Posts Tagged ‘Organization’

Acknowledging risks…ooh scary!

May 15, 2013
"John T. Raymond as the insurance agent i...

Random dude…I’ll bet you started to create a story behind this guy. (Photo credit: Wikipedia)

We are all irrational to some extent. That truth is undeniable. Fear affects our behavior whether we like to admit it or not. However, how we deal with that fear differs widely among organizations, which is affected greatly by the leadership in those organizations.

For a more thorough treatise on this topic, check out the McKinsey article on managing the people side of risk here.

I’ll take the lazy way out and add a couple random thoughts and experiences of my own. I have worked closely with a couple different organizations who are in similar situations with wildly varying standard operating procedures when it comes to risk. If risks were openly discussed with Organization A, the outcome of the conversation would be one of the following scenarios:

  1. The risk would be greatly exaggerated, and there would be a mad scramble to ‘fix’ the issue without regard to costs or resources. Blame would be assigned in a structured, post-event analysis. 
  2. The risk would be quickly dismissed as not valid if it was judged to be something requiring a top-level, systematic fix to which there was no readily apparent solution. Business would carry on as usual until the problem came to a head. There are no worse headaches than those caused by cognitive dissonance.
  3. Whoever raised the risk would be blamed for not having fixed it already as it fell under their area of responsibility. It would then be classified into either scenario 1 or 2.

In Organization B, there is a more rational approach to risk. Risks and assumptions are brought to the forefront. Sometimes, those risks would be acknowledged and accepted. Other times, an immediate fix was decided. In still other instances, there would be an acceptance of the current way of doing business as the cost would be too great to change, with a view to adapting in future decisions.

The important thing to remember is that in business, there is no such thing as a free lunch. Decisions that impact profitability are complex and do not involve easy solutions. The test? If they were easy, someone would have already figured out the way forward.

So what can we do? The first step is developing the mental discipline to overcome one’s gut reaction to hand out blame. Where issues are complex, our mind tends to distill the world’s randomness by creating stories, often assigning malevolent motives to people that, in fact, had no such motives. Understanding this tendency will provide some perspective, so that next time, risks can be openly discussed.

The next step is to choose which risks are truly the most important, and be relentless in finding and implementing the answer. If we swing wildly from one worry to the next, based on the randomness of one person’s perspective, we’ll be stuck in an eternal loop. However, if we pool our mental resources, talented people working together can do extraordinary things.


Shell games are fun, but not in business

February 7, 2011

One of the fundamental issues in a negotiation, or in any buyer-supplier relationship is whether a supplier can actually do what we need them to do. We spend lots of time trying to get a read on this, and will even be willing to pay higher prices if we are sufficiently convinced that one supplier is more likely to do what we need them to do than another.

What do you think, Albert?

Outcome-based price models make sense in many cases, but not all cases. The Thomas Eggar blog has a good post on this topic here. The best example I can think of is in the world of IT. Software is a complex area, and there are many ways in which its development can go wrong. Determining whether or not the company that is proposing to build the software has the capability, capacity and project management skills to drive the project to completion is a difficult thing to asses pre-build.

Paying time and materials for this can lead to sloppy code-writing and missed deadlines. So why not specify outcomes? To answer my own question, it involves trust on both sides, and it requires the development of fair and relevant metrics along with an agreed method of measurement. (Please note that I was tempted to use the word “robust” but then likely would not have been able to finish the post after hitting myself with a hammer.)

On the positive side, specifying outcomes aligns incentives. In the IT example, just banging out lots of code without considering the bugs that it is causing won’t work.

Outcome-based pricing won’t work in all cases, but can if we can get the metrics right. Metrics to avoid would include things like share price, sales/revenue, and other things that are a product of many other variables. Good metrics would be things like up-time, number of mission critical bugs, and potentially even some measure of usage or end-user satisfaction.

The Viable Systems Model, next new thing or anarchy?

November 18, 2010

There’s a lot to like about The Fractal Organization by Patrick Hoverstadt, and I recommend it to anyone interested in how organizations work and the contribution that organizational design makes. I won’t rehash the entire argument in a blog post, but rather pick out bits and pieces that I either found insightful or those that I found lacking. Or, as a cynic might say, those pieces that fit my mental framework and those that didn’t.

Let’s start with the good:

1. Designing organizations to make decisions at appropriate levels rather than stifling innovation through over-centralization. This is the key point for me.

2. Leaders as facilitators – overly proscriptive leadership does not work when managing technical specialists. Good use of the quote from Lao Tzu on what people will say of a great leader “Of course, we did it by ourselves.” (Here’s where I pretend I have heard of this guy, and have studied his works carefully).

3. Views on change management…resistance is more of an outcome than a cause. People will not resist what they have designed. Also, the idea of asking for the input of those who will be affected by a change, all the way through those on the shop floor. Of course, practicality issues come in to play here leading to…

The things that I was not completely sold on:

1. Facing the practical reality of asking all stakeholder groups to help determine the “What” of change rather than just the “How”. At different points in the book, it appeared to me that he wavered between asking everyone, and having senior management decide the “What” and then consulting lower levels only on the “How.” I’m sure the author would have a clear response to this issue…however, I’m not convinced that the issue was completely tackled in the book.

2. The obligatory Toyota reference coupled with the obligatory chastisement of Western businesses. If the West was really as bad at business as business academia seems to believe we are, we’d all be living in places that look like Uncle Tony’s backyard shed. Conversely, if Japanese firms were as great at business as most academic works seems to portray them, well, fill in your own reference…I’m too lazy to think of two clever ones in the same post. Toyota and the survivorship bias will be forever linked in my mind.

3. The example monsters – The fact that people/editors, etc. demand example after example from any author of this type of book causes some forced examples that don’t actually illustrate how the VSM caused success or failure to adhere to VSM principles caused failure. This one is a bit unfair since even empirical evidence is often insufficient to determine or illustrate causality in the murky world of business and economics.  Anyone up for creating a parallel universe or two?

Overall, the book generated some good insights and was definitely worth reading.

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