SWITCHING HORSES MIDSTREAM

We’ve all probably heard the advice not to switch horses midstream. Too much can go wrong and you might end up horseless. However, when it comes to corporate strategy, sometimes it is absolutely necessary to switch horses midstream. This is called industry disruption. As painful and as difficult as it may be, its pain and difficulty are only exceeded by its necessity.

Unfortunately, not everyone embraces industry disruptive change when it is needed. The results of a survey by the World Economic Forum identify some very interesting dynamics about barriers to change (“The Way We Work Now” Fortune. May 1, 2017. p. 9). Respondents said the top barrier to change and its close runner-ups are:

  • Insufficient understanding of disruptive changes (51%)
  • Resource constraints (50%)
  • Pressure from shareholders, profitability (42%)
  • Workforce strategy not aligned to innovation strategy (37%)

Last place was more distant and thereby more promising in this case:

  • Insufficient priority by top management (21%)

These results say several things about the state of disruptive industry change today.

  • The fact that top management is giving sufficient priority to disruptive industry change is definitely a good thing. Leadership wants to be in the right place at the right time. However, we seem to have an insufficient understanding of exactly what disruptive change is in any particular industry. By its very nature, we don’t know what it looks like. And that is precisely why the changes are disruptive.
  • Resource constraints are a perpetual problem, and we are not going to allocate budget dollars until we understand the industry disruption. We don’t typically allocate budget dollars to something that we don’t understand.
  • The pressure from shareholders and profitability all add to the resource constraints, and the misaligned workforce strategy is sort of a logistical byproduct of not understanding the industry disruption.

All the above tie back to the fundamental barrier to change: insufficient understanding of disruptive changes. Interestingly, painfully, and not surprisingly, everything about industry disruptive change links back to the fundamental importance of understanding it. We see this constantly. Companies that understand the industry disruptive change get ahead of the curve and profit from it. Companies that do not understand the industry disruptive change fall behind the curve and suffer from it. This is why strategy is of ultimate importance.

Many of the most successful companies today seized an opportunity to create the industry disruptive change. That is how they made their names. They were the industry disruptors.

Every leader must spend time with the metrics, the numbers, the budgets, the reports, and the routine. These are necessary mundane tasks. But every leader that wants its organization to stay on the cutting edge must spend time pondering the industry disruptive change. That is the 20% of time that will bring 80% of the results—that is when switching horses midstream is a winning strategy.


CHOOSING THE UAKARI OR THE SQUID

Some have called the uakari monkey the shyest animal in the world. On the opposite end of the spectrum, some have called the squid the most curious animal in the world. Although introverts might argue the value of shyness, that still leaves much to be discussed about the value of curiosity.

The squid is often extremely curious about its surroundings. That curiosity pays off because squids are very intelligent. They can learn more about their environment and acquire new skills. Squids have been known to use tools to protect themselves.

I’m not knocking shyness. Quietude has its own value. Everyone is different and we have to be who we are.

However, I am knocking shyness when it comes to corporations. Uakari behavior will not produce nearly as much progress as squid behavior. Jeff Immelt (GE CEO) definitely embraces the squid approach to corporate strategy instead of the uakari approach. Bloomberg Businessweek Editor-in-Chief John Micklethwait asked Immelt how he had changed GE during his tenure. Immelt’s response (2/13/17–2/19/17, pp. 22–23):

I think the company’s more technical. It’s more global. It’s more focused on the customer. Those are the main things. When I became CEO, we were 70 percent inside the United States. Now we’re 70 percent outside the U.S.” (p. 23)

Clearly, GE is placing an emphasis on technology and the customer, all within the context of a growing global economy. Companies that do this well will be the companies that survive and thrive. And this is where it pays to be a squid.


MAYBE WE ARE ALL BAD DRIVERS

Why is it that everyone drives worse than you do? Well that’s a good question. It seems everyone has that problem (me included!). It seems to be a common human problem.

On that note, Bill Ford (Ford Executive Chairman) was recently pondering the concept of cars that can fly. Now there’s a scary thought! Ford drilled down to a major concern (Kyle Stock. “Movers” Bloomberg Businessweek. 3/20/17–3/26/17, p. 13):

[Flying cars] had better be autonomous. Most people can’t drive two dimensions, let alone three.

