When “Strategic” Cost Reduction is Really Just Whacking…

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Cost reduction is easy…Doing it right is hard.  

Any strong, financially based view of productivity must address the cost side of the equation.  So, we are faced with the need to assess, restructure, and consequently reduce costs.

Cost reduction and restructuring exercises are underway at companies around the world at any given point in time.  Just ask the likes of IBM, which recently found itself mired in a bit of bad PR around the scope and magnitude of cost cuts coming in 2015.

Any leader who has been through one of these exercises can tell you how harrowing it can be.

It’s not harrowing because of the topic itself…After all, any Neanderthal can lop costs. Just tell him how much to go get, and he will get it.

It’s harrowing because cost reduction exercises are tough to get right.

Cost reduction exercises start with either a burning desire to improve a strong company, or a burning platform under a struggling one.  But, what separates a true “strategic cost reduction” mindset from our friendly Neanderthal whacking away is a considered approach to performance and risk (notice I didn’t say cost) that centers on effective allocation of burden and costs.

Unfortunately, whacking can become the norm.

Let me tell you why.

The corruption of strategic cost reduction

Usually, a strategic cost reduction exercise begins with a provocative question.  It’s the sort of question that gets any organizational or budget leader into a sincere case of the willies quickly.

“How would you do what you need to do with 40% fewer resources?”

It’s a scary question, but one that is a great stretch exercise for any organization at any time.

Applying a strategic cost mindset, such a question is intended to invoke the necessity of invention that more incremental approaches can never get to.

Just look at the structure of the question:

“How would you do what you need to do…” – This piece of the question implies creativity on the output side.  Are you doing too much?  Are there things better left to others?  Could you justify the first and last outputs that you and your organization are creating? Are you covering your key risks?

“…with 40% fewer resources?” – This piece of the question gets at the input side…In this case, justify the resources in light of the outputs.

Done well, strategic cost exercises that root themselves in the question above result in leaner, more effective organizations with better clarity and stronger culture.

However…

…Executives who use this sort of thought process to reduce costs have a pernicious tendency to fall out of a strategic cost mindset and into a whacking mindset.

They ask their people “How can you reduce costs by 40%?”

What’s the nuance?  It’s in the implied calculus around inputs, outputs, risks, and justification.  In the first (and best) case, the question posed is a creativity inducer.  In the second case, it’s simply an order couched as a question.

That is the realm of legendary whackers like “Chainsaw” Al Dunlap.

Many, many executives and consultants have taken this sort of 40% question–intended as a thought starter and creativity driver–and turned it into a fait accompli.  

So, what’s the right thing to do?

All situations are different. But, the right thing to do is ensure a structured approach to evaluation, action, and strategic alignment.

In one client I served, a transportation provider facing significant financial stresses following 9/11, the strategic cost exercise was about the solvency of the company. Its leadership team faced an existential threat and had to act fast.  But, rather than just issuing an order to “cut costs” by a given percentage (the whacker’s favorite approach), the company’s leadership took a highly structured, thoughtful, but blisteringly fast-paced approach.

In another client situation, this time in packaging, longer term structural changes in the industry led to a need for rethinking the company’s organizational and operating footprint.  The two things went together.  With a measured approach, the company found more than 20% improvement in cost structure through organization and footprint alone.

And, get this, neither of these companies killed morale.

Wait! What?  Neither, you say?  Come on! These exercises are murderous to morale…Right? 

Not really.

And I’ll tell you why:  The ones who get this sort of exercise right start with strategy and mission, and end with a better organization at a lower cost aligned with the strategy and mission.

The ones who get it wrong start with a number, usually a percent or hard dollar number, and end with a number.

The right thing to do is to measure, then cut.  It sounds simple; but it isn’t.  Any time a significant cost reduction effort is undertaken, it is about redesigning the operating model of the company.

Whacking isn’t the way to do such a thing.

One warning:  Depending on point of view, it can be both…

One thing to be very careful about:  Some of these exercises can be strategic and driven very carefully from the top; but because of breaks in communication or agency problems they can at the same time be viewed by the organization as arbitrary whacking.

Senior leadership sees itself as implementing a strategic cost framework.

Senior leadership’s agents–perhaps aggressive middle managers or consultants under pressure to deliver budgetary numbers–resort to the whacking model.

