Monday, November 8, 2010

Strategic Planning Analogy #362: Driving Force

Awhile back, a friend of mine took a job running a division of a large retail company. Not very long later, I heard he had decided to quit that job and retire early. I asked him why he quit running that business so quickly. He said he quit because the company he went to work with was very corrupt. It seemed to him like almost all the executives were taking bribes under the table.

Not only was he personally against corruption (and was uncomfortable in that environment), he felt it was ruining the company. Decisions were made based on where the bribes were coming from, rather than what was best for the business. In addition, the corrupt culture was so pervasive that my friend knew it would take a significant amount of time and energy to eliminate it from the company. And he didn’t think he would get the support necessary to do such a difficult task. Therefore, he decided to retire.

Not very long after that conversation, I came across a new book which tried to explain why the company my friend just left was having severe financial troubles. The book listed a small handful of mistakes the company had made and made suggestions as to how your company could avoid making those same mistakes.

I decided to call the author of that book. I told her that I thought a lot of the financial problems at that company were due to the corruption and bad decisions made based on the bribery of the executives. I wanted to know why that wasn’t a focus of her book.

The author sort of stammered and stuttered after hearing my question. She got rather vague and evasive in her answer. Reading between the lines, I got the impression that what she wanted to say, but was ashamed to admit, was:

1) She knew about the corruption.

2) She knew that, as an author, she would have been putting herself into harm’s way if she accused management of rampant corruption in a book. Without an airtight case, and lots of concrete evidence, she could be sued and have her life ruined.

3) She knew that publishers could sell more copies of a book announcing “a handful of tricks for avoiding failure” than a book that merely says “don’t be corrupt.”

So she took the safe route and side-stepped the topic of corruption.

I started thinking that her approach wasn’t all that different than that retail company. She wrote content which would put the most money in her pocket rather than writing the truth. The company executives did what would put the most bribe money in their pocket than do what was truly the best for the company and its customers. As a result, both the customers of that retailer and the purchasers of that book got less than they deserved.

Just like that book was supposed to be a guide as to how to avoid failure, strategies are supposed to be a guide—pointing the way to avoid failure and create long-term success. Unfortunately, that book was a poor guide, because it focused on saying what the author thought people wanted to hear, rather than the truth which they needed to hear.

In the same way, if your strategy remains in the lofty world of platitudes and fancy phrases, and avoids the messy reality in front of it, it will be a worthless strategy. Strategies only work well if they match the context of the company which has to implement it. If the company is corrupt (like the one my friend left) or incompetent (like the company portrayed in Dilbert), then you have a bad context for almost any strategy. Unless you address these messy issues, the written strategy is fairly worthless. It will fail under the weight of corruption or incompetence.

The principle here is that one’s real strategy is the sum of what one does rather than the sum of what one says. If you have a toxic culture due to tolerance of bad activity (such as corruption, incompetence, excessively selfish greed, or abuse), then that becomes your strategy.

In these cases, all those pretty little words in the planning document are a waste of time, because they are not what is driving the behavior. Instead, the behavior is being driven by the toxic culture. Whatever you tolerate, that is what you will get. If you tolerate bad behavior (in any form), then your company will become infested with bad behavior.

Toxic cultures tend to promote selfish behaviors which ignore the best interests of the company’s key stakeholders. Rather than doing what is best for the customers, or the shareholders, or for the business, employees in toxic cultures merely look out for themselves (at the expense of everyone else). This creates sub-optimal behavior for the business—a strategy for failure.

Even if the company in the story had not made the mistakes in that book, I am sure they still would have been a failure, because of that corruption. You cannot win in the marketplace if you ignore the marketplace in your decision making. Bribe-driven decisions rarely lead to the best choice for customers.

Most businesses tend to operate in highly competitive spaces. If you are not providing excellence at a value, then you will lose business to others who are.

Toxic culture makes it hard to create excellence, because all of that ignorance, corruption or abusive behavior gets in the way of creating greatness. Toxic culture also makes it difficult to create value, because all of that personal greed sucks excessive money into the pockets of employees, robbing the company of the ability to pass on savings to the customer.

