Those who have worked with me, even for a short period of time, know that I am a big fan of Ayn Rand and objectivism in general, and I use the terms Relentlessly-Objective-Reality (ROR) and Relentless Objectivity to define my personal, as well as the Ideasphere approach of defining any problem we work on, and structuring the search for solutions to it.  Even though it can be painful at times, and requires extra effort from all of us to engage in dialogue and hold Crucial Conversations rather than debates and witch-hunts, that practice is what makes the work we do at Ideasphere so effective in the long run.  Relentless objectivity enables any executive, interim or permanent, to see what current reality is before the start of an operationally oriented transformation or corporate renewal project, and to develop realistic plans to deal with it.  It also ensures that actions and strategies are meaningful and will produce the desired results.

Unfortunately relentless objectivity is neither easy, nor generally practiced (kinda-like common sense).  Over the years I have been surprised by unintended consequences that were a result of a team missing a key reality, or deploying a “going through the motions” solution that sounded good but did not work.  Teams that missed something that lurked in the background during the initial phase of a project, that should have been obvious, or an failing to conduct an objective assessment of the impact of a proposed solution that could have prevented an ineffective solution being deployed.  Even though some teams eventually recover, their transformation takes longer, or costs more than it should.  Even though the kinds of projects we work with are high risk/high reward projects, this situation is not unique to transformational projects.  Some research indicates that more than half of strategic projects fail to deliver on their promises.  Even more depressing is the acknowledgment by two thirds of senior executives participating in a McKinsey survey of executives from around the world, that their organizations rarely succeeded in achieving major change objectives.  Since making promises to clients and keeping them is what pays the bills around our office, avoiding becoming a part of that statistic has been one of our major goals. So in the process of continually improving the way we work, I have kept a running list of projects where I’ve seen bad things happened, and kept looking for answers to the question “What caused that?”. 

So, with apologies for the bad Star Trek analogies, I think there are four wormholes that transport a team from the Relentlessly Objective Reality (ROR) universe to one of the four Fake Abstract Reality (FAR) worlds.  Because these universes are parallel (or at least that’s a common view), a transformation team can be operating in one, or more, of those environments at any given time.  Frankly, I’ve seen at least one team operating in all four simultaneously.  So, based on my experience, here are the Four FAR worlds and the wormholes that lead teams there:

1)      The Content Free world through the Executive Arrogance wormhole

2)      The Lake Wobegone world through the Cognitive Dissonance wormhole

3)      The Borg world through the Groupthink wormhole, and

4)      The Cardassian world through the Confirmation Bias worm-hole

The  Unconsciously Incompetent Worm-hole

Being turn-around and corporate renewal experts requires the Ideasphere partners to be comfortable and knowledgeable in many fields.  Since most of us have been C-Level executives before, we are all comfortable to various degrees with many areas of business management.  Starting with General Management, Executive Leadership, Finance, Human Capital Management, Information Technology, Business Law, Marketing and Sales, Intellectual Property Laws, Six Sigma, Lean Manufacturing, etc we can work our way through quite a few layers of uncovering reality.  Even if each of us individually may not have the answers, generally as a group we can get good coverage on most issues.  But here is the rub;  As good as we, or the permanent executives working with our team or running a company, may be, only true Subject Matter Experts can see all the layers and their inter-dependencies in their particular area.  The rest of us don’t know what we don’t know (unconsciously incompetent).  Relentless objectivity requires an acknowledgment that Subject Matter Expertise matters, and it matters a lot.  It requires an understanding that, to paraphrase Einstein, problems should be reduced to their simplest explanation but no less.

It is quite disappointing when we ask for a particular SME to join an executive team working on a problem, only to be told the management team knows everything they need to, the SME is not at the “right management level”, he is “not easy to work with”, or she is “too technical.”  What nonsense!  Reading a one page memo may be a good way to describe the problem, but in today’s complex world, if the solution can be developed and described in a one page memo, it’s not strategic enough to command an executive team’s attention.  And having worked in the field fifteen years ago is not a guarantee the executive team knows how the world functions today. 

This is a lesson I learned observing an executive team working on understanding declining sales because of customer dissatisfaction with a product’s features compared to a competitor’s.  Working in the executive suites, and after conducting some superficial interviews with front line folks, they assessed the challenge to be “lack of resources for the product development team.”  So they allocated more resources to the marketing department and the product development team, and waited for the next release that would cure it all.  When it came, the customer response was even more negative and sales plummeted along with the leading market share position.  What happened?  The chief designer of the product was a real gear head who spoke in technical jargon and had a brush personality.  The executive team, some of them having risen from the technical ranks and pretending to be experts in the technology, spent most of their time with the Chief Marketing Officer understanding the challenges of the product development team.  By not actively engaging and talking with the product’s architect and designer, or the actual software development team in India, they missed the fact there were core technology limitations to their product.  This executive team had transported itself to the Content Free world.  Giving the product development team a budget for more resources to “develop more features faster” could not have solved the underlying problem, no matter what features the product development team dreamed up.  Understanding that the product was based on core technology that did not support the features the competitive product had, would have driven a different type of discussion and a conclusion on the actions and investment required to fix the problem.  After the CEO asked us to engage, and we conducted a deep dive into the technology behind the product line, the decision was made to abandon development and buy the competitor.

More to follow on the other three....

An old client of Ideasphere Partners, and now a dear friend, asked me a couple of months back to spend a day with an executive team reviewing a project.  It was one that had gone horribly wrong in a small company he owns in his semi-retirement from executive life.  He was frustrated!  It was an important project with his full support, well planned , with good objectives, and managed by one of his young “Ivy league educated” stars.  A project “guaranteed” to succeed, that not only failed; it did so in a spectacular way.  It was something no one saw coming until it was too late.  After we worked through the project history, a pattern emerged that made it, in hindsight, obvious it was doomed to fail from the beginning.

“What went wrong in our project planning?” was the question my friend asked and the one got me started with this blog about a month ago (never enough time to write for fun these days).  As we worked through their project, and I thought more about projects I have seen fail over the years, including some of my own, the more interesting question became “why do perfect plans many times produce perfect failures?”. So here it goes:

There was a time when I thought if everyone focused on doing what they were supposed to do or needed to be done, did it the right way, following a clean, orderly, logical, and rational process or project plan, we could deploy perfect solutions to most problems.  The tools I acquired and carried in my head through my years of management training Kaizen, Six Sigma, Lean,  Theory of Constraints, Balanced Score Cards, etc., etc. could save the day, every day. But I found it doesn’t work that way.  Smart does not always win the race.  Now that I am older and, hopefully, wiser I appreciate more a mentor of mine who used to remind me “there are many smart young people, but there aren’t any wise young people.”

Wise and smart is what wins the race.  You see, when using smart Vulcanian logic, there are always clear answers to the problems we face.  In the perfect world, what “should” be done or “should” have happened is as obvious as the Greek nose on my face.  But Vulcans are imaginary, and what “should” happen so rarely materializes in the real world that I have now replaced “should” with “could” when I work on plans and strategies.

I now know: sometimes it is the plan; but most of the times it’s the execution.  You see, to paraphrase Mr. Drucker: ”All strategies and plans have to eventually degenerate into work.”  And work happens in the real world where what “should” be done rarely plays out, and unintended consequences rule the day. Where, power corrupts and people play turf games. A world where self interest corrodes the integrity of assessments and relentless objectivity is replaced with fake reality and happy talk. In the real world, randomness determines as many outcomes as deliberate execution, and Black Swans fly above waiting to land. And so it goes…

But we are the operators, and failure is not an path of choice.  When the arrows are flying, we choose to “fight in the shade.” 

So what do we do?  How do we ensure success has better, or at least as good, odds than “chance.”.  How do we get the edge in the real world?

Well, I think there is only one way to get the edge and it comes from managing execution in real time.  I’ll take a simple plan lead by, and staffed with, competent operators who can adapt in real time, over a perfect plan led by a “perfect” executive who can only do what the plan says.

