Why nobody thinks long term

‘Rotten corporate culture’.Carillio_Master logo_lock up_A

‘A relentless dash for cash’.

‘Recklessness, hubris and greed’.

Just three of the phrases (and by no means the most scathing) used by the Parliamentary Business Committee in their report about the demise of Carillion, the UK construction and facilities giant that went into liquidation in January.

There’s no doubt who the MPs regard as the villains of the piece. Carillion’s former directors make an easy target: unlikeable, unrepentant – and relatively unscathed by the catastrophic collapse that cost thousands of employees and suppliers their jobs and livelihoods.

But let’s pause for a moment and imagine that they weren’t such pantomime villains.

Let’s imagine they were trying to run a complex public business in a difficult market, with pressure from investors to deliver growth, at the same time their margins were being relentlessly squeezed.

That is, after all, what happens in most PLC boardrooms every day (especially in tricky markets like construction and retail). Senior executives under pressure have to make difficult decisions.

Very often, those decisions boil down to a choice between ‘what’s best for the business in the long term’ and ‘what will help us hit our targets for the quarter’.

Given that there’s likely to be a lot more scrutiny of their short-term results (and that most of their bonus is likely to be pegged to them), should we really be surprised that the balance doesn’t very often come down in favour of what’s best for the business in the long term?

In my experience, this is invariably what’s at the heart of a ‘rotten culture’.

Carillion’s collapse is not a story of a few bad executives making rogue decisions in their own best interests. It’s a story of what’s wrong with a depressingly large number of public corporations.

They’re so busy focusing on the six to twelve months in front of them that they never lift their heads up to look further ahead.

Which means they never see the cliff edge they’re about to fall off.

During the several years that Carillion was building up the £7bn in liabilities that eventually pushed it over that cliff, it never once stopped paying out handsome dividends to its investors.

The board could have used those dividend payments to reduce the debt, or streamline the business, or balance the pension fund. But they probably would have been fired for doing that. Instead, they did what the investors wanted them to do and they got a big, fat bonus for it.

Which leaves me wondering who the real villains are here.

The executives who prioritise short-term targets over long-term sustainability?

Or the investors who reward them for doing it?

Make it emotional

Man on the moon - CopyWhen senior managers lock themselves in a room to define a mission for their business, the example they’re often told to aim for is John Kennedy’s ‘Man on the Moon’ speech.

I’ve heard four separate consultants use this example and every one of them made the same mistake. They each identified the famous goal – ‘land a man on the moon and return him safely to earth’ – as coming from Kennedy’s speech about the space programme at Rice University, Texas in September 1962.

In fact, it came from a speech he made to Congress sixteen months earlier, the ninth item in a packed programme that also took in foreign policy, defence and the economy.

Why does this matter? Because it tells us three things:

First, that Kennedy and his advisors were smart enough to recognise when they were on to a winner.

Second, that the best way to establish an idea you’ve recognised as a winner is to keep talking about it.

And, third, that big ideas are all about meaning: people won’t remember the specific words you used, but they will remember how those words made them feel.

This is because your brain finds it a lot easier to remember things when they prompt an emotional response. A strong feeling of excitement, or pleasure, or humour, or sadness, releases dopamine into your brain – and this acts like a kind of mental post-it note, making it easy for your sub-conscious to access that memory.

What Kennedy did was to outline a bold, exciting, uplifting adventure – you can bet there was dopamine exploding in brains all over the country.

Millions of people heard Kennedy’s speech. Very few of them would have been able to remember a single one of the 2,207 words that went into it. They didn’t need to – they only needed to remember the gist.

When Kennedy later visited NASA’s Houston base to check on progress, he met a janitor who, replying to a question about what he did, said ‘Mr President, I’m helping to put a man on the moon’.  That’s engagement.

Even tax-payers loved it – and he was telling them he was going to be spending a lot more of their money.

Would the audience have been so excited if Kennedy had said ‘our mission is to make NASA the pre-eminent global leader in aeronautical technology’? Or would they have preferred lower taxes?

Engaging people with your business is all about emotion and belief. If you get it right, it makes it easy for you to attract and motivate people who believe in what you believe in.

 

Do no evil (no, really)

Toxic_hazard_warning_sign_sticker-FacebookThe week’s big news – how Cambridge Analytica allegedly bought profile data from Facebook and used it to influence the outcome of the US election – has offered a fascinating (if terrifying) glimpse into the world of online data analysis.

Among the many jaw-dropping revelations and tone-deaf Twitter responses, the standout moment was the interview with Alexander Nix, Cambridge Analytica’s (now suspended) CEO.