A lot has been written about the success of Wal-Mart. As in any success, there are a lot of factors at play. However, one factor which I think often gets under-emphasized is Wal-Mart’s intolerance of toxic behavior. Wal-Mart tends to take an extreme approach to ensure that its buying staff is not corrupted by bribes. Buyers (and vendors) know that their job (or relationship) with Wal-Mart is in jeopardy if the buyer is caught taking as little as a free cup of coffee from a vendor. Both the buyer and the vendor will be punished. This zero-tolerance approach makes it extremely difficult for toxic behavior to creep in and over-ride the core strategy.

Back around 2006, Wal-Mart fired Julie Roehm, its new Chief Marketing Officer, because there was an appearance of toxic behavior between Roehm and the advertising agency. There was the appearance of Roehm accepting financial benefits (like fancy dinners) from the ad agency. There was also the appearance of potential sexual misconduct between Roehm and one of her subordinates.

At some point, I suspect Wal-Mart almost didn’t care what the extent of the toxic behavior was. Wal-Mart wanted to send a message that even the appearance of potentially toxic behavior was not to be tolerated. Wal-Mart was very loud and very public about why they let Roehm go. Based on this, and many other examples, the word gets out that toxic behavior is not tolerated. Instead, one is to focus on getting the Wal-Mart strategic agenda accomplished.

So, if toxic culture can ruin a company like the one in my story and zero tolerance of toxic behavior can help create one of the largest and most successful companies on the planet, then it appears that this is an important area for strategic concern. So how can you help keep toxic behavior from becoming a ruinous strategy?

1) Watch the Tone From the Top
Everybody below in an organization is watching the people at the top. If they see the people at the top getting away with toxic behavior, then they will see toxic behavior as tolerable and acceptable for everyone else. “Do as I say, not as I do” won’t cut it. The people at the top need to set the example. In fact, they need to set a higher standard for themselves so as not to even give the appearance of tolerating toxic behavior.

Actions speak louder than words. Strategy words lose out to bad behavior every time. Make sure your leaders are modeling the right behavior.

2) Watch out for How Your React When Your Star Players Behave Badly
What do you do when your highest performers behave badly? Do you tolerate their toxic behavior as a tradeoff for getting their high performance? In the long run, it is usually better to get rid of even star performers with toxic behavior, because the negative impact on the whole organization of that tolerance is worse than the added benefit of their slightly higher output.

3) Watch out for How You Set Rewards
People need to be rewarded for doing the things which are in the best long term interests of the company and its strategy. Otherwise, there is the temptation to use toxic behavior in order to maximize near-term bonus. There are lots of ways to hit a short-term sales or earnings target. Many of those ways can involve toxic behavior. If your bonus only focuses on the achieving the “what” rather than the “how” it was achieved, you may be rewarding toxic behavior without even knowing it.

Your strategy is the sum of what you do, rather than the sum of what you say. If your company tolerates toxic behavior like corruption, abuse, incompetency and excessive selfishness, then that becomes your real strategy. And when employees are only trying to optimize their own selfish gain at the expense of everyone else, you have a losing strategy. Fight to keep toxic behavior from getting a toehold in your organization. Fight to keep the focus on living the strategy instead.

The irony is that if you try to make the money the easy way, via bribes, your gains may be cut short. Either you lose your job or the company you work for goes away because the bribery culture leads to destruction. However, if the toxic behavior is avoided, the company prospers, and you can share in that prosperity for a long time. I suspect that more employees got wealthy on Wal-Mart bonuses and stock options than employees who got wealthy taking bribes at the failing retailer mentioned in my story.

1 comment:

  1. Gerald Nanninga, bad seeds lead to bad plants and flowers. A corrupted apple may ruin a whole basket of apples. A corrupted employee may corrupt other employees resulting in a snowballing effect. Corruption smells. For all these reasons I believe the author of the book was aware of the corruption. I agree with your legitimate doubts.
    I feel that corrupted people are also short-sighted. They do not see beyond their corruption. Does corruption form a back blanket in the front of eyes of corrupted people? It seems so they these people fail to see their approaching failure.