Sadly, this is Wes’ last post; his heavy schedule and several new projects preclude him from continuing to write for Leadership Turn. Wes sends this message,  “Thank you all for visiting and reading my posts each Tuesday for the past several months.  I hope that you were challenged to think differently about leadership and business management.  My best wishes go to Miki and the entire B5 team.” I want to thank Wes for his insights on creating a leader-of-the-pack company; if they’ve proved useful to you please take a moment and say so. Finally, you can find more of Wes’ insights, as well as contact him, at the Ball Group.

Are you shooting yourself in the foot by giving away more and more in an effort to grow/maintain your business during bad times?

A proven secret to getting more [for you] is offering less [to them].

• When the San Diego Padres moved to their new stadium in 2004, they had one-third fewer seats to sell, yet they sold a million more tickets at 32% higher prices that first year.

• Subway franchisees have learned the best way to boost total sales is to reduce seating.

• Many retailers have discovered that a smaller parking lot increases store traffic.

When you want to boost demand for almost anything, just tell people that availability is limited.  Likewise, if you want more people to take you seriously and aspire to own what you sell, raise your prices.

Since all of the above are proven to work, why is it that as soon as the economy looks a little shaky, otherwise smart business owners and managers start trying to provide more for less?

There is an irrational fear that overtakes even the toughest and savviest business owners as soon as they start to project less demand ahead.

Instead of working on how to increase demand among the 85+% of those customers who still have needs on which they will spend, they focus on the 10-15% of customers who are willing to risk failure and loss rather than spend money and doing that undermines the value of their products/services to all customers.

Businesses start discounting.  They work on giving away more for less.  They make even well-heeled customers believe that their product or service is worth less.

Anyone, who has read my writing for more than a few weeks or who has seen any of the research I have conducted on what creates sustainable success, knows that I get really annoyed with marketers who needlessly give things away.

It harms them.  It harms their competitors.  It harms the category in which they sell.  And it harms the economy.

It also works to prolong economic downturns, because it not only undermines the financial well-being of many companies, but also makes customers believe that prices should stay that low, extending the pain for months longer than necessary.

Take a clue from the Padres.  If you have something worth selling, look for ways to give away less and grow your demand.

As counter-intuitive as it sounds, you will do better and gain more long-term.  You will also help the market in general.

Is your company reacting to the economy by doing more for less or less for more?

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit: Ball Group

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership Turn every Tuesday. See all his posts here. Wes can be reached at www.ballgroup.com.

The government is changing its mind faster than a three year old.

No wonder the stock market is scared silly.

Let’s get this straight.

In an attempt to help more people gain “the American dream” of owning a home, the U.S.  It even went so far as to set up organizations to help resell those loans, so the risk was spread around to unsuspecting investors.

Then, when it looks like some people are being irresponsible with this program, and actually putting people at risk of losing everything, the government says, “Oh, that’s really OK, because it is achieving the goal of putting more people in homes.”

Then, when it all collapses and a lot more than just the 6% of loans that were risky start to go bad, the government says, “Let’s buy up those bad assets and free up the credit markets.”  Then, finally, just as the financial industry is starting to believe that perhaps there will be some stability and security ahead, the government changes its mind and decides to focus on consumers and saving a broad range of hurting companies instead, government put pressure on banks to loan money to people who really could not afford it.

Is it any wonder that the stock market is going through such wild swings?  Can anyone blame corporate executives for being terrified?  With the children running things, who can guess what’s next?

One thing is certain:  leadership is supposed to provide vision and a sense of predictability and stability.

Can anyone call what we are seeing “leadership?”

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit: sxc.hu

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. See all his posts here. Wes can be reached at www.ballgroup.com.

They’re everywhere!  They’re everywhere!

The best opportunity in decades to create growth is being squandered.

Yep, it’s happened… just as it does every time there’s a fearsome economic downturn.  The cost-side micro-managers are back in force.

Forget about creating demand, because everyone knows that as soon as money gets tight people stop spending money.  Forget about inspiring the entire company to work toward a common goal of building long-term strength and market dominance.  It’s time once again to cut everything in sight and micro-manage every decision from top to bottom.

It’s nothing new.  But it is amazing that, despite decades of research that proves that companies who invest in demand-creation during downturn fair better during the downturn and much better afterward, the first thing that happens in most otherwise smart companies is to cut, cut, cut and manage, manage, manage.

It’s happening from the Fortune 100 all the way down to small regional companies.  And it is killing the future potential of those companies.

I just witnessed the most appalling and extreme example of my 30 years in the business world.  The holding company that owns a medium-sized, internationally dominant company fired all of the company’s top managers due to the economy.  We’re talking chief executive, head of international sales, head of international marketing, plus several others.  In their places, they put one cost-side micro-manager to “whip things into shape quickly.”  There’s no real need for much in between, because he is going to be dictating the limited strategies that everyone else will carry out.