When it was put to Nix that he had been caught on camera boasting about how his business had used data to influence the election outcome, his dismissive explanation was that he had been pitching for new business, so was obviously saying whatever the client wanted to hear.

What I found interesting was that he clearly imagined this made it okay. Which got me wondering: how messed up must your organisation’s moral compass be if ‘We routinely lie to prospective clients in order to get their money’ feels like a brand positioning you’re happy with?

Perhaps I’m naïve. Nix certainly seemed to feel he was being unfairly singled out for a practice that was routine in his industry. The board of Cambridge Analytica disagreed and threw him under the bus.

No doubt, this will shortly be followed by the disappearance of what has now become a toxic brand – and the business will quietly re-emerge with a new name, a new set of corporate values and (for at least a little while) a loud determination to act in a purely ethical manner.

Will this fix the problem? Or will it just be a temporary diversion, until the new leaders realise they’re losing market share to competitors who are still being less scrupulous about the way they manage data?

That’s the problem with ethics. As soon as you start finding ‘grey areas’, where you can make compromises that boost your profits without actually breaking the law, it’s tempting for under-pressure leaders to embrace them.

Which is exactly where ‘good’ businesses go bad. If your engineers get rewarded for finding ways to mysteriously improve your emissions test performance, that’s bad (Volkswagen). If your sales people get a bonus for selling people financial insurance they don’t need, that’s bad (any bank that mis-sold PPI).

But is either of those ethically worse than avoiding tax? Or deliberately paying your suppliers 60 days later than your commercial terms said you would? (Almost every large business I’ve ever dealt with).

Very few companies are actually ‘bad’. But don’t kid yourself that having a page of values that say things like ‘integrity’ and ‘transparency’ and ‘fairness’ is going to save you from public scrutiny when you’re caught crossing an ethical line.

Culture is about every single thing you do as a business. As soon as you start turning a blind eye to (or worse, rewarding) bad behaviour, you’re in the same boat as Alexander Nix.

 

What’s the one big thing?

Imagine you’re lost in Africa with a small group of people. You don’t know where you are, or which direction you should head. You’ve got no food, no water, no transport. And there’s a hippo coming towards you.

What do you do?

CAMO HIPPO

The answer is: you get out of the way of the hippo. Hippos are vicious; they kill three thousand people a year in Africa.

That’s not to say the other problems aren’t serious problems. They are – and you’re going to have to deal with them. But the hippo is the one big thing you have to deal with now because, if you don’t, you’ll die.

You know that because you’re smart.

But let’s imagine, for a moment, that you’re not so smart and you don’t realise quite how dangerous the hippo is. Maybe it’s just lumbering towards you in an apparently amiable way. Maybe you remember the BBC2 idents with the adorable baby hippos shot from underneath as they swim in slow motion.

So you and your companions ignore the hippo and start focusing on your other problems. We need clean water, someone says. If we don’t find something to drink in two days, we’ll die. That’s bad, right? Everyone nods and starts looking for water containers.

Then someone else points out that, actually, water isn’t your biggest problem. Your chances of surviving as long as two days in the African bush are so slight that it’s much more important to figure out where you are and find a way out. If you don’t, you might die in much less than two days. So you forget the water containers and start planning escape routes.

And, while you’re doing that, Harry the hippo comes round the corner and tramples you all to death.

That’s what happens to businesses all over the world every day. They get so caught up in their day-to-day problems that they miss the one big thing that’s going to kill them.

50 years ago, that wasn’t such a problem. According to strategy agency Innosight, a business listed in the S&P500 index in 1965 could expect to stay there for 33 years on average. By 2026, the average tenure will be just 14 years. In other words, things are moving faster. It’s getting harder to survive.

That’s why, if you’re a business leader, your first and most important job is to provide focus.

What’s the one big thing you need to get right? The biggest threat? The opportunity you can’t afford to miss? Make sure everyone is absolutely clear about it.

Because, if you don’t, the hippo will get you.

False economies

1Pcs-Cute-Classical-Director-Video-Clapper-Board-Scene-Clapperboard-TV-Movie-Film-Cut-Prop-Wholesale.jpg_640x640

A little while ago, a client gave me some video footage and asked me to edit it into a film.

There were two problems: the video footage wasn’t very good and it didn’t actually capture the content that was needed to make the message of the film come across. Luckily, both problems were easy to solve.

I said: ‘We’ll just shoot that again. We can do it with a single camera in a couple of hours. That way we won’t have to take all that time trying to fix it in edit, so it’ll cost you less and you’ll have a much better film.’

‘Er, no’, said the client.

It turned out the footage had been shot by the Director’s PA, using a camera the department had recently bought in a bid to cut costs. Not using the footage would ‘send the wrong message’ about this decision.

