In part two of the series on the Rationality of Risk, Chris Surdak provides an overview of some of the avoidance techniques that business people use to try to generate business returns without accepting any risk.
Welcome to the second installment of this discussion on the Rationality of Risk. In Part One, we reviewed the ever-so-common view that businesses should generate returns with the absence, or near-absence of risk. We discussed how this perspective is deeply rooted in human history and is fed by our use of technology in conquering the world around us. Throughout our history we have used our ever-improving technology and the Discover, Infiltrate & Exploit (DIE) approach to grow our society and our wealth. These gains have been made with relative ease and disproportionately low risk.
This is not to say that it has always been easy, and we certainly have stumbled along the way. But, large businesses and managers have had little difficulty in generating predictable returns in spite of the odds that we faced. Indeed, many organisations, and our society, expect growth without risk. Because of this expectation managers and executives are expected to generate riskless returns from their business as a matter of course.[ms-protect-content id=”9932″]
We’re Ever So Busy
As I argued in Part One of this series this expectation isn’t entirely rational; many things we take for granted are not. But, if this expectation is out there diligent professionals will find a way to meet it. The result is a range of behaviors and activities that have been optimally-designed to give the appearance of generating change and mitigating risk, while in reality doing neither in any meaningful way.
Note that I’m not suggesting that executives actively and openly state that they’re avoiding risk or change. Openly admitting to such behavior would be unseemly. Rather, there are a range of tools that we all use in order to avoid making decisions where there is a chance that we might be wrong. These tools allow us to remain busy and to create the appearance of improved performance without actually taking real risk by actually changing what we do or how we do it.
The following is a sampling of these tools and techniques; it is by no means comprehensive. See if you recognise these from your own work experience.
In Snickering, a business attempts to generate the appearance of better results by slightly reducing what their customers get for the same price. To meet the expectation of constant annual growth it is far easier to make something one or two percent smaller each year than it is to actually improve how the business operates. Hence, companies will “Snicker” all manner of goods and services, candy bars for instance, in order to produce the appearance of riskless rewards.
The problem with this approach is that after about a decade of Snickering, what used to be “fun sized” is now noticeably and embarrassingly smaller than it used to be, and customers eventually catch on. Snickering is an egregiously cynical process. It not only assumes that customers are so clueless and ignorant that they won’t notice the difference, it also assumes that anyone observing the business with interest (such as investors) believe that it is actually improving its performance, rather than simply thinning out the rations.
Plumping is the act of making things appear to be more valuable by stuffing them with less valuable stuff. Plumping is a standard practice in the meat industry, where products like chicken and pork are injected with salt water in order to make them heavier, and thus more valuable, than they actually are. This practice is so prevalent in the meat industry that it’s actually regulated. By law, companies are allowed to plump up their products only so much, after which it’s considered to be bad form. That’s your country’s regulators looking out for you.
Such plumping is in evidence across any number of industries, as it again gives the appearance of risk-free returns without actually improving anything.
Resorting is the time-honoured practice of holding a meeting somewhere other than work, in order to actually be productive. Apparently, none of us is able to generate useful business results when we are at our place of work, but different surroundings and different stimuli lead to different, and presumably better, business decisions.
As such, resorting is used to justify week-long holidays (otherwise known as offsites) at a number of productivity hot-spots such as Ibiza, Monaco or Orlando. Apparently, the practice of spending huge sums of money on travel, lodging, golf, tennis, spa-rub-downs, fine dining and wine tastings generate such break-through management thinking that the return on investment on these activities never come into question. This practice has become so ritualised that some organisations have entire departments whose sole job is to plan, organise and implement these annual productivity pilgrimages.
Resorting suggests that we all suddenly become hyper-productive once we set foot on a five-star resort. Indeed, the meetings, round-tables and breakout sessions that occur in between meals do generate fantastic flip-chart notes. Some of the finest popsicle-stick bridges I have ever seen were created during team building sessions at an offsite, and the causal link between market capitalisation and the consumption of single malt scotch, cigars, and lobsters have apparently been well established. Resorting must be the greatest creator of unquantified, unmeasured return on investment in the entire history of business, given the money spent on this activity.
Posse-ing is the corporate practice of setting up tiger teams, committees, panels, commando units, etc., outside of the normal channels of business, in order to try to obtain some abnormal results. Posse comes from the Medieval Latin term Posse Comitatus, which is a body of people empowered by a sheriff or other official to enforce the rule of law. In other words, a posse is a group of people who are given more power than normal in order to enforce the will of those in power.