I wish I owned one of their competitors who have wanted to overtake their long-term brand dominance, because this is the best time in their history to accomplish that goal.  Employees are demoralized.  They don’t dare try to make any decisions or suggest anything strategic.  All the brilliance that was the reason for their being hired is of no apparent value.  This is a plum ripe for the picking.

Now, this is obviously an extreme example, but the Wall Street Journal is full of examples of just this kind of thinking, as top executives pull back into a cave of cost-side micro-management.  Cari Tuna wrote an article last Monday in the Wall Street Journal about the damage done by micro-managers.  As she notes in a quote from one interview, “Who wants to be in a company where you are not allowed to think?”  She observes rightly that there is a complacency among employees of micro-managers.  But that only touches the surface of the damage done.

Such managers are the antithesis of leadership.  By taking charge to fix everything in sight, they not only demoralize the smart people they paid so much to employ, but they also make the company vulnerable to attack from a broad range of competitors who might never have believed they could effectively knock them out.

We just watched Starbucks decline dramatically even before the worst of the economic downturn was revealed.  That happened due to cost-side micro-management combined with a lack of understanding of what customers had actually been buying from them.

Magnify that exponentially, and you have what we are about to see in the marketplace.  Well-known companies and brands are going to be micro-managed into such weakness that we will see a very different set of leading brands in many product categories in five years.

How can you survive the economy and still maintain your strengths, so you have a bright future 6, 12, or 18 months from now?

1. Don’t lose sight of what your customers really have been buying.  That may take some new research, because most companies don’t really know why their customers buy from them.  Here’s a hint: if you think it’s due to your price, your product’s performance, your quality, your availability, or any other “functional” factors, you are wrong.  Managing those factors will only make you weaker at a time when you need to enhance the ego-satisfaction fulfillment of your customers.  In a downturn, people want to feel better about themselves (I call that “self-satisfaction”) and to believe that other people think better of them (I call that “personal significance”).  Miss those and you are imminently vulnerable.
2. Charge more than you think you can.  Almost every company out there believes they have to charge less than customers are actually willing to pay… even in a time of recession.  Every research study we have conducted (and that is tens of thousands) has shown that most companies in a category are over-delivering on price (meaning they could be charging more).  That’s a lot of money thrown away.  And remember: it takes an average of three dollars in gross income to generate one profit dollar lost.  So every dollar you don’t get is actually worth three that you have to generate later.
3. Stop measuring outcomes; measure causes.  Very few companies measure or track changes in the causes that drive the final outcomes they desire.   By only looking at final outcomes, it is impossible to know how to improve those outcomes.  You must understand and measure changes in the factors that drive greater demand and profitability and customer loyalty in order to affect sales, net profit, stock price, and all the other final outcomes corporate executives are held responsible for.

I say it every time I can.  This is the best opportunity in decades to grow dramatically and to come out on top in the 6 to 18 months a recession typically takes to cycle out.  Don’t allow fear to drive you into cost-side micro-management and undermine your chances to achieve that goal.

What steps is your company taking to remain strong and not become vulnerable?

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit: Ball Group

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. See all his posts here. Wes can be reached at www.ballgroup.com.

Are leaders and managers getting dumber or is it just who is assessing them?

Wally Bock’s Three Star Leadership blog led me to a very interesting post by Ken Nowack concerning the discrepancies between self-perception of performance and external assessment for corporate executives. The point of the article was that, as managers move up the corporate ladder, they seem to gain more and more blindness to their real performance.

The “no-clue gene,” as Nowack put it, crosses gender boundaries, but “does seem to be more pronounced as leaders move up the corporate hierarchy.”

Any of us who have worked in the corporate world know what he’s talking about.   And the worst part is that most corporate employees look at the top-most levels of their company and fear that the person at the very top may be one of the clueless ones.

I have seen this at work across all size companies from the largest in their category down to mid-sized regional companies.  Smaller companies are not immune, but there the faults of a leader are far more apparent to everyone involved, including the leader himself.

Ignoring the obvious and all too typical problem of employees naively believing that they could certainly do better at their manager’s simple job, even though they really don’t see what he or she actually does, I have seen three factors that drive such disconnects for managers between self-perception and the perceptions of those around them:

1. Corporate pressures on managers/leaders and internal competitiveness are immense these days, and they create a self-defensiveness that increases significantly as one moves up the corporate ladder.  This pressure creates stress that actually does reduce performance aptitude, while it also creates a greater self-protective need to justify oneself.  Honestly, who would want a top-executive job in most large corporations these days, no matter what the payout looked to be?
2. The demands upon top leaders are so great that they themselves don’t believe they are up to the challenge, so they compensate with apparently extreme conceit.  This is a most natural reaction among most personality types to any self-perception of weakness.  Among driver personalities it can be a positive self-motivator – they have learned that, if you think of yourself as something better, you can become it, so they use this tool to drive themselves to greater performance.  Among other personality types, this compensation usually backfires.
3. Most leaders have bought into the belief that they must be able to walk on water in order to lead an organization or team.  It’s the old military code that a leader never admits ignorance; he just states his opinion with greater confidence.  That is a formula for failure in the corporate world, if I’ve ever seen one.  No one can stand up for long to that kind of expectation.  Yet, when faced with the reality of personal weakness, many positional leaders just can’t or won’t face that truth.