Execution is about a crystal clear message about the strategy and the end game objectives, and the unquestionable expectation of top notch operational performance.  It is about the drive towards the upper end of the bell curve rather than the mediocrity in the middle.

Execution is about the Yin and Yang of focusing both on the Results and the Process; On Speed and Pacing; Accountability for delivering results and Flexibility around artificial deadlines.

Execution is about having a “No Starving Monkeys” philosophy.  Just like monkeys that need to be fed till they are full or they turn nasty and mean, projects can either be fully funded or not.  No half ways or there will be many monkeys all starving and biting each other. Define the metrics of performance, identify and assign the resources required and necessary to meet the goal (feed the monkey), and forget about the next level of priorities until you are done (Shoot the monkey or more humanely put in suspended animation).

Execution is like managing a race track.  You let too many cars on the track, and there will be more collisions and the whole track will run slower.  You have too few cars and the fastest car will win every time, but the track won’t break any records.  And even if you have the right cars on the track, you need a tough pit boss to make sure cars are re-fueled and tires changed quickly and the rules are followed.

Execution is about rewarding team performance as well as individual.  In the race track, one driver can feel good about a personal best run, but it does not get a win.

And the most important thing about execution is that it is not a binary state but rather a polarity to managed. But that’s a blog for another time.

Andy Serwer, the managing editor of Fortune magazine and a man I admire, recently wrote a piece in Fortune Magazine on the insane amounts of information and channels available (think Facebook/twitter/etc) calling it the end of blogging.  I like Andy’s view and he made some great points, but I have another perspective.

This deluge of information and the continuing reduction of content to sound bites is not the end of blogging.  It’s the end of critical thinking.  It’s the beginning of an Attention Deficit Disorder pandemic.

If you are in the media business, like Andy, the increase of available information, the speed, and the number of channels delivering it is not necessarily a bad thing.  “Swimming in the stream of data” (with apologies to  William Gibson) allows you to see patterns and trends and report on them.  Same if you are a strategic thinker looking for new markets, or a policy wonk looking long term strategies.  But this is getting silly.  Now don’t get me wrong, I am not a Luddite and I do enjoy the occasional swim in the data stream, especially when I am engaging in a new project, hear of something that interest me, or I am approaching a new industry.  On a personal level, I keep up with friends on Facebook, LinkedIn, etc. and occasionally blog to get my ideas out to a wider audience or just to vent.  When building relationships with people, I will take more communication over less anytime.

But here is the dark side.  When operating executives get caught in the riptide and can’t get out of the water (pardon the bad analogies) they eventually drown and take their companies with them.  I call this “death by a thousand sound bites.”  I am horrified when I work with executives looking for solutions to deep seated problems with their companies who find a complex multi-dimensional analysis reduced to a three page executive summary report “too long to read.”  When the most amount of information an executive is interested in, or can absorb, is what can be contained on a PowerPoint slide, I cringe.  Today's operating executive relies on complex and interdependent systems and decisions have unintended consequences (think risk models for sub-prime loans).  The "just-in-time" culture has increased efficiency, but also has introduced brittleness into our world.  Not thinking critically about the information is suicidal.

It’s not that I like complexity.  On the contrary, to paraphrase Einstein, everything should be made as simple as possible, but not less.  It’s just sad when I see people reduce complex problems that require a well thought out solutions to a sound bite with no meaning or actionable information attached to it.  They remind me of politicians who care more about sounding good than being good and who can’t solve any of the core problems we face in society today but can put a label on anything.

One of the constant challenges we face at Ideasphere when working on operational turnarounds with our clients, besides high debt leverages, inefficient operations, lack of technology management expertise, founderitis, Demday disease, etc., is how to improve performance of the current operations without burning working capital or taking on more debt. Following our People-Process-Systems model, we always start with the people and what we can do to improve everyone's performance. 

This blog entry is a result of a research paper a friend sent to me on how the US Navy worked to improve the performance of the Navy Special Warfare Community and increase the completion rate of their SEAL training programs.  

So the US Navy Seals undertook an effort to understand what drove graduation rates and how to improve them.  Changing the profile of the people applying to the school would have not impact.  Stated simply, only the strongest, most motivated, and top performing soldiers even consider applying for SEAL training to begin with.  Alternatively, changing the program to make it easier to graduate would work in the short term, but would have a negative impact on the field, jeopardize missions, and cost real lives.  So the research team focused on the the people already in the program and what they did to graduate. 

Through research, they identified four areas common across all the graduates.  By helping other trainees focus on those four areas, they improved the graduation rate from 25% to 33%, an impressive improvement by any standard.  The actual research is classified, but what the final report indicated is a confirmation of many of the practices we bring to our clients, and my personal beliefs about people and performance.  The four components of improving performance are: Goal Setting - Visualization – Self Talk – Arousal Control.

Goal Setting -  The successful trainees established a list of short and long term goals and stayed focused on them, regardless of what was going on around them.  One of the trainees talked about setting two hour goals that kept him focused on making it through the next two hours, or completing one particular training segment.  Similar to the SMARTT goals (Specific, Measurable, Attainable, Relevant/Realistic, TimeBound, Trackable) we create for our clients, the trainees established short term objectives and focused on completing them.  Vision statements are great at the enterprise level, and strategies are critical for long term success at the operating level, but most individuals have to know what their immediate objectives are and focus on them.

Visualization – The trainees who completed the course created a visual image on what the completed goal would look like.   One of the trainees talked about visualizing his team being the first to complete a particular training segment and him being a major reason for their success.  As I frequently tell my clients, even though there is a fine line between a vision and a hallucination, keeping the goals SMARTT a visualization grounded in reality is a powerful weapon. It does a front line supervisor or a business unit leader little good to visualize global market domination.  It does improve performance to help them visualize the next twelve months and asking them to tell a simple story about their division twelve months from today that starts with the line “Today my division is generating revenues of x and profit of y and we got here by…..”.

Self Talk – The trainees were taught how to use positive self talk to re-enforce their goals and visualization.   The difference between, “I will not fail this training segment”, and “I will complete this training segment” maybe subtle but it is extremely important.  The simple act of starting staff meetings with a focus on what needs to be done, rather what needs to be avoided is a major step towards positive self talk.  When in a turn-around mode helping people to see what they need to do to keep their jobs has a significantly more positive impact that them working towards not loosing their job.

Arousal Control – On the battle field, staying calm under pressure and responding to a situation rather than reacting, can mean the difference between life and death, and so it can during the training segments.  By focusing on controlling their breathing, for example, the trainees kept their cool when in high pressure situations and allowed their training to take over.  Even though this one is a matter of personal control, it also apply to team dynamics.  Responding immediately to every challenge and thrashing about with disconnected short term initiatives is not a good answer to most problems.  Most of the times, taking a deep breath, understanding the impact, and responding with a thoughtful strategy and action plan is.

It’s been a couple of months since my last post because of Ideasphere client work and some vacation, but I am back to share some ideas and continue this on-going dialogue with those of you who e-mail me about these musings.  Recently, one of our clients asked me to help him assess two executives he was considering for a promotion to a very important job leading a major transformation initiative we had suggested to the company.  That was not an unusual request, since evaluating people is one of the three components of our People, Process & Systems approach to company transformations.  What was unusual was that one of them was a ten year veteran in the company and had almost twenty years of total experience as a senior executive in their industry, while the other had come from six years in a completely different industry and only had three years with this company.  Both executives were considered solid performers and valuable players on the executive team.

After we went through all the standard assessments, 360 Interviews, Harrison Profile, Observation on the job, etc. our assessment was that the executive with the less time in the industry and with the company was actually more knowledgeable, respected, and appropriate for the new position. Which, prompted this blog entry…

Is time on the job, or an industry, the same as experience?  I believe not!  Take the two executives I mentioned for example.

