The executive team at Ford Motor Company in the 1950s made one of the best decisions and then one of the worst decisions in company history. Our research and experience at the Wharton School tells us that the Ford team is not alone in its schizophrenic decision-making; even the smartest groups often make poor choices.
Understanding why can help you ensure that you consistently get the best out of your top team. Let’s look at what went right, and then wrong, at Ford.
In the early 1950s, Ford’s leadership team drafted a plan to get rid of the V-8 engine in all cars. Many of the company’s top executives had spent years at General Motors and, since GM’s highly successful Chevrolet did not offer a V-8 as an option, they saw no reason why the Ford car should either. They were ready to move forward until a product planner, Chase Morsey Jr., asked to plead the case for the V-8 in front of the executive team.
Morsey had loved the roaring engine ever since it powered his very first car, a Ford coupe. He touted data showing customers would pay more for the V-8 and that they could reduce costs with improved manufacturing techniques. Ford’s executive vice-president Ernest Breech, pressed Morsey hard, but the product planner had an answer for Breech’s every question. Eventually, he and the rest of the executive team voted to keep the engine, a decision which they later credited with helping them catch up to Chevrolet.
Just a few years later, the company developed the Edsel as a new mid-price car to capitalise on the rising incomes of a growing post-war American middle class. The entire process was cloaked in secrecy until the initial unveiling of the design for the executive team. They gathered at Ford’s styling centre, where an Edsel prototype was parked behind a curtain. For nearly a minute after the curtain was lifted, the audience sat silent. Finally, Breech, then chairman of the board, started clapping.
Following him, wild applause erupted as the crowd had expressed its enthusiastic approval. Consumers greeted the Edsel with decidedly less enthusiasm than the Ford executives. In the end, Ford is estimated to have lost $250 million on the car – over $2 billion in today’s dollars.
Why did the team with the foresight to save the V-8, create the Edsel debacle? When it came to the V-8, the Ford demonstrated an impressive ability to avoid group-think. Many of the executives who heard Morsey make his impassioned plea for the V-8 had worked together for years at GM, yet they resisted the common tendency to think like the people one works with. Not so with the Edsel. Breech and the other executives displayed the very biases they avoided so impressively in their encounter with Morsey.
For example, first-hand accounts suggest it took hold in that initial burst of applause and choked off productive discussions for years afterward. Over time, the team’s thinking became increasingly insular on this and a variety of other aspects of the car.
Our tale of two decisions shows that top teams never overcome the need to focus on the fundamentals of high-performance collaboration. While there is no guarantee that your top team will always make V-8-type decisions and avoid disasters like the Edsel, we have identified three questions that will help you stay on track.
We recommend devoting at least part of a team meeting once a month to reviewing these three essential questions:
1. Are we still having productive discussions?
Like the executives who ran Ford Motor Company in the 1950s, top teams produce mixed results. One reason is the tendency top teams have to cascade toward a decision without adequately assessing alternatives, as was the case with the Edsel.
Given this tendency toward group-think, it pays to assess the strength of your agreement or disagreement by responding to a few simple statements regarding your top team’s interactions.
To make this easy, we suggest your team take a brief check-in survey adapted from management scholar Anneloes Raes.
If your answers fall more to the right side of the scales, then you should ask whether your team is really just a group of lone wolfs or even one that sends results-impeding ripples across your organisation.
2. Do we need to realign our priorities?
Studies show that high-level agreements about goals can mask deeper misalignments that affect top team performance. When these differences go unaddressed, teams are slower to make decisions and implement them or implement them in the wrong way.
A key difference in how the Ford executives handled the V-8 and Edsel decisions, is that in the first case, they were willing to readjust their priorities, while in the latter, goals were never up for discussion.
Once you begin having more productive discussions, make a point of checking in on your strategic priorities to ensure they are in alignment with your organisation’s capabilities and your customers’ needs.
