The Art of Action
How Leaders Close the Gaps Between Plans, Actions and Results
By Stephen Bungay
Nicholas Brealey Publishing Copyright © 2011 Stephen Bungay
All rights reserved.
What Do You Want Me to Do?
The intelligence of an organization is never equal to the sum of the intelligence of the people within it
AN UNANSWERED QUESTION
While the gray December rain drizzled down outside, the ground floor of the hotel had all the lights, sounds, and colors of a stage show. A well-known global technology company was holding its annual senior executive conference. The hundred or so top people in the company were listening to their bright, dynamic chief executive give his "state-of-the-nation" address, to be followed by an open question-and-answer session.
The CEO's message was hard, but he was engaging and convincing. The markets were tougher than they had been in decades, new competitors had established themselves, customers were making higher demands, and technological change would require massive expenditure. Nevertheless, there was reason for cautious optimism. A new strategy was in place: a new emphasis on customer service, exploiting leading-edge technology to create a new generation of products, and a series of initiatives around people and culture. The organizational structure had already been changed. The company had a great brand and great people. But – and here he paused – not a lot was happening.
He made his appeal. The company needed pace. Things were changing too slowly. The markets would only wait so long. The strategy had been debated and formulated twelve months before, signed off six months before, communicated internally andexternally – but it was not happening. Sure, there were still open questions; there always would be. Nevertheless, the people in the room could not all meet again in a year's time and be saying the same things. The time for debate was over. It was time for action, to get on and do it. The future was in their hands.
The CEO was impressive. He spoke without notes. He was in command of the issues; his words were fluent, but not facile. He was open about the difficulties and made it clear he was confident but concerned. The applause was genuine. He sipped from his glass of water and moved on to the Q&A session. Be open, please. No holding back, tell it like it is, challenge anything and everything. Let's put things on the table today, not tomorrow.
There were a few questions about what was going to be done about this or that. Then over on the left a woman took the wandering microphone. She was responsible for a sizeable chunk of the business. "I understand the strategy," she said. "I agree with it. I think it's a good one, perhaps the only possible one. We have talked about it a lot and communicated it down the line. There are lots of initiatives. But ..." – here she paused slightly – "what do you want me to do?"
The question was precisely placed at the intersection point between naïvety and sophistication and intoned with a note of plaintive frustration. The smiling nods and approving murmurs from the audience suggested that it would have been unwise to interpret it as naïve; that indeed, she had had the courage to ask the risky question that everyone wanted answered.
The reply was measured, but evinced frustration of its own. As I said, the CEO observed, we do not have all the answers. But surely you don't expect me to tell all of you what to do? This is not a command-and-control organization. You are big boys and girls. I am not running this company, we all are. We have a strategy, we have long-term objectives, we all have budgets. We are running a business and we have a direction. It is for each of us to decide what we have to do in our own area and to get on with it.
This response was not unreasonable. That, surely, is what a modern, devolved structure is all about. The question had not sounded like a request for direction; there seemed to be plenty of that already. Nevertheless, her question remained unanswered. What was missing? In the hotel lobby, in the coffee breaks, over the buffet lunch, and in the bar in the evening I tried to find out. People were more than happy to talk.
The organization was lethargic but also full of frantic activity. People were working so hard that the HR people were seriously worried about issues of work–life balance and potential burnout. However, all this activity was having no discernable effect on the company's performance.
Revenues were falling, margins were eroding, service standards were deteriorating, and, most worrying of all, they were losing share of the already declining market to a confident new competitor. The sagging top line was rendering the burden of fixed costs insupportable. Everybody knew that and everybody knew what it meant: they would not all be there next year. Those who were there would have to work even harder. During the conference they had been canvassed for their views about the issues which needed to be addressed. As a result, more initiatives had been added to the already substantial list of long-term goals, medium-term objectives, and short-term priorities. Someone told me there were 11 of those. In the afternoon it became 17. There was much talk about "having a day job as well as all this."
The situation seemed to be very complex. There was uncertainty about the causal relationships between the mutually reinforcing elements of the doom loop they seemed to be in and therefore what to do about them. Should they cut costs or invest in revenue growth? Or both? There was uncertainty about what really mattered. Was it service or price or was the product suite too old? They needed to improve revenue, margins, and service, but how to do all three at once? Where should they start? Everytime they discussed their problems people came up with new things to do and these were added to the lists.