The executive with the most years, although competent, a nice fella and likeable guy, seemed to be stuck in the business model he learned twenty years ago and unable to grasp the new market realities.  It seemed to me, rather than twenty years of experience, he had the same one  year of experience repeated twenty times.  When I brought up the subject of continuous education for executives, his attitude was that everything he needed to know he learned on the job in the last twenty years, and by “being in the trenches.”  As far as ideas for innovation or personal growth, he read only one industry publication and had no subscriptions to, let alone read, any general management periodicals.  He had heard of Social Networks such as Plaxo, LinkedIn, and Facebook but never participated and he was adamant that participating in any industry associations was a waste of his time and more appropriate for sales folks and junior managers.

Now consider the other executive.  When we discussed the industry status, not only was she familiar with all the major innovations in the space, she had a well thought out position on which innovations would be appropriate for their company and how they could be implemented.  She actively met with managers of other departments in the company and networked with industry executives.  She attended one industry conference a year, read the industry periodicals, and subscribed to at least two general management periodicals, which based on our conversations on recent articles she actually read.  When we talked about her industry, she was able to bring up examples from her previous industry and discuss their correlation with the challenges facing her current industry.  In all she had 20 years of experience as an executive and three solid years of experience in the company and the new industry.

So what do you think?  As always, you can reach me at c.papageorgiou@ideasphere.com

With the presidential election theater going on these days, it’s hard to avoid conversations about politics at the Ideasphere offices, even with some of our clients.   Even though I generally reserve conversations about personal, political, and religious beliefs for a very small group  of close friends, I got to thinking about similarities between politics in the public service arena and politics in the corporate world.  So, even though not my regular practical blog entry about operations or management, here are some thoughts to consider about politics in general and corporate politics in particular.   As always, I would love to hear from you and post your replies to this blog at c.papageorgiou@ideasphere.com.

I think most of us developed our political beliefs based on some initial ideas from our family and upbringing, and some from our cumulative life experiences.  We are what, and who, we are because of the ideas we collected and the choices we made at various point in our lives.   As one of my favored Zen saying goes:  Careful what you think; It becomes what you say.  Careful what you say; It becomes what you believe.  Careful what you believe; It becomes what you do.  Careful what you do; It becomes who you are.

What we think about inevitably shapes who we are.  Our political beliefs depend on the Thought-to-Action path we traveled and the path dependency is the same one that shapes our approach to corporate politics.  Just like our political beliefs, our view of corporate politics is either the result of a conscious process, or one of random occurrences and happenstance we have allowed to shape our thoughts and actions.  Depending on how we came to acquire our political beliefs, we either have an appreciation of the political theater going on in America today, can see the benefits of the ebb and flow of power - and appreciate the maneuvering - or we have a disdain for one party or another and all we want is for our candidate to win and our beliefs to prevail regardless of the process.  Politics; If we can objectively appreciate the process, it can be a great learning experience.  If not, what a shame to be part of such a great show and choose not to pay attention.

So here I go where angels fear to tread:  Corporate Politics, a necessary evil that if it did not exist we would have to invent it.

How do we arrive at our beliefs about politics or political ideas in general and why we choose to see it as a necessary evil or just evil?  I think it depends on the path we chose to take, either through exploration and discovery, or by just by following the path others set for us.  One data point does not a trend make, but from many conversations with friends, as well as clients who have become friends over the years, I think my story is an example of the “necessary evil” view of politics, both public service and corporate, that came from exploration and discovery. 

I was born and raised on the Greek side of a small country, Cyprus, and came to America because I wanted to get the best engineering education that would help me build a company back in Cyprus.  My initial beliefs about America where shaped as much by third hand information and skepticism of a political system that sounded too good to be true, as much as by reading books by American authors and listening to Radio Free America.  I arrived in this county with enough money to pay bills and tuition for a couple of semesters and set out to get my engineering degree so I could go back as soon as I could. 

Ha!…  As my friend Paul says:  Want to make God laugh; Tell Her your plans (‘cause everything you think you know including God’s gender is probably not so). I fell in love with the American ideal and, at some point along the way, I made the mental and emotional switch and became an American-By-Choice.  Early on, I was lucky enough to have people around me who believed understanding politics and the political system was a part of being an American, and they helped me grasp its intricacies.  Making the decision was a conscious process.  Before I made the transition from immigrant to American-By-Choice, I spent time reading about what it meant to be an American.  From the Constitution to the Federalist Papers and the biographies of great, and not so great, presidents, to the stories of everyday people and famous American figures, I developed an understanding of the complexities of political decisions and an appreciation of "The Political Dance", or what Governor Schwarzenegger calls “the Kabuki.”  That appreciation of public service politics has taught me to see politics in the context of “The Dance” and to go out of my way to separate facts and agendas from spin and the need to do “The Dance,” before assessing a candidate, a position, or a decision.  Over the years I recognized the parallels between “The Political Dance” and “The Corporate Dance” and developed an appreciation for it.  Whether I am running a company, working on a turnaround, or helping a company through an inflection point, I count “The Dance” as an important aspect to consider just like Operations, Technology, Marketing, or Finance.

The Political Dance is neither good, nor bad.  It’s just the mating ritual societies undertake with ideas and those who represent them -those strange birds called politicians- before they choose who to mate with, at least for a while.  Same for The Corporate Dance;  It’s just the mating ritual organizations undertake with missions, visions, and agendas and those who drive them – those strange birds called managers – before they choose who to follow and what to do, at least for the time they are employed by that company.

Like my introduction to public service politics, I was lucky enough that my first real job was working for a couple of great guys who understood politics as a part of corporate life.  They took the time to explain “The Dance” to a rookie manager and helped me maneuver the political landscape.  One of them, a great mentor who has since passed away at too young an age, used to tell me “if you step onto the dance floor and don’t know the steps, and can’t learn on your feet, and can’t hear the tempo, you will have your toes stepped on; and bruised toes are bad for dancing.”  That quote, and the desire to learn the dance steps so I could succeed in corporate America, prompted me to get my first business book by Peter Drucker, and start a collection that over the last 20 years has grown into a nice reference library.  I fell in love with the idea of being a manager and over the many years that have followed, I have become a Manager-By-Choice and, just like I appreciate "The Political Dance," I have developed an appreciation of “The Corporate Dance”.  It’s not that I enjoy the time invested in political maneuvering; I would much rather be doing something that generates revenue or profits, or coaching young executives on how to be better managers!  It’s just a recognition that it is a necessary evil that would exist even when you only had a three person vegetable stand.  A necessary little troll who needs to be paid its proper due in most cases otherwise it becomes an unruly trouble maker, or needs to be shot on the spot before it can grow into an evil monster.  Like, when the dance is unethical or illegal.  Those are the times when I’ve chosen not to dance, or have stopped the music, and the companies and the clients I work with are better for it.

Now compare my view of The Dance with the view of a dear friend, with whom I avoid having any conversations about politics, corporate or public service, so we can stay friends.  From a public service political view he has arrived at his beliefs without any examination of his thoughts.  As I half-jokingly tell him, rather than American-by-choice he happens to be an American-by-spatially-random-combination-of-sperm-and-egg who’s parents inducted him in a political party at birth.  He is an American, and one of a certain political persuasion, by default.  His love for America and dislike of the political system are abstract rather than based on a conscious decision.  I mean, how could anyone be against Apple Pie and Motherhood and not dislike politicians and the evil ways they have of screwing it up for the rest of us?  His view is one of pure disdain and his appreciation of “The Political Dance” negative and dismissive.  He just can’t understand why his party can’t just be the one that sets the course of the country and decide what ideas our society should fall in love with.  He chooses not to participate in debates and votes a straight party line on everything without considering the opposing view.  If his party’s ideas get rejected it’s because of those other guys and not because they were bad ideas.  Being internally consistent, he has the same beliefs about the political games in his company.  His disdain for “political animals”, as he calls anyone in power, is palpable and he refuses to see any value to “The Dance” inside his organization.  He is proud of the fact he has never read a “management” book and he confines his business reading to technical publications.  He chooses to present everything as black and white and the only thing we can have a spirited and genuine discussion about, is technology!  He refuses to even acknowledge "The Dance," let alone consciously choose whether or not to participate.  His view is that all good ideas should get funding, especially if they are his, and all political issues should be ignored, especially if they involve debate about his ideas.  Because of that, the challenge he faces all the time is selling his ideas and getting his projects funded, even though many times he is spot on. 

