Types of Blindness

There are various degrees and kinds of blindness, widow. There is the connubial blindness, ma'am, which perhaps you may have observed in the course of your own experience, and which is a kind of wilful and self-bandaging blindness. There is the blindness of party, ma'am, and public men, which is the blindness of a mad bull in the midst of a regiment of soldiers clothed in red. There is the blind confidence of youth, which is the blindness of young kittens, whose eyes have not yet opened on the world; and there is that physical blindness, ma'am, of which I am, contrairy to my own desire, a most illustrious example.

Stagg, the blind man in Barnaby Rudge, by Charles Dickens


I’ve no doubt you’ve followed the recent bickering among the political classes about the NHS in the UK, and the proud blindness being used by all parties in their selective and romantic championing of that institution’s cause. I’ve got no idea whether this kind of deliberate or programmed blindness works in power politics; but in the areas I do know: in science, in sport, and in the subject of this blog, business and enterprise, it is a road to ruin. I’ll look at Stagg’s three types of blindness.

Let’s start with Stagg’s first example, the connubial blindness that men and women have about their lovers. People making business cases have often already fallen in love with their ideas or products. There’s nothing wrong with that; it’s a passion that fires the imagination for options and possibilities. The flip side is that, too often, these same people exhibit this connubial blindness, and they want to see the best of every side of the situation. They make over-optimistic assumptions, under-estimate threats and assume the market will love the idea as much as they do. Too often the consequences are the same that Dickens’ Nancy suffered at the hands of her beloved, murdering Bill Sykes.

A second kind of blindness, the blindness of party, comes when people start to believe the rhetoric espoused by their colleagues, like dyed-in-the-wool Tories, or socialists, or Republicans, or whatever. They are selective in their choice of facts, of sources of information, and of assumed consequences. People can be tribal, and there can be comfort in shared views, but this tribalism only increases the likelihood that those same people won’t challenge their own received wisdom, and will ignore some real opportunities and threats that don’t fit their group paradigm. A political example of this is communism; a business example is any bank you want to choose.

Stagg’s third example, the blind confidence of youth, is horribly apparent in new businesses and in businesses that have confused their own ability with a bull market. There’s nothing wrong with this confidence if it’s supported by some resilience in a company’s management and business model; if it can cope with a downside scenario. But this resilience is all too often absent. I’ve rarely seen such an over-confident company hit its too-lofty targets, and I’ve seen many felled by the first major blow or downturn that comes its way. Example: choose any one of 99% of companies from any boom – dotcoms in the early 2000s, property investors from financial bubble, or almost every social networking business from the last four years.

The lesson in all this? We all need to open our eyes and prop them open: to where we might not want to see something bad about our service; to where we’re not challenging the party line; or where one bad month or lost customer would sink us. Better to see the truth than suffer Nancy’s fate.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

The Sign of a Good Answer

In stage 16 of the 2006 Tour de France, the favourite, Floyd Landis fell badly off the pace in the last 8 minutes and crawled to the finish with his chances in tatters. The next day, stage 17, he produced the most inspiring comeback many cycling fans have seen. He attacked early, broke away from the favourites and alone sustained a pace to which the peloton, with all its wind-saving advantages, couldn’t respond. He made up enough time to eventually be crowned Tour champion.

Explanations came flooding in for this stirring physical achievement. To many fans it was a story of the triumph of human spirit and athletic supremacy. But the accepted explanation in knowledgeable circles was that Landis, by being out by himself, could to keep his body temperature under control, giving him a major physiological advantage. You see, it was an incredibly hot July day, and the riders in the peloton were suffering from sky high temperatures; meanwhile Landis spent the day pouring cold water over his head, supplied by the team car.

Seems reasonable?

A few days after Landis’ victory, his urine sample, taken after stage 17 tested positive for a banned performance-enhancing substance - synthetic testosterone.

OK, which explanation for the inspirational performance do you believe now?

