Posts Tagged ‘management teams’

Playing It Safe – The Enemy Of Business Growth

Tuesday, November 19th, 2013

It’s pretty much universally agreed that taking too much risk is a bad thing.Playing it safe and avoiding risk could impede your company's growth

That doesn’t, however, seem to prevent business owners and their management teams continuing to do it.

When large, publicly-listed companies – e.g. Lehman – do it, the results make headlines. When smaller, privately-owned, companies do it, the results are the same but they’re buried in the business bankruptcy figures.

So you would think that being cautious where risk is concerned must be a good thing.

And it is – but only to a point.

Extremes of anything are bad. And taking too little risk – or avoiding risk completely – is no exception.

Another way to describe taking too little risk is “playing it safe”.

The danger with playing it safe when things are going well is that for a long time – it could be years or even decades – it gives the appearance of being sensible.

The results are good, better still they’re consistently good. It’s human nature to begin to enjoy – and expect – the lifestyle that good results brings. Why would anyone risk losing that?

But taking too little, or no, risk is a slow, steady killer. Ever present but never visible, it’s another example of the boiling frog syndrome. A danger that’s so easy to ignore.

Then, when revenues and the bottom line begin their inevitable decline, owners and management teams often do the wrong things.

They reach for quick fixes to restore the status quo. Let’s train the sales guys. Let’s get a marketing campaign going. But that doesn’t work.

What does work is understanding that the status quo has gone. What does work is challenging what the business does and for whom.

Arguably, leaders are paid to do that on an ongoing basis. Even – in fact particularly – when things are going well.

The company now has to take risks. And, depending on what its financial landscape looks like, it may have to take big risks. It is undoubtedly in for a lengthy period of adjustment during which the results will not be consistently good.

So how do business owners, division heads and their management teams avoid this?

It sounds simple enough. Continuously challenge the temptation to play it safe.

Even when things are going well, ask tough and thoughtful questions. “What will happen if we lose 1 or 2 major customers tomorrow?” or “What if the competition finds a way to reduce costs by 30%?” Just because the likelihood of something happening is low, don’t overlook the impact if it does.

Then encourage everyone else to ask tough and thoughtful questions about how and why they do things.

Make thinking critically and taking risks the norm. It’s better for companies to take well-considered, relatively small risks, which go wrong than to become, and remain, complacent.

Read about how one CEO went about it here.

 

If you enjoyed this post you’ll also enjoy Strategy, Productive Paranoia and Boiling Frogs.

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It Starts With A “Corny” Story

Friday, March 9th, 2012

Ever been in a situation when you see or hear something – and then a few days later you see or hear a variation of it?

That happened to me this week.

It started when I read a blog post called “What You Can Control in a Tough Business Climate” by Karie Willyerd.

A “Corny” Story

She describes how, as communism came to an end in Romania, bureaucratic decision making resulted in a cornfield being divided amongst local farmers.

Each farmer was given 2 rows.

They didn’t – or wouldn’t – collaborate so the results of each individual’s work could be easily compared with those of his or her contemporaries.

When the following summer came, the quality of corn which grew varied widely. Some rows produced knee-high, healthy plants. Others produced shin-high plants which were sad to see.

Willyerd’s point is that everyone had been given the same seed and fertilizer and so the difference in results was caused by the people and the decisions they made.

And now to business….

Next she describes a study she conducted with some colleagues.

The goal was to determine if simply executing a business strategy, regardless of what it is, would make a difference to the value of a company.

They focused on the 4 variables they believe are the foundations for the ability to execute. And they found that improving any of them produced an increase in the company’s value.

But they found that 2 of them – aligning goals throughout the organization, top to bottom and across; and identifying and treating high performers differently than low performers – produced the greatest increase.

Putting it together

Willyerd believes that in business, as in farming, there are many factors which can’t be controlled – e.g. drought and the performance of the economy.

So the key to success is to focus on those that can be controlled.
A company’s ability to execute its strategy is definitely one of those.

Two other controllable factors are:

  • Whether the owners, and their management teams, communicate explicitly with every member of their team and align them behind the company’s goals (derived from the strategy). If they don’t parts of the company may meet the business owner’s expectations, but others won’t.
  • People are the seeds of the growth, and ultimately the value, of a company. Owners should, therefore, surround them with resources and nurture them with benefits – particularly the high performers.

The Variation

As you know if you saw my last post, I’m reading Jim Collins’ book Great by Choice. In it he compares pairs of companies in 7 different industries to determine why one did well in uncertainty, even chaos, while the other did not.

Collins’ main theme is that the successful companies focused exclusively on the things they could control. And they kept on doing it no matter what was happening to the things they couldn’t control.

The final chapter talks about the role of luck – and it’s not what you might think (read the book)! In the summary, Collins talks about the importance of finding great people and building deep and enduring relationships with them as a means of creating good luck.

Final thought

You could argue that focusing on what can be controlled and getting good people aligned behind the goals is common sense. But, while Willyerd’s study confirms that they do produce results, Collins’ study demonstrates that companies routinely ignore them.

Where’s the sense in that?

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