Because he refuses to even acknowledge "The Dance," let alone appreciate it and step onto the dance floor, the only time he succeeds is when someone else, usually an executive with good political skills and an eye for good ideas, willfully becomes a proxy for him and steps on to the dance floor on his behalf.  When it happens, he celebrates the fact he won without having to “do the dance,” even though he just happened to do a different dance off the main dance floor.  It does not occur to him that he just let a substitute do the dance for him and missed the opportunity to learn a few new moves and maybe even make his idea better.  That, if you ask me, is a darn shame.

A question my partners and I at Ideasphere have been getting more frequently by operating executives at our client companies is whether an acquisition by a Private Equity Group (PEG) is a good or a bad thing for them.  Based on our experience with many transactions over the last ten years, our answer is, it depends on who the buyer is. Just like assessing Venture Capital (VC) firms who invest in some of our startup clients, the answer depends on the type of money the PEG represents: Green, Gray, or Red.  Depending on that, an acquisition can be good, great, or a really bad thing….Green, Gray, or Red Money? Please allow me to elaborate.

·          Green Money is just that:  A financial buyer who recognizes an opportunity to buy an asset that will grow over time and generate returns with little need for direct involvement by the buyer.

·         Gray Money is green money plus brains:  A financial buyer who recognizes an opportunity to increase the value of an asset by bringing intellectual capital (their business network and access to management talent) to the table, along with real capital (their money).

·         Red Money is like getting in bed with the Devil; No matter what you do, you’ll wake up with horns. Red Money is a financial buyer who recognizes the value of an asset can be increased through non-value-adding financial and operational engineering that consciously cripples the asset in the long term, but generates a short term pop in value that can be exploited for a great return.

So how do you know what kind of buyer you are dealing with?  By doing some research on past transactions and their outcomes, you can identify what the “modus operandi” of the PEG generally is and reach your own conclusion.  DO NOT BELIEVE THE PRESS RELEASES AND THE MARKETING FLUFF THAT ACCOMPANIES THEM.  I am not in the habit of naming names in public, but I can recall a couple of situations where the press releases and the website proclamations about a particular transaction must have escaped from an alternate reality or parallel universe because they had no connection to the world we live in.  What follows are some general indicators to look for that can help you identify the type of a buyer you will be dealing with.  Find companies that have been acquired or interacted with the buyer and compare what happened there with the archetypes below.  Even though I am a believer people and companies can change if they want to, I am also aware that a tiger does not easily change its stripes.  In this case, past behavior is a solid indication of future performance.

When a Green money investor completes a transaction in a company, the most visible changes to the operating side of a publicly traded company is the exit from the public markets, the shift of focus from quarterly results and stock price fluctuations to long term consistent returns, changes in the board of directors with directors appointed by the PEG, and sometimes a new CFO or CEO.  If the company was private and generally successful, there are usually Board changes to reflect the change of control, but minor changes in senior or operating management. The PEG is generally respectful of the operating expertise of the senior executive team and the operating managers are treated with respect and deference when it comes to operating decisions.  The daily life of the operations group changes very little and in some cases gets better.  For example, enhancements and infrastructure projects are reviewed more strategically than when the company has to worry about quarterly earnings and can get funded at a faster rate.  This is usually a pattern consistent with how they interact with other companies in the PEG portfolio and stays like that as long as the company continues to experience a steady growth and meeting performance benchmarks.  From a structural perspective, the debt load on the company is manageable and there are no major cuts or brutal reductions in force.  Occasionally the PEG might leverage their investments in other companies to make introductions and help with sales, but that’s more associated with Gray Money.  In the end a Green Money PEG is a way to shift a reasonably performing company into the next gear through the infusion of pure capital.

When a Gray Money investor acquires a company, it is generally because they believe they can bring their intellectual capital – Expertise; sometimes operating, but generally financial and market - to the table along with their money for a great return.  In addition to the visible changes a Green Money investor would make, other changes may be the addition of a new division, the acquisition of complementary business, the transfer of executives from the “bench” at the PEG to the company, etc.  The senior management team is frequently supplemented with more experienced executives, either directly from the PEG or through recruiting efforts the PEG initiates.  The daily life of the operators changes in subtle but important, and usually positive, ways.  Many PEGs will engage high end consulting companies like Ideasphere to help elevate the thinking and execution capabilities of the executive team.  The results are usually a fresh look into the way business is conducted and an infusion of “outside thinking.”  Also, PEG analysts are generally more sophisticated than the company in-house staff, if there are any, and they demand a more nuanced reporting with a significant eye on financial performance.  If the CFO and the finance team are not up to par, they are usually replaced or supplemented and the operators are expected to understand and be able to describe the financial performance of their operations.  “Finance for the Non-Financial Manager” is a most sought-after self study course by the operating executives.  Gray Money is a solution to a company stuck in low gear without enough real or intellectual (management) capital to get through the inflection point.

When Red Money comes knocking on your door, be afraid, be very afraid.  Just like other sources of capital, Red Money PEGs can show up when a good company is in distress through some unfortunate circumstance, like running out of capital at the wrong time in the liquidity cycle, or can come out of nowhere with an offer.  The timing is not important.  What is important is to recognize Red Money PEGs and understand the implications.  Red Money is focused on short term returns, does not care about sustainability, has no social or ethical boundaries, and generally has no respect for operating executives.  It is generally staffed by financial mercenaries, many with impressive degrees from Ivey League Universities who are experts at modeling and financial engineering, but have no operating background and could not manage their way out of a wet paper bag with a running chainsaw.  When a company enters the realm of Red Money, everything becomes a short-term solution with the only objective to pretty up a company for a sale, either as a whole or in pieces.  On the surface this may look something Gray Money may do, but the devil is in the details, and Hell is a sure destination because of bad intentions.  Where Gray Money will strategically add resources to the company, either real or intellectual capital, and push the operations team to streamline costs to increase the value of the enterprise before a sale, Red money will burden the company with high levels of debt and push for indiscriminate cost reductions that will improve the financial metrics in the short term but are not sustainable.  Red Money will issue mandates on operating performance targets with no concern for feedback on their feasibility from the operations team.  Quality and Safety generally take a back seat and Red Money will generally dismiss capital projects that do not have an immediate payback and often forgo necessary investments in infrastructure maintenance and upgrades.  Red Money is not a long term solution for the company and, unless comfortable swimming in murky waters, it’s not a good thing for operating executives.

My partners at Ideasphere partners and I have seen all three types of investments and actively pursue working with Green and Gray Money, but after one really bad experience with Red Money (early on in our life), we have learned to recognize the signs and make it a point to stay away from those transactions.  When we see Red Money coming towards existing clients, we help them find alternative capital sources, or if that is not possible, we direct them to our network of recruiters so they can get out as soon as possible.

As usual, feel free to write back with your thoughts to c.papageorgiou@ideasphere.com

There are many mediocre managers, but true Moron Bosses, just like truly Exceptional Leaders, are rare.  None of us scores zero against the Moron Boss’ Thirteen but a true Moron Boss is a unique experience to behold.  In my twenty years as a manager, operating executive, or management consultant I have experienced dozens of bosses and clients, and I can truly say I only had one manager who was truly a Moron Boss, and an unethical and vindictive one to boot…  But that particular executive is a discussion for another time after a couple of years go by and my non-disclosures expire. 

Most research around how bosses are perceived by their staff indicates that about 50%-60% of their direct reports think their boss is a good or even a great boss, 20%-30% think she is an adequate boss, and less than 20% think he is incompetent and should not be in the job.  If you adjust the 20% for the people who vote negatively because they think they can get/do the job themselves, I would guess only a small percent, maybe 10%, think they work for a truly bad boss. 

So how do you know your boss is just in the middle of the bell curve, a proof of the Peter Principle, a true Moron Boss, or merely a good manager in a bad circumstance?  Well, to paraphrase Forrest Gump, “Moron is what Moron does.”