Mr. Ford, I do believe you are correct!


CHOOSE THE CHALLENGE

How confident are you that you can do your job? How much pride do you take in doing your job perfectly every day and in every way? How exquisitely do you know your craft? How knowledgeable are you with each element of your job?

These are good questions. On the surface, perhaps you are thinking that the more positively you can answer each of them, the better off you, your organization, and your customers are. That might be true. Yet there is another viewpoint that perhaps you haven’t considered.

Danielle Brown (Intel, Chief Diversity and Inclusion Officer) shares a provocative perspective about the challenge of your job (“How Did I Get Here?: Danielle Brown” Bloomberg Businessweek. 3/13/17–3/19/17, p. 76):

If a job doesn’t make you think, Wow, I’m not really sure I can do it, it’s not challenging enough.

Put yourself back into any situation in which you were intensely challenged. Did you not also find significant learning? Did you not also find deep growth both personally and professionally? Is it not true then that you became your best as you experienced your greatest challenge?

What does the challenge of your current job say about how much you are learning and growing? That is a question only you can answer. However, you owe it to yourself to seek out that challenge. Without it, you cannot become your best self.


BAFFLING OR NOT, LET’S LEARN THE LESSONS FROM VOLSWAGEN

I have been observing the Volkswagen diesel emissions fraud case and its aftermath over the past couple years. The magnitude of the scheme on so many levels and the questions it raises are enormously significant in our increasingly complex society. As is so often the case, the original understanding of the crime turned out to be just the proverbial scratch on the surface. The picture became gloomier as the investigators dug deeper.

US District Judge Sean Cox ordered Volkswagen to pay a criminal penalty of $2.8 billion. Meanwhile, separate from that tidy sum, Volkswagen is paying $1.5 billion to settle the civil litigation case filed by the environmental regulators. Oh, and by the way, the carmaker is also spending $11 billion to settle with John Q. Public by buying back cars or providing other compensation for the losses.

Criminal charges have been levied against seven employees, but five of those persons are in Germany and extradition is not probable. Nevertheless, Judge Cox has strongly encouraged the German government to prosecute those persons as criminals.

What follows are some observations and questions I ponder:

  • Basic Is Best. Basic is best, especially when it comes to the honesty and integrity of doing business. The very basics of business, technology, group dynamics, public relations, and crime clearly communicate to us that hidden dark crimes of fraud will always find their way to the light of day. Private crime never remains private for long. What is private becomes public and then the penalties pound relentlessly. I realize we live in a complex world. Nevertheless, certain elements of navigation within that world will always remain basic. It is tragic and equally baffling when a major corporation such as Volkswagen displays a complete ignorance of the fact that basic is best.
  • Counting Coins Correctly. Volkswagen did what it did to save money. Although the chief purveyors of the emissions scheme may have been counting coins, they sure weren’t counting coins correctly. $13.3 billion later, I’m sure Volkswagen would agree it could find much better ways to spend those coins. Unfortunately, it won’t get the chance to do so.
  • Whatever Happened To Ethics? Absolute laws will supersede and override relativistic laws. I have always been as much of a realist as I am an idealist. It is both spheres of thought that lead me to ask the question whatever happened to ethics? Whether a realist or an idealist, ethics holds an intrinsic presence and power throughout our world that can never be silenced. Granted, many people try, but in the end they are the losers, and when you lose on ethics, the penalties can be painful and permanent.

As the case and its consequences continue to unfold, it is my hope that we as individuals, businesspersons, leaders, and organizations are paying attention. We can learn as much from a tragedy as we can a triumph.

[If you are interested, here is the original analysis article I first published September 23, 2015.]—–

GETTING BACK ON THE ROAD: HOW VOLKSWAGEN RECOVERS

Last week the Environmental Protection Agency accused Volkswagen of integrating a defeat device into nearly half a million cars’ software to fool emissions testers. The software programming allegedly affects numerous diesel models such as the 2009–15 Jetta, the 2009–15 Beetle, the 2009–15 Golf, the 2014–15 Passat, and the 2009–15 Audi A3. Please note that this involves seven consecutive model years.