People on the ground see job cuts coming like artillery barrages.  Sure, there’s some rhyme to it (perhaps the stanza repeats every budget cycle), but the reason isn’t there.

All action obtains meaning, regardless of whether meaning is communicated.

A structured, thoughtful, strategically aligned, and well-communicated approach to productivity improvement is the foundation of a modern performance ethic.

I’d be interested in your thoughts and experiences in this area.

There Are No Executive Training Wheels

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Once you are an executive, the future is now…

Ben Horowitz of Loudcloud and Andreeson-Horowitz fame posted a while back on “The Sad Truth About Developing Executives.”

Here’s a LINK.

I encourage you to read it; and if not, at least give it a click.

The Insight:

Horowitz lays out the essential reasons that a CEO can’t afford to hire executives that must be developed.

He opens the article with a heartfelt and somewhat (for me) convicting notion…  Namely:

My greatest disappointment as CEO was the day I realized that helping my executives develop their skill sets was a bad idea. Up to that point in my career, I prided myself on my ability to develop people and get the most out of them.

 

Ouch.  Right?

He then goes on to explain why.  And, it’s compelling.

He gives 6 reasons.  First he outlines how time spent developing under-performing executives is a misappropriation of the CEO’s valuable time and skills.

Then he outlines the consequences ranging from bad results, poor cultural impact, and, in the end, a clear undermining of the person being “developed.”

The Application:

I like stretch roles.

But, assigning a person to a stretch role (that is, one they are not currently fully practiced to take) requires that they have the credibility within the organization to fill it and you have the confidence to let them fill it without undermining them.

Because of these two factors–credibility and confidence–at some level in an organization, the notion of “stretch” as “potential” has to be shelved.

The stakes get too high.

You and I wouldn’t want our neurosurgeon to walk into the operating room, pat us on the shoulder, and say “I’ve never done this before, but I’m really smart and savvy and my medical director thinks I’m going to be great…Let’s see how it goes.”

The horror.

He has no credibility, and neither you nor I have confidence in him…regardless of what his medical director thinks.

The executive level of most organizations comes with the same horror when incompetent or under-apprenticed executives are placed and then expected to “develop.”

The difference is that an incompetent neurosurgeon affects a single life; and an incompetent executive can affect thousands.

There are no executive training wheels.

As Horowitz explains quite nicely:  Once you are an executive, you are compensated based on your existing ability, not based on your potential.

Executives either gain or lose the confidence of those around them… There is no “wait and see.”

The organization, customers, and board members are watching.

They see when a CEO steps in to answer for an incompetent or under-apprenticed exec.  They see when a given executive is the project of a CEO.  They also feel the pain of incompetence when an executive leader just doesn’t have “it” when it comes to the business.  “It” might be the ability to work with customers or it might be the ability and knowledge of how not to significantly mar sensitive personnel issues.

So What? 

When you boil it down, allocation of talent is perhaps the most important activity in an organization.  It is strategy just as allocation of capital is strategy.  That is, unless the executive team allows it to become a hobby (or worse, a clubby exercise).

In thinking through executive roles, CEOs have to look toward demonstrated competence as the top criterion for a position.  Everything else pales, and I do mean pales, in comparison.  Executive presence, savvy, speaking ability, golf handicap, sense of style, etc. all need to be relegated (or, for most of these, disregarded).

The time for development was last year.   Humane talent management, just like capital investment, requires vision.  If you are staffing an apprentice into a master’s role, you probably lack vision.

One Disclaimer and One Beef:

I’ll offer one slight disclaimer here:  Some of you will read this and think I’m writing that everybody has to have been there in order to get there, and thus the talent for executive or “high stakes” jobs in an organization must be sourced from outside the company.  Nothing can be further from the truth.  Smart executive teams create apprenticeship roles with definite time periods and demonstrable tasking to build the credibility and confidence required of an individual who will take on an executive role.

And, then, the beef:  I agree with Horowitz that CEOs shouldn’t expect to coach their own people; but I believe in a strong focus on continuous improvement. Every executive has areas of emphasis that can be shored up with some coaching or counseling; and a good CEO enables that kind of coaching.  I doubt Horowitz meant that a CEO shouldn’t coach occasionally or enable continuous improvement; but I’d want to be sure.