Let’s start by recognizing most bosses did not get the job completely by accident.  Even the one true Moron Boss I experienced, besides the fact he was a personal friend of the CEO, had at least one redeeming quality that was the reason he had his position, he was with the company at the beginning and had gathered industry knowledge.  Unfortunately he demonstrated every one of the thirteen behaviors of a Moron Boss.  So take a look at this list and assess your boss (or yourself if you are a manager), to see where you fall on the Moron Boss scale! Rate your actual behavior - what your direct reports observe you doing not what you think you are doing- against these classics on a scale of 1 to 5 with 1 being very rarely and 5 being most of the time.  If your boss, or you, scores more than 50, you may be one, or may be in the presence of a true Moron Boss.  If you work for a large company and the Moron Boss behavior has been tolerated, or even worse rewarded, for more than two years, get your resume polished and look for another job.  Your Moron Boss also happens to possess the skills of a great survivor and will be there for more time you should have patience for.  If the company has a reputation of weeding out Moron Bosses quickly, stick around, she will be soon gone.

My boss is threatened by, and competes with, competent direct reports

 If your boss constantly competes with, bypasses, sets up to fail, or even actively sabotages his direct reports, he is not smart enough to recognize he already has the job and if he lets his stars shine their successes will reflect well on him.  My best example is a boss who had been trying to launch a product for eighteen months unsuccessfully.  Under pressure from his own bosses, he hired a product manager with experience in the area of product launches to bring the product on line.  The new manager shook the organization up and completed the work in six months.  Rather than tout his own ability to hire competent people who got results, he felt threatened and actively sabotaged her by sending her on wild goose chases and lying to her about objectives, resources, and internal company politics.  The new manager quit in frustration and the moron boss took credit for all the work she did.  This boss had demonstrated this pattern or behavior a number of times over the years and he used this particular approach to fix problems his own poor management created and then got credit for solving them.  Unfortunately the company has been tolerating this behavior for a while, and the management team of that division is always in turmoil and never stabilizes to the performing stage.

My boss does not share all the information she has and there is always one critical piece of data she shares at the last possible minute

That behavior comes from the mistaken belief that by withholding information she has power over her people.  Unfortunately, in effect she just makes the job more difficult than it should be and she negatively impacts the results her group gets.  My best example is a manager at a client company who noticed a design flaw in a product design document and rather than point it out to the team, she let them continue down the road until the prototype came back from engineering not functioning.  She then used that isolated incident to rate her top designer who was on a promotion path out of her department as a low performer and blocked his transfer.  Eventually, the designer figured out what happened and within three weeks he was working for one of the competitors.  When she was questioned about the departure, this manager claimed the designer was a mediocre performer on the way out anyway.  The good news is that the story got around and when she was finally found out was fired by the CEO, who also made a personal call to the designer and brought him back to the company.

My boss is a micromanager who selectively engages in directly managing relatively tactical activities that are assigned to people that report to me

When a boss demonstrates micromanager behavior - which is different from, and must not be confused with attention to important details - he does not have the confidence in his management team or his own abilities.  A true Moron Boss goes even beyond that and never hires competent managers who could do the job (see below).  At one of my clients, a top software engineer received a battle field promotion from Sr. Developer to Director of Product Development because he developed some critical piece of code the company needed.  Unfortunately, he had no operational or management skills and rather than manage the group, he spent most of his time reviewing code developed by the programming staff.  As a result the department experienced a severe decline in morale, missed budget objectives and product milestones, had continuous turf battles and the star developer became an example of the Peter Principle.  Eventually the client asked me to be his coach and for over a year I worked with him to establish good management practices and build a good management team around him that compensated for his lack of management expertise.  In this case, the manager was not a true Moron Boss, he just did not know any better.

My boss only hires people that know less than she does and we have no apparent succession plan

This cliché exists for a reason, that A-players hire other A-Players, but B-Players never do.  The difference between a Moron Boss and a mediocre boss is in the reason they only hire B players.  A mediocre boss, or a B player, does not know what an A player looks like so they tend to hire people that look like them.  A true Moron Boss adds insecurity to that, and even though sometimes she may even be an A player in her area of expertise, she would never hire anyone who could be viewed as a threat to her B competence or a challenge to her A player status.  The best example was a manager who had retained a management consultant on staff for two years because he needed the expertise he did not have but never made any attempt to find a permanent replacement, or assign an internal resource to take over from the consultant.  In the end, when the consultant moved on to another engagement, the only person who knew what the consultant did was the boss and the team lost all the knowledge he had accumulated.  The funny part was when the time came for that Boss to be promoted, there was no one ready to succeed him so they kept him in the same position, until a rising star from another division was promoted over him to be the group head and eventually fired him for his bad behavior.

My boss takes all the credit for our work and actively blocks us from building any visibility with her boss

The main source of this classic case of moronic behavior is fear and insecurity.  An even worse example of this behavior is the moron boss who knowingly set up his direct reports to present to the CEO of the company without providing them any coaching or context for what the CEO was looking for.  As a result they all missed the strategic context the CEO was expecting and the boss used that incident to complain about the lack of talent on his management team and to justify missing the strategic objectives he was charged with.  Eventually, after a repeat performance by that team, the CEO bypassed the Moron Boss and met directly with the team to understand what was going on.  He realized the team was very competent but mismanaged and eventually fired that manager.

The Moron Boss’ Thirteen

1.       My boss is threatened by,  and competes with, competent direct reports

2.       My boss does not share all the information she has and there is always one critical piece of data she shares at the last possible minute

3.       My boss is a micromanager who selectively engages in directly managing relatively tactical activities that are assigned to people that report to me

4.       My boss only hires people that know less than she does and we have no apparent succession plan

5.       My boss takes all the credit for our work and actively blocks us from building any visibility with her boss

6.       My boss has no position or direction and always agrees with the last person that was in her office

7.       My boss has loose ethical standards  and expects us to do the same

8.       My boss does not trust the judgment of any one of his direct reports so he assigns the same task to different people creating massive confusion

9.       My boss gives explicit oral instructions but never puts anything in writing and when things go wrong denies knowledge

10.   My boss has to always be the smartest around the room, even when he is not

11.   My boss uses threats and emotional blackmail to get his direct reports to follow his lead

12.   My boss has meetings so she can hear herself talk

13.   My boss avoids confrontation at all costs

A couple of years ago, after my annual physical, our family doctor informed me my cholesterol was trending higher than my IQ and it was time for a pill.  I was shocked! I am a healthy individual; I exercise and generally watch my diet; I know the research and what I have to do to keep my cholesterol low; so why should I take a pill?  I decided to go without it.  After a year of trying the daily Oatmeal breakfast routine and watching my fat intake, my cholesterol had become significantly higher than my IQ.  Call it a blinding insight into the obvious, but after a year I recognized for certain ailments, even if it’s a bitter thing to swallow, a pill is the right answer. 

Look around your company; are projects frequently falling behind schedule and going over budget? Is quality declining? Are sales dropping and customer complains rising?  Are your earnings lower than forecast for more than two quarters in a row?  If the answer is yes to any of these, it is time to check around for signs of the dreaded Demdey disease.

Early in my career, I thought Demdey was a rare disease and I would never catch it.  But like cholesterol, I have come to realize it is unfortunately all too common, no one is immune from it, and it is the root cause of many other symptoms that appear when an organization, or an executive reaches maturity and the stakes are high.

Fortunately, once you recognize it, there is a cure for the dreaded Demdey.  The Imyprob pill activates the “I am responsible” and the “It’s My Problem” antigens in the body.  Even though it often has to be administered by a board, a supervisor or a trained professional, Imyprob suppresses the Demdey virus and allows the executive’s system to receive a solid dose of reality.  This pill helps you understand you are ultimately responsible for the success or failure of all your management initiatives, regardless of outside influences.  Just like my cholesterol pill, I take my Imyprob dose daily and prescribe it to my clients frequently.

