Definition of Insanity is not What You Think

Many are familiar with the saying “The definition of insanity is doing the same thing over and over again and expecting different results.” It is attributed to Einstein, though there is no evidence he ever said it and for a good reason. It’s insane to assume it since this applies to tightly controlled physics experiments, not to human behavior.? Outside of physics, the second time you try something circumstances may not be the same, so results may be quite different.

However, the opposite may apply at times: The definition of insanity is not doing anything and expecting better results. Have circumstances become more beneficial to inaction?

Legacy? No, neglect

This last month I ran a war game, executive retreat and a training session with vastly different organizations. One was in services, one was in defense, and one was in transport.

The Services company, a world-famous icon, faced a scrappy competitor who has been eating its lunch for a decade.

The Defense company faced a substitution as its biggest threat with a low barrier to entry compared with its traditional business.

The Transport organization faced a myriad of threats, but the worst one came from the government.

The cultures were very different as well: one was populated with MBAs from top schools (or previously considered top schools), one was heavily engineering-dominated, and one was operationally focused mix of old guard and its next generation.

What was the one thing they all had in common? An amazing neglect of strategic issues by the previous leadership left a mess for the next leadership to clean up. Circle of life.

Uninformed CEOs?

I never understood how top executives could face strategic challenges and basically do nothing. It’s like a deer freezing up in the headlights. Then a recent article from the Economist details how executives – especially those at the Fortune 500- lapse in their main role of charting strategy, handing it over to the big 8 consulting firms, Deloitte, Accenture, PwC, EY, McKinsey, KPMG, BCG and Bain who have grown into monstrous proportions. The Economist, known for its dry wit, calls the big eight the PowerPoint Powerhouses as it laments the lost art of self-management. It also describes the big 8 army of MBAs as CEO-whisperers (reference to the dog whisperer show?) and speculates their golden age is coming to an end. ?

Reflecting on my last month experience, The Economist is absolutely right. PE funds and the Big 8 consultants as typifying short sighted financial monopoly games, but little business strategy acumen.

I am a damn capitalist to the core, and the market typically weeds out lazy thinking. It’s absolutely inevitable, but it takes time. McKinsey’s end would be near as the market inevitably punishes lazy CEOs, if not for Crony companies (those dependent on big government contracts). ?

Lame Boards?

Some executives shirking their main responsibility goes hand in hand with Boards that have slowly but surely lost their usefulness. While Corporations have been a boon to the masses allowing them to participate in their success (and failure), Boards today are too often toothless rubber stamps and yet they don’t feel the pain.

First, Boards have no early warning system or independent competitive intelligence dedicated to their information needs, so they are totally dependent on management’ carefully curated presentations and data. That makes Boards similar to vestigial organs.

Second, unless the CEO commits indiscretion by having an office affair, she or he or them (or neither of those) seem safe from Boards’ anger.

A politician can have sex on his Presidential desk, a 65-year-old Brazilian Mayor can appoint his mother-in-law to public job while marrying her 16 years old daughter, a socialist US politician can brazenly siphon campaign money to pay her husband’s “security services”, but OMG, can you imagine a CEO having an affair? A CEO can diligently destroy a company’s future, but sleepy investors like BlackRock or Vanguard or Fidelity will be uninterested. However, if a CEO dares to have consensual sex with a subordinate, he is out! To the gallows! (Ok, not necessarily the real gallows as Stephen Eastbrook, McDonald’s successful CEO found out in 2019. The gallows were padded with $40 M parting gift.)

I can’t fault these Board members: They are extremely busy shuttling between many other boards as a side gig, for just a bit more than the new CA’s $20 an hour minimum age. I believe, without proof, that some of them don’t even know which board meeting of which company they attend at times. They just wake up on a Zoom call wondering, is this Boeing or Hertz? They all look alike!

So what to do?

I don’t have a clue. My usual advice “vote for a more market supporting Congress” won’t solve this issue (though it will solve many other issues). And in the battle between an economy-destroying octogenarian and a crooked septuagenarian, neither is up to the task of breaking down the Crony System or reforming corporate law. And I am not even certain that any legislation can bring a better structure to public companies. The real issue is that between Bernie and the Squad (sounds like a rock ban, isn’t it?), who think private enterprise is evil incarnate, and Newsom who wants to fine companies moving out of his “Paradise”, the collective spirit in America is no longer cheering entrepreneurial visions.

And that is a worse threat than our beloved traffic-stopping pro-Hamas fifth column hating America, Jews and Israel (not necessarily in that order).

Identifying blindspots may be the first step

Summing up commonalities across my last month’s engagements, I observed the following lessons:

·?????? Chasing the competitor in an operational effectiveness battle is not just a zero-sum game, it’s a no-win game. At most it reaches a stalemate. The way forward is based on changing the rules of the game in a particular way that creates tradeoffs for both you (i.e., saying NO to some options) and your competitors who try to follow. ?

·?????? Middle management’s guts are healthy. Empowering them to trust their guts and then tapping them for fresh ideas in a systematic and structured way beats any investment banker or a big 8’s advice. And it’s sooooooo much cheaper (yet surprisingly,?few top executives actually do it well.)

·?????? When faced with insurmountable external threats out of its control, a company should focus on maximizing the factors under its control. Pursuing a business model that is within its control is called satisficing in behavioral economics (its suboptimal, but the best one can do in given circumstances).

The combination of all three -- changing the rules of the competitive game, trusting middle managers, and focusing relentlessly on reachable goals instead of wishful thinking -- might just yield an effective business strategy.

But here is the good news: While I don’t see a realistic model replacing insulated boards and paralyzed CEOs whispered to by formulaic big-pay consultants in an increasingly non-free market structure, not all is lost. If you survive the bad apples, the next management will be better.

That goes for America as well.

Alternative perspective

We all want to believe that people reaching the top of the pyramid know what they are doing. Often this is the case- what one sees from the top should be broader than what we see in our cubicle. But at times, our belief in the power of powerful people is just as bad as teens admiring Tik Tok influencers or dancing cats. For example, take masterclass.com- a site that sells very high-profile speakers’ videos for $10 a month. Those include Bob Iger (who destroyed a brand’s reputation at Disney), Hilary Clinton (who destroyed decency), George Stephanopoulos (who destroyed the credibility of journalists), or Paul Krugman (who destroyed the meaning of economic analysis.)

You don’t have to be a cynical, skeptical, disillusioned critic like me to understand that our inherent desire to find “role models” leads us astray.

We should just stick to finding models.

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