Chapter 4

The Architecture of the Business

When I worked at a major food retailer in Chicago, I was part of a cross-functional team that designed new stores. When I objected to small back rooms in a store, I heard advice for the ages: Set conditions that help people do the right thing. In this store's back rooms, that meant the limited space would drive excellence in stocking shelves and ordering, to prevent the out-of-stock situations that drive customers away.

It elegantly reversed the instinct that more inventory would reduce out-of-stocks. And it worked to simplify the management job because there was little backroom stock to be counted, repositioned, dragged, and dragged again out to the store aisle to be put on the shelf. It was “flow” before “lean” was a thing: unloaded from the truck through the back room to the store shelves, with empty spots on shelves immediately spotlighting out-of-stocks.

The Limits of Hands-On Leadership

As soon as a company has more than ten employees, daily leadership tasks outstrip any hands-on leader. A glaring oxymoron, hands-on is a substitute for leadership, not a condition for success. The exception is the leader of a work team of eight to twelve workers doing “production” work, which ranges from entering accounting data to ordering materials to working in a call center. A working leader can be effective if his leadership responsibilities are training, organizing the day's work, and reporting discipline or performance issues to his supervisor.

Let's shoot the myth of omniscient leadership now. Strength is not wisdom. Leadership is not like quarterbacking a football game, where the team waits for the next guidance to react for thirty seconds. The player-coach is an anachronism in sports and business because almost no one can do the work and lead the work at the same time. The business game never stops, and effective leaders construct fences and cues to nudge toward success and get around obstacles.

Let's look at nudges and cues as fences:

Focus relentlessly on results. The leader's first job is to describe what success looks like. These descriptions, as numbers, need to be so simple and quick that line workers get them instantly. The essential here is to look past the person to the results first. If they are good, move on. If not, rapidly dig in to understand what might improve things.

Set hard frameworks like bowling alley gutters that guide desired processes. These frames live in work processes, or “how we do things here.” The trick is systems that are simple enough to learn, operate, and maintain. Complexity should be built into the system but removed from the operator, using technology tools such as macros. Pay as much attention to checkpoints as to simplicity in operation so that errors can be spotted quickly by operators and corrected. Supervisor audits can then focus on output speed and accuracy, relying on operator skill to make needed adjustments.

Separate process audits between operators and supervisors. Operators should look for at least one process improvement to be installed every week, as part of their job. Supervisors can then selectively audit outputs, focusing on problem systems for correction.

Define positions before filling them with people. The collection of positions, called structure, are like the store's back room. If they are right, selecting and training people to do the work is doable. Part of every annual business review should be adjusting job structures to master the coming year's challenges.

Clarify what's in employees’ heads. Leaders’ jobs include learning what needs to be done for success and providing effective tools to move those ideas from their heads to the heads of the people who will do the work. What matters is what workers know and believe. If only the leaders know, their people will not necessarily do the right things at the right time.

Refine the problem before acting. More people can solve a problem than can define it because we reward solutions more than questions. Great leaders, therefore, are superb questioners and problem definers. In reverse, without crystal clear problems our natural bent toward solutions will pull us to solve the wrong question. That wastes time, money, and competitive advantage.

Reward simplicity. Complexity is the enemy of excellence, often hiding a better way in the blur of misunderstanding. Complexity often will melt in the face of simple questions asked often, such as, “Why are we doing this?” and What would it take to make it simpler?”

A trash hauling company is like a reverse manufacturing operation spread out over miles. The main costs are trucks and drivers, so route efficiency impacts service, quality, and profit. Here's the frame that we set up when I worked with them: The drivers wanted to go home when they finished their routes, instead of working to the end of their shift. The owner required them to return to headquarters and work there until their shift ended to limit accidents, injuries, and customer complaints about being missed or trash spilled, which were more likely (he thought) if drivers hurried to finish earlier.

