What outcome do I want to achieve from this situation?

Asking this question drives us into action and gives people a sense of clarity and purpose. It is also a way of taking control of a situation and gaining benefit from it. It is a way of avoiding becoming dependent on other people’s agendas, being purely reactive, or of slipping into analysis paralysis. Two examples will make the point.

What outcome does the other person expect from this situation?

Most managers are serving clients of some sort. Their client may be their boss, a colleague or an external partner. One way or the other, managers are supporting other people’s agendas. Understanding what the other person wants is a very simple way of clarifying what the desired outcome of any situation is. Achieving clarity on this question enables the manager to:

• simplify and focus on the task in hand – the extraneous work quickly disappears
• predict and pre-empt problems and questions
• deliver appropriate outcomes to the other person.

Look back at the two examples (above). In each case, the individuals concerned were able to understand what they needed to do by understanding what ‘the other person’ wanted:

• The project team became focused on the outcome for the client.
• The analyst’s presentation was focused on building a simple message for the person who needed to see the presentation.

What are the minimum number of steps required to get there?

There are plenty of people who make things complicated. While some people cannot see the wood for the trees, others cannot even see the trees for all the branches, twigs and leaves. Smart people can handle complexity. Really smart people, like the best managers, create simplicity. Simplicity is far harder to achieve than complexity and is essential, given the increasing time pressure on all managers.

Discovering the minimum number of steps requires asking a few more questions:

• What is the desired outcome (again)?
• Are there any shortcuts? Can you buy in a solution, get someone else to provide all or part of the solution, or is there an authoriser who can shortcut the normal approval channels?
• Does the 80/20 rule apply here? Can you achieve 80 per cent of the result with just 20 per cent of the effort by focusing on the few customers who count, or the critical analysis that really will decide the issue, or by attacking the two big cost sinks that are causing the most problems?
• What are the critical dependencies? Normally, there is a logical order to events: billing comes after shipping comes after manufacturing comes after selling. Establishing this logical order breaks even the most daunting problem down into bite-sized chunks that people can manage.

What are the consequences of this course of action?

This question is about predicting risks, problems, unintended consequences and uncomfortable questions. If you can predict problems, you can pre-empt them. This is also the stage at which you may allow a little complexity to creep back into the course of action.

In theory, the shortest distance between two points is a straight line, except in non-Euclidean geometry. In practice, the fastest route often is not a straight line. When you are sailing against the wind, the fastest route between two points is a zigzag. Sailing straight into the wind gets you nowhere. This is an experience most managers understand after they have tried to sail against the political winds in their organisation.

The easiest way to work out the consequences of most actions is to understand who the major stakeholders are and how they will react: each stakeholder has a different perspective and will have different criteria and needs. The finance department will worry about affordability and payback; marketing will look at competitive reactions; sales will worry about price and positioning; HR will look at the staffing implications. Once you have a map of who is interested in what, then you can plot a zigzag through all the constituencies to make sure each one is able to satisfy their required needs.

Work harder

This is an unpalatable truth in the era of work–life balance, which is shorthand for a wish to work less. This is also the 24/7 era, when we are attached permanently to various electronic tags that constrain us as much as a prisoner’s leg irons. There is no escape. Working harder, however, is not a lasting solution. Given the ambiguous nature of most managerial work, bosses do not know how much effort you are really putting in. If you achieve results, the assumption is that you can do more. So the reward for working harder is to get more work. You get less work only when you can no longer deliver or you complain loudly enough. Hard work is necessary, but it is not enough.

Work smarter

This is the desired outcome of results obsession: we find ways of doing things betterfastercheaper. Betterfastercheaper is the essence of capitalism. If you deliver betterfastercheaper, the ideal result is promotion. The more immediate consequence normally is the same as working harder: an increased workload rather than decreased working time. Like working harder, working smarter is necessary but not enough.

