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March 12, 2018

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Penny wise, pound foolish

March 12, 2018

It has fascinated me already since I was very little. And there is a great English proverb for it: "penny wise, pound foolish".

 

And I don't know whether it is a matter of wishful thinking or of a vision that is too short. Eventually, whether you look at it from a personal perspective or a global outlook; there always seems to be a need for balancing short term effects and long term impact. And I use the words effect and impact on purpose: effects are short, incidental consequences that last only for a short while. Consequences in the long run always last for a long time and impact on bigger things than ourselves.

 

 

The galaxy and the stars

In fact, I do know: it is a matter of both. Wishful thinking and a vision too short. In his book XLR8, John Kotter describes one of the organizational (r)evolutions that I also talk about in our Inspiration Sessions on organizational culture, leadership and management. We are constantly surprised about startups achieving such momentum in such a short time, while in fact it is not that surprising at all. Upon having a good idea for an innovation, the startup is so agile, I hate that word, that the right activities and responsibilities are picked up. By whom really is irrelevant.

 

To the responsibilities and activities and to the person picking them up. In that phase of the organization, there are no functional job descriptions with competencies, evaluation matrices and hierarchies with management. The sole driving factor is leadership. And not just in the center of this galaxy of energies; in all of its planets and moons there are leaders, inspiring others, focusing on results and objectives, the why and what, instead of the how.

 

Now, this way has its limits. Pros: flexibility, eagerness, communication, responsiveness, moreover: proactivity to changes in the environment; the works. Cons: inefficiency in all shapes and sizes. Processes and structures are reinvented many times, ideas, skills and knowledge get lost because of this and because the galaxy is so flexible, objectives are being pursued that are just as easily let go. Behold the disadvantages of leaders.

 

In comes management.

 

Hierarchy

After a certain size of the galaxy, the leader starts to realize that its' inefficiencies are slowing down and even harming its' chances for growth. Enough with just the focus on the output, let's start focusing on the input. The pioneer is not fit for this. It is not in his DNA. He has ideas, inspires, sets the dots on the horizon, encourages and leads innovation; he leads the way forward, even when no one else sees it. But they run with him.

 

That is why he brings in managers. And don't get me wrong, it is not about calling someone a manager, it is about the type of energy brought into the galaxy. People come in, who are looking at the relation between what goes in and how it is processed in relation to what comes out. They consider what comes out a constant. Given this output, this process should... and the input can be...

 

It pretty much sums up the essential difference between leadership and management: leadership's drive is to do new things, successfully of course, so the aim is for innovation as a proaction to environmental (market, suppliers, consumers, customers, etc) changes. Management's drive is to react by doing existing things better. Doing the right thing vs doing things right. And let's be clear, in the evolution of organizations, eventually, when the organization has grown, there is only one conclusion: we need both.

 

Stability no more

When I started studying these mechanisms in relation's organizations, I used to see, that in some industries having management overgrowing leadership and even scaring leadership away, didn't appear to be that disastrous. And the conclusion wasn't that surprising: if the environment of the galaxy was stable enough, not having visionary ideas, innovation and leadership didn't harm the galaxy that much. I say "was", indeed. Because name one industry, which can be considered stable! When I started as a consultant and inspirator, around 20 years ago, with a little bit of good will, we could consider banking, insurance and the government as relatively stable.

 

But as always, demand-side of the market emancipated, slowly, but surely in those markets too!

 

Customers of banks started demanding more innovative services and tools, so banks all of a sudden needed to compete over customers! The oligopolies in the insurance industry eventually annoyed demand side so much that customers started to request quick payment of insurance claims, tailored insurance packages and transparency into the relationship between premiums and claims. And finally, in some countries, The Netherlands for one, even the government is making an attempt to start understanding they have customers, who, albeit indirectly, pay for services they need. So the acquisition of a new passport, requesting a subsidy and even filing a complaint against itself is becoming more and more customer-friendly.

 

So, coming back to my point, when it comes to the age-old question what was first: the chicken or the egg, I say "the egg, as dinosaurs laid eggs. And when it comes to leadership and management: leadership. After all, doing things right, doesn't mean squat, if they are the wrong things. I  plead for a sequentiality: first leadership and then management. Both dynamically speaking, like the picture above, as well as statically speaking, with leadership and management running the galaxy together.

 

Now let's compare pennies to management and pounds to leadership.

 

Pounds and pennies

So much easier said than done: go for pounds. It obviously is as logical as it sounds. Pounds in the future are so much better, than pennies now. In the galaxy, though, it is so difficult to know where the pounds are or even what they look like (they may have changed in to cryptos, for all we know!). But leadership holds the treasure map. And once we located the X, we can start adding pennies to the pounds.

 

The most important reason why it is so difficult to focus on finding pounds first, is that management overgrows leadership. The objective to structure and procesize starts to overpower the objective to innovate and grow. One of the factors forcing this further has been the commercialization of company ownership. Short-term spreadsheeted results become more important than long-term corporate continuity and growth, because pennies, however many there may be, are most important to the commercial company owner. Whereas pioneers, startups and family businesses too share a passion for success, which is not measured in pennies, but in growth of the idea and their galaxy.

 

Let me share some examples.

 

The inventor of digital photography, Kodak-Eastman went bankrupt, because the pennies of selling photography paper and old technology lured more, than the, admittedly uncertain revenues of their innovative digital technology.

 

 

The maritime industry is a particularly complicated one. Deciding to expand capacity generates results over a period of between 5-7 years; that is how long it takes to build a large vessel. How much can happen in even a couple of months has been made abundantly clear in the fall of 2008. At the same time, it has a hate-love relationship with cost control (pennies), which is even more reinforced by the conservative nature of the industry to being with (chicken-egg?). So when the industry started recruiting cheap labor, the focus was on pennies, whereas the pounds lost, because of more difficult planning, communication, training, cooperation and teamwork and knowledge drain, were overlooked.

 

Yes, we will

Now, on the upside, fortunately, in, let's call it customer relations, we seem to notice a different, maybe opportunistic movement. Instead of short-term sales, we have started to realize long-term relationships with our customers, building problem-solving networks together, synergizing the total customer supply chain and not just the next node, while remaining critical to each other's creative and innovative capabilities.

 

Furthermore, companies like SpaceX and The Ocean Cleanup show that there are forces in another direction, with the eyes on the proverbial prize.

To me, a very interesting area of research seems to be the mechanisms and processes that makes one go for pennies or for pounds. Because in my opinion, eventually total cognitive consonance is determined by the length of the quality of the whole, divided by the length of total investment in the journey. Is that a pound I see on the horizon?

 

 

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