Clarity isn't always popular


In fact, one of the biggest barriers to clarity is unpalatability. Sometimes we're accused of not seeing the wood for the trees? Well even more often I think we don't see the wood because we just don't want to.

Front page news on McKinsey Quarterly's new website is a series of articles about managing in a downturn. One article in particular caught my eye. There's an axim in CEO strategy-space that says "Invest in a downturn." McKinsey's primary research of global companies and the results of the strategies they have followed through up and down economic cycles shows that of all the moves a company can make to grow in a downturn (invest to gain share, divest something, buy something), more shareholder value is created when companies invest aggressively. Tidily, the opposite is also true. The data shows that divestiture creates more value in an upturn.

So the axim and the data match up: Buy when things are bad, sell when they're good. Buy Low, Sell High. It even has a nice ring to it. A nice, clear, strategic rule of thumb.

Except... the McKinsey data also shows that by and large, CEOs ignore it! The exhibit in their article shows that over upturns and downturns, most companies did nothing, and of those that did act got it exactly wrong!

Why? Because at the time, it doesn't feel right.

One view is that companies act a bit like people: When the going gets tough, the most natural feeling thing to do is to batten down the hatches, reign in the reckless, cut spending, curl into a ball and weather the storm. Live to fight another day and all that. The data may advise the opposite, but we largely ignore.

Another a propos example of ignoring clear data would be the argument that goes like this: Lending a whole bunch of money to people who can't afford to pay it back, then building an enormous, interdependent financial growth spiral based only on magnified, bigger and riskier (but impossible to understand) derivatives of those risky loans (ie: a huge economy based on next to nothing) is not a good time to close your eyes, plug your ears and cover your mouth like the three 'see no evil hear no evil say no evil' monkeys when it comes to writing up and enforcing industry regulations. But we did it.

Why? because at the time, it doesn't feel right.

There was money around. Bonuses being paid. Big growing wealth based on a 'new economic model' that we didn't quite understand, but hey! Who cares! We're making money! You don't even need a long memory to remember the fictional 'new economy' of the first dot-com boom. Revenue? Pah! Business plans? Pah! This is a new economy. Underlying fundamentals don't matter. It's about something else! (sentiment, hype) Let's invest millions! Despite the fact that the evidence clearly wasn't there. It just felt better to go with what we wanted.

Clarity Blocker: Unpalatability

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