Fix the baseline

Beating a soft target is easier than beating a tough target. Many managers realise that it is better to negotiate hard for one month securing a soft target than it is to work hard for 11 months trying to beat a tough target. Even CEOs do this: watch the frequency with which a new CEO discovers a black hole in the organisation’s finances that requires write-offs and adjustments to the corporate goals. Fixing the baseline does not enhance the prospects of your business, but it does enhance the prospects of your career.

Play the numbers game

There is an annual ritual in most organisations called ‘meet year-end budget’. Experienced managers know that this is coming, and they know that, even if they are doing well, they are likely to be asked to deliver a little more in the last two months to make up for shortfalls elsewhere. This is where you need to be creative. If you are doing well, hide spare budget for the inevitable year-end rainy day. If you are behind, use a combination of real actions on costs and whatever accounting smokescreens and mirrors can come to your support. This may appear cynical, but it is part of the reality of management survival.

The first four approaches all depend on you doing things. But your job is to make things happen through other people. This leads to your fifth managerial option: manage for results.

Manage for results

Managers make things happen through other people. There is a huge difference between doing (working harder and smarter yourself) versus managing (enabling other people to work harder and smarter). Managers who try to do it all themselves are not really managing and, in the long run, are condemned to fail. Management is a team sport.

As a manager, you have to make the crucial leap from ‘how?’ to ‘who?’ As a team member, when you are assigned a task you may think ‘How do I do this?’ As a manager, your reaction should be ‘Who can do this or help me do it?’ No matter how creative you are in answering the ‘how’ question, there is a limit to what you can achieve. As soon as you start asking ‘who’, you are not constrained by the limits of your personal time, effort and insight. You start to unleash the efforts of the team and your colleagues.

You can manage for results only if you focus on the essence of management: making things happen through other people. You need to have the right people tackling the right challenges the right way. The focus of this book is on how you can make things happen through other people.

Decision-making principles

Good managers are often referred to as being decisive. ‘Being decisive’ is one of those vague management terms like ‘professional’, ‘effective’ or ‘charismatic’ that is very difficult to pin down. No one can teach it and it is assumed that either you have it or you do not. We found that decisive managers typically show four specific behaviours:

1. Bias for action over analysis. Actions achieve results, analysis does not. Less analysis can often lead to a better solution because it forces discussion to focus on the big issues that make a big difference. Often, detail derails decision-making.
2. Prefer practical to perfect solutions. Accept that the perfect solution does not exist. Find a solution that will work in practice, even if it is not perfect in theory. The perfect solution is the enemy of the good solution because the search for perfection leads to inaction. A good solution leads to action.
3. Solve the problem with other people. Use the collective knowledge, wisdom and experience of your colleagues to gain insight. Use it to identify and avoid the major risks and pitfalls. But do not convert a problem-solving process into a political negotiation in which the solution is a fix designed to pacify everyone. The result will be the least offensive solution rather than the most effective solution.
4. Take responsibility. Where there are shared and unclear responsibilities, most organisations breathe a huge sigh of relief if you have the courage to step up and take responsibility. You become the person to follow. It is a defining moment that separates leaders from followers: most people will be very happy to follow you.

The behaviours described above are hallmarks of a decisive manager, at least on minor matters such as sorting out late deliveries, staffing problems and budget arguments. But these useful instincts often desert managers when they are faced with a major decision. As the scale of the problem escalates, the number of people involved in it grows and the rational and political risks increase. Suddenly, managers become very risk-averse. The manager’s nightmare is to be held accountable for a decision that went wrong. To avoid this fate, managers seek refuge behind formal processes, exhaustive analysis and widespread consultation to optimise the decision and, more importantly, diffuse responsibility. Even if the decision turns out to be wrong, everyone has been so involved in the process that they will find it difficult to pin the blame on one person. What should be a rational process (make a decision) becomes a political process (avoid blame for a potentially damaging solution).

The larger the decision, the more risk-averse managers become.

In general, the pay-off from making a risky and correct decision is quite low. Your success may be derailed by other factors or claimed by other people and, probably, it will have a minimal impact on your overall pay and promotion prospects. But the consequences of making a risky but incorrect decision are huge: colleagues will make sure that the blame is pinned on you, and your reputation will suffer.