This is the story of Julie; A Chief Executive Officer who genuinely wanted to change the way her company did business. Julie is very smart and has a great amount of energy.  She worked at the company her father founded since she was a teenager and after finishing her MBA, from a very prestigious Ivy League school, she took over as the CEO.  July’s passion and mission was to "blow the doors off the competition."  She had fresh ideas, and wrote lots of memos about the new management paradigms, and how to make her vision come true.  She was a strategic thinker, had a solid financial background, and knew how to put a strategy together.  She was determined to change the company and even attended seminars along with her staff to spread the knowledge about change management.  Her enthusiasm was contagious. Unfortunately, things did not quite work out.

I was a consultant to her father, and a mentor to her, so we talked often.  A year after the new initiatives went live and nothing happened, she was very surprised. Determined to make her mark, she launched a couple of new management initiatives.  But another year went by and the improvements were still meager.  When we talked, she complained that they did not listen.  At first it was her peers in the industry; she thought it was because of her gender and age. My response, with apologies to Henry Ford, was: “Whether you think it is, or you think it isn’t, either way you are right.”  Then it was her staff.  She thought they were not engaged or cared enough.  The funny thing was that when I asked her to engage her staff and ask them to help look around for reasons they collectively pointed fingers at India, their workforce, the global economy and, even the bureaucrats in Washington, D.C. It was always them.  Finally after a tough board meeting she felt was the lowest point in her career, she asked me to actively help her and her company. 

I had a feeling Demdey was a root cause, but needed confirmation.   I only had to spend three days probing inside the company to finalize a diagnosis of a wide spreading epidemic of the Demdey virus.  And she was patient zero!  As Gen. Norman Schwarzkopf noted in an article some time ago, the shadow a leader casts is much longer and has larger impact than they think.

On a crisp fall day, Julie and I took a long walk around a local park and had a long private conversation away from the noise in her office. I had many questions about the real-world causes of her problems: How are your strategies better than the competition's? How are those strategies being implemented?  How much better, or cheaper, are your products? What are you doing differently than before?  Why do you think the new initiatives are not taking hold?  Julie had many answers to the questions, but had such a bad Demdey infection she could not bring herself to start any answer with “I” or “We.”  Almost every answer started with “They…”

And so it went like that for a while, making it a difficult day for both of us. I felt bad for her.  She really cared and wanted to do the right things.  She was torn because her company had to lay off people.  She talked about how hard it was to let them go, but she could not help it because they did not understand what competition was doing to them.  When I asked her how she communicated the impact of competition to her workforce and what part of her hiring and staffing plan took into account a downturn in the market, she had a classic Demdey answer.  They should have known about the competition and worked better with her to be more efficient.  When her father started the company, he believed the business would continue growing with the market and they never planned for a downturn.

When we talked about her management team, her biggest complaint was that her Chief Operating Office, who’d been with the company since her father founded it, was not supporting her strategies and still did things the old way.  It was them who were the biggest problem in her operation.  So I asked her if she had a crucial conversation with her COO about this.  They never listen, she said.  When I proposed finding another COO, she cringed.  She could not bring herself to even consider the possibility: My father hired him, he is not my problem.

It was not a pleasant day for either of us, but she wanted things to work, and I wanted to help so I continued to increase the Imyprob dosage. Over the course of a couple of weeks, she started looking at things differently.  She realized that as the CEO, she had no choice but to take responsibility for her changes and their outcomes.  The Imyprob pill, bitter as it was, was working.

Over the course of the next couple of months, things changed.  Julie rolled up her sleeves and actively engaged in operating her business.  When things went wrong, she started with “What could I have done better”, and then “What could we have done better?”  I helped her put together a dashboard of metrics that were important to the company, and she took responsibility for their direction, while assigning clear responsibilities to her management team for specific components. 

Every week she would ask her staff to tell her what she was doing to help the metrics move and what she did that got in the way.  She also became very clear of her expectations from her management team and the accountability that comes from being an executive.  Oh, and after her COO failed to meet his commitments for a couple of months, I helped her find a new COO who brought a great attitude and wide experience to the table, and is now her trusted partner.  Things changed and after my work was done, I went back to being a mentor.  We still talk about that day in the park, and even though the Demdey disease flares up every now and then, the Imyprob keeps things under control.

Over the years, I have seen the Demdey virus spread to all kinds of companies.  Imyprob is the most effective cure, but a bitter pill for many managers to take. Some agree to take it but hide it under their tongues. They go back to their business, spit it out and take responsibility for nothing.  These are the managers who make my work challenging; they bring in a consultant, or an interim executive, to help them change their worlds, only to lay the blame on the consultant if the plan doesn't succeed.  Advisors, Consultants, Interim Executives and mentors (me included) are not always all-knowing, wise, fountains of useful information. Sometimes, we make mistakes and operate under the wrong assumptions.  But here again, listening to bad advice without challenging it is a symptom of the Demdey virus. Good operators argue every point with their consultants and advisors, debate every idea, challenge every assumption, reach their own conclusions, and take responsibility for the final outcome.  They take the Imyprob pill every day and get checked for the virus frequently by engaging mentors, consultants, trusted friends, and even people that work for them.

So the next time you look around your company and see problems, ask the questions: Am I or my company suffering from Demdey? Are we blaming them for our problems?  Are we hiring consultants only to blame them when things don't work out? Is the Imyprob pill missing from our first aid kit?

If the answer to these questions is yes, be prepared to administer the Imyprob pill. Take responsibility for your success, as well as your failures, and make it clear that you will accept no excuses for poor results.

The Grass Growing Forever (GGF) trap is a classic case of forecasting gone wild.  It generally happens when a group of highly credentialed consultants, investment bankers, financial analysts, or maybe a couple of freshly minted MBA’s from the corporate development group, gather in a room to model an acquisition strategy, analyze the growth potential of a product, or assess the future value of an M&A transaction.  More often than not, with no operator in sight, they look at the last three years (or some other legitimate sample period), identify a few critical variables, and create a model extrapolating a baseline growth curve for the next set of years.  To make the model work, they include some “accelerator assumptions” that when manipulated produce the classic Hockey Stick Curve that extends upwards into infinity.  An Internal Rate of Return calculation is generated; a great PowerPoint presentation is made to the investment committee or budget review team by the most articulate of the group and, voila; a budget with positive earnings and stock price impact is calculated and the plan is approved. Soon enough some poor operator is handed a budget and assigned the task of “make it happen” and off he, or she, goes to deliver what the model promised. Unfortunately, a year or two later, real life does not match the predictions of the model and the search for a guilty party begins.

I can’t really share how many times and at how many clients I have seen this play out and how often we have been called to fix the “problems with execution” when the root cause was the GGF trap in a model closing around an operator’s neck.  I will however sanitize the names to protect the innocent, and alter some of the facts to share how it happened in a classic instance not too long ago.

First let me explain the GGF trap, which is simple to avoid if you are an operator but easy to fall into if you are not.  For simplicity let’s imagine you know nothing about the operating issues of lawns and grass in general.  Your lawnmower experience is limited to looking at their pictures in the Sunday circulars from your local hardware store and wondering if you need special driver training to run one of them.  You have a house with a nice lawn, and your spouse wants you to spend some money for privacy bushes in front of the windows in the front yard.  Being a good operator, you decide to find the least expensive solution to the problem.  You can always buy some bushes and have a landscaper plant them, but why not use existing yard resources better.  After all, since doing more with less is a standard mantra at your company, why couldn’t it work at home?  So, how about using your grass more efficiently?   It’s there; you already have someone taking care of it; and if it can grow high enough to hide the bottoms of the windows there will be no need for additional plants. But your spouse will not be easily sold on the idea and you decide to build a business case for it. The first thing you need is a good model.