To resolve the uncertainty, people held meetings to define and analyze what was wrong. The most common outcome of such meetings was the discovery of more problems, which extended the uncertainty. People started their conversations with "the reason this is a problem is ..." In pondering the current state and what should be done, all sorts of subproblems emerged, along with reasons not to do things and why they would not work. Everything they could do would cost too much. There were things they might do but couldn't because they lacked information, be it about external markets or competitors, or internal information such as when a new product would be available. All agreed that they needed to find out more. Doing so took time.
The provocative and risky question from the floor had many echoes. They were all familiar with the strategy – or at least with the themes of the strategy. But nobody knew what they themselves should do. So everyone discussed the generalities of the overall situation and what "the company" ought to do. The most senior people were beginning to lose patience. There was a history of entrepreneurialism, but it was getting them nowhere. In fact, it was making things worse. They needed to leverage their scale globally, but as long as country managers were calling the shots and demanding scarce technical resources from the center to fix trivial local problems, the fundamental need for a new technology platform could never be addressed. To hell with entrepreneurialism; it was just an excuse for selfishness and waste. The center wanted to take charge. "We have to tell people exactly what we want them to do," one senior executive told me. "We must spell it out in painful detail," gritting his teeth as he uttered the words. He meant them.
Yet what were those actions he wanted to spell out so exactly? And if they were carried out, would they work? How, indeed, would the organization know if they worked? People in the operating units were skeptical, anxious that the center would indeed take control without knowing what it was doing. Country managers all had their stories about what disasters ensued when central initiatives were imposed. "They just don't understand that markets are different," I was told. "We're a global company. You can't do the same thing in Thailand as you do in Germany. Some of this stuff is just crazy, so we ignore it. They come up with something new every month anyway, so in a few weeks it will all go away and they will be on to something else ... like the balanced scorecard."
As people failed to do what was wanted – either because they did not understand what was wanted in the first place or because they understood only too well and thought it was wrong – the resulting frustration and suspicion led in turn to a call for tighter control. As the initiatives specifying actions increased in number, so did the metrics specifying targets. These gradually gave way to metrics about actions. Input measures dominated output measures, and in plan reviews questions about what was being achieved were replaced with questions about how things were being done. Senior management spent much of their meeting time creating, discussing, and reviewing measures and numbers. The numbers themselves became very detailed, yet divorced from overall goals. Behavior became driven by targets rather than performance. A sales group spent substantial meeting time discussing the need to build a long-term relationship with a key customer, based on service. In the next session they focused on how to "push" product into that same customer in order to meet their targets.
Trust was eroding between the top and the bottom and across the market and technology functions. For all the metrics, accountability was very diffuse. In the complex matrix, few people were uniquely accountable for anything. However, in the quest to increase motivation and commitment, performance bonuses were being linked more tightly to specific measures. People objected that they were not in control of what they were being measured on. They were told to work more closely with their colleagues and get on with it. As distrust grew, so did resentment, and it turned into a sense of helplessness.
I was told that a member of the executive board had addressed a management team with a very clear mandate to make recommendations for the business that he would support at the board. When he left the room, the group said, "This will never happen – and what's the point anyway?" It was not that they did not trust him as an individual. They did not trust the organization, in part because of its poor track record in pushing things through and making them stick, and in part because they did not believe the board members were united. Stories about disagreements abounded. Differences in opinion, even differences of emphasis, were magnified in the tales that were told outside the boardroom door.
Things did not look good. Maybe the markets would turn. They must turn some time, although nobody knew when. To stand and wait would serve no one. What was the cause of the problems?
AN UNDIAGNOSED DISEASE
The following year, I was invited to do some work for the research and development arm of a global pharmaceutical company. The history and culture of this organization were very different.
The technology company had had a long history of devolved responsibility, with powerful country heads taking many important decisions. This worked well, but over time gave rise to duplication of effort and turned into an undisciplined failure to exploit scale through standardization. In contrast, the pharmaceutical company had a strong center, drug development was highly disciplined to meet the requirements of regulators, and there were a lot of standardized processes. That would surely enable the organization to get things done.
