Sunday, June 29, 2008

Analogy #188: Advice on Advice

Once there was a king who gathered his close advisors around his round table. He asked them this question: Do you think I should invade the neighboring kingdom?

The first advisor was head of the military. He thought to himself that his fighting men hadn’t been in battle for awhile, and he had an updated version of bows and arrows he wanted to try in real battle. Therefore, he answered “Yes.”

The next advisor was in charge of the King’s money. He knew such a battle would be expensive and use up much of the reserves. Later, if the King asks for spending money, he knew that he might get his head chopped off if he had to tell the King he was out of money. Therefore, he advised “No.”

The next advisor knew that if the king won the battle, there would be opportunities for promotion within the larger kingdom. Thinking he would benefit the most from this opportunity, he said “Yes, let’s invade our neighbor.”

The next advisor thought to himself that if the king wins the invasion, he will take all the credit. However, if the king loses the battle, he will blame the advisors. Therefore, seeing no personal upside to the invasion, but seeing plenty of downside, he advised, “No.”

As they continued this around the table, there were about as many people advising “yes” as advising “no.” The king was unsure of what to do. Therefore, he told his advisors “Give me your answer once again, but this time explain why your prior answer is in the best interests of the kingdom.”

The group of advisors started to panic, because none of them had answered based on what they thought was best for the kingdom.

At some point, all leaders need to seek out advice. In the story, the king wanted advice on an invasion. Similar situations can occur in business, such as whether to invade a new sales territory, attack a particular competitor, introduce a new product, etc.

All of the king’s advisors give the king advice. Unfortunately, each advisor gave their advice based solely on what was best for their own personally-biased interests. None of them had considered the bigger picture.

When asking for strategic advice, it is important to frame the question in a manner which forces the advisor to look at the bigger picture. Otherwise, the advice is as worthless as what was given to the king.

The principle here is about understanding the difference between strategic advice and implementation advice. If one is not careful, one may think they are asking for strategic advice, but get implementation advice instead. This confusion can prove to be disastrous.

Strategic advice is needed to determine what the optimal strategy should be. This is big-picture thinking. Implementation advice is used to determine the best way to achieve the already agreed upon strategy. This is more about tactical expertise. Both are important, but they require a different thinking process.

Although your advisors are probably not as selfish as the one’s in the story, they probably do have personal biases based on their area of expertise. These specialized areas of expertise are very useful at the implementation stage, but can get in the way if too narrowly applied at the strategic advice stage.

Let’s illustrate this with four types of expertise: legal, financial, marketing and operations.

Lawyers are trained in finding ways to reduce liability risks. This is an important area of knowledge, but if applied too narrowly at the strategic level, it can create bad advice. I once was working with a private school that took over a new school building. The question came up about what to do about a playground area. The legal and insurance advisors advised them to not have any playground at the school, so the school did not have one.

The legal and insurance advice was based on doing what produced the least liability. It was not based on what would produce the best school. The overall strategy—to run a great private school—was not factored into the advice. I’m sure that if you had asked these same advisors, they would have recommended that all the children stay home and never visit the school, since having children in the school would increase the liability risk significantly.

A wise person once told me that the role of a lawyer is not to tell you what to do, but rather to listen to you tell him or her what strategically correct thing you are doing and then have the lawyer advise on how to do that with the least legal liability. In other words, the specialized legal expertise is applied at the implementation level instead of the strategic level.

Pure financial discipline tends to look for ways to conserve cash and avoid risky investments. The best way to do that is to stop reinvesting in the old business and not venture into new areas. Over time, this will tend to choke off the future growth of the company. The company will starve to death because the money is horded, rather than fed to the business through investment.

As we saw in the story, the man in charge of the king’s money was reluctant to invade because that did not conserve cash, and it was risky. The financial bias always leans towards “no” when it comes to spending.

All profit streams, if not reinvested in, eventually dry up. If you take no financial risks, you will achieve no long-term financial rewards. You must continue to take risks and feed the business. Again, pure financial advice is great for finding the most prudent financial way to implement a strategy, but it may be poor approach towards finding that strategy. We talked about this in greater detail in a prior blog (see “Oh, my!”)

Marketers are biased towards communication and selling. As much as pure financial biases tend to starve a business to death, pure marketing biases tend to spend a business into bankruptcy. Focusing only on the top line (sales) and forgetting the rest of the income statement and balance sheet can create a “growth at all costs” mentality. Rarely can you afford “all costs.” The marketing bias for “Yes” can be as deadly as the financial bias to “No.”

The dotcom bubble should have taught us that a single-minded quest only for market share can lead to poor long-term strategy. Marketing concerns need to be balanced with other priorities. Once again, a pure marketing expert can advise on the best way to market an already chosen strategy, but may give bad advice when choosing which strategy to market.

Most of the great operations people I have met are like great soldiers. If you tell them to “take that hill,” by golly they will find a way to accomplish that mission. Unfortunately, they are not always the best at deciding which hill to take.

Operations experts often have a bias towards cutting costs, since that is something they feel some control over, and something for which they have been rewarded in the past. However, if you don’t know what is the best strategy, then it is hard to know which costs are least critical to the strategy, and therefore the best things to cut.

A pure operations mindset tends to react with a bias to action—just do more of what we’ve done before, but do it a little more efficiently. However, sometimes the best strategy is to stop and do something differently.

As mentioned earlier, let these experts advise on how to take the hill (the tactics), but not necessarily listen to their advice on which hill to take.

This is not to say that people in these fields are incapable of strategic decision making. Many of them are actually very good at it. But this is only possible when they consciously take off the bias of their “departmental expertise” hat and put on their broad- thinking “corporate” hat. And this becomes easier to do if the leader makes it clear which times they are looking for the corporate hat strategic advice and which times they want the tactical expertise hat.

The process of finding the best strategy requires a different type of thinking from the process of finding the best tactics. Strategy thinking requires a broad-based multi-disciplined approach. Tactical thinking requires more specific discipline expertise. Be clear about which type of advice you are looking for, or you may not get the advice you need.

Back in 2000, there was a move called Thirteen Days, which looked at the decision making that took place at the White House during the Cuban Missile Crisis of 1962. In the movie, President Kennedy kept asking all his advisors about what he should do. The military advisors were portrayed as being in a rut. Their advice on every question was to kill someone or blow up something.

President Kennedy kept telling them that his primary strategy was not the use of the military for killing or destruction. Yet, in spite of this, the military kept giving the answer formed by their military expertise bias. They were incapable of making the leap to broader strategic thinking. Make sure you surround yourself with people who can make that leap. (For more on this inability to leap outside one’s expertise, see “Henry the Hammer.”)

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