Jack Ewing reports on exactly what the software does (The New York Times in The Kansas City Star. “Scandal Weights on Volkswagen.” September 22, 2015, pp. A6–A7):

The software measured factors such as the position of the steering wheel, the vehicle’s speed and even barometric pressure to sense when the car was being subjected to testing, the EPA said. The car then configured itself to reduce emissions of nitrogen oxide, a gas that is a major contributor to smog and is linked to an array of respiratory ailments including asthma, emphysema and bronchitis, the EPA said Friday.” (p. A7)

Volkswagen executives have already admitted to the deception. The investigation, of course, is ongoing. A couple days ago, I identified four major ethical concerns connected to this situation:

  • Ethically Indefensible Corporate Decisions. It would appear that Volkswagen made a major technical decision that may have created a certain consumer benefit—improved motor vehicle performance. However, intrinsic to that decision is the perpetration of fraud against the government, the consumer, and society. It is fraud against the government because the implication and expectation of the passed emissions test is that the vehicle is meeting specific technical parameters of exactly how much it is polluting the atmosphere. It is fraud against the consumer and against society because individually and collectively, consumers believe that their vehicles are satisfying antipollution standards. Ethically, this is an indefensible position for Volkswagen.
  • Personal Integrity Violations. Regardless of how large the corporation, it remains comprised of individual people who make individual decisions. That means that at multiple steps over several years, specific persons knew that something bad was happening and they actively supported it or they chose to look the other way. In terms of personal integrity, this is a clear constellation of multiple failures.
  • When The Short Term Only Works In The Short Term. When it comes to corporate success, personal success, and ethical standards, if the short term only works in the short term, then we have a problem. You want the short term to work in the long term too. This translates to corporate success, personal success, and ethical efficacy.
  • When Public Relations Ignores Future Outcomes. I remain baffled when cases like this arise in which it is so obvious that people are not thinking about eventual public relations difficulties. First, with all our capabilities in technology and communications, it is foolish to believe even for a moment that poor ethical decisions will never see the light of day. After due time, they always hit the headlines. Second, once that happens, the public relations damage to the organization is always immense and irrevocable. Sometimes it is unrepairable. For a very long time, anyone considering doing business with Volkswagen will directly or indirectly ask the question do I want to do business with a company that intentionally tried to deceive? How do I know that this company will not try to deceive me?

In the wake of this corporate debacle, it will be most interesting to observe Volkswagen’s response. There is a right way and a wrong way to do this. If Volkswagen wants to do it the right way, then we should see a response that involves a convincing combination of these essential elements:

  • A Serious Apology. Consumers have a right to be frustrated and angry. Those emotions only intensify when the company demonstrates no remorse. On the other hand, consumers can be very forgiving when they perceive that a company is moving in the right direction. The opportunity to win in the marketplace is huge. But that is not the fundamental reason for the apology. The fundamental reason for the apology is that it is the right thing to do, and that is enough reason. Marketplace wins are incidental at this point.
  • Personnel Housecleaning. As quickly yet sensitively as possible, a company must investigate the misdeeds, determine who was responsible, and exercise its internal disciplinary process. Depending on the nature and severity of the circumstances, that will of course mean job terminations. With authority comes responsibility, with responsibility comes accountability, and with accountability comes consequences.
  • Technical Housecleaning. With the personnel housecleaning, a technical housecleaning must occur. All appropriate technical, procedural, process, product, and inventory changes that are needed to repair the damages must be executed immediately.
  • Corporate Culture Revision. Corporate culture can be difficult to change. Nevertheless, if the company is serious about permanent solutions instead of Band-Aid fixes, then it will do the difficult work. From the top leadership to the bench level, the company must ruthlessly evaluate all aspects of its being that enabled it to step down to such a level of inappropriate behavior and ethical compromise.
  • A Study Of Lessons Learned. As painful as the process might be, the company must invest the resources to engage every employee on the introspective journey of lessons learned. Only by studying the past can the company avoid the same errors in its future.

Volkswagen presents us with a textbook case study of a tragically common corporate disaster. Let’s hope we are all satisfied with how it responds.