Look for credibility in your executives, and lose the training wheels.

Yahoo and The Danger of Irrelevant Benchmarks

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Morgan Stanley says that relative to Facebook, Yahoo is fat. Well…Relative to Usain Bolt, we are all slow.

Morgan Stanley has posted a report on Yahoo that urges Yahoo’s CEO to cut 1,400 jobs to keep earnings flat.

The driver?

Yahoo’s revenue per employee is sub-par relative to a list of other seemingly similar “names.”

Here’s a link from Business Insider that outlines the situation.

The insight

This is not a post about Yahoo, even though the pursuit of cost cutting there seems to be required, and the process seems to be misguided, I’ll leave that to another post.

This is a post about knowing your benchmarks.

Morgan Stanley produced this exhibit to show that Yahoo’s revenue per employee is out of whack.

 

What I see is a list of “tech” names.  That’s easy enough.

What I also see is a list of companies with vastly different business models.  Amazon is a conglomeration of retail, digital, and media.  Priceline sells travel.  PayPal is a financial services company.  I actually have no idea what AOL does these days (okay, that’s a bit tongue in cheek, but still.).

The implication…

The point is this:  If you are a shotputter, it’s irrelevant how fast you run compared to Usain Bolt.

We are all slow compared to Usain Bolt.

Morgan Stanley is committing an analytical sin here, and it’s an easy one to commit:  That of the inappropriate first order comparison.

Inappropriate first order comparisons tend to come up with executives and analysts when they are either ill-informed (actually less common) or just looking for simple (or lazy) comparisons (actually more common).

If I have a company in the tech sector, it seems simple to compare myself to another company in the tech sector; but the reality is much more complex.  Business models are highly divergent, even within the same “sector” like tech.

That’s not to say that a company shouldn’t look to others to compare its business model and think strategically about change; it is to say that simply doing mathematical benchmarks without considering business model differences is a loser’s game.  

So What? 

Morgan Stanley looks at revenue per employee and says “cut employees.” We could just write that off to the naivete of a Morgan Stanley analyst who has never run a business.

But…

…A lot of executives manage by spreadsheet in this manner.

A better way is to do a second order scrub for business models, scrutinize the business model, then execute.

The reason is this:  Trying to take a “square peg” business and benchmark it against a bunch of “round peg” businesses can lead to demoralizing results.  The demoralizing results usually hit the organization in the near term–and those can be papered over by savvy executives.  The demoralizing results hit the shareholders at a later date.  The crackpipe of layoffs-as-an-accounting-measure, once given to the market, investors, or–and I hope this isn’t your company–executives, is hard to get away from; and done (as Yahoo seems to be doing) without rhyme or reason, it can kill companies.

Ask Al Dunlap.  Well, no, don’t ask him.  Ask people who worked at Al Dunlap’s companies.

Never let a false comparison drive you to manage by math.  Never let an “easy” index comparison let you get away from the fundamentals of whether that index actually fits your business.

Beware false benchmarks. They can destroy you.

A Strategist’s Secret: Find Beauty Every Day

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A habit of seeking out strength and beauty every day can make you a better strategic leader.

This is going to appear to be a soft article…after all, I’m writing on finding beauty.

But, I can assure you that the concept here applies to the hardest core, barest knuckled aspects of business as much as it applies to stopping and smelling the figurative roses.

The gist is this:  Through a combination of hurry and training, we get locked into the “things we do” every day.  We become so focused (or, I might say, unfocused) on problems–the ugliness and weakness–that we forget to appreciate the things of beauty and strength right in our midst.

You and I can be better leaders if we stop and acknowledge the strengths and beauty around us.

What a thing of beauty really is…

What I’m writing on today is a positive appreciation for winning practices and attitudes that are right under our noses. We actually don’t often have the discipline to look for the things of beauty that are right in front of us; and all too often that’s because we’ve been rewarded by others for finding ugly.

Finding ugly.

You know, like finding what other people are doing wrong…Finding out what’s broken…Searching out weaknesses and soft spots–All those things that good problem solvers finders do.

Oops.  You saw that correctly.

Problem finders often focus on the ugly.

Problem solvers tend to look for the sublime.

You know why?  Because our strengths tend to be what we use to overcome our weaknesses.

Strengths are possibilities.  Weaknesses are limitations.

