Playing To Win
Who Owns Whom?
Models We Use and Get Used By
We all live in the world of models, me included to be sure. Playing to Win is a model, Integrative Thinking is a model, Strategic Choice Structuring is a model. Models help us simplify the world to make quicker and better decisions — we hope. But that positive outcome is dependent entirely on how we use models, and a consistent error is made on that front. That is why my 21st Year II Playing to Win/Practitioner Insights (PTW/PI) addresses Who Owns Whom: Models We Use and Get Used By. You can find the 73 previous PTW/PI here.
My Training on Models
My most important academic mentor was the late Harvard Business School Professor Chris Argyris. Most people think it must be Mike Porter. There is no question that I learned plenty from working with Mike as a colleague for a decade and a half. But I don’t consider the learning as critical as what I learned during my dozen years working closely with Chris. I was very happy to be invited to write a Financial Times columnidentifying who was the greatest influence on my work. It turned out that it was six months before Chris passed away of congestive heart failure in the fall of 2013. The last time I saw him was to present him a copy of the article — which made him happy, and me too.
Chris is considered the father of organizational learning. He observed that people tend to stick strikingly long with models that don’t work. When they apply their chosen model and it doesn’t work the way they intended, they keep using it. Typically, their implicit theory is that they didn’t apply the model thoroughly or aggressively enough and they typically double down on its use. They rarely consider the possibility that the real reason for the failure is that their model is fundamentally flawed.
Chris taught me to always critically evaluate the models that I use so that when they don’t work as designed, I change models rather than double down on ones that just don’t and just won’t work. That was seminal for my work because it inspired me to create a methodology to help clients to productively challenge their own models and adopt more effective ones, and that became a signature of my practice. Happily, Chris included a paper that I had written describing that methodology, which he viewed as an exemplary model for generating internal commitment to strategy, as a chapter in his 2000 book, Flawed Advice and the Management Trap.
Who Owns Whom?
For me the fundamental issue is who owns whom? You own your models if you put them on a very short leash, then dispense with their use if they keep failing to work as advertised. If you keep using them regardless of their non-performance, then your models own you.
The latter seems, on its face, to be preposterous: why would you continue using a model that keeps not working? But it happens consistently in the business world. Since 1976, the dominant model in business has held that to maximize shareholder value you must give senior executives stock-based compensation incentives. We are closing in on half a century since adoption and broad application of this model. Yet that lengthy period has generated no evidence that the model produces the outcome promised. It sure works for CEOs! Like-for-like, real CEO compensation has increased at least 10X based primarily on their gains from stock-based compensation. But there is no evidence that shareholders have done better. And in that period, we have been forced to get used to a stream of massive multibillion dollar accounting frauds, the clear purpose of which was to produce illusory and CEO-compensation-benefiting stock appreciation. But does the world of business ask whether stock-based compensation actually enhances shareholder value maximization? No. It asks: Have we done enough of it? Or, have we done it the right way? That model has total ownership of the business world. The complete lack of performance is taken solely as evidence that we aren’t applying it correctly yet!
But it is only one of many models that dominate without the requirement to perform. Another one is that you need to pay talent more to keep them happy. That doesn’t work either. They need to be treated as unique individuals for them to be happy and compensation can’t keep them happy if they aren’t treated specially. Yet another one is that if you focus more on execution, you will get better execution. You won’t. The problem is that by calling it execution and treating it as something distinct from strategy, you diminish the chances of getting the thing you think of as execution. Still another is that in M&A, the key goal is to acquire assets that will help you do something that you can’t currently do — i.e., this will get us into the Internet (News Corp/MySpace), get us into smartphones (Microsoft/Nokia), get us into content production (AT&T/Time Warner). But that model produces a woeful rate of success in M&A. Instead, the model should be that the critical thing is for you to provide value to the acquired company.
When I think of this level of ownership of business executives by models, it reminds me of a poignant vignette in The Godfather, arguably one of the top movies of all time. Mortician Amerigo Bonasera, devastated by the tepid police reaction to the brutal beating his daughter received at the hands of her boyfriend, goes to Don Corleone (Marlon Brando in his final Best Actor Oscar performance) to ask him to help mete out justice. Corleone did. But Bonasera knew that from that point onward, The Godfather owned him.