I wrote a post a few months ago supporting Jeffery Immelt of GE, who had just been whipped public ally by his ex-boss, Jack Welch, for not being a clairvoyant about profit in their tumultuous financial services group.  I’m not a big fan of Immelt, but the pressure he was under to perform with perfection in an imperfect environment demonstrates what many top leaders are up against.

This problem only decreases in scope and intensity, as you go down the corporate ladder.

• There far too many persons ready and willing to throw someone else under the bus when they spot any weakness that can be exploited.
• I can’t even guess how many times I’ve heard corporate employees say that they can’t trust anyone.
• The loneliness of business that used to only exist at the top tiers has sifted downstairs throughout the corporate ranks.
•  The fad of 360-degree assessments has only fueled such isolation, because everyone around you suddenly becomes a potential critic who will be heard.

There is certainly incompetence evident in most organizations.  I would suggest, however, that the perceptions of incompetence are often anything but objective, and the causes for the real managerial and leadership weaknesses seen could be addressed through a better model for expectations for leadership and how to assess performance.

When was the last time you trusted a co-worker who could assess your performance?

When was the last time you saw someone in your organization admit weakness?

I had a unique view of this through the 15 years of research I did into dominant companies for my book The Alpha Factor.  I saw it at an even closer level as we conducted the tests with more than 75 companies to see if our findings could create dramatic, sustainable growth.

One of the interesting things I discovered was that there was little direct correlation between ability of a company to create such sustainable growth and the actual competence of top leadership.

Rather, it was the willingness of top leadership to allow the smart, very competent people below them to do smart things that had a far greater correlation than the leader’s personal aptitude.

I recall being more than a bit skeptical about the conclusions of Jim Collins’ book, Good to Great, where his team had decided that leadership approach was the critical factor in defining great companies vs. simply good ones.

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit: flickr

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. See all his posts here. Wes can be reached at www.ballgroup.com.

Is there really a lending problem?  I know several people who doubt it.

One is a local car dealer.  He was almost dazed as he related a story to me about selling a used car to a woman who had a bankruptcy five years ago.  He sold her a nice car for $27,000.  She did not have the first payment she needed to make the deal.  Three banks (Bank of America, Citizens Bank, and one other I can’t recall) all offered her a loan for $32,000.  That’s on a car that would only give her $22,000 on trade-in, if she sold it back one week after consummating the deal.

I also know another young couple who just purchased a $19,000 van.  They had no problem getting a loan despite the fact that they have very low income.  The rate was 18.5% – about three times what should be available.  When an older and wiser friend challenged them that they could not afford the payments needed, they said, “Well, they must know what they are doing.  They offered the loan to us.”  The friend helped them sell the car, pay off the debt they still owed on the van, and get them into something they could afford.

So what’s wrong with these scenarios?

In the first case, at least one of those banks is in the midst of getting a getting an infusion of taxpayer cash from the U.S. Department of the Treasury, because they lost so much money on poor-quality loans.  In the second case, the justification for making a really bad decision was that the blame was really on someone else.  Worse yet, someone helped them get out from under the burden, but it is obvious from talking to them that they really don’t understand what was wrong with their decision.

We’ve just gone through the scariest financial event in my lifetime, but we aren’t through the consequences of banks, mortgage companies, investment companies, investors, consumers, and the U.S. government all thinking they can get away with making really stupid financial decisions because the blame can be cast upon someone else.  It’s like watching three year olds pointing fingers at each other and expecting mom to “buy” it.

What is it going to take for us to finally understand that it doesn’t work to either expect someone else to make things right for us when things go bad or to do things that enable those persons making bad decisions to go on making bad decisions?

Isn’t it time that we let people take responsibility for their decisions?

If people want to have the freedom to make decisions for themselves, shouldn’t they also be required to take the consequences of those decisions?

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. Wes can be reached at The Ball Group. See all his posts here.

How can we create successful leaders when we lie about what creates success?

A few days ago Miki, for whom I guest post here, sent me an email letting me know that Nina Simosko, Global Chief Operating Officer for the worldwide SAP Education organization, had referred to one of my Leadership Turn blog posts on her blog about leadership.  Her post discussed the issue of failure and its role in developing leaders.   She was referring to a post I had written that stated that future leaders need to be mentored and nurtured through failure, because through failure comes the learning for creating success.