Building a winning strategy in business and life by focusing only on what is broken or weak is, near as I can tell, impossible. Sure, strategic plans can start with break fixes, but if they end there, they will miss the upside.

Trust me.

Beauty is in your strengths.

But, what does it mean to find beauty?

Finding beauty means having a willingness to step back and appreciate the real capabilities that you, the people around you, and your organization actually have right now.

It might be the way that your organization processes material…

or serves customers…

or designs product…

or, and this is a good one, respects one another.

Evaluating capabilities–strengths and not merely weaknesses–is a critical step for any strategist.

Add to that the fact that positive framing of capabilities and situations is likewise a real strategic leadership strength; and you will find that a focus on beautiful strengths is a healthy thing for your relationships as a leader, family member, and friend.

Why this is hard

Too often, and for too many good reasons, we get distracted from finding the beauty of strong capabilities around us.

The good reasons?  Well, more often than not, we have a problem to solve.

While you are focused on achieving that bonus or making it to the next stopping point in your career, or–maddeningly–just following orders, you might be missing the beautiful things around you.

The talent you have.

The talent people around you have vs. what is available in the market.

The glory of a job you did well today.

You know… the little things.

I’ll give a great example of how distraction can rule our lives and remove us from recognizing beauty around us.  Some of you may have seen this before; but if not, I encourage you to watch it.

In this video, famed virtuoso violinist Joshua Bell decides to play in a D.C. subway station, just to see if anyone notices… Have a look. It’s well worth a couple minutes of your time.

I’m betting that more than a handful of the people who walked through that subway station were not only aficionados of classical violin, but were probably so much so that they could tell you how excited they would be to go to the symphony hall to see such a performer as Joshua Bell.

And, they each had the opportunity not only to see Bell, but to have an almost personal performance by him.  That’s something that many people would pay a lot of money for.

But they aren’t looking for the thing of beauty that is right in front of them.

It’s a remarkable and somewhat sad commentary on the pace of our lives that a virtuoso gets nearly zero reactions from everyone powering their way through the train station toward their next goal.

The same distractions apply to you while you lead your life…

Chances are you have strengths right in front of you that aren’t being used.

Chances are you’ve let “popular” notions of what talent or capability looks like (in the worst case–prejudiced or preconceived notions) cloud your vision of what strong capabilities are right in front of you.

Chances are, you’ve gotten yourself into a hurry.

A parting shot

I’ll leave you with a little bit of humor.

If you have never seen it, I encourage you to watch the “Double Rainbow” video here.

Now, There’s a guy who found a thing of beauty in his life.

Okay, so maybe you don’t have to get that excited.  Still…

…Go find your double rainbow today.

Find a thing of beauty today.  Find a strength to build on.  It might get you somewhere that a focus on ugly won’t.

That’s a core secret of an effective strategist.

I’d love to have you share your reactions and comments…

Never, Ever Stop Learning

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Like it or not, you have to keep learning to stay relevant.

“I don’t think I can learn anything else here.”

It’s a sentiment that, when expressed, probably means it’s time to move on.

You see, we live in the age of the autodidact.  It’s a fun word to say (well, fun to say to yourself…I’ve been around folks who might beat you up for dropping that one on the table).

But, more importantly, it’s a fact of life today.

You see, we are blessed with a set of tools that no generation has ever been blessed with before.  The poorest schoolkid can access the entire world of knowledge, practically up to the minute, from a terminal in a public library nearly every day of the year. 

But, once you or I settle in and stop learning, we are toast.

Toast, I tell you.

Why?  Simple competitive reality.

In past generations, a person could formally train on a trade or profession and then ply that trade for the next 30 years without a tremendous amount of change.

Also, in past generations, most companies thought of training as an investment to be built upon.  Today, it is often viewed more as a cost to be contained.  Any corporate trainer whose programs have been bid out by the procurement department knows this all too well.

So, you have to keep a strong focus on learning, no matter where you are in your career.

A case study

Have a look at the very long term history of computer programming languages posted by Tiobe:

 

 

What do you see?

If you look at a “mid career” point in time, say 15-20 years in, the results are astounding.

A person who is mid career today did their training between 15 and 20 years ago.  Let’s assume that the person has been head down and working at his programming trade for the past 15 years in a sort of “Rip Van Winkle the coder” approach to his career.

