Bold Exec

4th Generation

Management by objectives (MBO) permeates decades of management literature and practice. Determining specific objectives, managing by those objectives, identifying specific stated goals, and holding individuals responsible for and grading them on their performance toward those objectives is a great concept.  Managing any organization without written, specific and measurable objectives would be difficult. I doubt that it is done often; and when it is, I doubt it is done for long. While fundamentally correct, it is also well out of date.

First, the process has become so entrenched most everyone with any savvy knows how to play the game. Managers can structure objectives to optimize their own bonuses or payouts rather than the organization’s performance goals. 

Second, MBOs hardly ever precisely target a company’s true priorities. They are often too fuzzy to hit any actual goal. They aren’t detailed enough, and sometime they aren’t even written down.

Third, defining objectives is a labor-laden process, so it’s performed only once a year.  But the pace of business today is way too rapid to lock in a program with your manufacturing manager in October and calculate his reward fourteen or so months later.

You need a specific process that targets your corporation’s top priorities in detail. The process must be easy, it must generate intelligence and improvements through constant review, and the execution must challenge the organization. During my career as a turnaround CEO, I’ve developed a fourth generation of MBOs that meets all these criteria.

The process is described in the publications over the next three weeks. Rigorously followed, this fourth-generation procedure will have your company spearing the target every time.

Take A Detour

We’ve all faced difficult business situations when there are No Good Options. Every way you turn you face an un-surmountable barrier: no way forward makes sense. Managers are frozen. Each day that passes the situation worsens. Usually, but not always, these situations result from years of not-benign neglect; not making the appropriate and necessary smaller decisions along the way. Need a current and ongoing example? Daily headlines and blogs scream out one: our involvement in Iraq. But back to business!

Waiting and hoping--day by day--is a loser; it won’t get you anywhere. There has to be a solution but you may need to search and investigate way outside the current dialogue and debate boundaries. Apply some adventurism to your thinking process, go outside the mainstream of thought, solicit inputs from lower organizational levels--individuals not typically asked and not politically tangled up in the throes of the current debate. We have found great ideas on solving problems form within the organization. You have to listen carefully and patiently, sift through a bunch of not-good ideas, be sufficiently open-minded to expand or modify rather than reject thoughts that don't quite fit, and piece together a mosaic. But almost always there's a pony somewhere in the straw pile. This is hard work: it's also hard work to dismantle an organization from failure especially when you later realize you didn't use every last ounce of energy into rescuing it!

Dealing with Changing Technologies

Sometimes there is no true north strategy available: period. When a company faces changing competitive technology and that change process is fraught with uncertainty there are three options: 1. do nothing; sounds almost ridiculous but sooo many companies have died as they stuck their head in the sand ignoring emerging competitive products or technologies “hoping they would go away”, 2. place a big bet with a major acquisition or large investments on one of the outcomes, or 3. be smart.  Being smart means thinking two steps ahead, planning on multiple possible outcomes, avoiding picking a winner before you have to, in effect hedging your bets.  Here's an example that demonstrates the wisdom of the third option. Applying it usually takes some outside-the-box thinking and creativity; that’s what you’re paid for!

A research department (subsequently named Globespan) was a throw-in to a larger acquisition from AT&T in 1996. We decided that it's cost basis was $5M. This research department had created an operational version of DSL technology (high speed internet over copper telephone lines). Let’s call Globespan’s offering version A to avoid the cryptograms; it was a combination of hardware and software. On the surface this seemed highly promising; the DSL market was real hot at that time. However, there were many serious, no daunting, problems. A competing technology, version B was already in existence;and several companies had gone public with in aggregate almost $2Billion of market valuation based on its potential (even though B wasn’t yet operational). With the mega-funds they had accumulated via their public offerings, these companies had lobbied, cajoled, entertained, and mystified the entire user industry (telephone companies) into declaring that version B was the one and only standard--the only acceptable product. Version B’s standard position was locked in, totally unassailable. This happens: in the early days of video cassette technology VHS prevailed over a much more robust and better performing Beta technology in roughly the same way. So Globespan faced: (a) being locked out by firmly established standards, (b) a current $0.5M negative cash flow per month which would need to become much, much larger very quickly, (c) no major customer willing to place even a small order knowing they would have to replace all the hardware when the standard, version B, became operational. In addition, as Globespan was simply a group of researchers, there were other major investments necessary just to be operational. Globespan needed a management team, in-field capabilities, testing facilities, a headquarters building and labs (the research people had been housed in Bell Labs and were essentially homeless after the acquisition). I was a part time turnaround CEO so we also needed an industry expert long-term CEO. Hiring anyone of caliber would be difficult given the standards problem. This was a lot to do for a company apparently facing a stone wall. Some of the investors felt we should shut the doors (actually at start there weren’t any doors); and virtually all cringed at the combination of the ongoing negative cash flow and required investments.

But there were believers, me being one. We created a NorthWest strategy, in this case a financial holding pattern while making the necessary investments. By cliff’s-edge negotiations with our major supplier, our potential landlord, our employees and our existing customers, the  cash flow out was reduced to about $0.2M per month even with the additional hires and expenses without sacrificing significant equity. This was a palatable level. Although the standards could not be changed, we pummeled the market place with proof that our version A was robust and operational, helping significantly in the hiring process. About 12 months later, the new CEO created a brilliant, now true North strategy, offering our A technology (which worked) and hardware but with software upgradeability to the B technology (when—and if—it ever worked).  The customers therefore took no risk when purchasing the non-standard but working technology, as they didn't have to replace the hardware. The flood gates opened. Globespan’s version A never got re-programmed to version B as it then became the standard. Globespan later went public and peaked at a $8Billion market value.

Northwest Strategy: Part II

If you’ve been in a CEO or general manager position for a while, it may be appropriate to take a step-back and gain a step-change in performance via creating and implementing a Northwest Strategy. If you have just arrived at a new CEO or general manager post, create a "good-enough" Northwest Strategy. How do you create this Northwest, and get major and rapid results? The first step, rather than doing market studies, competitive analysis, or strategic planning exercises, is to carefully define the critical problems. The second step is to fix them. Easy; right?? Let’s review every word of the title as they are important (except the “the”).

“Carefully Define” means just that, thinking beyond the obvious so you attack the cause not the effect. High admin expenses may not be simply due to a bloated staff, but rather too many sku’s.  High manufacturing costs may not be a design or operational problem, but rather caused by marketing promises such as lead times that are inefficiently short or catering to customers’ every possible whim. An example of both is the 2007 Dodge Nitro, available in 167,000 different combinations (color, trim, etc.) while selling about 37,000 units!

“Critical Problems” also means just that. Any business will face a laundry list, such as product costs, expense levels, product line proliferation, too many facilities, inadequate management, estranged customers, or employee morale. You can’t fix everything at once. Do the tough work of determining those several that are critical, testing against these three factors: (a) “do or die”, gotta fix this one, (b) fixability, don’t tilt at windmills, and (c) impact—including solving multiple problems with one action. Those problems can be multidimensional, and usually are.  They can be somewhat complicated, and usually are.  If not, they would’ve likely been fixed by now.