Decisions, risks and Chief Executives

McKinsey have just published the results of a survey of over 2000 executives into decision-making - and what practices are associated with good results.

The survey conformed the value of:

1) Performing sensitivity analysis and creating financial-risk models
2) Including comparable situations from one’s own or the firm’s experience
3) Examining the risks of a project combined with the risks of other projects in the firm’s portfolio
4) Creating a detailed financial model of the decision

This accords with my experience. Far too often I have seen risk analyses that look at each risk in isolation or are hurriedly undertaken as little more than a ritual. (I also think that exit strategies and other contingency planning is even more neglected.)

Interestingly it appears that Chief Executives play a large role in instigating both the most and the least successful decisions. The report suggests that Chief Execs may be more likely than others to gamble on bets with big upsides and downsides - or may be better able to secure approval for such bets. It certainly demonstrates the need for boards to act as an effective challenge to Chief Execs.

Change and strategy – the perils of success

For some thought provoking blog posts on strategy and change I would recommend the Random Rantings of Freek Vermeulen of the London Business School. This week he flags up some research coming out of the States that indicates that Chief Executives from high-performing firms were significantly more likely to interpret changes in their business environment as a threat than the their peers at poor-performers, who tend to interpret change as a positive thing.

Vermeulen suggests that this may be the cause of the “success trap” about which he writes:

ample research and statistics show, for a variety of industries, that especially very successful firms have trouble staying successful, and adapt to fundamental changes in their business environments (such as new competitors, different customer demand, radical new technologies or business models, etc.). Over the years, they focused on the thing that made them successful (a particular product, service, production method, etc.) and as a result became even better at it.

The times are certainly a-changing. We live in manic macro-economic environment. For the public and thirds sectors a bracing funding regime looks set to be even tighter. On top of that there is major institutional change in many areas such as the end of the LSC in further education and the de-merger of the Housing Corporation in social housing. It all makes an interesting laboratory for success, change and strategy.

Beware successful Chief Executives?

I often have a look at the Random Rantings of Freek Vermeulen - an Associate Professor of Strategic & International Management at the London Business School. This month he has warned that some of top performing chief execs should be avoided like the plague.

The logic is:

Bad managers are those people who just don’t get it. They accept worse average returns for higher risks. And this is where it gets tricky. Because if they accept very high risks, in spite of lower average returns, every once in a while one of these morons will actually hit the jack-pot…

That is, if we take the top 1 percent – and only this 1 percent – of top performers, they’re likely to be those people who don’t get it at all… but just got incredibly lucky!

He goes on:

The same is true – as Stanford’s Professor Jim March asserted – for CEOs. The ones that are the eye-catching top-performers are likely the ones who just don’t get it. The dangerous thing is that they are also the ones with the absolute highest return in their business. Therefore we naively believe that they “do get it” and, in fact, are quite brilliant. Moreover, that’s what they start to believe as well… (“I win again; I must be brilliant…!”). Yet, they got lucky once, the might get lucky twice, or three times (at which point we start to notice them) but eventually their luck will turn (the names of Bernard Tapie, Jeff Skilling, Cees van der Hoeven and Conrad Black come to mind).

He concludes warning against “top performers” in any business or situation which involves risk:
The one coming out on top is likely to be a moron, who just got lucky.

I suspects the theory has the ring of truth for many people. (I also think that there are all sorts of interesting issues around management, leadership and success. How often do successful managers demonstrate themselves to be poor leaders when they are asked to lead people rather than manage things? How often is the asset of charisma associated with a dangerous risk-loving attitude?)

Nevertheless even if the theory makes sense, I think care should be taken in applying it to assessing, appraising and rewarding performance!

Thought for the day (and a postscript to yesterday’s posting on good governance)

This morning I stumbled on fairly profound quote that has relevance to the question of what is effective governance and leadership:

Managers are concerned with doing thing rights.
Leaders are concerned with doing the right things.
Anonymous

Poor governance again: under-achieving governors to blame for poorly performing colleges

The new Ofsted review of colleges' improvement has noted: "Ineffective governance and management lay at the root of many weaknesses seen in underperforming colleges."

It is sad that some governors do not get it. Ofsted found governors who were so absorbed by the financial position of their college that they didn’t pay enough attention to the success of students. As a Chartered Accountant (and someone who has seen the mess left by colleges lacking financial viability), I see the importance of finance - but it is only a means to an end.

The report also found that some governors and managers also avoided making difficult decisions.

The report also noted: "There was no culture, understanding or acceptance of accountability - these managers were not constructively self-critical and frequently looked for something or someone to blame when things went wrong or improvements were not forthcoming.

