project and proposed project. In their emotionless drop of the gavel these companies lose no sleep on cutting a project as soon as the ROI drops below their threshold, regardless of the money already expended.

In a recent contribution, I mentioned an interview with Sir Richard Branson whose advice to today’s company is “batten down the hatches”. I think now is the time organizations need to bury the atychiphobic, bury the ego and recognize that a project destined to failure will suck up more money and time than simply walking away regardless of how much has already been spent. Stop feeding the Cassandra Curse.

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