‘But the footage is terrible’, I said.

‘It is’, agreed the client.

‘It doesn’t say what you need it to say’, I said.

‘It doesn’t’, agreed the client.

‘You’ll end up with a film that’s not very good,’ I persisted.

‘Yes,’ agreed the client.

‘And it’ll cost you more.’

‘Yes,’ agreed the client.

So I shrugged my shoulders and stopped arguing. You can do an awful lot in edit these days. What you can’t do, of course, is make people say things they didn’t say or refocus a blurry shot. So we made the film: it looked okay and sounded okay, but just didn’t work as well as it could have done. And it cost a bit more to do it badly than it would have cost to do it well.

It got me thinking about how companies sometimes end up making quite perverse decisions in a bid to gain a little bit of advantage.

In this case, the decision-making process had gone something like this:

  1. We’re under pressure to cut costs
  2. Film production is expensive
  3. We can buy our own camera for less than the cost of a day’s filming
  4. Cameras aren’t that hard to use – I’ve got one at home
  5. So we could do our own filming and save money

All of which makes sense – up to a point. The problem is that being able to make a film is not the same thing as being able to make a film that’s interesting.

If you make a film that is not interesting, people will ignore it. Which means you’ll have wasted the money you did spend and you won’t have done your job.

Our client knew that.

Unfortunately, she wasn’t the one making the decision about buying the camera.

The trick is to know the right questions

target-logo-8_0-100257986-primary.idgeA few years ago, a man went into a Target supermarket in Minneapolis to complain to the manager, because the store had sent his teenage daughter a personalised leaflet packed with coupons for maternity clothing, nursery furniture, baby clothes and other maternity offers.

‘My daughter’s still in school’, the man said, angrily. ‘What are you trying to do: encourage her to get pregnant?’ The manager apologised profusely for what was clearly a mistake.

A week later, the man spoke to the manager again: this time, to apologise himself. It turned out his daughter had been pregnant, after all – she just hadn’t told him.

So how did Target’s mail-personalisation system know she was pregnant before her own father did? The answer: a statistician named Andrew Pole.

Pole’s job was to analyse customer data, to find patterns that could grow Target’s sales. He realised the most likely time to change customer shopping habits was during lifestyle changes: graduation, moving jobs, moving house, marriage, divorce and, especially, having a baby.

If you can get a pregnant customer to buy their baby goods from you, they’ll buy everything else from you too, because convenience is paramount. But, if you wait till after the baby is born, they’ll be inundated with offers from other stores and you’ll probably lose them.

So the trick is to know they’re pregnant before anyone else does.

Pole analysed the purchasing patterns of thousands of pregnant customers to identify telltale changes: for instance, switching to non-scented soap, buying calcium and zinc supplements and large packs of cotton balls. When customers started showing this behaviour, they’d be sent money-off vouchers for maternity items (just as the man’s daughter had been).

The result was that millions of pregnant women began spending a lot more money in Target. The same thing happened when Pole analysed other lifestyle triggers. By 2010, his analysis had helped to grow Target’s sales by over 50%.

What’s interesting about this is that everybody else had access to the same information Pole had. They all had the answers in front of them.

But he was the only one asking the right questions.

If it feels comfortable, you’re doing it wrong

When clients ask me whether culture change works, I say: imagine you’ve got a living room that’s a bit pokey and dark.

If you knocked the wall through to the dining room, you’d let loads more light in and it would feel bright and airy. But that sounds difficult and expensive. It would cause a lot of disruption.

tear-down-wall-sledgehammer

So, instead, most people decide just to redecorate the living room: new wallpaper, better lights, a brighter carpet, new sofas. It takes a bit of time and costs more than you thought it would, but at least you haven’t had to breathe in any brick-dust or shower at your neighbour’s.

For a while, you feel really good every time you go in the room: you open the door and stand there with a smile on your face.

The only thing taking the gloss off is that some of your friends don’t seem to notice. You say ‘what do you think of the new living room?’ and they say ‘it’s lovely… er, what have you done?’

After a month, the novelty wears off. You stop making your kids take their shoes off before they walk on the carpet. You let the dog sit on the sofa. After six months, you’ve completely forgotten what it was like before you redecorated.

And you’ve still got a nagging feeling that the room is a bit pokey and dark.

That’s what launching a new ‘purpose and values’ in your business is like. It looks nice. It makes you feel good for a while. But, deep down, you’re not really changing anything.

So, before you start doing any of this stuff, the most important question to ask yourself is ‘why?’ Why do you want to change your company’s culture?

Is it because you want to be a better company? Or is it because you just want people to think you’re a better company?

