Smartest guys in the room … what could go wrong?

What could go wrong?  Plenty it seems.

Commonwealth Bank (‘Which bank?’) is just the most recent example of overconfidence in the ‘intellectual capacity’ of a leadership team to steer the organisation through the ‘white water’ of modern corporate life.  In its recent report on failures at CBA APRA reportedly found:

  • The board relied too heavily on senior management’s ‘high IQ’ and their ability to take care of all things
  • That their risk management processes relied too heavily on ‘raw intellect over comprehensive analysis’

This is a pattern that we see repeated too often and yet we still fall for it.  We’re a bit like Charlie Brown and Lucy (in the old Peanuts cartoon).  Despite Lucy repeatedly pulling the ball as Charlie goes to kick it, each time Charlie imagines 'this time it is different'. 

There’s been a host of studies on team performance and team dynamics over the years that show that teams full of ‘really smart people’ don’t perform as well as teams which might have 1-2 really smart’ players (and not necessarily the CEO).  But somehow, we too often assuming that the answer to complex problems is ‘smart people’.    

This has proven to be a very expensive assumption. 

Perhaps the doozy of them all was Long Term Capital Management.  LTCM was a hedge fund that boasted two Nobel laureates (Merton & Scholes, famous for options valuation theory), multiple PhD’s, and fund management veterans.  LTCM grew to over US100B in funds within 4 years, showing 40% annual returns.  But for all that, the Asian financial crisis triggered a collapse that saw LTCM facing US1Trillion in default risks.  Ultimately the US Treasury had to step in to stablise the global financial system.   So much for genius. 

A close second: Enron.  From a pipeline company in the 1980’s, Enron grew into the world’s largest energy trader.  The collapse of Enron is told in a documentary ‘The Smartest Guys in the Room’.  It traces the rise and fall of Enron, which grew to be the darling of Wall St, until it collapsed.  The Chairman and Chief Executive of Enron at the time were Kenneth Lay and Jeff Skilling.  They have been described[1] as ‘two supremely arrogant and belligerent men who believed they were the smartest guys in the room: that through sheer cleverness and creativity they had brought into being the most innovative corporation in the US’.  Indeed, Enron was named ‘America’s most innovative company’ by Fortune for six consecutive years.   The collapse was triggered, at least in part, by investigative reporter Bethany McLean who was undistracted by the glossy brochures and glitzy premises.  It seems she didn't drink the Kool Aid.  

As the dominoes began to fall a pattern of appalling behaviour emerged.  For example, when the power markets were deregulated in California, Enron shut down energy generation to create power shortages and drive up energy prices.  According to The New York Times, the top brass at Enron realised what was happening ‘but like a mad and dysfunctional cult, everyone carried on’.  This description has parallels to the revelations of the current banking royal commission.

My final example is closer to home.  The CEO of one of Australia’s leading companies had a reputation for his prodigious intellect.  The company prided itself on capturing the best talent available in the sector.  Despite this, with his powerful intellect, he developed a reputation for intellectual bullying.  But in the years prior to his retirement he was persuaded to introduce a values-based leadership development program.  In a post-retirement interview he observed, with a sense of profound insight, that he had recently come to the realisation that ‘it was all about the people’.  One got the impression the interviewer was nodding approvingly at such wisdom. 

I was bemused.   How is it possible that the CEO of a major company, with a reputation for a prodigious intellect, took until his late 50’s to realise ‘people matter’?  This is Management 101 on any MBA.  Tom Peters, management guru, author and former McKinsey partner, has been telling us this for as long as I can remember. 

The simple reality is that intellect can only get you so far.  Perhaps intellect is a bit like money: more is better up until you reach a point at which the upside plateaus.  At this point, other factors – wisdom, emotional intelligence, and the collective intelligence – begin to play a much bigger role.


[1] Oppel, R. A. and A. R. Sorkin (2001). Enron's collapse: The overview.  Enron collapses as suitor cancels plan for merger. The New York Times.

MBA's, strategy and judgement

Why do we teach the various models and concepts of strategy?  Is it as simple as Lewin's aphorism: there is nothing so practical as a good theory?  Actually, it is much more than that.  At its core we are teaching judgement; or at least, providing tools that will enhance judgement.  

But what is judgement?  What does it look like in action?

To finish I offer my own simple mantra for a great strategy process: immersion; synthesis; simplification.  

DDB ... a strategist's view

PS: to my regular readers, my apologies. It has been too long.  But in the last couple of months I've been teaching multiple MBA programs; working with a CEO to develop their strategy; and travelling to KL for some leadership development programs on strategy execution.  And more.  

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What driving fast cars can teach you about strategy …

Too many executives are focused on the near field obstacles ahead of the end game.  They collapse the time frames in their strategic thinking based on ‘felt’ competitive pressures.  Gary Hamel observed nearly 30 years ago, “most strategic plans tell us more about today’s problems than tomorrow’s opportunities”.

But Jeff Bezos (CEO Amazon) argues that a short time horizon confines organisations to a crowded competitive space.  How do you extend the attention span of the organisation?  Thinking about the longer-term future does not guarantee success, but the converse pretty much guarantees failure in today’s competitive landscape.

