Food for thought (or just complaining!)

Here's a piece I wrote recently about management based on my six years in consulting.

Nine Leadership Failures

A leadership crisis exists in America today. The optimism mixed with greed that propelled so many ill-fated ventures in the late 1990’s gave way to the Enron and MCI Worldcom corruption of the 21st century. We can explain part of this sad story by looking at our financial system: Wall Street expectations have put enormous pressure on executives to deliver on quarterly earnings growth numbers. Executives who can’t deliver begin to lose support of the board and eventually quit or are forced out. But who’s to blame here? If investors set unrealistic expectations on managers, and those managers then fail to deliver, is that an indictment of the management or the investors? I submit that, as Pogo so eloquently put it: we have met the enemy, and he is us. We are Wall Street, in the form of individual investors, mutual fund holders, 401k owners, and IRA owners. We have high expectations, because we think in the short-term not long term. So the first order of business to help leaders lead is to reduce the pressure on them to deliver above average returns every quarter. We need to realize that what’s important is long term, consistent profits. And by long term I mean decades, not years or months. Having reasonable expectations from Wall Street will allow executives to make long term investment decisions in people, assets and strategies that will deliver, over time, much higher returns than we’ve seen over the past ten years.
But that’s just the beginning. Allowing leaders to make the right decisions doesn’t mean that they will, in fact, make them. Based on my experience and observations, I have compiled a list of nine common leadership mistakes. These are by no means exhaustive and are not in any particular order.

1. Failure to manage expectations. This I have alluded to already. The executive must continually and persuasively communicate to investors, board members and employees that the company’s strategy reflects long term growth. This means investment in the business to provide jobs and returns not just next quarter, but twenty years from now. If questioned about lower returns than competitors or the industry, the leader must be able to explain what investments were made during that quarter that will build up the business, providing long term growth.

2. Failure to prevent functional silos. One of the reasons that organizations fail to optimize their potential is that often, managers are induced to optimize the performance of their departments, not the business as a whole. For example, the sales department is rewarded for increasing sales, but not for ensuring the right products are being sold, or for verifying that manufacturing can fill the order. While manufacturing is rewarded for meeting production goals, but are they producing the right things? Are they performing the appropriate amount of maintenance? Are they working with engineering to make designs easier to manufacture? Financial officers want to decrease inventory to minimize cash tied up in warehouses. Inventory managers want more inventory to avoid possible product stock-outs. Leaders need to ensure managers make the best decisions for the business, not just their departments. Frequently, a manager needs to sub-optimize their department in order to optimize business performance. The leader must explain to his team the overall objectives, and put in place systems that reward company performance, not just department performance.

3. Processes not clear or don’t exist. Processes define how a business executes its operating model. Processes define the what, why, how, who, and when to do things. If these processes are not well defined, variations in work methods will occur, with corresponding variations in performance. For example, is a process defined for collecting accounts receivable? For conducting a sales call? For quality inspection? For answering a customer service call? For generating financial reports? Leaders must make process definition and improvement an ongoing activity and hold subordinates accountable for this. Any problem that occurs should be traced back to the appropriate process to determine if it needs revising or if it was not followed. Managers must then take whatever actions are necessary. But the company leadership needs to follow up.

4. Strategy not clearly articulated. Managers need a structure and framework to guide their decision-making. Often, the business strategy is not clearly defined, especially at the lower levels of the organization. For example, does your company compete on a product leadership basis or a low price basis? If this isn’t clear, how do managers make decisions regarding product development investment? Should they keep costs down by not hiring another engineer or investing in new technology, or should they spend the money and increase their capability to develop new products? Leaders need to be clear on what basis the company competes, what high level goals exist, and what objectives and initiatives exist to deliver the goals.

5. People not held accountable. Webster defines accountable as “responsible for providing an explanation or justification.” The failure I see time and again involves a manager or supervisor questioning a subordinate about a performance issue. The subordinate provides a lame explanation or doesn’t know, and the superior either ignores the answer or suggests the person “look into it.” What is the failure? The superior needs to explain in no uncertain terms the expectation that the subordinate is accountable for providing an explanation and ideas for a solution. The superior, then, needs to follow up to ensure action has occurred. The best way for this to happen is to document the action to be taken, set a follow up meeting, ask if the person needs any help, and see what happens. If the person consistently does not behave satisfactorily he should be replaced.