Decision-making traps

Decision-making in practice

There are many decision-making and problem-solving tools available to managers and these are covered later in the chapter. In practice, managers rarely use such formal tools. Instead, there are three questions they ask themselves, which normally yield a practical answer:

1. Is there a pattern I recognise here?
2. Who does this decision matter to, and why?
3. Does someone know the answer anyway?

Know your problem

All students are given strict briefing before sitting any exam: ‘Make sure you answer the question.’ This is remarkably obvious advice, which is ignored remarkably often – with catastrophic consequences. The same advice needs to be given to all managers: ‘Make sure you answer the question.’ At least with school exams, the question is clear. In business, no one hands out an exam paper. You are expected to know what the exam question is without being told.

At junior levels of management, the exam questions are often pretty clear. They tend to be expressed as simple performance goals: sell more product, trade more profitably, bill more personal time. As managers continue their careers, clarity reduces and ambiguity increases. The goal may be clear (make your profit target) but the means to the end are not. It pays to fight the right battles the right way to achieve the overall goal. You have to know which the right battles are.

Focus on causes, not symptoms

No one would think of trying to cure chicken pox by using spot remover. But such confusion over symptoms and causes happens regularly in business. Many cost-cutting programmes fall into this trap. The CEO looks strong and effective announcing some target job cuts or cost savings. In highly macho form the message was conveyed to the CEO’s management team as: ‘Give me 20 per cent cost reduction and 20 per cent head count in 12 months, or you will be part of the 20 per cent. No excuses.’ Over 15 per cent was delivered and some top executives were fired. It took years for the business to recover from the mindless cost cutting of marketing (loss of market position and revenues), of R&D (loss of new product flow) and of talent (loss of morale).

Cost problems are always a symptom of something else. They can be as follows:

• Inadequate revenues, which in turn may be a product problem, marketing and sales problem or distribution problem.
• Wrong product and customer mix, which are expensive to serve and do not pay enough to justify the cost.
• Ineffective processes and inefficient working practices.

The business goes in dramatically different directions if you choose to focus on increasing revenues, changing the product and customer mix or improving processes and working practices. Simple head count reduction will not achieve any of these positive outcomes.

On a smaller scale, many HR practices deal with symptoms, not causes. Performance-based appraisal and promotion systems sound highly dynamic. But they focus on symptoms (how well did the person do?) versus causes. Understanding the causes of good or poor performance is at least as important as measuring the outcome:

• Why did they do well or poorly?
• What skills need to grow to raise performance?
• What assignments will best suit this person in future?
• Are they building the right skills and experiences for their career and promotion prospects?
• How can performance be improved?

The skills-based approach to appraisal results in a better appraisal discussion. The good/bad performance appraisal can be confrontational and not very actionable. Many managers shy away from giving bad news, which helps no one.

Anyone can spot a symptom of a problem. It does not take a genius to see that profits are not high enough. The mark of a good manager is one who can go beyond symptoms and unearth the root causes of the problem. There are no easy shortcuts available. But there is one simple principle – keep on asking one question: ‘Why?’

Prioritise the problems

Management is never short of problems and challenges. There are not enough hours in the day to solve them all. So you have to be selective. Three simple questions help identify which problems are worth addressing:

1. Is it important? Does this problem make a significant difference to achieving your overall goals? Put another way, if this problem is not resolved, will it have a serious adverse effect? Is there a simple stop-gap solution that will prevent things getting worse while you concentrate on other problems?
2. Is it urgent? Do today what you have to do today. Will the problem be worse tomorrow than it is today, and does it matter? If it does, act now. Can you buy time? Problems do not always become worse: time has a habit of throwing up more information, more opportunities and more potential solutions. It can also heal emotional upsets.
3. Is it actionable? One of the dubious joys of management is to have to live with problems that you can do little or nothing about. You may be at the mercy of strategic challenges and decisions, IT projects going awry or competitive pressures forcing sudden and unexpected demands on you. Under these circumstances, the best thing to do is nothing. Focus on what you can control, not on what you cannot control.

