Thursday, March 15, 2012

Strategic Planning Analogy #442: Taking Vs. Receiving

During the 1920s and 1930s, Willie Sutton was one of the most prolific bank robbers in US history. During his lifetime, Willie Sutton robbed over 100 banks and made off with more than $2 million (which would be equivalent to about $30 to $60 million in today’s dollar).

Legend has it that when a reporter asked him why he robbed banks, Sutton replied, “Because that’s where the money is.”

The reporter’s question could be interpreted two ways—Why do you steal or Why do you steal from banks. The reporter meant the first, but Willie Sutton answered the second.

In a sense, the reporter was trying to figure out why Sutton chose a life profession (stealing) which most people found undesirable. Since Sutton had no problems with the profession of stealing, he focused on the most efficient way to do so (go to where the most money is).

This is similar to a strategic question businesses should ask themselves: Why did you choose this path to profitability?

And just as the way Willie Sutton answered his question said a lot about his character, the way you answer this second question may say a lot about the character of your business and its culture.

If your answer focuses primarily on the “path” part of the question, then your culture most likely tends to be focused on building business models that add value to the marketplace. And because you add value to the marketplace, you can extract a profit (a portion of the value added).

However, if your answer focuses primarily on the “profitability” part of the question (saying “because that’s where the money is”), then the character of greed may be starting to overtake your thinking. Rather than thinking about adding value, one is more focused on grabbing as much as possible from where the piles of cash already are. Rather than looking at where to add, you look at where to subtract (what piles to take money away from). It’s starting to slip towards the Willie Sutton mindset.

This is not to say that making a lot of money or profits is bad. But if the money is made in a way that does not add value to the marketplace, then the model is unsustainable over the long run. Just as banks don’t like to be robbed, customers don’t like to be taken advantage of. Willie Sutton spent about half of his adult life in prison and did not get to fully enjoy the fruit of his stealings. Similarly, businesses which do not focus on adding value are punished—taken out of the marketplace so that they can profit no longer.

The principle here has to do with the difference between a taking versus a receiving mindset. A “taking” mindset is focused on grabbing money by whatever means possible. A “receiving” mindset is focused on doing something so valuable that customers willingly shower them with money (no need to grab). In the long run, a receiving mindset leads to more enduring strategies.

This principle was brought to mind by the March 14, 2012 editorial in the New York Times by Greg Smith. Smith, an executive in the London office at Goldman Sachs, used the editorial as his resignation letter. In the article, he said he was leaving Goldman Sachs because, to use my terminology, the Goldman Sachs culture had become like Willie Sutton—all about taking rather than receiving. Rather than focusing on adding value to its clients, Smith claimed that Sachs was focused on doing whatever it takes to grab the clients’ money, even if it is not in the best interest of the client.

To quote from the editorial:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them...”

“What are three quick ways to become a leader [at Goldman Sachs]? a) Execute on the firm’s ‘axes,’ which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) ‘Hunt Elephants.’ In English: get your clients—some of whom are sophisticated, and some of whom aren’t—to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym…

“These days, the most common question I get from junior analysts about derivatives is, ‘How much money did we make off the client?’ It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave.”

Smith also claimed that many leaders at Goldman Sachs referred to their clients as “muppets” in their emails. And I’m pretty sure that was not a term of endearment.

So what happens when this culture takes over? Smith got it right when he said “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

A “taking” mindset may work for awhile, but eventually the people being taken figure it out. And they will stop letting you take from them any longer.

So what should you do to keep a Goldman Sachs type of situation from occurring at your business?

1) Be Careful how You Lead
Employees watch how the leaders operate. If the leaders show a “taking” mindset and refer to customers as muppets in emails, then the followers will see this as desirable behavior. The old phrase “do as I say and not as I do” doesn’t cut it. With today’s technology, leaders have nowhere to hide. They will be imitated. So set the right example.

2) Manage the Agenda
How much of your meeting time is spent on the taking agenda versus the receiving agenda? How much time is spent talking about adding value for customers versus taking their money? You have the power to control the agenda. Make sure the receiving agenda gets the proper amount of focus, especially at the point when actual decisions are being made. Make sure it is part of the decision-making equation.

When I was at Supervalu, a wholesaler to independent grocers, we had a saying that our job was to "make the independent grocer as wealthy as possible." This was a true value-added receiver approach, since it assumed we would only be a profitable wholesaler if we first made sure we had profitable retail customers. The problem was that I didn't always hear that phrase at the time when decisions were being made. There was room to improve in getting the phrase onto the agenda.

3) Measure the Pulse of the Organization
Don’t assume that everything is alright. You may have a situation like Goldman Sachs had in London, where the perception of right behavior had gotten out of control. Monitor the mood and culture in your organization on a regular basis. Learn about a drift in the wrong direction early, while there is still the opportunity to rectify the situation.

4) Treat Strategic Planning Seriously
Strategic planning helps focus a company on the bigger, longer term issues. And in the long term, a receiving mindset is almost always the best path. Use strategic planning as an excuse to find ways to add more value to your customers. Use it to build a business where customers want to shower you with money because it is worth it to them in what they get in return. Strategic planning is one of the rare times when you can get people out of their daily rhythm and get them properly focused on the larger goal. Don’t waste that opportunity.

There are two different mindsets one can bring to the goal of profitability. The “taking” mindset looks for ways to grab money out of people’s hands. The “receiving” mindset realizes that if you focus on building a superior business model for adding value to clients, they will voluntarily give you their money to obtain of that value. In the long run, the receiving approach is preferred, so make a point of proactively enforcing that mindset within the organization.

In the movie “It’s a Wonderful Life,” the George Bailey character runs his savings and loan business with a value-added mindset. His customers are all better off because of doing business with him. In fact, as the movie points out, if George Bailey hadn’t been alive to run that business with a receiver mindset, a lot of those people would have been in a terrible situation. As a result, when George Bailey gets into financial trouble, all his customers come and shower him with money (now that’s being a true receiver). Of course, it doesn’t always work out so dramatically in real life, but I think the title holds true. With a receiver mindset, it is a more wonderful life.

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