All Posts by Bob Lewis

|In: Cognitive Enterprise|Last Updated:

Once upon a time I worked with a company whose numbers were, so far as I could tell, unreliable.

Not unreliable as in a rounding error. Not unreliable as in having to place asterisks in the annual report.

Unreliable as in a billion dollars a month in unaudited transactions being posted to the general ledger through improvised patch programs that gathered data from an ancient legacy system in which the “source of truth” rotated among three different databases.

Our client’s executive team assured us their financial reportage was squeaky clean. The employees we interviewed who were closer to the action, in contrast, predicted a future need for significant, embarrassing, and high-impact balance-sheet corrections.

Assuming you consider multiple billions of dollars to be significant and embarrassing, not to mention high impact, a few years later the employees were proven right.

How do these things happen? It’s more complicated than you might think. A number of factors are in play, none easy to overcome. Among them:

Confirmation bias: We all tend to accept without question information that reinforces our preferences and biases, while nit-picking to death sources that contradict them. Overcoming this — a critical step in creating a culture of honest inquiry — starts with the CEO and board of directors, and requires vigilant self-awareness. If you need an example of why leading by example matters, and how leader behavior drives the business culture, look no further.

Ponzi-ness: Ponzi schemes — where investment managers use new investor money to pay off longer-term investors instead of using it to, well, invest — often don’t start out as fraudulent enterprises launched by nefarious actors.

My informal sampling suggests something quite different: Most begin with an investment manager making an honest if overly risky bet. Then, rather than fessing up to the investors whose investments have shrunk, they find new investors, putting their funds into bets that are even more risky in the hopes of enough return to pay everyone off and get a clean start.

It’s when that attempt fails that Ponzi-ness begins.

Middle managers aren’t immunized against this sort of behavior. It’s how my former client got into trouble. A manager sponsored the effort to replace the creaky legacy system. Part of the business case was that this would replace a cumbersome, expensive, and error-prone month-end process with one more streamlined and efficient.

When the legacy replacement didn’t happen on schedule the manager was still on the hook for the business case, leading him to turn off the maintenance spigot — hence the need for improvised transaction posting programs.

Delivering pretend benefits by increasing risk is the essence of Ponzi-ness.

View altitude and failed organizational listening: Management knows how the business is supposed to work. They are, in general, several steps removed from how it actually works, depending on lower-level managers to keep them informed, who rely on front-line supervisors to keep them informed, who in turn rely on the employees who report to them to make sure (that is, provide the illusion) that they know What’s Going On Out There.

Executives enjoy the view from 100,000 feet; middle managers from 50,000. Smart ones recognize their views are at best incomplete and probably inaccurate, so they establish multiple methods of “organizational listening” to compensate.

Those who skip levels to direct the action are, rightly, called micromanagers. And yet, everyone below them in the management hierarchy has a personal incentive to keep bad news and their manager as far apart as they can. The solution is to recognize the difference between expressing interest in What’s Going On Out There and needing to direct it.

Managers should listen to everyone they can, but instruct only those who report to them directly.

Holding people accountable: As discussed in this space numerous times and detailed in Leading IT, managers who have to hold people accountable have hired the wrong people. The right people are those who take responsibility. Managers never have to hold them accountable because they handle that little chore themselves.

But those who have bought into the hold ’em accountable mantra effectively block the flow of What They Need to Know because why on earth would anyone risk telling them?

If something is amiss in an organization, someone in it knows that something is wrong, and usually knows what to do about it.

What they too-often lack is an audience that wants to know about the problem, and, as a consequence, has no interest in the solution.

Comments

|In: Business Ethics|Last Updated:

Let’s clear something up: Submitting a ManagementSpeak to KJR isn’t whistleblowing. What the two have in common: If the manager you’re quoting catches on and figures out you were the source, you might be in for some personal discomfort.

What they don’t have in common: Congress has passed no laws protecting ManagementSpeak submitters from retaliation.

Send in what you hear anyway.

Speaking of whistleblowers, the estimable Randy Cassingham, who also writes and publishes This is True — a weekly compendium of strange happenings from headlines around the world — told of the recently deceased Shuping Wang in his Honorary Unsubscribe.

In the 1990s, Wang discovered that the Chinese government’s methods for managing its blood supply promoted the spread of blood-borne pathogens; her tests showed contamination rates of 83% for Hepatitis C alone.

Wang attempted to bring the problem to the attention of her management, and when that had no impact tried jumping a level, with predictable results: Dr. Wang’s research was stopped and one official bashed both her and her equipment with a club.

If you’re interested in the full story I encourage you to click the link. If you’re interested in how it relates to you and the organization you work in, read on.

In your career, you’ll run across all sorts of, shall we say, opportunities to improve how things get done around here. Not improving how you and your organization do things, but how other managers and their organizations do whatever they do to accomplish whatever they’re supposed to accomplish.

Some of these will be true opportunities. But some might be opportunities in the sense of the drivelous “there’s no such thing as a problem, only an opportunity.”

The problems probably won’t be as dire as actively spreading fatal diseases. So let’s be less dramatic about it and imagine you’ve discovered a data breach. It hasn’t exposed millions of customers’ credit card information yet … just a few thousand thus far … but the risk of larger losses is, in your estimation, quite real.

You figure your employer will want to eliminate this risk, so you send an email to the managers in the company’s org chart most likely to be in a position to do so, explaining the breach, its root cause, and suggestions as to what a solution might look like.

And … nothing happens, other than your receiving a pro forma email thanking you for being so conscientious.

The question: Why do organizations as diverse as the Chinese government and sadly not atypical large corporations do their best to ignore problems like these instead of fixing them?

Start here: Organizations don’t “ignore” problems, any more than they might be “greedy” or “evil.”

Ascribing these behaviors and motivations to the organization means something quite different from ascribing them to, say, human beings of the Homo sapiens persuasion.

Humans might and often do ignore problems and act greedily. Depending on how a person’s attitudes and behavior stack up against your moral code you might run across the occasional evil villain as well.

But an organization isn’t just like a human being only bigger. It’s different. If an organization appears to ignore a problem, what this means is that its systems and practices aren’t designed to accommodate reporting problems and fixing them.

In many cases organizations are inadvertently (?) designed to conceal, compartmentalize, and in some cases cause problems, as when fixing one would cause a manager’s P&L to go negative, creating one would make it shine, and everyone from the top on down manages to the numbers.

Compounding the metaphorical felony is that someone’s name is on the problem and the practices that led to it. If fixing it would be embarrassing and expensive, well, raises, bonuses, and promotions don’t go to managers who own embarrassing and expensive situations, so relying on luck can be quite appealing.

That’s especially true in the many organizations that consider identifying whose name is on a problem and “holding them accountable” (ManagementSpeak for “punishing them”) to be the essence of root cause analysis.

While it might seem logical that the company would want to fix a problem while it’s still small and manageable, companies don’t want anything. What’s good for the organization doesn’t matter unless it’s good for someone important in the organization.

So when something needs fixing, the first step is asking who, if anyone, will benefit from fixing it.

Comments