Use decision-making tools sparingly, but well

Most managers solve most problems intuitively. Rarely will you need to sit down and do a formal problem analysis. But it helps to have a few tools and techniques at hand. Used well, formal decision-making tools are a framework to encourage discussion and thinking with your colleagues. Used poorly, they are a prison that a facilitator with a franchised theory traps you in as you are forced through their process.

Decision-making tools should be an aid to thinking, not a substitute for thinking. The most common and popular tools are:

• Cost–benefit analysis
• SWOT analysis
• Field force analysis
• Multifactor/trade-off/grid analysis
• Fishbone/mind maps
• Creative problem-solving.

No single way is the best way. They all have value in different contexts. The key is to pick the right approach for the right context.

Typical assumptions for each approach are:

• Cost–benefit analysis. Assumes a well-defined problem and solution that needs to be evaluated financially for formal approval.
• SWOT analysis. Assumes a highly ambiguous, often strategic, challenge that needs further structuring.
• Field force analysis. Assumes a choice is to be made between two courses of action including non-financial and qualitative criteria.
• Multifactor/trade-off/grid analysis. Assumes a choice between multiple competing options with multiple criteria of varying importance.
• Fishbone/mind maps. Assumes that there is a problem where the root causes need to be identified and broken down into bite-sized chunks.
• Creative problem-solving. Assumes a highly complex problem to which there is no known answer and for which an original approach is required.

To a hammer, everything is a nail. Don’t hammer every problem. Your job is to pick the right tool for the right problem. You do not need to be an expert at each of these tools. Make sure you pick the one that meets your needs, and then either get a facilitator to help you with the process, or look up the details on the web.

Understand the strategic relevance of your own activities

I started to doubt the use of the word strategy when the office manager started talking about strategic deployment of office space. I retired to the canteen to consider how I might strategically deploy my Brussels sprouts. As ever, the office manager was right and I was left to eat cold Brussels sprouts.

The office manager was answering the one strategic question that all managers have to be able to answer: ‘How can my actions and decisions support the goals of the organisation?’ At the risk of stating the obvious, this requires more than simply understanding the goals you have been set in your annual plan: it requires understanding the goals of the senior leadership team. Many managers fail this obvious test. They are so consumed with meeting their immediate goals that they forget to think about the broader context in which they are operating.

The office manager had a strategic challenge all of his own. As he walked round the office he could see lots of consultants working in individual glass fish bowls, which were meant to combine privacy with open communication. In practice, the walls stopped communication and the glass prevented privacy. The manager had heard the CEO talk about the need for teamwork, transparency and focus on clients. That meant working at the client site, not in cosy offices. The manager thought it through, and came up with a radically new design.

Out went all the mini-palaces that were also known as partners’ offices. Instead, they were invited to share a common partners’ room: they were being asked to walk the talk on teamwork. Quite a few partners exploded with indignant rage. They were the idle ones who would be most exposed in a common office. Next step were the consultants. Out went their goldfish bowls and their desks. In came rows of hot desks. There were not enough to go round, so consultants suddenly found it more congenial to work at the client site. In came lots of small meeting places so that teams could meet and work together.

The office manager had grasped the nature of strategy – he had understood the needs of the organisation and taken action to support them. He had no need to understand grand corporate strategy, or to talk the language of core competences. They were irrelevant. Managers do not need to be great strategists to think and act strategically: they need to understand the real needs of the organisation and to support those needs in their areas.

A simple test for strategic activity is this: will these actions get noticed at executive committee level? If they are relevant at that level, you are probably acting on matters that have strategic relevance. If not, you may still be making a useful but less visible contribution.

Know how to think strategically

The best strategic thinking is very simple: clever people make things complicated, while really clever people make things simple.