DDB ... a strategist's view


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I feel the need, the need for speed ...

Most of us think about decision quality - making the right call - when we think about strategic decision making.  But it turns out speed is also vitally important.  More CEO's are ousted for indecisiveness than for wrong decisions.  Too many companies know that they are slow, but don't know what to do about it.  

Jeff Bezos, Amazon's CEO describes their approach to high velocity decision making.  It is predicated on maintaining a Day 1 mindset.  ‘Day 2’ companies make high quality decisions, but they make them slowly.  For Bezos, Day 2 is stasis, followed by irrelevance and excruciating, painful decline. 

Are you a Day 1 company?  What does your extended leadership team think?  And what practices can you put in place to accelerate decision speed in your organisation?  

DDB ... a strategist's view

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Apparently mining blew the boom ... but who's the greater fool?

The headlines scream at you: major miners blew the boom.  It is true they repeated the patterns of all commodity booms.  But are we guilty of playing Monday morning quarterback?  What might they have done differently?

And what about shareholder value?  When did we lose sight of the value part of the equation?  And who was the greater fool?

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Business behaving badly ... we're no worse than the others

Business leaders often lament the lack of political leadership and community support.  It’s only going to get harder.  WA Premier Colin Barnett, at LNG 18 – the premier global conference of the LNG industry – offered some advice to the industry: you guys have to do more of the heavy lifting.  It is no longer viable, if it ever was, for industry to expect the politicians to take the lead in the public battles.

And yet the list of examples of decisions which make it nearly impossible for business to win public support continues to grow.  These various decision failures impact three critical stakeholder groups: the community; the suppliers; and employees.  And this has both direct and indirect costs.

Major corporations are not naïve about these issues.  But we need to get much smarter at anticipating and addressing these broader stakeholder issues.    Often these decisions reflect a progressive, cultural failure compounded by hubris and arrogance.  Just because you can doesn’t mean you should. 

We need to ‘inoculate ourselves’ from this cultural detritus.  I suggest three possible 're-calibration' processes

(4 min read)

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Strategy lessons from the greatest CEO in tech history … and it's not Jobs

The recent death of Andy Grove passed unremarked in the Australian press.  Grove has been called the greatest CEO in tech history: he mentored a young Steve Jobs.  A former Intel CEO, Grove was responsible for the transformation of Intel from a ‘memory company’ to a ‘microprocessor company’.  Few companies have successfully redefined themselves so fundamentally.  When Grove stepped down as CEO in 1998 Intel was earning $6.9B profit on $25B revenue. 

The story of the transformation remains a classic case study in strategic leadership.  

I highlight three key lessons and suggest some practices you build into your personal leadership repertoire.

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The cost of presumptions - international case studies

At their most dangerous presumptions are assumptions that are accepted as a ‘social fact’.  This makes them more dangerous than assumptions.  Assumptions should be explicitly identified and can be tested.  But we remain blind to our own presumptions. 

The risk of presumptions is everywhere around us in the age of disruption, but it exists also in other areas.  Shell lost control of a major project in Russia; Tata had to move the Nano car plant weeks before commissioning.  

Presumptions in both cases turned out to be a very costly.  

What can you do to reduce the unanticipated risk of presumptions?

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Breakout strategy: what if anything were possible?

At its core, strategy is design.  And great design starts with the question: what if anything was possible.  If we start with constraints we get designs for tomorrow that merely tweak today.

What if we applied the same design principle to the strategy process?  This would improve the chance of creating something truly distinctive: a ‘breakout strategy’.

In preparing for a leadership conference Starbucks CEO Howard Schulz argued:

Before we could challenge the status quo, my colleagues and I had to see it in new ways, reframe our existing ideas, and move beyond self-imposed constraints to imagine new possibilities.

How bold are you willing to be  to achieve something truly distinctive?  

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Avoiding Gray Rhinos ... strategic renewal and the status quo trap

Strategic renewal is a fact of life,  While strategies constantly evolve, organisations experience strategic drift either through organisational entropy (the tendency for systems toward increasing disorder) or market and competitive shifts that are no longer reflected in our strategies.  The challenge is to respond to these issues before you reach crisis.  Regrettably, organisations often move too late.  Why?

There are two explanatory factors: a ‘failure to see’ or a ‘failure to move'.  This blog illustrates the power of some of these issues and describes an approach used in a recent workshop to overcome some of these limitations.   

This is part 2 of a three part series of blogs looking at some of the issues at different stages of the strategy life cycle.  To see the earlier blog click here


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5 tips for better strategic decision making

Imagine you are a major retailer planning to enter an ‘adjacent’ $50B retail market, and you specifically want to attack the market leader for ‘strategic’ reasons.  But there’s a catch:

1.       The market leader has 15 years accumulated experience in the sector – you have none; and

2.       They have nearly 10x the market share of their nearest competitor … (~18% vs. ~2% market share - your likely entry point)

A tough ask.  But wait.  There’s more.   This is the story of the failure of Project Oxygen at Woolworths.  One analyst labelled it as “the greatest own goal in recent Australian business history”. 

What happened?  And how do we avoid these traps?

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