Keith Stone, the general manager at Eastern Feed and Grain, Inc. was still shaking his head as he reviewed his year-end financial statements. Revenues were off 20% and the organization was posting a (significant) loss for the first time in 15 years.
The results were shocking: Eastern Feed and Grain had done much better than just weather the storm in the recent past. In the three years leading up to the current year, the firm had posted year over year sales increases in the 10-15% range. Profits had been solid. Stone had experienced low turnover among his staff and morale seemed good. A few key customers had drifted away, but nothing to worry about. It seemed other customers had increased their business with Eastern and a few new ones had been acquired, offsetting the lost customers.
As a general manager, he had stayed focused on running the business as efficiently as possible, controlling costs, keeping receivables in line, and carefully managing his line of credit and overall debt. He had been quite proud of the way the business had performed in such an uncertain economic time.
In January with livestock prices coming back and grain prices strong, this year had held so much potential, but over the course of the year it seemed he simply could not get a good grip on what had happened to his organization’s performance.
This manager’s situation reflects the worst nightmare for anyone leading an organization: one minute you are on top of the world, the next you are struggling to pick up the pieces. How can things be so good one day, and turn south the next – especially when you as manager are ‘doing all the right things’?
This article will take a look at why some organizations that seem to have everything going in the right direction can quickly fall into a state of decline. We will also take a look at how to build a ‘sense of urgency’ into an organization to keep it moving forward and not get caught up in a state of complacency. We will draw on two excellent books, both small but insightful: How the Mighty Fall by Jim Collins and A Sense of Urgency by John Kotter. These slim volumes say much about how to help an organization pick up the pace in today’s highly uncertain environment.
Objectivity combats complacency
Staying at the top is an incredibly difficult thing to do. The McKinsey Quarterly (2006, number 2, pages 78-79) reported on two studies done at the University of Memphis and the University of Texas at Austin. The studies found that many companies can manage strong short-term performance, but few can sustain that performance over time. Looking at 6,772 companies over 23 years, only 5% were able to remain in the superior performance category 10 years or more.
There are many reasons for this, such as shifts in technology, major changes in demand, new competition, bad luck, etc. But beyond these reasons, one factor that can creep into any successful organization is complacency. Almost no successful organization is exempt from the problem of complacency. It is simply human nature to relax once you have made it to the top, once you are number 1, once you are the market leader. The problem of complacency is compounded by competition.
The (very) old Avis rental car advertisement said, ‘We are No. 2, but we try harder’. And, hungry competitors, firms and organizations not at the top, surely want to get there. Finally, motivating an organization to get to the top can sometimes be easier than motivating an organization to stay at the top.
Note here that a complacent organization is not one that has decided to coast, take it easy, let things slide – a complacent organization may be busier than beavers doing what they have been doing until the reality of the market clobbers them and a new market leader is crowned.
In How the Mighty Fall, Jim Collins lays out a five-stage process of decline that helps explain the tailspin companies can get into. We will highlight only the first stage here – what Collins calls ‘hubris born of success’. His idea is pretty straightforward:
“Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward, for a while, even if its leaders make poor decisions or lose discipline...People become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place.”
His point, of course, is that sometimes a successful organization takes that success for granted – we are successful because we are doing the right thing, because our customers love us, because our products are the best on the market. We get so focused on doing what we are doing, that we don’t ask hard questions: Why are sales increasing? What did we do to earn that 15% increase in profit? Is what we are doing to be successful today going to make us successful tomorrow?
Going back to the story that opened this article: Stone, the manager at Eastern finds his organization in a tailspin and does not understand why. Of course, there is always a “rest of the story”... Looking back, the company was truly successful – sales and profits were strong, it was a well-run company - but it was not a feed and grain firm that understood its success and, at least in part because of its success, it was not a feed and grain company that was in touch with its market.
Over the past three years, the ups and downs in the economy had taken a toll on a key competitor in Eastern’s market. This competitor had struggled and was dying a slow death. As this competitor was doing all it could to stay alive, some customers were switching to Eastern, a more stable alternative. In a different area of the market, the economic stimulus had brought some major road construction projects that had made getting to another competitor more difficult; and again, some customers had brought more of their business to Eastern as a result. Finally, service levels had slipped a bit at Eastern – the dump facilities weren’t great, drying capacity was a bit limited, and a general decline in customer service had caused some customers to decide to ramp up their on-farm investment in grain storage and handling over the three-year period.
Things had come unglued when the failing competitor’s facility was purchased by a well-run national organization. When the road construction was finally finished and customers had convenient access to other options; and when farmers put their new on-farm facilities to work. The point here is that the manager in our story firm simply did not understand his firm’s success and did not take notice of some of the things happening in his marketplace.
A closer look would have revealed the business they were picking up from a failing competitor – Eastern did not have to be that good, just stable in this case. A closer look would have revealed the business they were getting as a result of the construction – just pure luck/circumstance. And a closer look would have revealed that some customers were in the process of making their own investments in grain handling facilities and that slipping service levels were sending some customers packing.
The manager at Eastern was not incompetent. He knew a lot about running his firm, and did so quite profitably. But, his success made him complacent. He was not reflective. He did not ask hard questions about why he was picking up new business and why he was losing a few customers. He assumed he was picking up the new customers because he was good, and the ones he was losing were just not important to worry about.
Andy Grove of Intel fame made the expression ‘only the paranoid survive’ a mantra for many managers. This expression reflects the mindset that a vigilant manager brings to work every day. Asking hard questions and truly understanding why you are successful is the fundamental first step in staying on top.