You see, as we all know, it’s very easy to come up with a reason or theory for any phenomenon: why our competitor is doing twice as well as we are; why we’re not as profitable as we once were; why we’re struggling to get a foothold with a customer group; why growth has fallen off, or whatever is puzzling us.

When you review businesses and markets, as you unearth the facts and analyse the data, you come across a whole raft of potential explanations and solutions for the business’s condition and theories on what it should do next. The first set you come across is usually complex, nuanced and subtle, often received wisdom from proclaimed experts, and very tempting to believe. But if you have the gumption to ignore these temptations; if you carry on researching, challenging and turning over stones, I guarantee that you will eventually come up with a better answer that’s as plain as the nose on your face.

Scientists have a principle called Occam’s Razor, the common understanding of which is as follows, “Of several acceptable explanations for a phenomenon, the simplest is preferable, provided that it takes all circumstances into account.”

At my company, we describe it differently. We just carry on investigating, testing and searching for explanations until we uncover the one that fits our golden rule: when looked at in retrospect, it must be absolutely obvious.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

Straightforward and Spartan: What Big Businesses Can Learn from their Smaller Brethren

King Leonidas: [turns back shouting] Spartans! What is your profession?
Spartans: HA-OOH! HA-OOH! HA-OOH!
King Leonidas: [turning to Daxos] You see, old friend? I brought more soldiers than you did.

There is an unchallenged and lazy myth that small companies generate more wealth in the economy every year than large ones. They don’t, though the real facts are much more interesting. Research shows that three per cent of all firms account for almost all private sector employment and revenue growth; and these “high impact” firms are proportionately evenly spread across all company sizes. But here’s the killer fact: 98.3% of firms in this wealth-creating sector have 20 employees or fewer, because there are simply many more smaller firms in the world.

But how can it be that smaller firms make up so much of this GDP engine, and generate just much wealth as blue chips, who have established brands, sophisticated systems, massive buying power and the pick of the brightest talent? I’ve been fortunate to observe companies from across the size spectrum, and even more fortunate to work with some that were once in the small camp and are now large. Here are four distinctions that I see in the successful smaller ones.

First is brutality. My smaller clients have a mindset in which they will habitually challenge their propositions and expect to need to reinvent their services, even in the many instances where they are the dominant player in their particular niche. They are justifiably proud of their products, but they appreciate that today’s iPod is tomorrow’s Walkman. Cannibalisation is a fact of life, and better that they do it to themselves than their competitor does it for them.

Second is straightforwardness. Here’s an example. A client I started working with eight years ago was shortly to become one of the 3 percent club of high impact firms; it quickly became the global market leader in its niche. Then, I could ask a question to one of the Directors and they would just answer it, warts-and-all, no justifications, no qualifications. Now it has joined the 97 percent of slow-growers. I re-engaged with the firm again recently. Now, the most common first response to my questions is: “can you tell me what you will do with that information?” the second most common is: “can you tell me why you need to know that?” Following this pointless dance, we get to the same questions I was going to ask anyway, only we have time now for 25% fewer of them. And the answers are now gilded with such self-justification that finding the problems necessary to improve my client’s condition takes on a whole new level of complexity.

Third is decisiveness. My smaller clients engage only my company for advice and act on about 50% of it. They are far less exhaustive in their analysis before decisions, being happy to act on 80% confidence. In contrast, larger companies often use multiple advisers and internal teams in an often futile search for perfection, and act on 10% or less of the advice they seek.

Fourth is parsimony. If you’re used to corporate life, a smaller company’s office feels like a cell. If you’re a consultant used to the corporate jet-set, a smaller company’s fees feel like a budget airline. It’s probably not in everyone’s interest for me to highlight parsimony. But those who read these posts regularly know I'm keen on saying the truth as I see it, rather than selecting the facts that suit. Besides, Ben Franklin thought parsimony was the route to wealth, and who am I to argue with him.