3. Have we become too isolated?
Just as members of a top team need to make sure they are aligned behind shared priorities, the whole top team should ask whether it is aligned and connected enough with the rest of the organisation and the broader environment.
In this sense, every member of the team should make organisational relationship-building a priority. Studies reveal why these relationship networks are essential: 90 percent of the information a top team uses to make decisions comes through informal channels rather than formal reports.
Bringing fresh perspectives to strategic planning meetings whether through new data, or new voices such as Morsey’s, can help you avoid the blind spots that plague all teams.
The facts are clear: Even the smartest leaders can make bad decisions and past success is no guarantee of future performance.
To avoid the pitfalls of the Ford executives, consistently refresh your top team’s decision-making process by asking these three simple questions. Don’t let your team of virtuosos produce the next Edsel.
This article was originally posted here on Entrepreneur.com.
Learn From The Best: This System Helps Google Measure Their Success
Setting goals within a company is easy. Communicating these goals effectively and measuring the extent to which they have been attained is not nearly as easy, though. That’s why Google uses Objectives and Key Results.
During the (very) early days of Google, ex-Intel employee John Doerr introduced the young company to a management system called Objectives and Key Results — OKRs for short.
Rise of the OKR
“Kleiner Perkins had just invested in Google, and as a strong advocate of OKRs, I offered to introduce the OKR system to Larry, Sergey, and the leadership team,” recalls Doerr. “The entire company was standing around a Ping-Pong table and I walked them through the goals, benefits and implementation details of OKRs. Larry and Sergey saw the value immediately.
“They liked the idea of having a quarterly set of priorities for the company. It took a couple of iterations, but we figured out the right cadence and model and to this day, Larry writes his own personal OKRs and Google’s corporate OKRs every quarter. In my experience, this is a trial-and-error process and it usually takes a company one to two quarters to figure out.”
The concept wasn’t new, not even during the early days of Google. In fact, it had been around since the 1970s. Intel COO and business legend Andy Grove was looking for a way to improve focus within the organisation. How could he keep all employees accountable and focused on the same goals.
The answer was a new system called Objectives and Key Results, which had been created inside the organisation. It was a great success and many prominent business people became huge fans of it (including John Doerr), but it was really when Google started using it that it truly gained widespread appeal. Google, after all, is seen by many as the Platonic Ideal of the modern organisation.
Basics of the OKR
So what are Objectives and Key Results exactly? There is nothing particularly novel or groundbreaking about the system, but it packages typical management ideas in a way that makes them accessible and measurable.
Here’s how it works. Around five objectives are selected every quarter (the timeframe is important), and each objective is given a set of ‘key results’ that are measurable and can be scored.
So it might look something like this:
Increase traffic to the company’s website.
- Create a Facebook page and Twitter account that can drive traffic to the website
- Build an audience on Facebook and Twitter through regular posting and sponsored posts
- Write at least four blog posts per month for the website
- Create effective Google ads promoting the website
- Create three items of sponsored content for posting on popular new sites that will drive traffic to the company website.
From the above it should be fairly clear what ’objectives’ and ‘key results’ are, and how they are related. An objective, within the OKR context, is an outcome that is specific and highly desirable, but not particularly measurable. A result, meanwhile, is a measurable activity that will assist in the achievement of the objective. In other words, key results are a list of actionable items that will lead to the achievement of the overall goal.
Employees are scored on each key result, with the maximum score being 1, and the minimum 0. A good score would be 0,6 or 0,7 (any higher than that and you have to question whether the chosen key result was too easy.
Key results should be tough but attainable), but the process is much more important than the actual score. Also, low scores should be used to reassess what the company is spending its time and resources on. Why are scores low? How crucial are these results? Should we be focusing on different key results to get to our objectives?
