Monday, October 22, 2007

Chasing Fads

Several years ago, back at the height of the popularity of the Balanced Scorecard, my company sent me to a Balanced Scorecard conference. There was a rather large crowd at this conference. Even so, the organizers wanted to find out more about who showed up, so they had us go around the room and tell a little about ourselves.

I was surprised to find out that the majority of the people who were attending this conference had job titles something like “Director of Balanced Scorecarding.” I had no idea jobs like that even existed. Even more interesting was the fact that their prior job titles tended to be something like “Director of TQM (Total Quality Management)” or some other similar management fad.

Apparently, these were professional fad jumpers. Whatever the latest management fad was, they would latch themselves to it and make a full-time job out of it. When the fad would start to wane, they would jump to the next fad and make a job out of it. They could spend their entire career playing with the latest management gimmick and never have a real job doing real things. They got to spend lots of time going to seminars to learn the fad. By the time management realized that what they were doing was just a fad, they would hopefully be on to the next new gimmick.

After I got back from the conference, the CFO asked me what I learned. I told him that all of the benefits claimed by Balanced Scorecarding could pretty much be achieved by management practices we already had in place. Sure, the nomenclature we used was different, the process was slightly different and the graphics looked different, but it would pretty much achieve the same results. I told him I saw no need to disrupt what was working for our company in order to mimic their jargon and graphics.

The CFO replied, “That’s pretty much what I thought.” And the Balanced Scorecard was never mentioned at our company again.

Business management and business strategies tend to be very fad-ish. The problem with fads is that they consume a lot of time and energy for a brief period, but seldom lead to much of any lasting value. As seen in the story above, companies can create all kinds of jobs and infrastructure around a fad and get nothing but a career springboard to the next fad.

Worse yet, the distraction of the fad keeps people from being focused on what really matters. Rather than building solid strategies, time is spent building worthless mission statements using the latest fad buzzwords. Rather than focusing on outcomes, they focus on the process.

After the dot-com bubble burst, management fads tended to have something to do with cutting costs. Eventually people figured out that you cannot cut your way to greatness, so the current fad has to do with innovation. Just look at the latest IBM television ads…they are all about innovation. This blog will use the latest fad of innovation to illustrate how fads can be counterproductive.

Consultants love fads because it can give them the ability to look like saviors—they possess the wisdom of the latest fad which can make you a success. If you would only hire them and pay them huge sums of money, they will share the wisdom of the latest fad with you.

So naturally, firms like McKinsey and Company want to look like experts in innovation. How do they do that? Well, in the case of McKinsey, they did a survey in September of over 1,400 business executives (I was one of them) and asked them their thoughts about innovation. (It reminds me of the old joke about consultants—they steal your watch and then tell you what time it is. Here, they are asking the people they want to consult with what they think before giving them advice.)

What McKinsey found was that about 70% of corporate leaders say that innovation is among their top three priorities for driving growth. So apparently the buzz word is in—people feel good about looking to innovation as the latest fad to save them.

However, the actions of these executives do not match their words. According to the survey:

1) Most executives do not talk about innovation in any meaningful way at executive and leadership meetings.
2) Most executives do not have their compensation tied to innovation.
3) Most executives claim their culture does not encourage innovation.
4) Most executives claim they do not have the right types of people for innovation.
5) Most executives claim they are not risk takers themselves and so by example tend to discourage innovative risk-taking in others.

So at this point, with that type of approach, one can pretty much guess what the outcome will be…there will be very little true innovation to come out of this process. Then executives will say “I guess innovation does not work. I guess I’ll have to look for some other way to save the company.” Then it’s on to the next fad.

Believing in the myth that by wrapping our arms around some fad we can magically bring prosperity to the company gives a false sense of hope. By clinging to this false hope, we feel less compelled to do the hard work of making our business better, one small tactic after another. Instead, we rest on the promise that the latest “whatever” will be so successful that we don’t have to worry about those pesky details any longer. In this case, the belief is that innovation will create so many new avenues for growth that it is okay to slack off a bit on the core business and let it crumble just a bit.

Worse case scenario, management has so much confidence in the magic of the fad that they don’t see the need to manage it closely and put in place safeguards to enhance the likelihood of success. It is seen as too powerful a force not to work all on its own. This may explain why the executives in the survey believe in innovation, but do little to enhance its potential within the company.

What the experts don’t like to mention is that most innovation processes are very costly and most innovations fail. Putting a greater emphasis on innovation also increases the risk profile of the company. Although risk has a lovely upside, it also has an ugly downside. A large focus on innovation may not be appropriate for your company’s strategy.

For example, if you are a large and powerful market leader, it may make more sense to be a “fast follower” than an innovation leader. For years, big leaders like Coke and Microsoft have let others take all of the expense and risk of innovating. Once someone else’s innovation looks promising (like diet cola or Netscape), these firms rapidly copy the innovation and then use all of their marketing might and muscle to win the battle for market share.

If your industry is in decline, there may not be enough demand to justify the expense of innovation. Price competition may be too intense and customers might not be willing to pay too much more for the innovation. Instead, it might make more sense to have a “harvest” strategy where you cut costs at a faster rate then the industry decline.

The point is that there is no one-size-fits-all magic bullet that is right for everyone. Every situation is different. You have to find the ideal strategy for YOU, not some generic strategy that kinda works for everyone. Remember, if you are using the same strategy as everyone else, how are you creating a positive competitive differentiation versus the competition? Finding what makes sense for your business requires setting aside the hype of the latest fad and digging in deep to find your unique edge. Strategic short-cuts rarely get you to your destination. They only send you on wild goose chases.

Now if innovation is the proper path for your firm, then put your money where your mouth is and do whatever it takes to be the innovation leader. Lip service is not enough. You need to change your entire culture to become more innovation-friendly. Don’t be like the executives in the survey.

Every company is different. As a result, every company needs to develop its own particular strategy to take advantage of its uniqueness. Following the latest fad may give the fad-jumpers the next step on their personal career path, but it rarely leads to building a strong, vibrant corporation.

If you want to integrate new ideas into the heart of your business, it helps to elicit the time of operational leaders in the business. Getting operational leaders within the business to sponsor a process tends to work better than isolated professional “Directors of Scorecarding” who live on the periphery of the business and have no natural base of power (and typically are not well in tune with how the business really works).

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