Her article sparked a thought chain that reminded me about a significant problem we have in developing strong future leaders organically in our organizations:  the current mythology about leadership.  Our current leadership mythology (and mythology about business in general) is self-destructive and, as with most mythologies, is not even based upon broad truth.

Everything in life has a mythology – i.e. a set of stories and examples that define what we believe about that subject.  And, like all mythologies, they change to reflect current cultural thinking.

For instance, the mythology of “dating” was once that a young woman desired to get married.  She watched for the “right” man, made herself visible to him, waited for him to “ask her out,” resisted his passions until marriage was consummated, and lived happily ever after.  This was played out in a mythology that pervaded books, movies, conversations, examples of friends, etc.  That doesn’t mean that there were not plenty of real-life examples of very different scenarios, but the mythology defined the ideal, the thing to which we were to aspire.  It was the thing that young girls held onto when confronted with tough decisions.

That mythology has changed quite a bit even in my lifetime.  There is no need to define the current mythology about dating, because you probably either laughed or cried as you read the contrast between the old mythology and what you hear shared every day about the “ideal” of dating now.

Those changes in mythology drive how we think about dating even before puberty.  Obviously, if sociologists were to do an unbiased long-term research study of what creates the most productive, least destructive dating and the best, most sustainable long-term results, they could help us turn those facts into a mythology that we could embrace.  That new mythology could then offer a much happier alternative for people to follow.

Now, we all know that mythologies are created by people.  They are the propaganda that is issued to create a desired result.  When I was a child, for the most part, those mythologies were created and spread by well-intentioned persons to help protect and guide us to happiness and success.  We also know that there are many factions who have their own agendas for how people should think that are based upon completely irrational, less than well-intentioned purposes.  Their purposes may be to make themselves feel better about pain they experienced, a desire for others to be no happier than they are, a desire to justify bad decisions they have made, etc.  That’s why there has to be some rational basis for mythology to have a good outcome.

In the business of leadership development, we have a similar problem.  There is more than enough empirical data to demonstrate that creating sustainable, beneficial success is hard work.  It takes risk. It takes time. It takes pain.  It takes making a long series of wise decisions.  It takes great investment and some losses.  It takes gaining the help of many other persons who will aid in creating your success.  It takes courage.  And, most of all, it takes failure from which learning and improvement comes.

But what is the mythology of success under which we operate?

We choose to believe that…

• Success comes relatively easy.
• It comes through minimizing risk or at least spreading it to others – mostly that happens through putting others at risk more than yourself.
• It happens quickly.
• It happens with minimal or no pain, like winning the lottery.
• It involves little in the way of acquired wisdom; there is more luck and “who you know” than wisdom involved.
• It takes minimal personal investment in money, time, or effort.
• It is done virtually on your own with little outside help.
• It requires no courage, because there is so little effort, pain, or risk required.
• Failure is a thing to be despised and ridiculed, not embraced or used as a platform for learning.  And, when failure comes, you blame it on others.

This is the mythology that has created our current age of entitlement.  “I did not ask to be born, so you owe it to me to make things go well for me without a lot of work on my part.”  To greater or lesser extent, this attitude pervades both the educated and the uneducated.  It is nourished by the stories about instant successes and greedy top executives who did not earn what they got.  It is fueled by stories about companies that are harming us with their “outrageous” profits while ignoring the investment and work that made it possible to gain those profits and even ignoring where most of those profits go to create more job opportunities and wealth for a great many persons.

I did some extensive research for the U.S. Department of the Treasury about 10 years ago.  We were looking at attitudes about investment and savings among a broad cross-section of the population.  I was stunned to discover what I called, “the lottery mentality.”  This thinking said that it wasn’t worth saving money.  If you couldn’t get 30+% return on your investment (the then current mythology about investing), then it was better to either spend it on self-entertainment or buy a lottery ticket.  It just wasn’t worth the aggravation of trying to slowly, steadily save for the future. This attitude stretched from the very poor to persons making seven-digit incomes.  Surprisingly, the only demographic that consistently resisted this and embraced the idea of “slow and steady saving is better than wasting it” were low-income ethnic women, especially black and Hispanic.  Men generally were the most predisposed to the “lottery mentality,” but white women of all incomes were almost as enthusiastic about it.

The modern mythology about how businesses run and how leaders lead was one of the greatest hurdles I had to overcome in researching my book, The Alpha Factor.  As I tried to understand what really created sustainable success and dramatic growth, I continually stumbled over mythology-based conclusions from both the corporate executives involved and the media that were covering it.  It took a great deal of deeper digging to uncover the real factors that were behind those successes.

