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More CEOs should adopt the Business Roundtable’s principles. More business schools should administer the MBA Oath at commencement. It’s the right thing to do.
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Universal principles for all entrepreneurs
During a group discussion with designers in residence at the Philadelphia Fashion Incubator about entrepreneurship, we review what it takes to build a successful business.
Be Aware of the Unintended Consequences of Your Decisions
Article originally published in the Philadelphia Business Journal on July 30, 2018
Nearly all of us have heard the term “unintended consequences,” but we may not be aware of how to avoid them. In February 2018, in the publication The Library of Economics and Liberty, Robert Norton wrote, “The law of unintended consequences, often cited but rarely defined, is that actions of people – and especially of government – always have effects that are unanticipated or unintended.”
When the unintended consequence of a decision is favorable, there is never an issue. The favorable outcome is considered a bonus. When the unintended consequence is adverse, depending on its impact, the decision-making process is questioned, as is the leader who made the decision.
In his article, Norton wrote about sociologist Robert Merton, who in 1935 identified the causes of unintended consequences – three of which are in the control of the decision maker. I would like to focus on these three causes: ignorance, error and immediacy of interest.
Ignorance and error
In both of these cases, leaders make decisions on issues without considering the unintended consequences, or before needed information is obtained. These are decisions that are not well thought out nor operationalized.
During my tenure as the CEO of our company, I sat through meetings at which the management of a business unit presented their plan to enter a new market without any consideration of the unintended consequence of a competitive response and how it would impact our company’s market entry.
I would ask, is the market growing at a sufficient rate to absorb a new supplier without a competitive response? Will competitors respond by price cutting, or in a different way? What differentiates our product in the marketplace to limit a competitive response? Why would customers switch buying from their incumbent supplier and decide to buy from our company?
How competitors might respond to a new market entry is unknown. A leader will often need to make a decision, but the information desired to make a fully informed decision is not available. Before making that decision, effective leaders listen to the opinions of their experts and they fall back on their own experience, common sense and good critical judgment. This is how they de-risk a decision and minimize the chance of unintended consequences.
Immediacy of interest
Merton describes the type of decision where “someone wants the intended consequence of an action so much that he purposefully chooses to ignore any unintended effects,” to the peril of the decision maker and the organization.
NASA’s decision to launch the space shuttle Challenger on Jan. 28, 1986 against the advice of the Thiokol engineers is an example of a decision driven by immediacy of interest. NASA had promised Congress a too aggressive and unrealistic launch frequency. The pressure to meet this schedule resulted in a catastrophic decision to launch the Challenger in adverse temperature conditions, well below the ambient temperature for which the solid rocket booster O-rings were designed.
Upon hearing Thiokol’s recommendation to delay the launch due to risks to the astronauts and the shuttle, one of the NASA officials stated, “I am appalled by your recommendation.” Another NASA official stated, “My God, Thiokol, when do you want me to launch – next April?” NASA launched Challenger, and shortly after the launch the O-rings failed, resulting in an explosion and the catastrophic deaths of seven astronauts and loss of the shuttle.
What is the cause of immediacy of interest type decisions? Certainly, hubris is one cause. Dictionary.com defines hubris as “excessive pride or self-confidence, arrogance. Arrogant leaders are rarely if ever successful over the long term.
Another cause of immediacy of interest decisions is the pressure to act, which in and of itself is a way of achieving results. However, at what risk and at what cost? How many times do we read in the press about unethical or illegal acts that were committed due to the pressure to get something done? These situations eventually almost always become public, adversely impacting the reputations of the individuals and organizations involved. The reputations of organizations recover over time. Those of the individuals never do.
How do you avoid immediacy of interest decisions? If you are the boss, set high expectations for achieving great results, but make it clear to the organization that it must be done in an honest and ethical manner. No other way is acceptable.
Surround yourself with people who will tell you what they think, not what you want to hear. Listen to your experts. They know more about the unintended consequences than you do. And remember, what you do reflects not only on you, but on your organization and your colleagues as well. Don’t let them down.
Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.
Breaking Paradigms to Create Competitive Advantage
Article originally published in the Philadelphia Business Journal on July 10, 2018
In December 2015, I wrote an article headlined, “Don’t tell me it can’t be done. Find a way.” The article is about an event that changed how I viewed the necessity of breaking paradigms to create competitive advantage. That event influenced my leadership style, and still does so today. This is an update of that article.
As the leader of your organization, how many times do you hear from employees that something can’t be done? When I am told this, I now respond, “Don’t tell me it can’t be done. Find a way to do it.”
When I was the president of my company’s Canadian subsidiary, I led the team attempting to financially justify a new manufacturing plant to supply one of our products to a small geographic market in Alberta. There were insufficient revenues and cash flow to achieve a rate of return on the investment needed to justify the plant’s construction.
The CEO of our company challenged every standard design parameter of the plant. Due to his challenge, we changed our paradigms and redesigned the plant to reduce its capital cost and the number of people needed to staff it. The rate of return increased to above the threshold to fund the investment, and we were given approval by the board to build the plant.
This new plant design became the model for future plants of its type and gave us a very significant competitive advantage in the marketplace. The thought process we went through to design the plant was foundational to the company’s subsequent continuous improvement philosophy.
As depicted in the film “Pearl Harbor,” soon after the U.S. declares war on Japan after the attack on Pearl Harbor, President Franklin Roosevelt orders the Joint Chiefs of Staff to strike back by bombing Tokyo. These military leaders offer reason after reason why it can’t be done – the U.S. long range bombers don’t have the necessary range from the nearest U.S. base on Midway Island; Russia won’t let the U.S. launch from Russian territory, etc. Roosevelt says to them, “Don’t tell me it can’t be done”.