So you ask your lawn company to let the grass in a small part of your yard grow for a month without cutting it.  Every few days you measure a good statistical sample of the blades and discover that it grows at a rate of ¾ of an inch per week.  You then enter the data in an excel spreadsheet, create a forecasting model for the next twelve months, and low and behold, your model indicates that by next year your grass will be over five and a half feet tall.  If you are a really determined modeler, you actually include temperature, rainfall, and a dozen other parameters and your complex multi-dimensional model shows that the grass will be 5.63 feet tall with a plus or minus 8% degree of certainty.  Using the output of this very sophisticated model, you attempt to convince your better half that you do not need to plant privacy bushes in front of the windows of your home.  Just let a patch of grass grow in front of each window, and within a year all you have to do is trim the top of the grass blades so they don’t grow taller than they need to be.  And, of course, you can use the forecasted savings to buy a new remote control helicopter.

Sounds logical, doesn’t it?  After all, the model is extremely sophisticated and all the calculations have been verified more than once.  Needless to say, logical or not, most people can tell you your plan will not work for many reasons.  Any lawn care company operator regardless of their ability to understand mathematical models can easily spot the errors in the output of your model.

Regardless of the mathematical soundness of your extrapolation formulas, the outcome is only possible in the model.  Regardless of how well the trend look in the model, in real life, grass roots are not deep enough to support a six foot long blade; And even if they did, the blades are not strong enough to continue pointing straight up at that height; And even if they did, the base of the each blade of grass would have to be a couple of feet wide to reach that height and there is no grass in the world with that characteristic, etc., etc., etc.  The concept and silly GGF analogy is so simple, no one with sound mind, let alone an analyst with an MBA from a prestigious university, would fall in it when constructing a model, right?  Well, that would be a wrong assumption.  Sad but a true story, here is a classic example and a case Dilbert would love.

A couple of years ago, a division of a major corporation was experiencing low single digit margins when everyone in the corporate office thought they should be in the double digits.  So the manager from the corporate finance organization responsible for financial oversight of the division -  a staff type and not an operator by any stretch of the imagination, who was actually slightly intimidated by operators and generally avoided them - decided to build a model to analyze the business unit’s performance for the upcoming budget cycle.  So he engages a bright chap, a recent MBA graduate, to work with him to develop a model and a budget plan on how the financial performance of the division can be improved.  Without an operator in sight, the young MBA, from a very prestigious school and well versed in modeling and simulations, builds a complex financial model that shows that the division can drastically change its profitability in less than twenty four months without any major changes or investments through a slight reduction of cost and a small increase in revenues.  Without a review by the business unit, the plan is presented to the corporate budget committee where, based on the output of the model and a great slide presentation, it becomes the division’s performance objectives for the coming year and is included in the corporate plan presented to Wall Street. 

The operating executive at the division initially protests that he did not sign off on the plan, but having limited ability to argue with the very sophisticated model that created his budget, he is told it’s just a matter of working a little harder and a little smarter so he accepts the model’s output as the baseline budget.  After a couple of months, things are off to a good start according to the model.  Or so it seems…  Six months into the year, things are not moving according to plan, and twelve months later, the division is still producing lower single digit margins and experiencing a flat year in all aspects.  During the last two quarterly analyst calls, the CEO is asked to explain why the company is not meeting its own quarterly earnings guidance, and the division president, a good operator in many respects, starts fearing for his job.  After fourteen months, the CEO fires him and engages us to help him “understand where execution of the plan went wrong” and “develop an operating strategy to bring the division back on plan.”

No problem.  That’s what we do for a living. 

So we start digging in and after a couple of weeks of data gathering inside the company, we finally have all the material we need to start deconstructing the performance objectives and profitability scenarios for the division.  Even though we find a couple of areas we can improve operating and technology performance, and some opportunities for outsourcing, without a major overhaul and significant capital investment, the contribution to the bottom line will be marginal at best.  It seems the operator in charge run a tight ship without much inefficiency with what he had to begin with.  We are all scratching our heads trying to understand why the expectations are so far removed from the reality of the situation when one of our partners with a forensic accounting background suggests we ask for the raw data behind the budget.  We do, and within a couple of hours we get a copy of the truly outstanding presentation deck that solidified the budget, the output of the model used to support the presentation, and the model itself.  After digging into the model for a couple of days, we all agree the model’s calculations and formulas are correct and the assumptions are generally reasonable from an outsider’s perspective.  A few things stand out however after we look at the inner workings of the model.  The major component driving the Costs Of Goods Sold line item down is a “small” reduction in raw material cost from 14% to 11% consistent with a trend from the last three years. This trend is so consistent, the model assumption is not even highlighted in the footnotes.  Similarly, one component that drives the revenue line up is a “slight increase” in market share from 5% to 7% over two years, not an unreasonable extrapolation for market share growth based on the actual data for the last three years, and also barely noted in the footnotes.  Other than that, nothing really looks out of line.  So how could execution of this plan go so wrong?  Why isn’t reality conforming to the model?

After some discussion, in a case of “a brilliant insight into the obvious”, we decide to check with some operators.  So we consolidate all the assumptions and trend calculations from the model and build a matrix that lists all of them.  We then obscure the client information and set time to discuss this assumption set with a couple of operators we know in the client’s industry. 

The meetings are an eye opener.  In two separate meetings each of the two operating executives in the industry, takes less than fifteen minutes of looking over our matrix to spot the problem with our “theoretical company turnaround.”  When the operators looked at the model they both zoomed into the same two things in a list of over fifty major and minor assumptions, raw material cost, and market share increase.  Even though mathematically the raw material cost forecast was correct and the trend based on historical data realistic, it turns out the reduction of raw material cost trend had run its course since an offshore player entered the market five years ago and it stabilized in the last year before the model was built.  The modeler, having no contact with the reality of the business unit, or any operating experience for that matter, did not know that.  They also pointed out that if the trend continued to the price points used in the model, the raw material suppliers could simply switch to selling to another industry that used a cheaper substitute but would buy their product if the price was competitive.  In a classic GGF case, the raw material forecast was not connected to reality but only to a mathematical formula in the model.  There was no base for extending the trend beyond the last data point and that “small” reduction was a non-starter at the get-go.  To quote one of the operators smartass comments: “why don’t you just assume they will give the raw material away for free and make your company turnaround really great.” 

The next point both operators zoomed into was the increase in market share.  They pointed out the entire industry segment only grew at 5% a year for the last few years and based on their experience it was going to be flat for the next couple of years.  New competitive products entering the market addressing the needs of their clients would require most players to retool or consolidate.  For our  "theoretical" company to grow its market share by almost 50% it would have to win all the new business, and take away significant market share from the dominant player in the industry, which would be a “pricing blood bath” as one of them put it.  Even though possible, without a significant investment in sales and marketing, and even a potential acquisition of a couple of smaller players, extending the trend would be almost impossible to accomplish over the next couple of years.  Another mathematically correct model created by an analyst not connected to operating realities bites the dust and takes a good operator with it.

During our report to the CEO, we pointed out that in the end, those two trend extension assumptions made the model an exercise in futility and wishful thinking and the plan was doomed to fail from the start.  Nothing anyone did in operations, short of re-tooling for the new product lines, could create the output the model predicted. It was not an easy meeting, but in the end, we worked with the client to prepare and sell the division to their major competitor and helped the fired division president find a job with that same competitor.  We also added another GGF story to our "modeling gone bad" category.

Unfortunatly, that experience has caused some of our operator clients to discount the output of models and the value of simulations and focus more on gut feelings, instincts, and traditional budgeting analysis.   That’s a shame because models and simulations are extremely important tools that can add significant value in operating a business.  Properly designed, they help validate, temper, and fine-tune our decisions by identifying gaps in our thinking and highlighting hidden but critical assumptions we are basing our plans on.  Models help analyze alternative scenarios quickly and can highlight potential risk points along the path of a plan through simulation.  Modeling and simulating the lifecycle of an M&A transaction, an outsourcing contract lifecycle, a new product’s market launch, or a new operating strategy upfront can save tremendous amounts of energy in the back end.  Alternative scenarios can be analyzed in a few minutes or hours on a computer rather than through trial and error over a few years in the market place, and assumptions can be altered in real time to assess their impact over the lifetime of a project. 