Most of what I would hear from corporate executives involved in successes was their own brilliance at responding to market fluctuations, being able to generate short-term results no matter what the competitive environment, spotting new trends and creating the right products and business model to address them, and other self-aggrandizing perceptions of what created their success.  What I generally found was that the great products that were so “right” were discovered more by accident than by purpose.  And the short-term responses they thought so highly of actually had made things harder for them to keep moving forward profitably.

Most often, it was things they discounted as minor that were the real driving force behind customer perceptions that created the demand for their products.  Most often, these “minor” things were ones that they felt unable to control directly, so they discounted them as being irrelevant.

That has created an incorrect business mythology that says that money managers are the lifeblood of the business.  That cost-side management is the secret to long-term success.  That price is “everything.”  And, if not price, then quality is.  It focuses business watchers upon stock price as the indicator of success (and we all know how accurate that was from the “dot com” bubble).  It has created a perception of entitlement among top executives that says they deserve multi-million dollar bonuses, while ignoring the real drivers of corporate success that will continue to create jobs and wealth for generations to come.

There have been a number of articles in recent years about the failure of top business schools to turn out potential future leaders.  Much of that failure can be attributed to the reality that our mythology about what creates success taints how we think about what defines a leader.  So we generate self-serving, short-term focused MBAs who have little ability to drive long-term success.

Compounding that, in the ranks of corporations all over America, future leaders receive no real leadership training.  They simply do their jobs under the constant threat resulting from short-term management thinking that the company could sell itself at almost any time or that budgets will be cut making it impossible to accomplish the tasks assigned to them.  Managers do their best to look effective while hiding from the fact that they can’t, given the little support they receive.

Our mythology has made us into a nation expecting miracles without a willingness to make the investments required for real, sustainable success.  Instead, we fail through lack of willingness to really succeed and cover our failure under a veil of blame pointed at others around us.

If we really wish to create future leaders, we need to create a new mythology based upon what truly creates success.  That mythology should be based upon truth and not self-aggrandizing lies.  It should be based upon a rational, empirical understanding of what creates sustainable success.  That’s why I wrote The Alpha Factor.

Creating such a mythology within every organization and generally throughout the business community is a task that every person involved with leadership should pursue.  It should be based upon empirically-based reality in order to be truly valuable.  To do that, we need to understand the real factors behind success, before we can ever expect to recreate it or to develop tomorrow’s successful leaders.

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit

It is the rare leader who leads beyond what is expected of him.Those who do are often labeled as unfit to lead and dismissed.

There are not that many examples of such rare leaders.  General MacArthur was certainly one.  He stood up to President Truman, who was quite happy to play at war in Korea without winning it, which cost many thousands of lives for no real gain.  Gen. MacArthur’s dismissal by the President was a terrible blow to his honorable record of service throughout World War II, an embarrassment to the Army he commanded, and the beginning of an approach to conflict that has plagued us ever since.  But his dismissal was also completely rational, because he was not working to expectations.

Leaders, who wish to keep their jobs, work to satisfy expectations.

Understanding this is critical to our understanding of what has recently happened in the financial and mortgage markets.

The key here is understanding that leaders lead only with the support of their constituency (i.e. stockholders or boards of directors in the case of corporate leaders or voters in the case of politicians).  A leader cannot get away with major strategic direction that his constituency does not approve, such as running full-bore into selling sub-prime mortgages.  This is not a matter of a few rogue leaders who ran ahead of their organizations without oversight or accountability.  Every head of every organization caught with their mortgages down was in that position with the full knowledge and support of his constituency.  That includes Wall Street, banks, and both GSEs (Fannie Mae and Freddie Mac).

Even the criminal actions of overstating balance sheets in order to gain the huge bonuses being offered had to be done with the knowledge and approval of a constituency.  For instance, Franklin Raines of Fannie Mae could not have gotten away with overstating his balance sheet repeatedly to gain the $90 million he earned over 6 years (as the organization was actually failing) without both his board and the Congressional oversight committee assigned to watch his actions approving of it.  In fact, in 2004, when Armando Falcon, the chief regulator who “blew the whistle” on these shenanigans, went before the Congressional oversight committee, he was all but tarred and feathered for his efforts.  No one seemed interested in hearing about anything untoward, because the objective of increasing mortgages to low-income families was being addressed.  End of subject.

Corporate executives also are being whipped for the “outrageous” sums of money they earn, primarily as a reward for pushing stock prices ever higher.  As I have written many times, the tactics they use to accomplish this are more often than not the death-knoll for the long-term success of the organization, but that doesn’t stop the board of directors and stockholders from applauding their efforts.

The problem comes down to, “Who really cares before the damage starts to show?”  Top executives are not stupid.  Neither are politicians (the few years I worked with Washington politicians proved to me that almost all believe they have the best interests of their constituency in mind).  They know exactly where their support comes from and what that constituency wants from them.  Despite all the worries about sub-prime mortgages that were voiced over most of the past decade, no one really cared.