When an organisation “posses,” it openly acknowledges that normal employees performing their normal work in their normal processes simply don’t measure up. In light of these failings, organisations will create some alternate, temporary group in order to try to get some sort of different result in some limited, tightly-controlled and carefully-monitored case. Note that a posse is expected to return to “normal” as soon as their limited goals are reached, otherwise they too would be sheriffs, wouldn’t they?
When you see a posse being formed by a company it is both an explicit declaration that the organisation is not performing as necessary, and an implicit declaration that everything will go back to how it was before, once the immediate sense of panic has subsided.
Somme-ing is the practice of doing the same old thing, only harder, faster or more emphatically, with the expectation that this will lead to different results. Somme-ing is the result of the arrival of new technologies, strategies or players which completely undermine what had been effective strategy in the past.
In late 1916, the world was in its second year of fighting World War I. The generals and politicians used strategies and tactics that were hundreds of years old, while at the same time using new technologies such as machine guns, barbed wire, airplanes, poison gas and high explosives, produced in industrialised quantities. These leaders were surrounded by new innovations, while their thinking was decidedly stuck in the past.
The old and the new collided in the forests and fields surrounding the French village of Albert in July 1916, which signaled the beginning of the First Battle of the Somme. The allied generals had planned for a massive buildup of men and materiel, which would be applied in the same old manner that armies had done for the prior few centuries. Despite assurances of victory by the leadership of both sides, the battle generated almost no strategic or tactical result beyond enormous loss of life, with well over a million casualties.
And so it goes in business. Organisations are constantly faced with disruptive change brought by new technologies, new competitors and new strategies. Frequently, their leadership attempts to deal with these new challenges by applying the same old approaches that were successful in the past, only with greater vigor, in the hope and belief that this will make a difference. Most of the time it does, but only in terms of resources spent, and the body count that results.
Deck-chairing is the reorganising, reshuffling, restructuring, reassigning, etc., of managers or the groups that they manage without making any actual changes, in order to create the appearance of change. The term comes from the story of the cruise ship “Titanic,” which famously sank after striking an iceberg. Once the ship was struck and began flooding no amount of shifting of chairs from place to place on the decks would save her. However, such moving around of chairs would keep people occupied while they waited for their eventual plunge.
If you have spent any significant time in the business world, you have experienced deck-chairing. Managers may take weeks or even months trying to figure out how best to re-arrange who reports to whom, who is responsible for what, and so on. Success will be within reach, just as soon as it is determined who becomes responsible for the chairs on the Promenade Deck versus who is left with those on the Poop Deck. The chairs are the same, the boat is the same, even the people are the same. But, somehow rearranging all of these ingredients in some different order is supposed to turn a haggis into a soufflé.
Theoretically, all of the machinations and angst generated over these role swaps and reassignments are intended to create new, better results for the organisation. But, more often than not it’s a political game to determine who wins at shuffleboard until the waters of the North Atlantic make the game irrelevant.
Worst of all, as someone who has endured deck-chairing as an almost annual event, I can say that it causes at least as much psychological trauma as making ACTUAL changes to a business, if not more. But, as far as creating the appearance of change without generating real change, deck-chairing is a perennial favourite.
Darthing is the practice of using outsiders to decide who is causing an organisation’s poor performance, and then assigning them to the task of eliminating the offenders. Naturally those who are Darthers (the hired guns) are made to appear to be the evil-doers, rather than those that hired them and who were ultimately behind what the outsiders were up to.
Darthing comes from the Star Wars series of movies. In these movies, the evil Emperor Palpatine uses his apprentice Darth Vader to do his bidding. Darth ends up doing the Emperor’s dirty work, both literally and figuratively. Once the Emperor determines who or what stands in his way he sends in Darth Vader to eliminate that opposition for the good of the republic.
Not surprisingly, Darthing was really big in the 1980s and 1990s, which was the first big era of hostile take-overs, mass lay-offs and the elimination of careerism in many industries. Many consultancies became experts at how to “right-size” an organisation, which mostly consisted of doing what executive management wanted to do, but didn’t dare do themselves. Note that in Darthing, the way an organisation operates doesn’t really change, only the bureaucracy in control of operations changes hands.
Neroing is the process of building monuments to your own greatness at the expense of that greatness. For those not familiar with Nero, he was the last of the Julio-Claudian Emperors who ruled Rome. Nero was a particularly grotesque character notable for all sorts of sociopathic behaviors. Among them was his desire to create a number of grand monuments to himself. Some historians believe that Nero had Rome set ablaze in order to clear an area for the creation of the Domus Aurea, the palace complex he built in celebration of himself.