We set up three frames to track accidents, injuries, and customer complaints publicly every day. After working out the kinks in reporting, we offered modest cash bonuses for months or quarters with no accidents, injuries, or complaints. We soon began paying those bonuses, and the benefits to the company were improved customer service, lower worker's compensation insurance cost, fewer lost-time accidents, and improved morale because drivers could leave work when they finished. Remarkably, net worth rose 20 percent because honest rerouting allowed us to avoid buying another truck to haul items newly required by the cities we served.

Hunt treasure instead of floating in entropy. Entropy is the tendency of all systems (and people) to slide toward average and easy. The daily default can be just emptying your inbox, answering questions from others, and solving the problems that present themselves. If this is your menu as a leader, you're in the grip of entropy, and your future likely will disappoint. It's not just that if you're not getting better, you're sliding backward. It's that your organization is on an accelerating path to the ugly awakening that things are bad and getting worse. Instead, create a treasure map, and bring alive a picture of the treasure to be found. The treasure will be in the building and creating, not just the money and security. To get started, however, picture a future state, and specifically describe it with pictures, numbers, and details.

The People Connection

The people connection is linking real folks with the principles above, after you've made your initial explanation. Here is a starter list of ideas to do that:

Shift from the noise of entropy to simplification and listening. When your people are working within the frames that you and they have created, and they are fighting entropy at the same time, go see them. In person. Go see any employee who doesn't report directly to you. Schedule a weekly hour in your calendar to go see people. Don't follow any pattern. Instead, pick a person and put yourself on their level, literally. If they are standing, stand. If they are sitting, sit. Face them, look at their face, and ask questions like these:

• What's on your mind?
• How are you doing?
• What keeps you from doing your job?
• What would you like to change?

After each question, pause and wait for them. Smile. Relax. You're with folks who are rooting for you to help them, regardless of the expression on their face. You represent hope and support when you're there in person. Listen, nod, smile. Then ask, “And what else?”

Thank them. Make no promises because your trip is for you to learn, not for you to give orders to them to change. Listen a lot, act a little (likely the reverse of your impulses). Your knowledge of “how things really are” will inform an upcoming decision.

Be a consulted leader. The power of the consulted leader approach² is knowing the details of your people as well as your business. It requires replacing answers with close connection with each of your people, giving them the responsibility and space to find good answers themselves. The power that can be unleashed is beyond your imagination. How many of these can you answer yes to?

1. Understand what's happening with each of your key people most of the time.
2. Frame their job to match their capacity.
3. Frame their responsibilities to match the pace they need to maintain, not the pace you want them to maintain.
4. Connect with people as you walk around. (It's the connection, not just the walk.)
5. Learn the people, not just the work.
6. Make time for people immediately when they ask for help.
7. Lead by questioning, not by providing answers.
8. Listen closely and check that you heard what they meant.
9. Usually craft a second question to clarify critical details.
10. Make every answer part of the other person's body of work instead of yours.
11. Establish trust by offering credibility, close listening, adding value, and helpful thought.
12. Desire to be the first person that people want to talk with.
13. Educate change with the “why”; don't dictate it.
14. Use small moments, when questions pop up without time for preparation, to demonstrate being a consulted leader.
15. Manage diversions, bad or good, to keep work aligned with goals.

Your “yes” answers start you on a road to enhanced leadership, measured by the performance of your people.

Replace answers with questions. It takes repeated conscious effort to hold back your answer to the problem and shift to questions. Questions usually get you better answers with higher commitment, which is preferable to directing the answer and getting compliance.

Here's a starter list:

• Why?
• What if we didn't?
• What is the benefit?
• Why do you think that?

The leader should jump in with her insight when it's potentially high return, not obvious, or will need rapid vetting for success.

THE ENTRANCE IS NOT THE EXIT

A favorite story of my mentor Alan Weiss is the planning session with the major accomplishment of moving the content from the premeeting chart to the postmeeting chart unscathed! How often have you worked through a discussion with others to find progress slipping through your fingers like water, leaving only a moist residue? Our reward is limited to pleasure in the discussion, a feeling that we've “worked it,” and a pleasant diversion from the thorny issue that needs attention. Outside the room this seems unlikely and obvious, but it's a common reason that work is unfulfilling and organizations seem to be wandering noisily through their days, accomplishing less than hoped.