Why?  Because expectations were being met.  The deceit was in hiding the truth from the constituency.  What made the sub-prime fiasco possible was the fact that risk was being “diluted.”  Every time a package of mortgages was sold to investors, the real hidden risks were lost in the mass.  That effectively removed the effect of what would have been the most vocal constituency: those who would have spoken up by keeping their checkbooks closed had they known the real risk.

The only constituency that really knew what was going on in most cases was the one gaining from it.

The same thing is going on in corporations across the country.  Decisions about how companies are being run are coming from the wrong constituency.  The expectations are being driven by boards of directors and stockholders, who care little about the long-term health of the company as long as short-term gains are good enough to increase their personal portfolios.

So, what is the answer?  Can we expect companies to survive and do the job for which they were created, i.e. job and wealth creation for those who invest their time and money into it, when persons with no long-term interest are defining the expectations for corporate executives?  Can we expect government-overseen organizations or programs to have positive long-term effects, if those defining expectations are only interested in narrow outcomes that can create far greater damage but that provide personal gain for them (even if it is only in terms of pandering to the base desires of their constituencies)?

Leaders lead to expectations.  Isn’t it time we started setting expectations that don’t just “use” an organization for personal success and instead start expecting long-term success that builds the organization creating that success?

We are being asked to take a greater personal role in addressing climate change.  Can’t we also take a greater role in demanding corporate responsibility? If not, we may be witnessing the end of the independently-run corporate model in America.

We are delegating far too many decisions that affect us as long as things seem to be “going right” (no matter how obvious the risks are), and then expecting someone else to make things right.  Isn’t now the time for the real constituency to stand up and make its voice known?

We can do it through our investing.  We can do it through our voting and regular conversations with our political representatives.  We can do it in through an unwillingness to let others speak for us, while we sit back and demand that everything go perfectly right for us.

How would you address this without giving even more control to a constituency that would drive the wrong expectations?

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership Turn every Tuesday. See all his posts here. Wes can be reached at www.ballgroup.com.Diana Ross’s old hit song saying that the world just needs “love” may not be the answer, but there is indeed a universal need out there that would help us overcome our current economic dilemma.  What the world really needs now is a little honest leadership.  And I mean that literally.

The “con games” that have been played upon investors (and the American public) in this current financial debacle are just the latest in thousands of years of dishonest dealing in order to gain something.  In the mortgage fiasco, the potential losses from giving mortgages to high-risk individuals was supposedly “spread around” by selling them as part of larger packages of mortgages to unsuspecting investors.  The idea was to pass along the risk to others (in other words: be able to put the blame and consequences on someone else).  But the dishonesty of this caught up to everyone involved, including both the innocent and the guilty.

One of the things I learned in researching for my book, The Alpha Factor, was that Alpha companies don’t have to market themselves with such dishonesty.  That’s not to say that they don’t have selfish humans working in the company who make bad and occasionally dishonest decisions, but their sales are not based upon such dishonesty.  Their longevity and sustainability is only possible because of the honesty of what they offer and provide.

Leadership by its definition requires honesty.  Without honesty a leader cannot last long, because the trust that will sustain him will evaporate as soon as the lies are discovered.  Without honesty, the foundation of the organization being led will be compromised and everything built upon it will be vulnerable.  A few may be able to maintain their leadership for some time through sheer effort, but that effort must increase over time to overcome the increasing resistance that will naturally occur due to the false foundation upon which it is built.  Much like an aircraft where air resistance increases at the square of speed (which is the limitation to top speed), an organization built upon faulty, dishonest leadership must work geometrically harder to maintain itself when built upon dishonest foundations.

Here are five simple tests that we all learned in grade school, but that have largely been forgotten:

1. If it’s too good to be true, then it probably is.  (This is probably the oldest one, but how often have we all slipped on that, believing that the “easy” way we believe so many people make money is true and possible for us?)
2. If it contradicts what mom said, it is probably a lie.  (Now I know there are many untrustworthy moms out there, but I got into far more trouble by not believing my mom than I ever did by trusting her.)
3. Everything will cost you something.  (Nothing comes without cost — especially, when we are told that someone else will have the burden of all the cost or risk, and we will only get the gain.)
4. If it’s a “favor,” it probably isn’t.  (The person who offers “favors” usually has more to gain than you do; you just can’t see it until it is too late.)
5. Two faces are one too many.  (If the person making the offer has a history of contradicting himself or of doing things that don’t match with his words, then don’t believe him – no matter how sincere he sounds).

I’ve been around long enough to have been caught in far too many crazy schemes for me to admit.  But in each case, when I looked back at it, the warning signs were there.  If I had used the five tests above, I would have said “no.”  Instead, I wanted to believe that perhaps I had been wrong in how I thought things worked.  Perhaps I could actually get that thing that seemed too good to be true, that contradicted what my mom had told me, that had no cost to me and only gain, that was being offered by someone who was doing me a big “favor” or who had suddenly changed the way he operates.  I never won any of those.