Many of the most successful organisations have very simple strategies:

• easyJet and Southwest Airlines: low-cost flying
• Dell: sell direct and make to order
• FedEx: overnight delivery, guaranteed
• Google: paid search

Although they are very simple strategies, they are competitively devastating. Let us look at each in more detail to see why:

• easyJet and Southwest Airlines: By starting with a zero cost base, and avoiding all the frills and complexity of full-service airlines, they achieved cost per mile and fares, which the full-service airlines cannot reach with their legacy costs and infrastructure. They created clear competitive distance against the incumbents.
• Dell: By selling direct and making to order it eliminated all the sales forecasting problems, unsold stocks, cash-flow crises and fire sales that dogged the traditional model of selling through resellers. Incumbents felt unable to abandon their loyal resellers and were stuck.
• FedEx: No one else did overnight delivery, guaranteed, at the time. Creating the nationwide infrastructure and building volume and scale fast made it hard for anyone to follow.
• Google: It started late when there were plenty of other search engines trying to work out how to monetise their growing customer bases. Google was the first to focus on paid search. As with all great ideas, it is remarkably obvious, in retrospect. The rest is history.

Now consider how much these strategies have changed over the past 20 years. Each organisation essentially has the same strategic formula as 20 years ago. Great strategies rarely change.

Play the strategy game

If you ever apply to join a strategy consulting firm, you will get a chance to play the strategy game, also known as the case method interview. It is worth practising this game as it gives insight into the prospects of your employer and enables you to hold your own in discussions with senior executives.

The ostensible purpose of the game is to find an answer to some imponderable business question, such as: ‘Should MegaBucks expand its product range from photography to other imaging products like copiers?’ The real purpose of the game is to show that you can think in a structured and strategic manner, and the actual answer is unimportant. Cynics might say that it is the essence of strategy consulting: show you are smart and do not worry too much about the answer.

To succeed, you do not need to know the right answer. You need to know the right questions. An effective strategy discussion will look at the issue from a series of different angles:

• What capabilities do we have? This gets at the core competence arguments of Hamel and Prahalad (management thinkers and academics). Imaging and photographic technology are close to each other, as Canon discovered by bridging both markets.
• What are the market prospects? Is it growing? Is it profitable? What are the pricing trends? Critically, you need to look at individual segments of the market. Which ones are underserved? What needs are unmet? Canon identified that the old central copying function, focused on high volume, did not meet the needs of secretaries who needed just one or two quick copies locally. There was an unmet need for quick, cheap and average-quality copies. High speed was not important.
• What does the competition look like? Again, look for underserved market segments. Xerox was huge and looked unbeatable. But it had no product for distributed/local copying across the office.
• What are the economics of the market from a customer perspective? Instead of being tied into long leases for big copiers, secretaries would be happy to buy cheap local copiers.
• What are the economics from the manufacturer’s perspective? The big money is in the replacement toner. This means the key is to get the copier on to the secretary’s desk, if necessary at a loss, and then make money on the supplies. This then implies that the product must be simple to maintain and resupply, without the need for a technician. This in turn leads to a distribution model that is more mass market, accessed via resellers rather than through the traditional model of B2B salespeople working on commission.

As you go through the game, you should keep in mind a checklist of questions and perspectives you need to cover:

• capabilities of the firm and its rivals
• market prospects, by segment – size, growth, profitability and cyclicality
• customer needs, by segment – remember product, price, positioning questions
• competitive position, by segment. What is our value proposition? Do we have any sustainable advantage, barriers to entry?
• economics, relative to competition, the customer and us. What are the effects of scale across the value chain? What is the value chain?

Keep asking these questions until you find convincing answers. Quite often, you will find that just one critical insight develops out of all the questions. In the exotic world of wet cement supply, the economics of distribution favour the creation of a series of local monopolies. It takes some questioning to get to that simple outcome. Asking the set questions will help you quickly identify why Microsoft is highly profitable, whereas airlines are, at best, cyclical in terms of profitability.

Understand the nature of strategy

It helps to know the language of strategy. Strategy is spoken in two very different languages: the classical and the post-modern.

Anchoring the budget discussion

The best predictor of next year’s budget is this year’s budget. This year’s budget is the anchor around which next year’s budget will be negotiated. In many organisations, this is so well established that managers will fight hard to spend this year’s budget fully and to not over-achieve budget this year: underspending or over-achieving simply leads to the budget anchor being reset. Next year’s budget becomes much harder to achieve if you do too well this year (see ‘The coffee break anchor’ below). Such budget-setting clearly is dysfunctional as it discourages performance improvement.