The Power of Type 5 Meetings

These are the meetings that no one talks about, everyone wants to avoid, and are frequently sold as “retreats”—a weekend at an appealing resort. Sometimes called “long-term strategic planning meetings” (redundant oxymoron), they are none of the above, despite their critical role in aiming the investment and execution of most businesses. So let's give these the payoff that makes them essential. Here's how:

The reason to do it is to recruit the power of a target, even if it's three years into the future. A well-crafted target can aim daily activity, provide a reference for annual and quarterly goals, and enable course correction without the heavy hand of senior leadership. It does the job that a mission statement is supposed to do, but seldom does: invite employees to work together toward a future that they want to bring to life.

Why three years? It's far enough into the future to risk bigger steps; it allows room for adjustment over time; and it can frame critical investment that can't pay back in twelve months. (Five years is fantasy, and such planning sessions produce little else.)

In the meeting, we define our strategy and our tactics using today's descriptors. It's really two meetings:

Strategy grid meeting. What do we want to look like in thirty-six months? Meeting output: A picture in data-set form that brings to life a thirty-six-month target. We'll call it a “grid”—a combination of financial measures and key product/services that powerfully appeal to our target customers. This can literally be an array of numbers, products, and customer types. Its presentation matters less than its simplicity and understandability. Here are examples of common categories of information used to paint this thirty-six-month picture:

• Sales, gross margin, pretax profit, earnings before interest and taxes (EBIT).
• Number and types of core customers, current and growth targets.
• Key products: core profit drivers, core revenue drivers, core growth products and channels.

Spend more effort to define the categories than to fill in the numbers. The way you define the categories, like a meal on a smorgasbord table, will define your options. After you've developed the categories, cut their number in half, and fight about their definition in your leadership group so you'll all know what you've signed up for. There's a reason a bulldozer blade has a finite width.

Note to serious players: At this stage, the picture is being painted. The next stage will spell out actions needed in each category to meet the plan. Wait for the picture before you race down the path.

Annual plan (tactics). What specific actions in the next twelve months will move your total company toward each item in your thirty-six-month strategy grid? Meeting output: a list of actions to move toward your annual targets for next year and the quarterly actions to accomplish the year. Frame first for total company, and then challenge each department team to name what they'll do in the coming year, and then quarter by quarter to move toward each company goal.

The power in the process is the quarterly department actions and outcomes. As one wag said, “the company” is a group of people. It's not a thing by itself, so its future depends on what its people do. The sharper and briefer the plan, the more likely success will be. For crisp power, schedule each department head to present an outline of his annual plan to the executive team. Allow fifteen minutes for each, including presentation and discussion. After each group presentation, ask what the toughest goal will be to reach and why. That frames the first progress review question in coming weeks.

Use the rule of three to enhance recall and interest because it's the smallest group of words that creates a pattern. Wherever possible, stop at three goals, examples, paths to execution, and so forth. The point of all this, after all, is to craft targets that live in most employees’ minds most days, and influence what they choose to do. Complexity drowns the brain, it seems.

What about a budget? Yes, you'll need one. It's like a map of your journey. It's a reference to show you where things are fine and where they need work. It's not a plan or a strategy, just as a map is not the trip. It should cover monthly results for your coming year, with an earnings statement comparing actual results to budget (and sometimes) last year's results. Used properly, it can help spot areas that need action to return to the path of your plan.