In my experience over the years, I have found that if I can model or simulate anything before I actually do it, the investment always pays off large dividends.  In our consulting practice, as well as when I run operations as a contract executive, models and simulations are important tools in my toolbag.  Taking a hint from the military and commercial airline pilots, I even use a flight simulator for my remote control helicopter hobby (or whirlybird addiction as my wife calls it).  Building an RC Heli can take dozens of hours and cost from a few hundred to a couple of thousand dollars.  They look cool and pretty when I finish them, but learning the unique aspects of flying each one of them is an exercise that involves frequent crashes until flying them  becomes second nature.  Learning to fly one of them on the computer simulator is a heck of a lot cheaper - and takes less time to be airborne again - than having to repair one after a crash, let alone having to endure my wife’s ribbing about my piloting skills.  Similarly, I prefer watching the top line of a business take a nosedive because of a bad assumption, or an outsourcing transaction not generating the expected savings because of a flawed process map in a spreadsheet or forecasting model rather than real life.

The process of creating baseline economic and operating models is really not that difficult and with a little practice most of us can do it.  For example, rather than using any of the really complex modeling tools, I generally create a few basic spreadsheets in Excel and then build real life dashboards from them using the simple modeling tools that come with Excel or add-on tools such as Business Object’s Xcelcius platform.  It does take a little forethought to construct a spreadsheet that can be used as input to a model, but it certainly is not brain surgery or rocket science. 

Some people prefer more complicated tools, but I found they require extensive training on the tool itself, intimate knowledge of modeling, and are generally beyond the skills of mere mortals, business executives, operators, and other folks like myself.  Unless they require highly complex multi-dimensional forecasting, in which case they should really have experts do it, or have a passion for it, in which case they are probably in the wrong job, most operators derive little incremental value from training on how to use those tools.

Of course modeling tools, whether the simpler ones I choose to use, or the models used by sophisticated market forecasting firms and financial departments of global corporations, are only as good as the inputs that go into them.  Over the last fifteen years I have worked on quite a few projects and companies that needed intervention because the actual results did not match the modeling output that drove the original decision.  Most produced unexpected and, most of the times, disappointing results that required an operational or technology turn-around, or at least a merciful execution.  

The focus of these series of articles is to highlight some of the common mistakes modelers make when they are not connected to an operator. 

However, in at least half a dozen cases over the last few years, I avoided making a bad recommendation because of the feedback I received from my LinkedIn network on those particular executives.  In those few cases the feedback was anything but flattering.  In the worst case the feedback not only did it not match the public reputation, the resume, or even the perfunctory recommendation the previous company gave, it was downright ugly.  That was the case of an IT executive who had been in three companies as CIO over the course of ten years and was considered a high flier by many in the region. After a couple of interviews, my client was considering him for a CIO role in a division we had just finished re-structuring so I decided to check him out.  When I discreetly asked my network for feedback it came back so negative I thought they were talking about a different person.  It turns out this CIO had an amazing ability to get credit for work other people did before he got the job, raising his visibility in the business community, and then launching his next position right as things he set in motion and managed badly were starting to fall apart, usually about two years into his tenure.  People who called me to give me their perception of this person came from all levels of the organization (Programmers to VP’s) and used words such as incompetent, snake-oil salesman, backstabbing SOB, inept, brown noser, etc., words you will never find in any resume.  Ouch!  Needless to say, I asked my client for more time and started over.

As far as recruiters go, they do indeed use LinkedIn and other social networking sites to search for talent. I personally know at least two dozen internal HR recruiters, independents and small firms, as well as partners in large retained professional recruiting firms who use LinkedIn to search for talent, check references, and gather info about potential candidates just like good operators do. I do not know anyone who found a job through a recruiter through LinkedIn (less than 10% of open positions are filled by recruiters anyway), but the potential is there.  I do know quite a few people who found positions through members of LinkedIn (generally managers and executives) looking for recommendations from the network for positions they are trying to fill without a recruiter (the majority of mid to senior management positions).

Even though some recruiters deserve their bad reputation, I think people forget that professional recruiters look for candidates for companies looking for candidates, not for jobs for people looking for jobs. Recruiters get paid by their client companies to find candidates, and not by the candidates to find them a job, so they focus, rightfully so, on their clients requirements. Also, many times they are limited to finding "square pegs for square holes" because their clients give them tight parameters for what they are looking for (down to the title a person should have on their resume) and they don't have much time to be creative or work with people that do not fit the criteria as closely as possible, or people whom they would have to repackage to get through the clients initial screens. There are some executive level recruiters, usually operators who retired into a recruiting role, who have enough experience and carry enough weight with their clients who can design job descriptions and can see past the checkboxes to find people from other industries, or with a similar but not exact backgrounds and experience.  Unfortunately, those recruiters are the exception rather than the rule.

So here is my funny experience from last week. A recruiter called me curious to find out why I was recommended to him by three different financial services company executives for a President position for a servicing company in the financial industry. In his "reading of the resume" he could not find any relevant experience other than my consulting engagements with a financial services company, and that did not carry a title that matched the “title requirements” his client gave him. After I stopped laughing, I asked him to call the President of that company (who was my client and who I directly reported to) and ask him what my title would have been if I was an internal executive. His response was that if it was not on the resume, he could not present it to his client. How funny….

Now, I will assume he will, at some point, read this blog or my LinkedIn response, so let me make sure I explain that I honestly understand his dilemma and I am not sure I would have done differently if I was in his shoes. In order to present me as a candidate, he would have to do more work and more selling, compared to finding an executive from a services firm that had the COO title in his resume. It would have been easy for me to call my clients in the financial services industry and ask one of them to call the CEO of the company and recommend me directly, or find another contact to that CEO through my LinkedIn friends, but the job did not pay enough for me to give up my consulting practice anyway, so I let it go. The lesson is nevertheless the same. Professional recruiters look for candidates that fit a specific profile for a specific job at a specific client; not for jobs for people who are looking for a job.

A couple of years ago a group of managers at a client company asked me to help them deal with their boss who suffered a bad case of Visionaritis, a disease affecting some managers who confuse vision with hallucination.  The output of that intervention (successful if I may add) was a workshop presentation I gave at their management training workshops and  a public presentation I gave at management seminars.  The title of the presentation was “Vision or Hallucination, Visionary or a Dreamer.”  I thought I would share it and see what you think.  As usual, you can send me your feedback at c.papageorgiou@ideasphere.com

Unless the acquisition strategy is one of a holding company, or a portfolio investment, pursuing acquisitions in an operating company without addressing the operational integrity issues is an irresponsible activity by senior management to say the least and a violation of their fiduciary responsibility to say the worse.  Just like a boat that creates a wake behind it, acquisitions create a backlog of intergration challenges and operational integrity issues that only get worse as the number of acquisitions increases.  And just like the backwash created by the wake can catch up and sink a boat that slows down below a certain speed, so does the task of integration eventually catch up and can sink companies that have to, at some point, slow down and integrate their acquisitions. 

In one company I was involved with a few years back, organic growth was running at less than 1% but with a string of acquisitions masking the actual performance, it appeared as if the company was growing at substantially higher rates.  Investors were happy and the management team (we were young and inexperienced at the time) did not recognize the problem.  The non-sustainable ponzi scheme of acquisitions lasted for about three years and then the wheels came off the wagon. Needless to say, it came as a surprise to those of us who at the time believed in the message of the CEO of growth through acquisition and did not dig into the actual operating performance of the company.  Imagine our shock when the company was sold to a “distressed asset buyer” for $0.40 on the dollar.  It was an expensive lesson to learn for me and my partners, but a valuable lesson nevertheless.  Unfortunately, the lesson did not spread widely and I have seen the same patern repeat itself in more recent times in other companies. 

If you are an operator, please consider taking a basic financial analysis course, understand the financial aspects of any acquisition and compare that to the current operating environment.  If the acquisition is “making the numbers look good” but adds little or no value to the current operating strategy, take a closer look at the long-term viability of the company.