But not much was happening there either. In fact, it looked very much as if the whole industry was in a long-drawn-out crisis, trapped like a frog in a saucepan of water which was beginning to approach boiling point.
It is still in the saucepan. The world pharmaceutical industry is spending more and more to produce the same or less than it has done in the past. The length of time taken to bring a potential drug to market is 11–15 years. The trend is lengthening. The chance of a potential drug making it through the clinical trials process and being approved for use is about 1 in 20. The trend is declining. The average cost of a drug reaching approval has been estimated at about $800m. The trend is rising. People working in the vast R&D organizations of the industry are working harder and harder and achieving less and less. It is not unusual for someone to spend their whole career in drug development and never be part of a team which successfully brings a drug to market.
Something had to be done. That was already clear when I turned up for the first time at an R&D site of my new client on a bright summer afternoon.
Once again, there was a lot of activity. There was also a great deal of thinking. Strategies had been developed for exploiting scale, developing technology, managing risk, growing the pipeline, building trust, developing people, and much else besides. The talent and resources available were staggering. Every other employee in the R&D organization had a PhD in science or medicine or both, and the company was sitting on a cash pile with which it could acquire new expertise, invest in technology, or buy the rights to new drug compounds. Most of the world's leading consulting firms were employed on a regular basis, analyzing trends and future scenarios, developing new IT systems, and introducing new ideas to improve efficiency. There were impassioned internal debates about the virtues of focusing on big-ticket "blockbuster" drugs against smaller, targeted drugs, about a strategy based on precision medicine, about the role of new biomarkers and the deciphering of the human genome. All were being explored, but nothing much was being achieved.
While there were a lot of clever people who were very well informed, taking decisions was difficult. In fact, the greater the volume of information, the harder it was to decide what to do. Developing drugs is by definition pushing forward the boundaries of knowledge and entering areas of high uncertainty. So most decision-making bodies were committees of experts covering all the various disciplines which could have something to say. Because of the high risks inherent in the business and the serious potential consequences of making mistakes, decisions taken in one committee were reviewed in other, higher ones to ensure proper control. Approving decisions took months. By the time they had been approved, the situation had usually changed, new information was available, and the decision had to be reviewed again. Sometimes decisions were deliberately postponed in order to get more data, for there was always more to know. There was a quest to find the sort of certainty offered by science. It was never fulfilled.
Given the large number of specializations, the organization was very complex. The project teams actually running the drug trials cut across a matrix of country-based sites and global functions. This rendered it difficult to make accountability clear, especially as over the long life of a drug under development the makeup of the team would change. People's hard reporting line was to their functional line heads, who had prime responsibility for their evaluations. So the functional heads tended to have most sway over how people spent their time. All the functions had their own plans, objectives, and targets, and these ran into conflict with the projects. For example, the person leading the regulatory sub-team on a project just six weeks away from filing a new drug with the FDA was told by his functional head to attend a week-long meeting abroad about the latest developments in global regulatory affairs. He felt helplessly torn. Had he gone, the project would have missed its filing date, costing millions of dollars in lost revenue. In the end he stayed. The projects were the sole source of actual value creation, but the teams working on them often felt they were engaged in a peripheral activity.
Every member of a project team thus faced the daily problem of working out what they should do. They spent a lot of time in meetings and exchanging emails. Most emails were CCed out of fear of the consequences of leaving someone out or failing to syndicate a decision. Given the complexity of the issues involved, meetings went into a lot of detail in order to try to work out what mattered and what didn't. Given all the noise, some genuinely important things were passed over, for if someone had something to communicate it was very difficult for it to be heard. It was not uncommon for people in a meeting to ask for information which had already been circulated well in advance. They had not noticed it – and there was little time to read it anyway.
Things got bogged down. People spent all their working days in meetings or reading emails, but still had their own work to do for at least two bosses. In the end, frustration would drive some of them simply to do something, whether it made sense or not. Real decisions were made in informal encounters in the corridors and then announced later. They were not always good ones, but at least they moved the debate on. As no one was quite certain who was responsible for what, internal hierarchy dominated. (Continues...)
Excerpted from The Art of Action by Stephen Bungay. Copyright © 2011 Stephen Bungay. Excerpted by permission of Nicholas Brealey Publishing.
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