Present evidence shows that executives adore Neroing. All around the world, companies build skyscrapers, campuses and other monuments to their fabulousness. Typically, these monuments are built at precisely the time that these organisations have passed their peak and are beginning their slow-but-accelerating decline. If you are an employee or investor in an organisation that is planning to build such palaces, look around for signs that new technologies or competitors are about to undermine their empire.
Urban-ing is the practice of making edicts that demand obedience in the face of all contravening evidence. In the early 17th Century, Galileo first proposed that the Sun, rather than the Earth, was at the center of our solar system. This idea was so radical, and so contradictory to the teachings of the Catholic Church at the time that Pope Urban VIII (formerly a supporter and ally of Galileo) declared him a heretic, forced him to recant and placed Galileo under house arrest for the rest of his life.
In business, executives use Urban-ing to avoid accepting uncomfortable truths. Many of these executives became successful because they held to certain beliefs about their industry, their business, or their approach. Over time, these beliefs may no longer prove to be true, which can be disquieting, to say the least. When this occurs, management may begin to pronounce “official positions” as to what their organisation believes to be true, despite any amount of evidence to the contrary. Such pronouncements are often presented in the form of quarterly reports, press releases and other such outputs from marketing departments.
Praetorian-ing is where executives surround themselves with those who would protect them from the truth of their situation. The Roman Senate and Roman emperors were protected by elite security guards, known as the Praetorians. These soldiers protected Roman leaders from personal harm, and were respected and trusted by leaders and the citizenry alike. Over time the Praetorians gained a great deal of power themselves, as they controlled who had access to the emperors, what news they were exposed to, and so on.
In business, it is not uncommon for executives to be surrounded by, or to choose to surround themselves with, such “reliable” lieutenants. Part of their job is to carry out the will of these executives. A further part of their job is to make sure those executives aren’t called out for making bad decisions, and to make sure that bad news doesn’t travel to the top, without some underling to blame it on.
These techniques frequently travel in herds as avoidance techniques tend to work best in groups. As such it’s quite common to see something like, “Executive management is going resorting with their praetorians in order to come up with a deck-chairing plan and assign someone new to a Somme-ing maneuver.” Such risk avoidance clusters are part of everyday life in the business world, and MBA programs would do well to make these a part of their curricula, if only to ensure their graduates are familiar with these all-too-common risk management techniques.
To emphasise how prevalent these techniques really are, I briefly looked at my own calendar. I do a great deal of consulting, executive coaching, strategic planning, writing and speaking as part of my work. Over the last two weeks I presented at five different “resorting” events. Two of them involved Posses who were presenting their latest Somme-ing strategy to their staff, while Urban-ing about how their industries are not really changing, and the old ways are still the best ways. Another client had their Praetorians ask me to Darth for them, as they tried to use Big Data as the rationale for a round of Deck-Chairing before they implemented a wave of lay-offs. In another instance, an executive team was Resorting at a very nice hotel, spending their morning figuring out if Plumping their main product line would help them hit their new revenue targets and their afternoon trying to decide if Snickering their sales compensation plan would further help their balance sheet.
Sound familiar? I thought so.
Avoiding What We Need the Most?
As you read the avoidance techniques we just reviewed, perhaps you laughed to yourself a bit, because it’s all very familiar. Unfortunately, these behaviors are the children of two dysfunctional parents: the desire to avoid risk at all costs, and the expectations of returns on investment, no matter what. As grotesque as the resulting offspring may be, it is often very difficult to tell a parent that their baby is less than attractive. Hence, these behaviors not only survive, they often thrive in an environment where going with the flow is more important than asking, “Does any of this make any sense?”
In this segment I hoped to explore some of the ways business people try to generate business returns without accepting any risk. These are some of the techniques that we use to remain oh so very busy, yet not so very productive. If these examples sound familiar it is not accidental. Many of these techniques have been finely-honed over decades of organisational Darwinism.
Is there something better out there? Is there a better way for businesses to accept, or even embrace, risk? Arguably there is, although the results aren’t always certain. That is, after all, the definition of risk. In part three of this series, we’ll explore some of the ways in which organisations and leaders actively embrace risk, in a calculated, level-headed way, in order to generate break-through performance from their organisations, or even entire societies.
And with that, I’m off to have two “fun sized” candy bars, as I’m famished, and they’re just not what they used to be.
About the Author
Christopher Surdak is an Engineer, Juris Doctor, Strategist, Tech Evangelist, 2015 Benjamin Franklin Innovator of the Year, and Honored Consultant to the FutureTrek Community, Beijing, China. He is also the author of Data Crush: How the Information Tidal Wave is Driving New Business Opportunities, which is GetAbstract’s International Book of the Year for 2014.