So: brutality, straightforwardness, decisiveness, parsimony. Leonidas would be proud.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

What to Look for in a Consultant

Here are some things to look for if you genuinely want value from a consultant, all of which you can test in a meeting or single reference.

First is personal credibility. I don’t necessarily mean brand here, which in a way is lent credibility. I mean the credibility of the person or people actually doing the work. To appreciate the importance of this distinction, you just need to look forward in time and ask: “What credibility will that person have in front of the Board or the bank or the MD or my colleagues when they start asking difficult questions?” Of course there are times when a brand does add credence, but I’d argue that what really counts is the quality of the individual making those recommendations, and consequently the recommendations themselves.

Second is subject matter expertise. By this I mean genuine expertise in the particular issue you are facing, be that business case development, due diligence, market entry, benchmarking, whatever. I specifically don’t mean industry expertise, which in my experience contributes either marginally or even negatively in a consultant’s value to a company.

At the risk of unpopularity, using industry expertise as a way of choosing a consultant is, in my view, misconceived. It is an easy way of screening for a buyer, and an easy way of selling for a consultant. Consultancies understand this dynamic and have industry experts at senior level only, in order to help the sales situation. They talk the language, have the examples, etc. But the people that do the work and generate the insights come from a pool of generalists and subject matter experts.

We hear all the time that clients are amazed how quickly we get to understand their industries. But they're giving us way too much credit and over-estimating the difficulty of understanding a sector sufficiently well to apply our subject matter expertise. In contrast, subject matter expertise is the thing that takes years to develop. To illustrate, we have performed dozens of due diligences of technology companies, and we use exactly the same skills to due diligence leisure companies. Each one, in whatever sector, takes only three weeks, and we have never had any problems in sectors we have never worked in before. But we would have no idea where to start re-engineering a business process, a subject in which we have no expertise, one of the exact same tech companies we just diligenced. And we couldn’t even dream of knowing how to sell a client’s products.

A third thing to look for in a consultant is his willingness and ability to challenge you, your views and your assumptions. It is easy for an adviser to back down, particularly someone who's junior, impressionable, easily intimidated or otherwise anxious to please. I’m embarrassed for my profession that 90% of consultants I've met fit into one of those categories, people responsible for the tedious cliché of the consultant taking your watch to tell you the time.

The Greeks had a concept of a noble friend, who would tell you the truth, even if it wasn't what you wanted to hear. A good consultant is a noble friend for hire.
A fourth thing to look for is absolute attention to your particular concern. The consultant will be so focused on your particular issue that you won't be able to see any approach or methodology he employs. Every conversation will all be about your situation and helping you improve your own condition.

There are some good precedents for these characteristics in an adviser. William Wilberforce, in my opinion one of the greatest men who ever lived, had for an adviser the great John Newton (pictured above), composer of Amazing Grace. Alexander the Great had Aristotle. Washington had Lafayette. I guess they didn’t do too badly.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

Don't Swallow Your Own Snake Oil

Business people need to be scientific in how look at their companies, their markets and how they make decisions. If they don't, they may be lucky and thrive for a while, but they will ultimately and inevitably end up in ruin.

I want to be clear what I mean by the term “science” here. I don’t mean biology, chemistry, physics or any other examples from the school curriculum that restrict our thinking and, if I'm honest, put us off the subject. What I mean by science (in as unpretentious a way as possible) is a method and mindset of trying to find the truth of a situation or issue or problem; and caring first and foremost about finding the truth, irrespective of what that truth turns out to be.

It’s not about making an argument or proving a point. As soon as you start looking to defend a position or prove a point, then you're not a scientist, no matter what your qualifications or credentials. Mr Dawkins, looking to prove that God doesn't exist, isn’t a scientist. His antagonists, creationists trying to find evidence that He does exist, aren’t scientists either. Neither is anyone who selects information to justify themselves, rather than seeking information and testing the quality of their thinking to challenge themselves.