The only way to make a real difference to your culture – to evolve an identity and values that actually mean something to the people who work in your business – is if you’re ready to break down some walls and have some uncomfortable conversations.

Otherwise, all you’re doing is changing the wallpaper.

Get real

Back in the 1980s, when the founders of Innocent Drinks were still in short trousers, there was a massively successful fruit drink brand called Snapple.

diet-snapple-raspberry-peach-24.oz-1Snapple’s popularity was based on its use of natural ingredients and its quirky, homespun brand positioning (‘made from the best stuff on earth’).

In 1994, the brand was bought by Quaker for $1.7bn. They applied all their considerable marketing and manufacturing know-how to turn Snapple into a global leader – and, in the process, they nearly destroyed it. Because they’d completely missed the point.

The point was that people loved Snapple precisely because it wasn’t slick and efficient: it was quirky and charming and authentic. It was an anti-brand. As soon as it became just another big corporate money-maker, they deserted it in droves (former fan Howard Stern, the controversial and influential American DJ, began referring to it as ‘Crapple’ on air).

In 1997, Quaker offloaded Snapple for $300m. They’d spent three years and $1.4bn turning a distinctive and much-loved brand into just another product.

That’s the thing with authenticity. You can’t fake it.

Anita Roddick, the charismatic founder of the Body Shop, was once advised by her legal department to stop using the word ‘activist’, because people might associate it with terrorism. Her response was to use the word as often and as publicly as she could – she even launched a fragrance called Activist. As far as Roddick was concerned, active participation in causes and debate was an essential part of what made Body Shop what it was: she’d rather risk offending people than compromise her principles.

During the first Gulf War, Roddick sponsored an anti-war campaign (which, at the time, was a fairly unpopular position for anyone to adopt, let alone the CEO of a public corporation). She faced strong pressure from investors and her own marketing team, who were worried that her stance would damage public support for the brand.

Roddick opened the issue up to all Body Shop employees in a public debate. Had she lost, she would have stepped down. Fortunately for the business, she didn’t have to. Employees responded to her, because the principles Body Shop stood for mattered as much to them as they did to her.

How many CEOs would have the guts to do something they firmly believed was right, even when it would cost them sales and might cost them their job?

That’s what real authenticity looks like.

Mind your language

When my grandfather first started work, he used to wear a full morning suit and hat. He and his colleagues sat in ordered rows of large school desks, in a cathedral-like silence, broken only by the scratching of pens. There was no room for humour or lightness: work was a serious business.

3D Rendering of Attractive Gray Sofa with White and Blue Pillows

When they addressed each other, it was done with whispered formality – ‘Mister Smith’ or ‘Miss Jones’. First names were superfluous. Letters would follow prescribed patterns: ‘We are in receipt of your correspondence of the 6th inst.’, ‘In anticipation of your favourable response, we remain etc.’

The office he worked in is still there: an imposing building beside the river in London. People go to work there in jeans now. They sit on communal designer sofas, sipping lattes, having power meetings and firing off emails to their boss that start ‘Hi Liz’ and finish with a smiley face. They update their Twitter feed on the train in and they take their blackberries on holiday, so they can still be part of the conversation while they’re on the beach in Cancun. The divide between work and home is being consciously blurred, to make work feel more like ‘real life’.

But there’s still something not quite real about it.

In between the cheery salutation and the smiley face on the email, they’re still using words like ‘executables’, ‘leveraging’, ‘behaviours’.

They’d never dream of using those words with their friends or families because, deep down, they know they’re nonsense: invented words designed to imbue ordinary ideas with greater significance and urgency, or to avoid uncomfortable truths.

If you use words like that at home, your kids will laugh at you. But, in the office, you can say ‘paradigm shift’ and ‘low-hanging fruit’ and nobody will laugh. In fact, they’ll make a note to include it in the next presentation they write for you.

That’s because your kids will give you feedback your direct reports wouldn’t dare to. They’ll tell you what they really think and they’ll tell you when you sound like a phoney. Which is uncomfortable – and sometimes unfair – but it’s also a lot more real than the environment most people work in.

I’ve spent the last 30 years working with lots of very different organisations all over the world and I’ve noticed that there’s nearly always a strong correlation between the words a business uses and its long-term success.

Big words and complex ideas are a shield people use when they want to skirt around difficult issues. It means you can ‘tackle’ those issues without ever breaking much of a sweat or upsetting anyone (or, in fact, tackling them). Euphemisms are a cover for bad news.

That’s why it’s a good idea to spend a bit of time listening to the conversations going on around you – at desks, in meetings, in the canteen, in the lift.

If the people in your business sound the same at work as they sound in real life, everything’s fine.

If they sound like a management consultancy presentation, you’ve got a problem.