While it’s counter-intuitive to think that good results are potentially unhealthy, consider:
Today’s good numbers reflect yesterday’s investment, structure and execution decisions, and while much preferred over lousy numbers, they are powerful aphrodisiacs for senior leaders who begin to over-attribute their own management skills to the success. The unspoken but believed assumptions become, “we’re good,” “I’m good,” and “this will keep going.”
Assuming that prior and current success will continue uninterrupted is a sure-fire way to place your company on a glide path to oblivion.
It Pays to Be Paranoid:
A talented CEO I work with brings the paranoia of Intel’s former CEO Andy Grove (Only the Paranoid Survive) to his assessment of the health of the revenue numbers and sources. An over-weighting and over-reliance on maintenance and add-on revenue flowing from existing customers, while good for profits, is a sign that new customer and new market development efforts are lagging. While one CEO or management team might look at the very positive results as a sign of success, this CEO suggested that, “the situation scares the hell out of me.”
How Healthy is Your Investment Pipeline Over Different Time Horizons?
Geoffrey Moore in his book, Escape Velocity, does a great job outlining this need for established business to look at their investment in new markets/products over different time horizons and to manage and measure those horizon initiatives in different manners and with different success metrics.
Moore offers that most firms end up with a portfolio of activities grossly over-weighted in the near-term horizon (1-12 months). These are activities around existing products and markets, and investment dollars might be allocated to incremental tweaks and tune-ups, all to maximize revenue and profits from existing offerings and opportunities. Good stuff of course, until you look at the portfolio of investment activities in Horizon 2 (1 to 3 years) and realize it’s a short-story and quick look.
Spend some time with your management team looking at your strategies and investments over multiple time horizons as part of an on-going organizational health check. Today’s actions sew tomorrow’s outcomes.
6 Questions to Help Jump-Start Your Firm’s Health Check Discussion:
1. The tale of the tape. What’s the mix (and trend) in new business generation from new clients/products/markets versus business flowing from existing clients and customers? While there are no absolute measures, a gross under-weighting of new sources and/or a trend that is towards existing sources are red flags.
2. Who can you point to for driving new market, customer and product results? Is anyone accountable for identifying and bringing new customers into the fold? (Warning: too many sales teams become almost solely dependent upon the existing clients.)
3. Do today’s sales and compensation programs put you in future danger? Do compensation and incentive plans support or fight new business development. It’s common for me to see firms generating good numbers, but relying on highly compensated and experienced representatives to drive tactical sales. There’s an imbalance of talent to opportunity.
4. Who’s looking ahead? Is someone outside of sales and with some organizational heft accountable for assessing and obsessing over future markets and opportunities? (This is typically a specialized form of strategic marketing…or, a future-looking business development resource. Beware, business development roles and compensation programs are often structured to focus on the near-term and more of the same type opportunities. You get what you measure and pay for.)
5. How’s your H2 looking? What does your portfolio of investment activities look like over the next year and then in the range of one to three years (H2)? Are there identified strategies and investments intended to help you expand into adjacent spaces or acquire new customers? (Read Moore’s book…the framework he offers will help your health check.)
6. Are you actively and properly shepherding H2 investments? Too many managers measure H2 opportunities at their early stages the same way they measure and evaluate current scenarios. As Moore offers, a $ of sales of the early stage of an H2 initiative moving to market is worth much more than a $ of sales from existing offerings. Define different and relevant activity and progress measures until the new investments mature.
The Bottom-Line for Now:
This is a big, important topic offered in a small post. Ironically, the point in time when you are enjoying success and the fruits of prior good work and effective decision-making, may be the time when you inadvertently place your firm on the glide path to oblivion. Great managers and great management teams fight the development of over-confidence that results from success. How hard are you fighting?
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An ideal book for anyone starting out in leadership: Practical Lessons in Leadership by Art Petty and Rich Petro.