OKR in practice
Although the implementation of OKRs will differ slightly depending on the company you look at, most systems tend to have the following things in common:
OKRs are selected on a quarterly basis: To maintain momentum and ensure that everyone is always actively working towards the achievement of a goal, the timeframe of an OKR should be relatively short. Knowing that a deadline is always on the horizon keeps everyone focused and accountable. Some companies have monthly OKRs, but most tend to settle on quarterly objectives.
They have hard, non-negotiable deadlines: There’s no point in setting monthly or quarterly OKRs if employees know that deadlines can be shifted if necessary. In order to maintain focus and urgency, deadlines need to be absolute.
Everyone gets about five quarterly OKRs: Give employees too many objectives and they’ll lose focus, or become utterly overwhelmed. John Doerr recommends four to six OKRs per quarter.
OKRs are public: A lot of companies — including Google — choose to make OKRs public. Google makes all employees’ OKRs (including those of the founders and other C-suite executives) available for everyone to see. They can all be found on the organisation’s internal directory. Scores are also public, which reinforces commitment and ensures accountability.
They can exist on different levels: OKRs need not only exist at the level of the employee alone. Teams, departments or even the company as a whole could be assigned quarterly OKRs. It’s important, though, not to overcomplicate things — the whole aim of OKRs, after all, is to keep things simple. Start adding layers and layers of OKRs on top of each other, and the whole system will start breaking down. The aim is to increase focus, so keep things simple and straightforward.
The benefits of OKRs
If all of the above sounds like a lot of work, it’s worth taking a moment to consider what the advantages of OKRs are. According to John Doerr, implementing Objectives and Key Results in a company offers the following benefits:
It encourages disciplined thinking: By focusing on objectives and key results, you learn to look at your business in a very disciplined way. The unimportant things fall away and you start to notice what the major goals should be.
Assists with communication: Public OKRs give people a good idea of what the rest of the organisation is working on, which helps to keep all employees on the same page. There’s less chance of a communication breakdown if everyone knows what the responsibilities of everyone else are.
It makes things measurable: Even the most focused goals can be tough to actually track. What does success look like? When can you tick it off the list? OKRs provide measurable indicators that allow you to track the progress of employees in a meaningful way.
It encourages focus: Making OKRs public not only improves communication, but also keeps everyone in step and focused on the same goals.
By using OKRS, you allow the important objectives within your organisation to reveal themselves. This won’t necessarily happen immediately. There will be some trial and error, but by sticking with the process, you should reach a stage where you have a very good idea of what you should be focusing your time and resources on.
Expand Your Business View By Stepping Into Your Competitor’s Shoes
How do your competitors see your strengths and weaknesses? The answers just might surprise you.
I’ll never forget the level of frustration I felt a few years ago when I arrived at my monthly meeting with my mentor. My team and I had pitched for a major deal, attended meeting after meeting following the pitch, and were then shortlisted for the final round where we had to present once more.
At the final presentation, one of the awkward questions we were asked was to define why we were better than the other two finalists.
Initially, I resisted responding to this question, and instead answered by highlighting the strengths and benefits that we as an organisation offer. They pushed and pushed for an answer, but I stood firm on my decision not to answer the question directly. Eventually, someone across the table said: “But your competitors answered the question without flinching.”
I settled into my seat at the table and asked my mentor how he would have approached that particular situation. “Secretly answer the question from your competitor’s point of view,” he said.
The confused look on my face encouraged him to elaborate on that comment. “You did the right thing by not criticising your competitors in public, but ironically, the gift is in the scenario. You need to be able to anticipate what their answer would be if asked about your weaknesses, and then ensure that you acknowledge, list and work on those weaknesses.”
After a long pause, during which I sat and considered his advice, he looked up and concluded: “Most importantly, also anticipate the answer they would have when answering the question: What does your competitor have that you do not currently have to offer?”
Place yourself in your competitor’s shoes (company B), and then answer the following questions about your own business (company A), from company B’s point of view:
- What does company A actually do?