As the CEO of a company, there have been many times I was tempted to “push the truth,” but I was lucky enough to learn that every time I did, I paid a terrible price.  I always saw that honest leadership led to far greater gains than any shortcuts I momentarily thought might get me there quicker.  I also learned that the people I led were far more willing to give their respect and loyalty to me when we were being honest, no matter what the short-term consequences were of that choice.

As long as humans are on this planet, there will be a need for leadership.  But the secret to leadership is that it can only exist with the consent of those being led.  If we refuse to accept dishonest leadership, then it cannot be leadership. But, if we choose to believe that we can gain something that contradicts those five tests, we deserve everything we lose.

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. See all his posts here. Wes can be reached at www.ballgroup.com.Building future leaders takes creative nurturing, because leaders are both born AND made.  It’s up to us to do the “making” part.

There is a lot of failure on the track to leadership competence.  It’s doubtful any of the leaders I know could have gotten there, if they had not been nurtured through failure.  Even so-called “natural” leaders that have the combination of dominant and influencing personality styles need nurturing to make them successful.

A couple of weeks ago, CandidProf (guest blogger every Thursday) made note of the 2008-2009 standards for grading policy of the Dallas School District.  He expressed some concern about the fact that, in an effort to reduce the high school dropout rate, this school district mandated that teachers give students multiple chances to pass tests, not give any student a “zero” score for any test or assignment (no matter what they did or did not do), and accept overdue assignments with no or minimal penalty.

While the policy seems like an easy one to condemn and seems to embody all the laziness and attitudes of entitlement we see in young persons applying for jobs these days, there are some interesting aspects of this that have application in business leadership development.  Many persons have complained that this kind of approach to education in no way mirrors what those students might encounter in the working world.  The reality, however, is that good management that has as its objective to develop strong leaders does use similar techniques.

The problem may be not so much in the policy itself, but rather in the lack of accountability that this approach seems to provide.  I would go further and say that the real problem is that students are not given any vision for why they need to learn what is being taught.  Every person needs to understand why they must do something painful — and learning can be very painful for children without a proper vision for the future.  Employees also need that kind of vision-casting.   Without a clear vision for why they are required to work harder and learn more, most people will resist.

Every leader I know has been nurtured by a mentor.  Every one has been given the opportunity to fail along with support to understand how to succeed. Everyone has been given the opportunity to make mistakes within defined boundaries, because learning happens best in such an environment.

Within my own company, I made a point of creating mentoring relationships with and among employees.  I continually created opportunities for employees to learn through failure while providing a “safety net” that meant they knew they would not be fired for failure, except in certain areas of behavior or where there was a clear indication that they were not capable of doing the job needed.  They certainly were not put in a position where a failure could irreversibly harm the company, because that would have been bad leadership.  But they were given the chance to experiment with making decisions and even making recommendations to our customers where appropriate to the level that they had proven themselves capable.

I was extremely successful in taking persons with little or no experience and making them not only highly-skilled in the difficult and somewhat obtuse business of strategic innovation consulting, but also capable of leadership of others.  In fact, I discovered that it was far better for me to develop an inexperienced but motivated and qualified person into a leadership role over time than it ever was to hire a person already experienced through another company.  It was far too painful trying to overcome the bad learning that the experienced person had gained somewhere else.

The secret to nurturing and developing these future leaders was simple in concept:

• Give them a vision of what the future could look like for them.
• Give them an “identity” as being part of a great organization that is doing something of real value.
• Give them the basic skills and relational training they needed.
• Provide them with “safe” ways to fail, followed by nurturing learning as to how to succeed next time.
• Encourage them in failure and success.
• Let them grow as quickly as they can take it, always supported by continuing encouragement, nurturing, and training.
• Give them public praise when they have proven themselves of real leadership value.

The results were a highly motivated team that was (by measurements common to our industry) about twice as efficient as the average per salary dollar invested.  They also were a cohesive team that liked each other and liked working there.  And we were able to gain the kinds of clients that even much larger competitors only dreamed of getting.  The biggest problems we had were from experienced persons who thought they should be given the chance to “lead” before they even understood what our company was all about.

So, if you want to develop strong future leaders (or just good employees), I would say the Dallas schools idea is not a bad one; it just requires strong vision-casting, nurturing, and encouragement to make it work.  

What do you think?

Your comments—priceless

Don’t miss a post, subscribe via RSS or EMAIL

Image credit: thanx  CC license

By Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. See all his posts here. Wes can be reached at www.theballgroup.com.

Why can’t every innovation be “disruptive?”  Why can’t more companies come up with disruptive innovations?  And why is it that many innovations that are disruptive only lay the groundwork for another  competitor to take control and become the leading innovator?

