Just the other day I had realized that I had passed the fifteen year mark since I graduated from b-school. After my initial shock of how long ago that really was I began trying to summarize what I had learned from those 2 years of my life. While I recall very few of the details from the hundreds of case studies that were read, there were a few insights that I was able to recall but there were three that seemed to stand out compared to the rest.
1. Everything Is a System
Systems thinking was taught in one of my first classes in b-school by Professor Paul Johnson of the Information & Decision Sciences department where we had read Peter Senge’s The Fifth Discipline: The Art and Practice of the Learning Organization. The summary is that every decision made is an “Action” and every action has a reaction. Many times that reaction has negative unintended consequences and thus the “First Law” of the Fifth Discipline is that today’s problems come from yesterday’s “solutions.” The example that I always recall is from the 1980’s US automotive industry. US automakers were losing sales to the Japanese for many reasons they were more fuel efficient, better quality and less expensive – better cars. So US manufacturers decided to push vehicle leasing as a solution to their problem – get customers into cars with less money down and lower payments and the manufacturers/dealers would get the asset back after the lease. The customer would “own” nothing but would pay to use the car for a few years and the car makers would make money all around! But the solution became the problem in that all of these vehicles were coming off of lease and saturating the used vehicle market. Too large a supply of inventory drove down used vehicle prices and hurt the dealers by squeezing them with lower resale values. So this “solution” then needed a solution of its own, enter the “certified pre-owned” program that helped to raise used vehicle prices by better qualifying their worth and attracting customer who may have never purchased a used vehicle previously. I have seen this lesson play out in business over and over again where today’s solutions become tomorrow’s problems.
2. If You Don’t Measure It, You Can’t Improve It
This lesson can from my Operations Professor Art Hill. I can’t say that I ever really “connected” with my operations curriculum – six sigma, black belts, process mapping? My ideal was to have “just enough” process and systems to move the work forward or to be able to sustain but I was never going to be your “optimize” guy. Well you don’t need to be Lean Six Sigma Certified to understand this requirement to measure things – every statement in business seems to start with a “We need to” phrase and is followed by statements like: grow market share, growth our customer base, sell more widgets, improve customer satisfaction, and have more of a social media impact. None of these things can be accomplished if you do not know where you are starting from! Most everyone seems to want to start on the “how they are going to improve” instead of the “where are they starting from.” There were a couple of little nuances that I found interesting with this one: 1) often times the complaint would be that it was too difficult to measure (how can we afford to continually measure customer satisfaction?) or 2) if they thought it would be too difficult to measure they would substitute another metric that was easier to gather but likely irrelevant (since we can’t continually measure customer satisfaction let’s monitor Average Selling Price (ASP) instead since if customers are buying more expensive items it must mean that they like us?).
3. Rats That Can Swim, Jump First
I believe this insight came from a visiting Strategy Professor J. Ramachandran while we were contrasting a case we had just discussed with one from a previous week. The professor has asked why one company had been able to turn things around and the other company continued to falter. In my time since b-school I have been employed by two Fortune 50 companies, a Wall Street investment bank and category leading big box retailer. I had a front row seat for the emotional and economic volatility that can happen within a company and industry within just a few years. The years of 1998-2000 were amazing for Wall Street with financial deregulation legislation passed investment banks were able to able to take off the shackles and swing for the fences, tech IPOs were exploding and day trading by most employees within the The Firm was rampant. Times were great right up to the point where the bubble had popped and then everything fell precipitously. Similarly my time at the retailer had marked their “winning” of the category – customers had clearly chosen them as the “best” in terms of product, price, and promotion. And then with equal speed along came two significant phenomenon 1) the meteoric rise of Internet shopping and “extreme” pricing transparency and 2) the collapse of the domestic economy and housing markets. As with every organization, people will always be coming and going with veterans departing for new adventures and fresh recruits coming in with passion and new ideas. When things started to head south for both of these companies was when I saw many of the most talented people leave. Sometimes this is necessary because these talents were costing more than the firm could afford, sometimes it was a necessary inflection point and created an opportunity for people to reassess their career options and trajectory, but sometimes it was a telling sign that these individuals found more opportunity (and not just in terms of net worth) out of leaving than they could by staying. If a company is not able to abate the brain drain that naturally happens at these inflection points they can be significantly hobbled because the rats that can swim will have all abandon ship.
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