To effect real change, the anchor needs to be reset at a very different point from today. Anchoring needs to be achieved as early as possible, so that the debate is framed the right way. If the debate is framed around ‘How far do we increase or decrease last year’s budget?’, only minor change will emerge. If the debate is anchored around ‘Can we double our volume with just a 70 per cent increase in budget?’, you have a radically different discussion. Anchoring determines the level of ambition for the organisation.

Anchoring needs to take place as part of the strategic planning process, which should, in larger organisations, precede the annual budget cycle.

The best way to anchor a budget discussion is not by submitting a detailed strategic analysis to show why you should be targeting a doubling of sales volume. The best way is to talk very informally and very early on with the most senior people possible, before the strategic planning process even starts.

Adjustments

Adjustments take the form of the question: ‘What will be different next year from this year?’ This is where there is intense negotiation on the detail. Adjustments look at incremental differences from this year: anchoring looks at step-change differences from this year. Typical incremental differences will include:

• productivity improvements
• inflation, salaries, etc
• new initiatives and projects
• market and competitive trends
• pricing opportunities and pressures.

These discussions can be like trench warfare. Staff functions tend to have the advantage because they have the support and power of senior management on whose behalf they are acting. They are also working 100 per cent on budget discussions, while you have to manage a business as well.

Consequently, many managers give up too easily. This is a mistake. It is better to have one tough month negotiating an easy budget than to have one tough year delivering a budget that was set too high.

This debate is reversed from senior management’s perspective. They know that there will be widespread game playing in the budget negotiations, with each budget holder having well-rehearsed arguments as to why the outlook is uniquely grim for the future and why delivering any sort of profit will be nearly impossible. There are two defences against this for senior managers:

• Staff warfare: use the staff in planning and finance to run the process, challenge and check facts, and maintain a semblance of honesty in the debate.
• Be selectively unreasonable: good managers are selectively unreasonable; reasonable managers listen to all the excuses as to why something is not possible. Any reasonable manager would have told Kennedy that his dream of putting a man on the moon within ten years was not possible: the technology, skills, organisation and money simply did not exist. Reasonable managers would have been right in their assessment, and that is why they have been forgotten. Unreasonable managers demand outstanding performance and then support and enable it. Turning a deaf ear to excuses is a useful skill, even if it irritates the managers who are doing the special pleading.

Play the game

You have three major tools to play with here. Each one of them is designed to avoid making any serious cost cuts that would harm the business.

• Sandbagging. This is the gentle art of keeping as much in reserve and hidden from the prying eyes of management and staff for as long as possible. There is little point in squeezing suppliers mid-year as there will be nothing left to squeeze when top management insist on everyone delivering the 20 per cent improvement in payables and receivables by year-end. This edict inevitably will punish the well-managed unit, while leaving the more politically astute unit with no real problems.
• KKK. This is the Japanese alliteration for consultants, advertising and entertaining. In Japan, generally, they are considered easy and harmless things to cut. Each country and organisation will have its equivalent of KKK: it might be consultants, conferences and training. Naturally, if you have a conference to which you are really committed, make sure it is booked, paid for and non-refundable before the squeeze edict is issued.
• Timing. Be prepared to delay costs or accelerate revenues. If you are having a really good year, work hard to accelerate costs and defer revenues: if you over-achieve this year, you will simply have a higher target next year. Better to start next year with a modest target but a very fast start in performance terms.

This game has to be played the right way. There are two common mistakes made when taking part:

• Conceding to the new target too easily.
• Whining about the new target. Telling management that it will be really hard to meet the target will make it feel good: you have just confirmed that you can meet the new target with hard work. Management likes managers to work hard and meet targets.