A sense of urgency
John Kotter’s book, A Sense of Urgency, does a great job of helping managers think about how to ‘pick up the pace’ in their organization. The focus here is the question: What could the manager at Eastern done to avoid the complacency that eventually undermined his firm’s performance? There is little question that the agribusiness world is evolving at what seems an ever faster pace. How does an organization keep vigilant and continue to evolve without falling into a frenzy of unproductive activity that does nothing but burn out good employees?
According to Kotter: “Urgent behavior is not driven by the belief that all is well or everything is a mess, but instead the world contains great opportunities and great hazard...urgent action is not created by feelings of contentment, anxiety, frustration or anger, but by the gut level determination to move, and win, now.”
He is describing an organization that is alert and aware; an organization that sees challenges and opportunities; an organization that acts on these in an intentional way, with purpose. What manager would not want their firm described in these terms?
So, how does a manager of a feed and grain firm start down this path? Kotter says that winning hearts and minds as opposed to winning just minds is key. The idea here is simple: It is pretty easy to get someone intellectually convinced that we have an issue or a challenge that needs to be addressed. But intellectual commitment is not likely to bring the kind of commitment it takes to drive action and performance. Only by connecting with people’s minds and their hearts/emotions can we truly drive a sense of urgency into an organization.
Let’s go back to the case story to illustrate. Let’s say our manager is not as asleep as he evidently was. Two years ago, he gets a sense of some of the things that are happening. He has an intern collect some data on customers lost and gained, and maybe even does a little analysis as to why. The manager calls a meeting and shares the data in a well developed presentation that points out the risks to the company. Everyone nods in agreement and says we need to take action. The next day is another busy one in the firm, and while some of the employees at the meeting have a few follow-up things to do, they all are pretty busy....sound familiar?
Consider a different path of action. Same scenario, but instead of just delivering a presentation, the manager at Eastern brings in three customers for a panel discussion with his employees. The first customer is a new one from the competitor who is failing. He talks candidly about how he likes the stability of Eastern, but still believes service could improve. A second customer indicates that Eastern is very convenient because of all the construction, but that he isn’t sure he will stay with Eastern once the construction is finished. The last customer describes his longer term plans to bring even more grain drying and handling capacity on line at his farm. The employees at the meeting ask question after question, but the reality is obvious: Eastern has a serious issue that deserves time and energy to address.
The message was the same in both cases, but Kotter believes that managers who know how to strike an emotional chord, who know how to build commitment of both the mind and the heart, are the ones who can instill a sense of positive urgency. The data alone did not get the job done. It took the reality of customers talking candidly about their businesses to open the eyes of the employees at Eastern.
What specific actions can you take to help create and sustain that sense of urgency in your firm? Kotter lays out four tactics for making this happen:
- Bring the outside in: Continually expose the organization to what is going on around it. The customer panel in our Eastern story is a great example. Have outside speakers in meetings. Listen carefully to employees who work with customers every day. One way to avoid complacency is to help your firm be continually reminded, in a way that connects, of the fact that the market is changing, creating new opportunities and challenges every single day.
- Behave with urgency each day: As a leader, model the behavior you expect. Here, Kotter is not talking about high-strung leadership that acts as if one too many Red Bulls has been consumed. He is talking about a leader who is focused on the important and dumps the unimportant or delegates the things that should not be on their plate. He is talking about a leader who starts and ends every meeting on time, always has an agenda, and never leaves a meeting without clarity around next steps. He is talking about a leader who is passionate about serving customers, running a great firm, and taking advantage of opportunity - and never misses an opportunity to communicate these points to their team. He is talking about a person who is involved in the organization in a way that allows as many as possible to see how their leader approaches the world. The old Tom Peters adage of ‘Managing by Walking Around’ still has legs.
- Find opportunity in crisis: We hear a lot about this lately – “never waste a good crisis” has become almost cliché. But the point is valid: a crisis can be a trigger to wake up an organization and help get it refocused on external realities. Kotter makes some good points here: First, don’t assume a crisis will automatically shake up a complacent organization. You need to make sure people understand the crisis (bring the outside in) and you need to be a model of response. The key here is engaging people in solving the problem in some focused way. You don’t want an organization that is flailing and panicked in response to the crisis; you want all that energy put to work with focus.
For example, the manager in our case firm has a crisis on their hands. The manager at Eastern has an opportunity to engage the company in an all-out effort to turn things around. Once the manager has helped them understand the crisis at a gut level – our customers have better options, we are not the company we once were, we have to turn this around because our customers deserve better and we want to shape our future - then the manager can get them organized into groups with specific tasks: how can we improve efficiencies, what steps do we need to take to improve customer service, etc. The point is to focus energy on the problem in a way that builds trust among the team.
- Deal with the NoNos: Kotter defines NoNos as ‘urgency killers’. These folks are more than skeptics – they can give you 10 reasons at any point in time why the status quo is just fine. And, if they can’t convince their peers the status quo is just fine, they will convince them that all of the activity you are whipping up is just a waste of time. NoNos will undermine your efforts to build urgency at every possible turn. Ignoring them will not help. In the end, some of these folks may have to go. You may be able to put enough peer pressure on some of them to minimize their impact – if everyone else gets it, their voices won’t carry much weight. But, you must understand who these folks are; take them as a serious threat to your efforts to move your organization forward; find ways to minimize their impact; and then get on with the business of building a great feed and grain firm.
The upshot
As we head into winter, it is a good time to do some thinking about professional development for your leadership team. One good way to do this is to take a quality management book and have every member of your team read it and then lead a discussion of the book. If you are not comfortable in this role of discussion leader, you might work with a supplier or bring in a consultant or someone from your local university to help. These kinds of activities can help your leadership team ‘bring the outside in’ and ask them to look at the world a little differently. Two books worth considering this winter are the two we discuss here: How the Mighty Fall by Jim Collins and A Sense of Urgency by John Kotter. Happy reading!