- What makes company A better than company B?
- What are company A’s weaknesses?
- What should company A be concerned about?
You’ll be surprised by the information you evoke by partaking in this exercise. Too often, entrepreneurs suffer from the side-effects of drinking too much of their own marketing ‘Kool-Aid’, and as a result, become blinded to not only their weaknesses, lack of competitive edge, and product flaws, but they also end up failing to identify and highlight their less conspicuous strengths, competitive edges, and product benefits.
Entrepreneurs often follow a mechanical routine of only selling the strengths that are listed in their marketing brochure to investors or clients, and very often forget about their other strengths, which their competitors are all too aware of, and have listed as notable threats.
As a business owner, you should be selling and driving all of your strengths, even if they are not all listed in your brochure.
When planning your next pitch, don’t focus solely on the script of your marketing brochure. Spend the day in your competitor’s shoes and use this new lens to identify and list your strengths and weaknesses as your competitors may view them. This is vital information that must be added to your next pitch.
2017-Proofing Your Business: 3 Tips For The Year Ahead
How did 2016 go for your small business? Whether it was plain sailing or a rocky road, it’s essential that you’re prepared for whatever 2017 will throw at you.
It’s safe to say that 2016 has been a bit of a mixed bag. From Donald Trump’s shock US election win, and the subsequent hit to the Rand, to the Springboks’ worst year ever, 2016 has had its fair share of upsets – it’s even merited its own meme.
In South Africa though, the outlook for 2017 is cautiously optimistic, with Finance Minister Pravin Gordhan projecting GDP growth of 1.3%. Small businesses will play a vital part in this recovery and it’s essential that they’re prepared for the coming year, whatever it brings.
Fortunately, there are encouraging signs. According to research from cloud accounting software Xero and World Wide Worx, 58% of South African small business owners expect to grow in 2017 and half intend to grow sales.
Related: Your Top 10 Growth Moves For 2017
If you want to successfully weather 2017, keep these three tips firmly in mind and ensure that nothing stands in the way of your success.
1Review your business plan
The most profitable businesses plan ahead. They define their targets, they pursue them relentlessly, they regularly monitor their progress – but they also remain flexible enough to change direction if necessary.
So if you’re looking to start 2017 on the right foot, it’s vital that you create a clear plan for your company’s growth.
This plan should contain defined goals and milestones – with enough room to account for unforeseen events and changing circumstances.
2Update budget and cash flow forecasts
Establishing a budget before the new year gets underway is an essential strategic move. Knowing where your resources are and how to allocate them will give you a considerable advantage as you move forward.
Without solid budget forecasts in place, it’s easy to just throw money at problems as they arise – inevitably wasting it in the process. Plan ahead and you can avoid this.
If you have forecasts in place already, it’s a simple matter of updating them using insights and data compiled in the previous months. Whatever you do, stay on top of it: A healthy cash flow is often the difference between weathering unforeseen events or economic uncertainty, or being swept away by it.
3Make sure you’re ready for the tax year end
Finally, while the calendar year may be over, you’ve got a little while before the end of South Africa’s tax year on February 28th.
There’s a fair bit of work involved in getting up to speed, but if you take care of it in advance, you can save yourself and your business a great deal of frustration.
Follow these steps to make sure you’re ready:
- Firstly, confirm your tax deadlines and determine whether or not you’ll need an extension.
- Then, check your cash reports to find out how much cash you have in hand, and pay all vendors and contractors in full before the end
- of the period.
- Review past and present payroll information, withhold the required tax from your employee bonus payments, and use cloud accounting software
- to gain accurate estimates of how much you’ll need to pay.
- It may also be worth consulting an expert accountant or book keeper to see if there’s any way to mitigate your tax payments and avoid
- any compliance issues.
These aren’t the only steps, but they’re a good start. As you take your business into 2017, be positive, prepared, and forward-thinking and you won’t go far wrong.
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