What Roosevelt did was challenge the existing paradigms of his military leaders. He wanted them to be innovative and think out of the box. It took the assistant chief of staff for anti-submarine warfare to do so, an individual you would not necessarily expect to come up with a solution to this challenge. He proposed that B-25 bombers carrying extra fuel be launched off an aircraft carrier that would sail within a distant range of Tokyo, reducing risk to the carrier. After launch, the carrier would turn back, and after the bombing run, the planes would fly to China and land there.
This bombing mission over Tokyo is enshrined in history as the Doolittle Raid, named for Army Air Corps Lieutenant Colonel Jimmy Doolittle, who trained the pilots and led the bombing mission. Even though the bombing mission did little damage to Japan’s military capability, it provided a needed boost to American morale, and at the same time showed the Japanese that they were within the reach of American bombers.
When “something can’t be done,” there is usually a creative path forward that can achieve the result desired, or a similar result that might serve the purpose originally intended. Your corporate culture must encourage out-of-the-box thinking and risk-taking for this process to take place. Collaboration among people from different operating units, technical disciplines and business units are sometimes needed to find the path forward, as occurred when the assistant chief of staff for anti-submarine warfare came up with the idea of how to bomb Tokyo.
I have learned that if accomplishing the original goal proves to not be doable, a path can be found to accomplish 80 or 90 percent of that goal, which is better than not accomplishing it at all.
Leaders, whenever you are told something can’t be done, challenge your direct reports to find a way to do it. To those who are tasked to find that path, think outside the box and challenge existing paradigms. You will be surprised at what you can accomplish.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com.
7 Principles for Building an Enduring Business
Article originally published in the American City Business Journals on June 4, 2018
This is my 200th article published within American City Business Journal’s various publications, including my hometown Philadelphia Business Journal. In those articles, I have written about many principles for building an enduring business.
In this article, I share with you the seven most important principles, based on my own experience rising through the organization to the position of CEO of my company and as director on numerous boards observing other CEOs and their leadership teams.
1. Become the preferred provider to your markets — the Holy Grail of any business
This is a universal principle that all businesses need to pursue and that I frequently write about.
What is a “preferred provider?” It’s a provider that a customer or client favors when purchasing a product or service versus its competition. A preferred provider has a significant competitive advantage over all other providers, because it is the “go-to” provider in the marketplace.
How does a business become the preferred provider to the markets it serves? It differentiates itself from competitors by excelling in the following six areas: it offers high-quality reliable products and services; is on the forefront of technology; provides a great customer experience; is trustworthy; is committed to the process of continuous improvement; and is on a journey to be the best in the world at what it does.
2. Set the right tone at the top and organizational culture
Tone at the top is set by the CEO and the senior leadership team and reflects the ethical climate of the organization, while culture reflects how employees within the organization deal with each other and with customers. As the leader of your business, ensure that you set the right tone and culture. They become the behavioral norms of your employees.
Both tone and culture determine whether employees will trust their leaders and their fellow employees. Employees should be focused on growing the business and exceeding the expectations of their customers, and not worrying about whether they are about to get thrown under the bus by a fellow employee.
One only has to look at Uber and Wells Fargo to see how poor tone and culture can cause the loss of talented employees and customers, as well as the damage that can be done to an organization’s reputation.
3. Act as if your competition is trying to eat your lunch
Why act this way? Because that’s what competitors do. It may not be across the board, but it happens in a business niche where they feel they can take advantage of your weaknesses and exploit their competitive advantages.
Andy Grove, former chairman of Intel Corporation, was right when he said, “Only the paranoid survive.” Ensure that you not only survive but continue to thrive.
4. Listen to the brutal facts of reality
This is a critical principle taught by the January 1986 Challenger space shuttle disaster.
After being warned by Thiokol engineers Roger Boisjoly and Robert Ebeling not to launch the shuttle due to an ambient temperature below the design temperature for the O-ring seals on the solid fuel rocket boosters, NASA launched the shuttle anyway. The O-rings failed, resulting in the catastrophic loss of the lives of seven astronauts.
In response to the warning, one NASA manager is quoted as saying, “I am appalled by your recommendation.” Another NASA manager said, “My God, Thiokol… when do you want me to launch — next April?” It’s obvious that NASA did not want to hear the brutal facts of reality, resulting in tragedy.
Leaders need to listen to their experts and to be open to hearing unwelcome news. They need to create an environment that welcomes this input.
5. Treat your employees as you would like to be treated
Act in ways that will encourage employees throughout your organization to talk with you. Walking around, asking questions and listening to how things are going will help break down barriers in communication. Don’t violate the chain of command by giving orders on what you want them to do. Discuss it with your direct report responsible for that area.
Don’t act like an imperial leader. It will reduce the likelihood that your employees will be comfortable talking to you, hurting your ability to learn about issues that need to be addressed.
Quoting entrepreneur Richard Branson, founder, chairman and CEO of Virgin Group, “The way you treat your employees is the way they will treat your customers.” Wise advice.
6. Empower your employees to continuously improve their area of responsibility
Create an environment in which your employees have a feeling of personal ownership in what they do. Empower them to launch improvement initiatives within their area of responsibility, and to propose improvement projects above their approval authority.
Share with employees your expectations and hold them accountable for results. Don’t micro-manage.
In my experience, a philosophy of continuous improvement, led by the CEO and embraced by all organization levels, is a huge source of competitive advantage.
7. Hire people who are change agents — they will help you break paradigms
There are people who have a positive attitude, see a world of opportunities and abundance and are not afraid to take risks, and there are those who have a negative attitude, only see a world of limitations and scarcity and never leave their comfort zone. Hire the first type of individual.
Following these seven principles will give you the best chance of building an enduring business.
Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School.