Sadly, these models didn’t have to do any favors to gain and maintain their ownership position. It is terribly sad to watch executives trust in and depend on these models when they just don’t deliver.
Owning Your Models
If you want to be effective at any level, you need to own your models. You need them to work for you rather than you working in vain for them. Your models need to help you accomplish your goals by providing a way of navigating through choices without having to think about everything from first principles. You need to save enough precious thinking time for when there is no choice but to think from first principles and create your own approach from scratch.
A key to owning your models is to always ask the most important question in strategy: what would have to be true (WWHTBT)? Ask WWHTBT for the model you are about to use to work. For example, the WWHTBT for stock-based compensation to work is that it creates an incentive for executives to increase the real performance of their company. It doesn’t. The sole incentive it establishes is to increase expectations about future performance — and those are open to appalling levels of executive manipulation.
If you are comfortable with the WWHTBT, then apply the model. But state the results that you expect — and write them down. If you don’t, you will ex post rationalize that it produced the results that you expected. Then compare the results to those you expected. If there is a major negative deviation, then put your model on probation. It should only be used again under extreme scrutiny.
I learned a lesson in scrutinizing models while running MBA recruiting at Monitor Company in the 1990s. The recruiting team had a model for selecting candidates, but I started losing confidence in its operation. So, in the next hiring cycle, I had the team rank the consultants that we hired from 1 to x. I didn’t look at the ranking. I just put it in my desk for three years. Then I pulled it out and evaluated the results. There was a negative correlation between team ranking and consultant success.
Chastened, I brought in an expert to evaluate our recruiting approach. I didn’t grasp the key assumption of our model until the expert pointed it out: more interviews produce better results. That led to a process whereby a candidate had to complete ten positive interviews in order to get a job offer. The expert, who had a very cheeky personality, informed me after studying our process that he could save two-thirds of the costs and produce superior performance. I told him that I didn’t believe him.
But he showed us, through analyzing our own interviews forms, that because each interviewer received a summary of the opinion of the previous interviewer, each subsequent interview simply confirmed the bias of the prior one. Whatever the first interviewer thought, and often that was a junior consultant acting as an initial screener, everyone else progressively thought. The remaining nine interviews had at best zero value and more likely negative value. Based on the expert’s advice, we stopped allowing interviewers to know anything about the prior interview and instead tasked each with exploring different attributes. And we cut the number of interviews to four. That model gave us much better results — at much lower costs. The expert was right.
Help on Owning Your Models
You can probably tell that I am passionate about the subject of whether you own your models, or they own you. And I always write about my passions. I have written a book on the topic of how to own your models called A New Way to Think, and it comes out in early May.
The book chronicles 14 models, each of which dominates business thinking in its domain and I believe are deeply flawed. Each chapter explains the nature of the flaw in the model in question and suggests an alternative, more effective model for each:
- Competition: It happens at the front line, not at head office
- Stakeholders: To create shareholder value, put customers before shareholders
- Customers: The familiar solution usually trumps the perfect one
- Strategy: What counts in strategy is what would have to be true — not what is true
- Data: Creating great choices requires imagination more than data
- Culture: You can only change it by altering how individuals work with each other
- Knowledge Work: You must organize around projects, not jobs
- Corporate Functions: Give them their own strategies
- Planning: Recognize that it’s no substitute for strategy
- Execution: Accept that it’s the same thing as strategy
- Talent: Feeling special is more important than compensation
- Innovation: The design of the intervention is as critical as the innovation itself
- Capital Investment: Assume that its value is reset as soon as it is embedded
- M&A: You need to give value to get value
Be critical of models that you have been taught either in business schools or on the job. The fact that they might be dominant doesn’t guarantee or even imply that they are effective. Always write down the outcomes promised by any model you employ. Take careful note of negative deviations from the promised outcomes and put the model on probation if it doesn’t deliver. There is always a possibility that you did a crummy job applying the model, and that you need to try it again. But there is an equally likely possibility that it is a crummy model.
Commit to owning your models. Life is too short to be owned by a series of models that guide your actions toward consistently unsatisfactory outcomes.