6. Poor coordination between departments. This is a system failure, different to #1 in that people aren’t responding to individual rewards, they are responding to the system or process. It is more related to #3 since it involves what managers should do. Very simply, a process is needed that requires key departments to coordinate their activities periodically. A series of planning meetings, properly structured, and including relevant data, fulfills this requirement. The best example I can think of starts with the Sales and Operating Planning (SOP) process, described in the literature. This is a monthly process that coordinates sales, operations and inventory levels and culminates with an executive planning meeting in which all departments understand what the “game plan” is for the next month. Lower level weekly and daily reviews can then be conducted to make whatever tactical moves are necessary during the month.

7. Failure to change. A lot has been written about change, yet it still catches us by surprise. I saw a TV show recently which captured the essence of this problem. The DuPont Company was a small US business in 1865 that made gunpowder. They had become rich during the Civil War supplying gunpowder to the Union forces. After the war, the nephew of the CEO realized that gunpowder was not the future of the business. He had seen a new invention by a person named Nobel and believed this new product was the future. Dynamite, he believed, would be needed a lot more in peacetime as the west opened up, railroads and other roads had to be built, and construction and mining boomed. But his uncle the CEO had grown up with gunpowder. He understood gunpowder, knew the customers, knew the process, and knew he could make it better and cheaper then his competition. Dynamite was a new and unknown product. He was adamant: DuPont would stay in the gunpowder business. Frustrated, the nephew left DuPont to start his own business. In a few years he was wildly successful. Unfortunately, an accident killed him and the other owners, allowing DuPont to buy the business, which by then they realized was a winner and thereby probably saved the company. The difficult part of change, I believe, is realizing when change is needed. There is rarely a step change in commerce. Progress occurs gradually, and the full implications of a new product, service, market, or sales channel may not be immediately evident. So people think it is riskier to embark on an unknown path than to stay on the current, known one. Perhaps it is, but by the time many people have traveled the path and it has proven to be better, it may be too late. That’s the problem many companies have. They wait; held by fear, until it is blindlingly obvious they must change, or perish. So what’s the answer? I go back to #3. Processes must be established to review new technology, products, markets, competitor actions, new entrants, substitutes, etc. on a regular (probably annual) basis. New trends must be identified and acted on. Courage and decisiveness are needed from leaders to make bold and unpopular decisions. Good information may come out during the SOP meetings. If sales are being lost due to a new competitor or product, this needs to be identified and acted on. Sales people are very good sources of information, but they must understand they need to ask the right questions of their customers.

8. Failure to execute. Leaders frequently fail to execute because they believe they have properly delegated this to their managers. Mistake. Leaders should delegate, but that doesn’t mean the work is forgotten. Key initiatives that support the business strategy are ultimately the responsibility of the CEO. He must put in place processes to review progress on the initiatives periodically (probably monthly). His job is to stay on top of the progress, remove obstacles, offer suggestions, provide guidance, and do anything else needed to ensure successful execution of the initiative. Delegating to a manager and then only checking up every six months is not enough.

9. Short term vs. long-term thinking. This relates to #1 and #4. Managers need to see the big picture in order to make the right decisions. People should focus on the long term, not take short cuts for quick gains. I have seen managers extend the monthly financial close by up to 10 days in order to include more sales and thereby make their monthly sales budget. I have seen managers reduce needed maintenance on equipment in order to reduce (short-term) costs. I have seen managers buy cheap products and designs in order to save money now, but end up paying much, much more later due to increased work, equipment failures, servicing costs, and operating costs. Managers need to look at total life cycle cost, not just immediate out of pocket expense. Leaders need to communicate this through appropriate strategic and budgetary resource allocation. These nine leadership failures seem to reoccur frequently. It is my hope that leaders will see their own behavior in some of these examples and realize they can do things better. Please contact me with comments or questions about this article.

© 2003 Kevin Koski. All Rights Reserved.