Therefore, you see true science exhibited more often in arenas where people need to get results, regardless of rationale or excuses, such as sport or gardening or medicine or the judge in the court room; and you see it less often where people need to be right, such as politics, interest groups, sales or the barrister in the courtroom.

Science, and the scientific method, is partly a thinking skill. It involves breaking down a problem into clear discrete component parts with an analytical knife; using crystal clear thinking to hang those parts together; making your assumptions and gaps in your knowledge explicit; using facts to test those assumptions and your draft conclusion; changing the conclusion according to what the facts say; and then challenging that new one in turn. You repeat this in a relentless process until you've got an answer with which you're satisfied. But the method isn’t something I want to go into any more here, because for most people the method isn’t the main issue.

The main issue is mindset. This mindset is about deliberately challenging your knowledge in the search for the truth of a situation and, crucially, being happy to change your view as the balance of facts dictates. It is not about collecting facts to make an argument or prove a point. This latter path is an aspect of rhetoric, which is a noble art, but it isn’t science. And unfortunately this point-proving seems to be a stronger instinct in the way our minds work than the discomfort of challenging our thinking and conclusions.

I'll give you an example of how easy it is to slip into the rhetor's mindset. I run training sessions for management consultants in the principles and practice of the consulting method, which is basically the scientific method. Everyone typically learns the scientific techniques to get to the heart of problems and crack difficult issues in a rigorous, objective and credible way. That is until I split the learners into teams and ask them, as an exercise, to give me the case for retaining or abolishing the royalty. I give the teams names: "Royalists" and "Republicans". As soon as they're given those positions my students turn from objective scientists into aggressive rhetors, searching for evidence that backs up their position. One team searches for the massive cost to the taxpayer of the royal family, while the other searches equally hard for the vital tourism income they bring to the country. They can't help themselves in this one-sided self-justifying behaviour. And I see this same behavior in myself and others every day.

Now let me come around to what all this means for business. First of all, of course there's a time for rhetoric and making an argument: whenever you're persuading someone in a sale, raising finance, or recruiting a super-star graduate. But if you want to know the truth about an issue, and make the best decision for yourself and your own business, you need the scientist’s mindset. You need to be humble about your pre-conceived notions, be open to challenge, and be prepared for the discomfort of receiving and doing the challenging. As soon as you stop doing that, and start building a fortress of facts to support your rhetoric, you're on the road to ruin, with self-justification, post-rationalisation and excuses all the way down.

So I'll leave you with a couple of questions to ask yourself about whatever issue you're facing. Are you being a scientist and trying to find the truth about whatever issue that concerns you, or are you selecting facts to make yourself feel better and prove a point? Are you trying to make the patient healthier, or are you trying to sell yourself some snake oil?

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

Can You Absolutely Know That It's True? An Unlikely Insight for Businesses from the Self-help Section

My wife is a wonderful but crazy woman who takes great interest in the modern spiritual gurus that appear on Oprah and whose books top the iTunes non-fiction list. Her attention has moved over the years from what I consider to be flimsy self-help one-size-fits-all nonsense to some thoughtful, insightful, challenging people.

One of these is an American woman called Byron Katie. This woman regularly counsels people who describe situations that are causing them some degree of personal pain. She responds to pretty much every person’s description with two opening questions: “Is that true?” and “Can you absolutely know that it's true?” - the second question being a polite equivalent of “Come on, be honest with yourself.”

The results of this simple line of questioning are frightening and fascinating. Almost immediately, when pushed to be honest with the second question, Ms Katie’s interlocutors realise they’ve been working with some very dodgy assumptions. These assumptions have been convenient, but have given them a misguided take on the situation and have resulted in some pretty damaging actions.

The consequent realisations of where they've been treating someone unfairly, punishing themselves, etc. often cause an outpouring of emotion that I find a bit much to bear, but my wife seems to like.