If you can, use the new target as an opportunity to negotiate. This is a way of making management understand that cutting costs has consequences, and it needs to deal with them. Cost cuts cannot be imagined out of thin air. There are two things you can try to ask for:

• A delay in achieving a tough project that is close to the heart of management: this will test management resolve and give you more time to deliver. The excuse, of course, is that less budget means less support so more time is needed for completion.
• A downwards revision in the goals for next year: underinvesting now has performance consequences later.

Your success in renegotiating requires persistence, eloquence, political support and some luck. But, if you do not ask the question, you do not get the answer.

The soft squeeze

Once the game playing is over, you may have to deliver some real cost cuts. This soft squeeze goes through four levels of pain:

1. Squeeze discretionary external staff and costs. Look hard at temporary, contract and consulting staff. If necessary, show them the same level of loyalty that most of them have for you. Get rid of them. Start downgrading the class of travel. Corporate big shots will discover that turning right, not left, at the aircraft door does not lead to an instant heart attack.
2. Squeeze internal discretionary staff. Stop overtime. Start offering staff more work–life balance: flexi-time, sabbaticals and job sharing. As things get harder, extend the Christmas or summer shut-down periods.
3. Put in a headcount freeze. This normally requires making it very hard to hire replacement staff when someone leaves: you still need to find ways of putting extra staff into areas where they are most needed. So, if someone leaves, do not assume they can be replaced automatically: the effort of that head may be better used elsewhere.
4. Put in a hiring freeze. This now starts to cause pain. No leaving staff are replaced. Often the areas under the most pressure have the highest staff turnover, so a hiring freeze hurts most where you can least afford it. Reassigning staff is often difficult because the skills mix is not right. It is tough to sustain a hiring freeze, except for very short periods. Even at this stage, a manager will have kept as much of the team together as possible. Cutting the team is bad for morale and leaves the operation weakened.

An early sign of the soft squeeze is the coffee machine: it goes from being free to being paid for. The money saved is irrelevant to the corporate budget. The purpose of such acts is symbolic. They are meant to raise staff cost-consciousness, but more often they simply lower staff morale.

The hard squeeze

This is where the pain really starts. The last ditch of defence is voluntary redundancy, which can be achieved in two ways:

• Raising the bar. Raise the performance bar, and quietly counsel out the lower performers. This is an elegant solution that may increase the overall quality of the team and get rid of people who have not been contributing enough. In this respect, recessions are good. They enable some corporate house cleaning. Recessions clear out poor businesses and poor managers alike. The problem is that this needs time: time to establish the performance track record (or lack of it) and time to ease people out. It works as a long-term management practice, but is difficult in response to a short-term cost-cutting drive.
• Asking for volunteers. This tends to be a disaster. It is an admission that the ship is sinking, so the people who can swim will swim. The best people who can get jobs elsewhere will go. Anyone who cannot get a job elsewhere clings desperately to the sinking ship. This is precisely not the team you want to keep.

The final alternative is to make involuntary redundancies. This is clearly an organisation in some crisis. There is no kind way of firing people. As with executions, there are less cruel ways: doing it quickly is better than spinning out the agony for the victims. Let the unlucky people go with as much of their dignity intact as possible, and with as much hope for the future as possible. But the big trap is to focus too much on them. This sounds cruel, but you are going to have to live and work with the survivors, not the leavers. It makes sense to invest as much time as possible in helping the survivors see that there is still hope, there is still a future and that they can be part of it.

Make real change

None of the cost-cutting efforts described above actually improve the underlying performance of the business. Knee-jerk cost cuts look impressive and help the CEO get a bigger bonus. But they do not help the business.

In practice, real change comes from two different angles:

• Steady operational improvement. The kaizen approach improves costs and quality a few per cent each year. Reducing costs by 4 per cent annually achieves more and is less painful than the once-in-five-years, macho 20 per cent cost-cutting.
• Strategic change. This is about making structural change to the cost model: eliminating unprofitable and high-cost products, markets and channels; developing new technologies, products and markets; changing the competitive position. All of this looks very easy when written in a report but is very difficult to achieve.