What does he find when he is exposed to the real world?

First, 5 of the top 10 programming languages today were not even on the radar when Rip started his career in the year 2000.

Second, If Rip started college in 1995, and trained on legacy systems, he’s in even more of a world of hurt.  The “middle tier” of programming languages from 1995–Pascal, Lisp, Ada, and Fortran–are essentially irrelevant today.

If Rip returns to the workforce, he had better get caught up.

Yeah, you say, but that’s computers…

Sure, the tech sector moves faster than others; and many innovators are moving forward with new learning models.  One of my favorite happens to be The Iron Yard and its code school (now closed – unfortunately), which is among a group of companies changing the way that career prep is done in the tech sector.

But the same career learning quandary is true across sectors when it comes to learning and career advancement–whether you are an accountant, clerk, manager, or even CEO…

What got you here probably won’t get you there.

Case in point:  There is more knowledge available to the average corporate executive today than ever before–at a valuable or nonexistent price point–through forums, experts, and networks.  In my experience, a plurality of execs tap only a fraction of the avenues available to them, and rely solely on methods and intuition forged in a different world.  One need only look at the degree to which executives use networks like LinkedIn to see how “current” they are.

“I don’t have time for that” you’ll hear them say.

I’d argue you can’t afford not to constantly learn and network in the world.

If you are truly busy, and your time is that valuable, have somebody else do it.

So what? 

I’ll offer two reasons that a healthy approach to constantly teaching yourself is imperative for people in all parts of the workforce today… And, they are simple.

First, you and your company need it.

If you are a corporate manager or executive today, you probably grew up in an age where expertise and distinct knowledge was owned by a few people and doled out at a very high price (through brand names we all know well).  That has all changed.  Experts can be found and tapped in a much more ad hoc manner, and if your company isn’t doing it, your competitors probably are.

Second, it’s insurance!

Today’s job market and the more “flexible” (some might say cynical) approach to employing people makes investment in your own skills imperative.  If your company isn’t investing in your current employability, and you aren’t either, then you may be in for a rude awakening when the whimsy and capriciousness of cost cutting comes into your life.

It’s much better to be employable than to simply be employed.  Employed is an instantaneous state…Employable is a transferable one.

We are in the age of the autodidact.   Embrace it.

Never, ever stop learning.

I’d be interested in your thoughts, experiences, and reactions…Leave a comment below.

How To Salvage Sunken Trust

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You can salvage trust that is sunk. But some kinds of trust sink deeper than others.

Have you ever faced the need to recover from breaking trust?

Most of us have, and the ones who haven’t just haven’t admitted it. All of life is a web of trust, and arguably the more trust you build, the better off you are.

The author L. Frank Baum wrote in The Wonderful Wizard of Oz that “A heart is not judged by how much you love; but by how much you are loved by others.”

Trust likewise ought to be judged not by how trustworthy those around you are, but by how trustworthy you are.

If you think about trust as a ship at sea, then it’s easy to envision how breaking trust essentially sinks the ship.

But, not all breaches of trust are the same. How far must you go to salvage it?

There are four depths that breaches of trust sink to, and our ability to salvage trust depends on how deep it’s sunk.

The Trust Equation

I’ll start with an illustration that is not my own, but provides a useful context for the discussion. The “Trust Equation” is a very interesting piece from author, advisor, and trust guru Charles Green, founder of Trusted Advisor Associates.

Green, working with co-authors David Maister and Robert Galford in the book The Trusted Advisor, outlines an equation for trust that looks like this:

That is to say, trust derives from how we view others’ credibility (our assessment of what they know)…

…Reliability (Our view of how reliably they deliver)…

…Intimacy (Our level of emotional and intellectual comfort with them) and…

…their Self-Orientation (how selfish we think they or their actions are).

The really cool part of the “equation” structure is the insight that all the “good” aspects of trust are additive, but that self orientation undermines it all. The more selfish you are (or even appear), the more you undermine any trust and goodwill that exists.

Self-oriented people are not trustworthy, regardless of their positive attributes.

I’m going to use the four component parts here to outline the four depths of trust recovery.

The Four Depths of Trust Recovery

Recovery of sunken trust is a lot like recovery of a sunken vessel. It depends on the type of vessel as well as the depth of the water. That said, here are four depths of recovery, and some explanation of what it takes to get there and to salvage it.