The vulnerability of chief executives in FE and housing

In the FE and social housing sectors where I spend a lot of my time working, I’ve noticed that the industry press have been talking about the vulnerability and turnover of chief executives.

Inside Housing reported that arm's-length management organisations (ALMOs) have experienced massive upheaval over the last year with a quarter replacing their chief executives. It talked about pressure to meet the decent homes deadline, interference from parent local authorities and the desire of some chief executives to take on a new challenge

The FE pages of the Guardian reported that college principals are now like football managers - they don't last long if they don't get results. It also reported that research suggested had found that “excessive audit cultures, inconsistent funding and multiple community engagements” resulted in a growing disinclination for qualified candidates to apply for vacancies.

Should we worry? I am suspicious of the cult of the CEO – chief executives are not superheroes. (Nor in fact are football managers – see King Kevin at Newcastle United.) As one author has pointed out “Past success is no guarantee of future success”. Sometimes chief executives are just lucky – chief executives (and boards too) are at the helm of successful organisations (or what are perceived to be successful at the timel – look at Enron or Northern Rock).

Nevertheless, I have seen how a lack of leadership can be debilitating. Organisations in public services will be losing direction if they do increasingly lose their chief executives.

The Healthcare Commission learning from investigations – mergers, targets, governance and other common themes in public services

The Healthcare Commission watchdog has published an interesting analysis of lessons from 14 investigations into patient safety failures. Such analyses of failing organisations are always to be welcomed. In social housing there are the Learning from Problem Cases series of reviews into "supervision" cases (see the Housing Corporation website here and here). Sadly in other sectors, such as further education colleges, there are ad hoc reactions to failures rather than systematic reviews and efforts to promote learning.

The Learning from investigations report (pdf available) found common themes:

1) Leadership and management: Poor leadership was a problem in nearly all of the investigations carried out by the Commission.

2) Some boards had been focused on mergers or targets at the expense of their broader activities.

3) Lack of continuity in leadership was a problem in some trusts, where frequent changes in management were a factor in poor care. Bullying and harassment by managers was a factor in two cases investigated. The Commission found there was a fine line between promoting change vigorously and bullying.

4) Investigations often uncovered a breakdown in leadership and management, with a lack of clarity on responsibilities from board to ward. Poor teamwork, either between management and clinicians or between clinicians themselves was another common factor in failings.

5) Use of information: The Commission found that most of the trusts investigated did not have adequate systems in place to routinely inform the board of trends or potential problems.

6) Mergers and restructures: Seven of the trusts investigated had recently undergone mergers or significant organisational change.

7) Safeguarding vulnerable adults: Poor understanding of adult protection procedures and responsibilities was a serious problem in the two investigations into learning disability services and also a number of interventions in trusts.

8) Poor care on general wards: When its investigations looked at acute hospital care, the Commission noted that care on general wards fell well below the care provided on specialist wards. Older patients were most at risk as they were often most dependent on good nursing care.

It is note-worthy that the first five of these themes are found widely across public services.

Jerks and the public sector

The McKinsey Quarterly carries an interesting article on jerks in the workplace and building a civilized workplace.

In the article Robert Sutton argues for zero tolerance of harassment of workers. A “no jerks” policy as adopted by the software company Successfactors.

The article lists the “dirty dozen” seen with workplace jerks:

1. Personal insults
2. Invading coworkers personal territory
3. Uninvited physical contact
4. Threats and intimidation, verbal and nonverbal
5. Sarcastic jokes and teasing used as insult delivery
6. Withering emails
7. Status slaps intended to humiliate victims
8. Public shaming or status degradation rituals
9. Rude interruptions
10. Two-faced attacks
11. Dirty looks
12. Treating people as if they were invisible

The article discusses calculating a Total Cost of Jerks. It quotes one company where one star salesperson—generated additional costs of $160,000.

Jerks are a problem in all sectors of the economy. How much do they affect productivity in public sector organisations like the NHS?

Maxwell: the "Bouncing Czech", leadership and public services

(To be precise Bob Maxwell was a Ruthenian from the borders of modern Ukraine and Slovakia rather than a Czech.)

I am disappointed to be missing this week's BBC2 drama about Bob Maxwell.

Maxwell was living proof of the saying (from Russia or Scandinavia or Japan – you choose) that “the fish rots from the head”.

According to the management writer John Argenti, corporate collapse is associated with:

- One-man rule
- A non-participating board
- An unbalanced top team
- A lack of management depth
- A weak finance function

The public and not-for-profit sector has seen its share of collapse and scandal – and in deed many of those symptoms (and causes) listed. Not long ago there was the Barnsley College trial which highlighted some of the problems.

While public services reform is ongoing (and vital), there remains the need to strengthen governance in public services.

Public services need strong leadership – but not the all-powerful strong Leader.