Now, let me get to my point, because it's not about relationship self-help.
As managers and professionals, we constantly work with a series of assumptions that a simple challenge such as "is this true" causes doubt, and a follow up such as "can you really know it's true?", causes the whole false edifice to come crashing to the ground and reveal something very different. I've seen whole sales forces pitching "we're not the cheapest, but we're valued advisors" in price-sensitive markets where they were, in fact, the cheapest. I've seen shifts away from highly profitable services to loss-making ones based on superficial untested assumptions and use of the wrong measures. I know a CEO who absolutely insists that his holiday company services the over-45s, and spends his marketing money accordingly, when his average customer age is 71.

Now I'm not saying that Byron Katie's formula is original. I think Socrates beat her to it by a couple of millennia. And I'm not saying you should apply it to your personal life unless you want to be known as the annoying guy. Ms Katie is currently on her third husband; and Socrates was so annoying that he was accused of corrupting the minds of the youth of Athens and forced to drink hemlock.

But I do say try the challenge on your own business or service or product. Challenge your own assumptions - work out what it is that really makes customers prefer you, or what really makes your product superior, or how much return you really make on that sponsorship or other favourite area of marketing spend. I'll bet you find something important that you didn't know, and I'll bet it affects your wallet.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

The Next Level of Analysis - It Makes All the Difference

Malcolm Gladwell’s “Outliers” is a treat. It gives fascinating insights into what really lies behind world class performers, destroying the superficial romantic myths about poor kids defeating the odds with a combination of god-given talent, inspiration and succeeding against the odds. I’d sum up the Gladwell’s conclusion of what makes world class performance with the phrase “practice makes perfect”, though I’m sure my performance coaching colleagues would justifiably emphasise the importance of creating environments and cultures that stack the odds in favour of practising the right things.

Gladwell’s conclusions were fascinating, but what caught my attention was his method – how he got to the insightful conclusions that gave the myth to some romantic, but ultimately incorrect and misleading, received wisdom. In a nutshell, all he did was this: he took the analysis to the next level. That’s it. Here’s an example from the book.

A US study analysed the improvement in reading performance of school children from different social classes. Though the social groups had similar aptitude for the youngest children studied, the gap between wealthier and poorer classes grew as the children got older. Policy makers had concluded that the education system was failing the poorer children.

However, analysis of reading performance before and after summer recess revealed an interesting insight – that the entire difference in improvement could be explained by what happened when children weren’t in school. During the main school holiday, children from the wealthier classes improved their reading ability, whereas the poorer children regressed. In fact, during the school year, the poorer classes actually improved marginally more than the richer children. So by trying to raise the relative level of the poorer children through the traditional school system with traditional school hours and a traditional school year missed the crucial point - that they regressed outside class. A simple answer was a very popular, successful school that kept children at school for longer and kept them focused on their work.

The useful insight for me here wasn’t about schools or policy or social justice. It was that by getting under the skin of things, you get the insight that allows you to take the most effective actions.

Critics of Gladwell's book say he's superficial. But all these critics are saying is that he'd have got even more insight if he'd gone to the next level, so the importance of analysing to the next level still stands.

So what is the relevance of this to business strategy? It is the immense value of analysing to the next level, beyond the superficial received wisdom, and the risk of not doing so and missing the obvious actions. I’ve been analysing businesses and their markets for more than 15 years, with more than 200 companies, including my own. From that 200+ sample, I cannot think of a single example of a company that hasn’t understood its markets or the value of its services differently after making that next level of analysis. Some of these companies even acted on that insight and turned around their performance as a result.

So does this mean for the provider and buyer of strategic advice? I was speaking at a Chairmen’s dinner recently about the benefits of performing an external review, and the host asked me a very similar question: do I, as a reviewer of businesses and markets, provide information or do I provide advice? I bungled an answer, but I should have said this:

"If you keep asking the right questions; if you get under the skin of the issue, not being satisfied or fobbed-off by superficial hearsay, then the answer and the advice comes out all by itself."


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk