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When good things happen to bad businesses

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When Bad Things Happen to Good People was a popular book once upon a time (1983, to be precise). But it was based on a false premise — that bad things happening to good people is somehow puzzling or unusual.

It is, of course, neither. As I pointed out a few years later, it’s When Good Things Happen to Bad People we find seriously annoying, and stupidly common.

Last week’s missive asked about the commercial version of this — how so many businesses that are, according to the dictates of evidence, logic, and standard formulations of what constitutes a well-run business, poorly run, do so well. And continue to do so well, not only for short bubble-like periods but for decades at a time.

I’ve run across a few theories regarding this distressing phenomenon over the years. Isaac Asimov proposed, for example, that “The lesson of history is that it isn’t who outsmarts whom that matters. It’s who out-stupids whom.”

Another, which I don’t like at all but that seems to fit the evidence well enough that we can’t just discard it out of hand, is that businesses only need to do one or two things really well. The rest they just need to be good enough at to muddle through.

This isn’t as preposterous as it might seem. To understand why, consider the Case of the Perturbed Perfectionist.

As pointed out in this space once upon a time, to the perfectionist the world is an infinite pile of flaws, each and every one of which must be ferreted out and fixed.

It isn’t that flaws are good things. It’s that, to put it in automotive terms, no matter how repairs you make, you won’t turn a Gremlin into a Bentley. Which is why, I think, Six Sigma is so often disappointing: Minimizing variation results in better Gremlins, not better cars.

Which in business leads to the only question that matters: What customers care about when deciding between your product, a competing product, and not buying anything at all.

The list of what customers care about isn’t all that long. Customers, defined as people who make or strongly influence the buying decision, care about:

  • Product assortment
  • Price
  • Convenience, which includes support and service
  • Features
  • Aesthetics
  • Quality (that is, absence of defects)
  • Image (visibility, perceived coolness, brand, liking the sales rep …)

This list isn’t comprehensive, but it’s close enough, because what matters is that different customers in different markets will rank these differently. In most markets only a few matter very much, but it’s a different few for different markets.

Take, for example, the benefits manager responsible for choosing her company’s group health insurance provider. Price and convenience will matter a lot. The rest will range from mattering a little to who cares?

For an insurer, great pricing comes from the actuarial and underwriting functions, accurate provider scoring and negotiated discounts, and ferociously efficient claims processing. Convenience mostly translates to customer service … at the benefits manager level, that is. Business functions that don’t contribute to these are business functions where being good enough is probably good enough.

Which is different from say, a company that retails consumer electronics on line.

For e-tailers, like health insurers success depends on price and convenience, and price does depends in part on how effectively merchants negotiate with vendors, and how well procurement negotiates shipping rates. In place of claims processing, e-tailers need ferociously efficient warehouse fulfillment operations (pick, pack, and ship).

Convenience comes mostly from merchandising, only it’s web merchandising. Image depends on advertising.

For e-tailers, unlike health insurers, their product assortment matters a lot. For some but not all, so does image. The former? Merchandizing again — how accurately merchants predict which products will be most interesting to customers. The latter usually belongs to an ad agency.

So for e-tailers, anything that doesn’t improve merchandising and warehouse operations falls into the just-good-enough pile.

Here’s what this means to you.

Unlike flaws, the pile of money and executive attention available for investing in business success is far from infinite. Where you can convincingly connect the dots between what your organization does within the business to one of the short-listed success factors, you can argue for more of this pile.

That’s quite different from anything else you do. If you want some of the pile for those responsibilities, you have a harder case to make:

That without more budget you can’t achieve the exalted state of good enough.

Comments (7)

  • Interesting article, interesting questions.

    If a bad organization is succeeding past a bubble, maybe you don’t understand the organization. The default view of IT, I believe correctly, is that it is infrastructure, like the tires on a car. Once purchased, it only becomes important to driver of the car in case of failure or threat of failure. Otherwise, it’s hard to justify buying new tires after 20,000 miles, even if they provide an extra 0.5 mpg.

    It could be invaluable for the CIO to spend a day (or more) with each of the other decision makers, being a fly on the wall to understand what they actually do. Whatever you thought of them, they are doing something that works for the organization that is important for you to understand, without judgement.

    If you can park you ego for the day, these “ride alongs” could help identify what the actual success keys are for the organization and how exactly IT needs to communicate how IT can materially affect those keys, and what resources IT needs to do it.

    It might even help the company to be a less “bad” organization.

  • Actually I am reminded of a professor in college. We called him the professor of artificial stupidity. Phds have very narrow areas of expertise and his was in a weird way artificial stupidity, or close enough we could joke that was what it was. What he studied was how to make computers make dumb mistakes. The idea behind it is that this was the first step to brilliance in a computer. The theory being that virtually all major leaps in technology or anything else were based on ideas which started out looking stupid. So if you want a computer to someday come up with brilliant ideas you first have to have have it come up with dumb ideas and then figure out which ones were actually very smart.

    You talk of the issue of qualify control. The basic purpose of qualify control is uniformity. I know of a number of minor break throughs which started with a quality control failures. Something was made not right and then someone realized that this not right was actually better. With a fully functional and 100% perfect qualify control system you would miss these advances.

    So interesting thought.

  • Great article Bob. One question – what is your definition of a company doing well?

    The reason I ask is to your often made point – we get what we measure. It seems that many companies see profit as their ultimate measure which then leads to many of the issues that occur.

    If that is changed to profit being important, but not the most important, then other factors improve – many times customer engagement and retention. More engaged employees tend to make minor flaws in processes much less noticeable.

    Bob knows me, but for the rest of you, I work for a company where profit is important, but other factors are more important. IT is actually proactive – a rare beast.

    And yes, there is reality in my life. I just called DirecTV twice last night attempting to solve the same problem with two people who were robots in their silos. Customer service is a lost art (or something like that).

    • My definition? Good question. I’ll take a stab at it here, and perhaps take it on as a KJR topic Real Soon Now (as the late, lamented Jerry Pournelle used to say).

      A business is doing well when, over a span of enough time that short-term blips and financial gadgets even out, both its profits and its revenue grows.

      In order for both to happen, I figure several long-term leading indicators/drivers have to also improve. In particular I’d expect these to include marketshare, walletshare, and mindshare.

      But the gap between my expectations as to success drivers vs the reality of businesses I’d score as badly run but that have had long-term revenue and profit growth … that’s what triggered the last two KJRs in the first place.

    • Dave

      I think that profits to some extent is a good goal what it means to do well. Measuring that is where you kind of get in trouble.

      Measurements are by their nature basically snap shots. The internet is full of snap shots which look like something is happening when it is not. One of my favorites is the various versions of the girl with the hairy chest because what is really happening is that her head is laying on her boyfriend’s leg. It is really hard to get a good snap shot measures of a moving target.

      As our fearless leader as pointed out not a few times one gets what one measures. And of course the concept that measuring something effects it. Certainly snap shot right now measures of profits are well ….. right now. This leads to management optimizing for instant right now profits. Taking risky short cuts at times to do this. Or just plain making it so that expenses come later and letting someone else deal with that when they are in management in their profit measures. We have seen way to many results of that. Most of the business disasters we read of really can be traced back to that in one way or other.

      I am remembering an incident long a ago in my career. Long story, but short story I worked with a company and we had a number of corporate clients. Two opposites come to mind. One was known for not living up to their executives word. They would try to back out paying because the wrong person signed a PO and etc. The other was known for totally living up their their word. Both companies experienced a disaster of a form or other. One ran out of oil for an assembly line and had lost production and lots of people sitting on their butts. They called their oil supplier to get new oil. They were about an hour away, but the line was down for 4+ hours because the company made sure they had the signed PO faxed to them and then verified before they would deliver. The second company had an even bigger disaster. One that would normally have shut the company down and left almost nothing for the creditors to even fight over. But because they had a reputation of living up to their word they executives were able to get on the phone and order work and supplies to respond. A lot of times not even agreeing to a price, just “Get it done and we will make it more than right with you.” Many companies including ours made a big enough commitment in meeting the needs that had we not gotten paid that would have shut us down. Never would have even considered doing that for the first company. But we did it. Incidentally after the crisis was over the company found out the name of everyone at every one of the companies who had help and had a giant, they rented the entire city zoo fancy party for everyone and their families. Everyone got a $100 gift certificate. It turns out that even with all the extra expenses this was one of their most profitable years.

      But in the end the purpose of a for profit company should be to make a profit. But that goal should be long term. And should try to plan for avoiding bad detours on the way. But how to make that happen in a measure is a question nobody seems to be able answer.

  • I’ve long held the theory that a company needs to do well by starting with a little planning, followed by execution.

    1. Figure out what the company honestly does.
    2. Do it with a high level of adequacy.

    It’s when you head off into the wilderness that bad things happen. For instance, if what you do it provide a scalable e-fulfillment model to retailers, (and you do it adequately) and your C-suite decides that since you use a fair amount of IT, why we are indeed the Next IT Occupants of Mt. Olympus, you can easily run off the rails. Or into bankruptcy court.

    Something you know, done adequately should keep you going most days.

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