One version of strategic change much loved by CEOs is financial engineering: using the balance sheet to buy and sell businesses. In good times buy, in recessions sell. When CEOs play the corporate equivalent of Monopoly, shareholders lose and bankers win. Bankers get fees on the way up and on the way down – for advising on purchases and sales, and financing debt. Shareholders lose by paying for over-priced assets in the boom and for selling at fire-sale prices in the bust.

The problem with all the real changes is that all your competitors are doing more or less the same with roughly as much skill and talent as you. Each year you run harder and harder simply to stay still compared to the competition. At least no one pretends that management is easy.

Pretend to make real change

The need to make continual cost and productivity improvements is real. Even the most successful organisations cannot stand still. But the more successful an organisation is, the less managers will feel the need to make painful decisions. Inevitably, therefore, they will find ways of showing that they are making great improvements while, in reality, they are achieving nothing. This sort of cost-cutting delivers red dollars: they look great but have no value compared to green dollars. There are two basic ways of delivering red dollars:

Game playing like this is a sure sign of a fat and bloated organisation. Knowing how the games are played can help you spot and control them, or to play them, as conditions require.

The assumptions game

This is how to look smart whenever presented with a complex spreadsheet or proposal. Do not worry about the maths. Look at the largest figures and then test the assumptions behind them. This has been covered fully in spreadsheet survival above. Typical assumptions to test involve:

• The market: size, growth, share
• Customers: number, cost to acquire, cost to serve, attrition
• Operations: cost per job, overhead per person, property, systems
• People: number required, cost per person, cost to hire, attrition.

The way to succeed at this game is to create your own checklist of assumptions before you even see the spreadsheet or proposal. Do not get caught up in the Byzantine internal logic of the proposal in front of you. If you make sure your own thinking and assumptions are clear, it becomes easy to test other people’s thinking and assumptions.

The averages game

Averages are profoundly misleading. The average human is 51 per cent female and has fewer than two legs (some people have lost legs). Useless. Average customer satisfaction is 3.2 on a 5-point scale. Utterly useless. Of far more use to a manager are the extremes and the segments. Here are some examples:

• If average customer satisfaction is 3.2, how many are really happy and how many really unhappy with us? Why? How many of the unhappy ones leave us? How can we make the happy ones even more happy? Does average satisfaction cover up delight with one thing we do (in-store service) and disgust with another (telephone support)?
• The median household income was $56,516 in the United States in 2016. So what? Does this mean that there is no market for private jets or upmarket hotels and holidays?
• The average temperature of someone with their head in the oven and their feet in the freezer is probably quite acceptable. Do not try this experiment at home (or elsewhere).

When faced with an average, always look for the extreme scores behind the average, and the major segments around the average: that is where the real insight will come from.

The baseline game

Beating baselines is a classic intellectual and political challenge for managers. Setting a baseline ought to be a rational and objective exercise. It is not. It is a political exercise that fundamentally affects perceptions of performance. Naive managers ignore this and accept given baselines: experienced managers understand that the right performance baseline makes beating the baseline much easier than accepting a challenging baseline.

The two key variations of this game are:

• The declining baseline.
• The false baseline.

The validation game

The validation game is about people and politics as much as it is about numbers. Venture capitalists, bankers and senior managers do not simply look at the numbers being presented to them. They look at the people behind the numbers. A solid proposal from a team with high credibility is more convincing than an exciting proposal from a weak team.

Effective managers understand this and will use it to their advantage. Validation is required from two sources. First, get the sheriff and his deputies on board. You can find them in marketing, HR, IT, finance and accounting. They will all want their say. Let them have it, in private. Let them nitpick in private. As soon as anyone takes a public position, they find it very hard to change. Their position is public if they state it in a meeting where more than two people are present. The important thing is to get them on your side, in private. Once you have the sheriff on board, approach the mayor. The mayor is the local power broker. Whereas the sheriff and deputies are interested in the detail of their individual areas, the mayor is interested in the bigger picture: how your numbers fit with all the other priorities and numbers in town.

Once you have lined up the sheriff, deputies and mayor to support you, you can really go to town and have fun. The other cowboys will not even get a look-in.