1. The shoals of trust:

The shallowest form of trust breach to recover from is related to abuses of reliability. Because it is the most visible, reliability is also the easiest to demonstrate and therefore recover from.

Recovery from the shoals of trust (that is to say, the shallow water) can be as simple as improving on clarity and communication of deadlines. Trust sunk through reliability can be recovered relatively quickly because it’s a shallow recovery. People can see you becoming more reliable.

The shoals are where breaches of trust–like missed deadlines or partially completed work–reside. To be clear, they are a breach of trust. But the individual can regain this sort of trust by changing behavior.

Reliability trust is usually the most flexible of trust types out there.

2. The shallow seas:

The next depth of recovery relates to abuses of credibility. When a person is trusted for what they know and chooses to abuse that trust through posing as something they are not, they abuse trust.

In the professional services arena, we see this sort of abuse far too often. “Experts” in one area might represent themselves as expert in another area. They “fake it until they make it.” This is a sort of trust abuse that can only sometimes be surfaced, and then often too late.

Even though the shallow seas are where trust is frequently sunk, it’s a relatively recoverable area. Most of us respect people who stretch their capabilities and expertise. Most of us are willing to offer a person the benefit of the doubt when it comes to testing their boundaries.

Credibility trust is thus relatively flexible. If it is bent, it can be caused to go back into shape with demonstration of more credibility. Brands do this all the time through credibility-stretching brand extensions (remember chocolate Jello gelatin? How about Dr Pepper Marinade? Yep).

Recovery from this sort of trust abuse means just sticking to or falling back on what works to rebuild credibility. It’s not easy, but it is straightforward.

3. Open ocean:

The open ocean of trust abuse–areas where shipwrecks often stay put–is in abuses of trust related to self-orientation. Loss of trust due to selfishness gets into an area that is far less transparent than reliability or credibility, and that makes recovery from a breach of this sort far less likely.

Once someone abuses trust for personal gain, people tend to be wary of working with them again.

Salvaging trust sunk in the open ocean is very tough and takes a lot of time. The magnitude of the breach certainly matters; however, once a person is viewed as self-oriented, trust tends to be extremely hard to build.

There’s a reason that self-orientation undermines all else in the trust equation above.

The open ocean is where shirkers, self-dealers, executives with hidden incentives, and embezzlers reside.

On the lighter side, it’s the realm of the me-monster at your conference table and the credit hog on your team.

4. The Mariana Trench:

The deepest depth of trust recovery–one where recovery is usually impossible–is where breaches of trust that relate to abuse of intimacy lie. This is, and should be, the most brittle type of trust that there is. It is a deal killer, particularly when combined with an abundance of self-interest by the abuser.

Witness the trusted colleague or leader who exercises a highly cynical abuse of an “intimate” professional relationship to manipulate others for personal gain and prestige, and you’ll know how deep the Mariana Trench can be.

The Mariana Trench is the deepest, darkest part of the ocean. Things sunk there are lost.

This is the depth where lie the ravages of trust in cheating spouses and con artists in the long game.

It is the realm of the corporate sociopath revealed only too late.

Breaches of trust which abuse intimacy often take time. They rely on the most basic aspects of human relationships: friendship, common cause, and warmth. As such, the average person may disbelieve when a close friend is abusing intimate trust until it is far too late.

Thus, this type of sunken trust is very tough to salvage.

Intimate trust is like a diamond: extremely hard, often forged through pressure, sometimes exotically beautiful, but brittle…

…once bent, it breaks.

I don’t see a way to recover this sort of trust, but I am open to suggestions.

So what?

Why does this stuff matter?

Because we deal in trust as a currency every day of our lives. We do it in personal and professional relationships. We do it through our brands and our corporations.

I illustrate these four depths only to provide the reader with a perspective on how damaging the breaches of different kinds of trust can be.

If you haven’t noticed it yet, let me put this last: Breaches of trust related to what is knowable and transparent–reliability, for instance–are much easier to recover from than those related to what is concealed and largely unknowable–the selfish or cynical disposition of an individual or a company.

Don’t sink trust, and know when trust is sunk too deep.

I’d enjoy your thoughts and reflections on this topic.