I believe the answer is in the focus we place upon innovation.

All useful innovation starts with an idea that addresses an unmet functional need.  Without that initiative, the idea will have little value to customers.  “Good” innovations also create future growth potential by pointing the way to a “thread” of future innovations — a logical progression of innovations that build upon and improve the original innovation.  Those that change the way much of an industry works are considered to be “disruptive.”  But the most desirable innovations also allow the original innovator to maintain control over the innovation “thread,” rather than just creating opportunities for many other competitors, who may take control and become the leading future innovator. Maintaining control ensures the innovation thread will be sustainable for the original innovator.

Harley-Davidson was able to achieve this—until recently, no other competitor was able to overcome the hold H-D had on customer aspirations.

Apple may have with its iPod and iPhone.  In fact, Apple seems to be making its innovation thread expand to encompass its entire product line with new products like the MacBook Air that share many of the characteristics of both the iPhone and the iPod.

BMW and Mercedes have been able to do this, as well.

In fact, most companies I refer to as Alpha companies do this to some extent, although most could do it even better.

We are talking about much more than functional innovation or branding or advertising or new distribution models or any of the typical things innovators might think to use to expand attractiveness and build loyalty and longevity to their innovation threads.  We are talking about things that go beyond the traditional factors addressed in innovation, yet create significant and dramatic shifts in loyalty, aspiration to purchase, and willingness to pay more to own.

Almost any smart group of people can come up with a potentially disruptive idea that addresses unmet functional needs.  Customers are certainly under-satisfied in most categories.  The key is in understanding how to make that innovation yours, and not something others can improve upon, taking the lad away from you.

Here’s the problem:  innovation is almost always too focused upon functionality, price, and delivery of benefits rather than the real core factors that create long-term, sustainable success.

What if Apple had decided to introduce the iPod in a traditional way, using functional performance as the sole innovation criteria?  It still would have been new.  It still would have made getting and listening to music easier and more “personal.” It still would have had iTunes.  It still would have been a breakthrough that changed the way people buy and listen to music.  It still would have made Apple the initial leader, but almost any competitor could have come out with a cheaper and perhaps better performing product that would have put Apple on the defensive. And isn’t that what we see happening to too many “good” ideas?

Luckily, Apple did not stop there.  It also made its product with visual and tactile appeal — a seemingly superfluous addition, but the key to generating ego-satisfaction: the real key to sustainability. With those ego-satisfaction factors, it has been able to hold off numerous attacks and charge significantly more.

The “intelligent” cell phone is another great example.  Blackberry was really the disruptive leader.  Apple, however, “improved” upon it with ego-satisfaction factors that gave them the real leading position.  They now have the opportunity to control the innovation thread from this point forward, IF they protect what got them there.  The iPhone’s functionality was different, but not really “better” than that of the Blackberry.  It just appealed to the ego-satisfaction side better and more fully that RIMM’s Blackberry product did.  Now Blackberry, the original innovation leader, is on the defensive.

Alpha learning shows that disruptive innovation is only of value to the originating innovator, if ego-satisfaction becomes part of what is “proven” by the functionality of the disruptive innovation.

Every human needs three sets of things: physical minimums (safety/security), a sense of being cared for and valued (affection), and a purpose for being.  For purposes of innovation, the Alpha model breaks them into Function, Self-satisfaction, and Personal significance.  The reality of life is that humans cannot fulfill the satisfaction and significance elements easily, because they are typically based upon how they feel about their interactions with other people.

By understanding and focusing upon fulfillment of emotional satisfaction and personal significance, however, once functional performance has reached at least the minimum level required, the Alpha innovator dramatically magnifies the impact and value of innovation.

The result?  Control and dominance over the future thread of innovation.  After all, what good would be a disruptive innovation that just gets taken over by a competitor?

Don’t misunderstand:  this is not suggesting that functional innovation is a waste of investment.  You cannot create sustainable innovation by only addressing ego-satisfaction.  It is just the way you dramatically enhance whatever innovation you create.  It is also the way to filter ideas to make sure they will be sustainable, whether they are truly disruptive or not.

Almost all of the disruptive innovations we can think of are most obviously functional innovations.  But the innovations that will really make your company’s future (and do it at the lowest initial and on-going investment) will come from adding the ego-satisfaction element to them.  Such innovation is truly disruptive, because it changes everything in your favor, while competitors wonder what happened.  In fact, in most cases, competitors are caught flat-footed for months, because they can’t understand what you even did to create such successful change.  They are looking at the functionality but miss the ego-satisfaction elements as the really critical ones.

It also doesn’t just create a new functional solution that everyone can copy or improve upon.  It creates a highly-defensible platform from which you can control much or all of your category, while competitors scramble to even come in second.

Image credit: Flo_Evans  CC license