The Downward Spiral Of Suboptimization
Over the summer I had the opportunity to talk to several CEOs of stall businesses. That is not a typo. A stall business is one whose growth has stalled. What I noticed is that in each case, the CEO knew why the once promising growth curve had flattened out. With a little probing from me, each was able to articulate what needed to be done to restore growth. Each saw how the fix to the growth-stalling problems was critical the their strategy, and each could articulate the strategy and how the critical change fit it. Each could see how to optimize the change to recharge the growth engine.
But in each case the CEO quickly shifted into suboptimization mode as they talked about implementing the necessary change. It was as if they had a split-personality. This shift in thinking assured that they would fail.
Here are two examples, with names changed to protect the guilty.
Sally is CEO of a well-established, well-run, effective services business in a specialty for which there is increasing demand. Growth has stalled for two reasons. First, her key service delivery staff must hold a particular credential that is not trivial to obtain. These folks are in high demand and competition for them is fierce. Sally's company needs excellent recruiting and staff retention. She also needs staff development to assist junior staff in obtaining the needed credential.
Sally's customers are increasingly demanding objective documentation of meeting service contract objectives, due in part to changes in regulations they in turn must meet. Sally needs her service delivery staff to meet these documentation requirements, something anathema to many of the old-hands who do great work but hate the paperwork. She needs to get her staff trained, their performance objectives aligned with the new customer requirements, and her managers need help in motivating their recalcitrant staff.
Sally knows her problem is her HR vice president, with whom she has had ongoing conflict about these and other issues. She is certain the HR VP cannot and will not do what needs to be done. She agrees that she needs to replace the HR VP. But (time for suboptimizing) that would be a distasteful and difficult chore, so Sally is doing all sorts of things to work around this person. This means doing things less well and causing work for others which makes them in turn less productive. Growth remains stalled.
Charlie is CEO of a small contracting firm. He runs operations and his partner runs sales. Charlie's business has stalled because he cannot generate enough profit from his contracts to fuel growth. Competition limits his pricing power. Charlie knows that he can recharge growth by getting bigger contracts, since his overhead and cost of selling are the same regardless of contract size. His strategy is to move the business into the more lucrative contracts. The stumbling block to doing this has been his partner, who needs to bring Charlie in to close bigger deals. After considering several options, Charlie concluded that the long-term strategy of the business would be best met by bringing in someone to run operations (his partner is not an operations guy) so he can focus on growing the large contract sales capability, leaving his partner of bring in the small deals.
But Charlie's approach to bringing in an operations person is to do it as cheaply as possible. This means he will have to keep true leadership of operations under his auspices, so he will only be somewhat involved in going after the big contracts. On the one hand, he is certain that if he hires a seasoned operations manager, Charlie's ability to focus on big deals will quickly more than pay the cost. On the other hand, he cannot stomach the cost of a senior operations manager and wants to hire and develop someone green but cheap. He may get a little growth, but is probably stuck in stall mode.
Stall businesses rarely stay stalled. They either resume growth or decline. The CEO who does not properly execute the steps needed to resume growth is heading for the downward spiral of suboptimization. As decline sets in, cutting costs becomes the primary focus, more and more of the business is suboptimized and the decline accelerates.
Copyright © 2007 Philip Bookman
Technorati: Business Strategy, Management
But in each case the CEO quickly shifted into suboptimization mode as they talked about implementing the necessary change. It was as if they had a split-personality. This shift in thinking assured that they would fail.
Here are two examples, with names changed to protect the guilty.
Sally is CEO of a well-established, well-run, effective services business in a specialty for which there is increasing demand. Growth has stalled for two reasons. First, her key service delivery staff must hold a particular credential that is not trivial to obtain. These folks are in high demand and competition for them is fierce. Sally's company needs excellent recruiting and staff retention. She also needs staff development to assist junior staff in obtaining the needed credential.
Sally's customers are increasingly demanding objective documentation of meeting service contract objectives, due in part to changes in regulations they in turn must meet. Sally needs her service delivery staff to meet these documentation requirements, something anathema to many of the old-hands who do great work but hate the paperwork. She needs to get her staff trained, their performance objectives aligned with the new customer requirements, and her managers need help in motivating their recalcitrant staff.
Sally knows her problem is her HR vice president, with whom she has had ongoing conflict about these and other issues. She is certain the HR VP cannot and will not do what needs to be done. She agrees that she needs to replace the HR VP. But (time for suboptimizing) that would be a distasteful and difficult chore, so Sally is doing all sorts of things to work around this person. This means doing things less well and causing work for others which makes them in turn less productive. Growth remains stalled.
Charlie is CEO of a small contracting firm. He runs operations and his partner runs sales. Charlie's business has stalled because he cannot generate enough profit from his contracts to fuel growth. Competition limits his pricing power. Charlie knows that he can recharge growth by getting bigger contracts, since his overhead and cost of selling are the same regardless of contract size. His strategy is to move the business into the more lucrative contracts. The stumbling block to doing this has been his partner, who needs to bring Charlie in to close bigger deals. After considering several options, Charlie concluded that the long-term strategy of the business would be best met by bringing in someone to run operations (his partner is not an operations guy) so he can focus on growing the large contract sales capability, leaving his partner of bring in the small deals.
But Charlie's approach to bringing in an operations person is to do it as cheaply as possible. This means he will have to keep true leadership of operations under his auspices, so he will only be somewhat involved in going after the big contracts. On the one hand, he is certain that if he hires a seasoned operations manager, Charlie's ability to focus on big deals will quickly more than pay the cost. On the other hand, he cannot stomach the cost of a senior operations manager and wants to hire and develop someone green but cheap. He may get a little growth, but is probably stuck in stall mode.
Stall businesses rarely stay stalled. They either resume growth or decline. The CEO who does not properly execute the steps needed to resume growth is heading for the downward spiral of suboptimization. As decline sets in, cutting costs becomes the primary focus, more and more of the business is suboptimized and the decline accelerates.
Copyright © 2007 Philip Bookman
Technorati: Business Strategy, Management
Labels: Business Strategy, Management
posted by Phil Bookman at 8:33 AM
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