There once was an important executive at an amusement park. He needed to get an urgent message to someone at the other end of the park, so he gave the letter to one of his subordinates and said, “Quick, get on this horse and hand deliver the message to the man at the other end of the amusement park.”
So the man got on the horse that the man pointed to, just as he was ordered to do. Unfortunately, this was a wooden horse on the park’s merry-go-round. The merry-go-round went around in circles a couple of times and dropped of the subordinate at the same location as where he started. This made the important executive furious. He yelled, “What’s the matter with you? I thought I told you to deliver this letter to the other end of the park. Give me back the letter.”
So then the executive gave the letter to another one of his subordinates and gave her the same message—get on a particular horse and hand deliver the message to the man at the other end of the amusement park. So the second subordinate got on the merry-go-round horse, went around in circles a couple of times and she ended up where she started, still holding the letter.
Again, the executive was furious, so he gave the letter to a third associate and gave him the same message. He got on the merry-go-round and had the same result. This lead the executive to give the same orders to a succession of other subordinates—all leading to the same disappointing result.
Finally, a thought occurred to the executive as to why he was having so many problems delivering the letter. “I finally know what’s wrong,” said the executive. “The problem is that nobody knows how to ride horses any more.”
THE ANALOGY
Over time, businesses will hit periods of difficulty. The old ways suddenly seem less effective. The business is no longer appears to be going anywhere, just like the merry-go-round horses don’t seem to be going anywhere. There is lots of activity, but no forward progress. All that activity just seems to make you go in unproductive circles, like the merry-go-round. Just as in the story, your difficulties prevent you from completing your business's mission.
In times of trouble, many executives resort to changing the person in charge of the mission. The thinking is that the reason the mission is failing is because the person in charge of the mission is incapable or unqualified for the task. Therefore, if you put someone new in charge, the problem will get fixed. This was the thought pattern of the man in the story. He kept thinking that if he could just put the right subordinate in charge of the mission, he or she would succeed.
Unfortunately, the problem was not the person in charge, but rather the business model chosen for the mission. No matter who was put in charge, no one was going to get to the other side of the park by using a merry-go-round horse. Rather than changing leaders, the executive should have been changing horses…finding a different kind of horse that is capable of getting to the other side of the park.
The same is true in business. Quite often the only path to success is not in changing leaders, but in changing the business model. That is where strategy comes in—to tell you when to change horses and which type of horse to change to. The sad part of the story was that the executive never caught on to this truth. He kept thinking that if he switched leaders long enough, he would eventually find one that could ride the merry-go-round horse to the other side of the park.
THE PRINCIPLE
The principle here revolves around degrees of control. Typically, the more control you have over your destiny, the more successful your future will be. Studies have shown that in most cases, strategic decisions impact your destiny than more than the person in currently in charge of the strategy. The leaders have less control of their destiny than most people think. They’re freedom to act is constrained by the strategy they inherit.
Years ago, I went to a retailing seminar where the professor said that the ultimate success of companies (and particularly retailers) can only be affected about 20 to 30% by the leader. The other 70 to 80% is determined by major strategic decisions made long ago. You can see this when you replace a bad store manager with a good store manager. Yes, the store will have better performance under the better store manager, but rarely will the results move by more than 20%. Earlier strategic decisions account for the rest of the performance:
- How you’ve managed the brand image.
- Your particular business model (price, product, service levels, etc.)
- How you’ve positioned yourself versus competition
If the brand reputation is terrible and your business model is uncompetitive, there is not much that a new leader can do in the near term to make a huge difference. He or she has inherited a wooden horse strategy that won’t make it to the other end of the park. Even a good manager can do only so much when given a mission based on an obsolete business model.
Often times you will see someone leave a successful company and go to lead a less successful company. The person frequently brings others from the more successful company to help him or her. Yet, despite their past success, they do not turn around the less successful company. The reason is because people alone are not enough. There is a reason why that company was less successful in the first place. Frequently, it is because it has an inferior strategy. Until the strategy is changed, there is only so much the new management can do. Making the merry-go-round go faster will not get you any closer to the other end of the park. Similarly, working harder at executing an obsolete or inferior strategy will not lead to great success.
Yes, sometimes current management has done such a poor job of executing a good strategy that new management can make a meaningful difference by just improving the execution. However, if you’ve changed the management two or three times and things are still looking bad, it may be time to concentrate on changing horses rather than changing riders.
February seems to be the time when you see a lot of changes in retail management. Financial results for the year are coming in, and if they are bad, there is often a change in management. Just yesterday I saw seven press releases announcing top level management changes at large retail companies.
The buzz in retail circles in recent months has been that the strategy of the Gap stores is so obsolete that it didn’t really matter who they chose to run the company. Some even speculated that the Gap would have a hard time finding qualified new executives, because no one would want it. In an article in the Wall Street Journal entitled “Gap Needs a CEO, and Many Qualify; Will Any Apply?” dated January 24th, 2007, it says:
“The job pays well and has plenty of perks. There's just one hitch: You have to be the next chief executive officer of Gap Inc. The successor to former Gap CEO Paul Pressler, who resigned Monday, must contend with unpopular products, falling sales and profits, anxious investors, problematic store leases, fleeing executives, and rivals gobbling market share. There's also an influential founding family that might balk at a restructuring the CEO might favor -- all or any of which might give a contender pause. No simple solutions are at hand.”
That sounds a bit like a wooden merry-go-round horse to me.
SUMMARY
New management can do only so much to change a troubled company if the trouble is due to having an obsolete or inferior strategy. Until the strategy is changed, the impact of having a succession of new management every year or two will do little to improve the circumstances. Management can only impact about 20-30% of performance. The rest comes from strategic decisions. Doesn’t it make sense to concentrate more on areas which impact 75% of performance than on areas that impact only 25% of performance?
FINAL THOUGHTS
There’s an old saying that the definition of an insane person is someone who keeps repeating the same bad behavior over and over again in hopes of getting a different result. Dare I say more?
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