Where does the grist for next year's plans come from? Preparation for the plans (three-year, one-year) and budget can be scheduled for the three months before the grid update meeting, which kicks off the next year's plan. Preparations work best in this sequence:

1. Departments work out the top three opportunities and obstacles (O&O) in their area, looking at the current grid and outside at customers. A word about SWOT, the beloved but impotent exercise reviewing strengths, weaknesses, opportunities, and threats: It takes too long and produces thin gruel at best, so skip it. However, O&O can be put on steroids in a separate session by a department devoted to finding opportunities at the edge of possible. Starting rules include ignoring costs, prior practice, competition, and the rest. Instead, imagine projecting company competence to new customers and adding new products or services. That template should produce at least one power concept that can be built into another foundation of company success. It is fair to copy other companies within or outside of your industry, of course. These ideas can be pulled into the parsing stages, coming up next.
2. Department opportunities and obstacles are presented in writing to all department heads and the executive team. The usual simplifying, bulking up, and adapting come from individual review and then group discussion. The product is the list of O&O, which enlivens the grid review that starts next year's Type 5 meeting.

Here's a typical planning calendar for the Type 5 meeting:

• June: Directions about content and meeting schedule sent to all department heads and executive team.
• July–August: First cut at department O&O; budget planning schedule is due.
• September: Packet of department O&O, budget timeline, Type 5 meeting schedule to all.
• End of September to Halloween: Company grid, tactical quarterly plan, and draft budget due. (Grid includes the dramatic initiatives from department O&O.)
• Halloween to Thanksgiving: Department draft tactical quarterly plans due.
• Thanksgiving to December 15: Review and finalize company grid and quarterly plan; quarterly budget due. Departments revise tactical plans.
• December 15 to December 20: All finalized.

What about reviews? Use the format of Type 2 and Type 3 meetings to accomplish effective reviews monthly and quarterly. A well-run business reviews financials to budget every month. It reviews progress on programs (customer offerings), initiatives (improvement in narrow areas of focus), and execution of daily business monthly and quarterly. The frequency depends on urgency and the rhythm of improvement; major investment plans may take six months to flesh out, but quarterly or even monthly progress updates will keep obstacles and progress clear.

HOW YOU KNOW WHEN YOU NEED TO REDESIGN

Swimmer Carolyn Wood won an Olympic gold medal in the 1960 Olympics. At fourteen, she was best in the world. Before she was twelve, she visualized herself on the Olympic medal podium. A willing athlete, she loved the hardware (medals, trophies) that came with winning age-group swimming races. After piling up medals and trophies as a fifty-meter sprinter and butterfly swimmer (early star using the new “dolphin kick”), she got a new coach who aimed her for the US Olympic tryouts. Remember: At this stage she's twelve or thirteen years old, living at home. The new coach demanded three shocking changes:

• Compete in the butterfly, not her favorite.
• Be a backup in the 100-meter freestyle (even though she was ranked number two in the nation).
• Change her start, diving over a pole held over the water so high she could clear it only after weeks of agonizing practice.

Yes, she mastered the new start, and yes, she credits it with ramping up her speed yet again. But when the coach required the changes, she was already at the top in US swimming.³

The ironic truth is that successful growth requires routinizing most processes to ensure consistent performance with varying people in changing jobs. That hum of consistency, so comforting as it replaces the herky-jerky early stages of growing companies, is the anesthetic numbing both vision and confidence to risk big new success. Entropy is wired in.

The better your systems and culture are, the more likely entropy will cripple your company. Success is the arthritis of good companies. Excelling feels so good that it sets up the creeping slippage that can erupt into shocking disaster. It's not the known problems; the best cultures have systems to catch them. It's the surprise problems, the equivalent of metal fatigue in airplane wings—invisible, then dismissed as a one-off, then denigrated as too small to chase—diluting strength and effectiveness.

Harvard's Clayton Christensen popularized the problem in a landmark study of tech behemoth Intel. Its thesis is that as a company grows, “the next big thing” must be unrealistically big to gain attention, let alone investment. If your annual revenue is $59 billion, a new business that promises $400 million is a gnat, less than 1 percent of the parent's sales. Most great opportunities slip by, unnoticed. The focus instead is to buy a large firm in the hope that “synergies” will accelerate growth and inoculate against failure. The data is that 60 to 80 percent of mergers don't increase company value. The news is that this blindness happens often in successful companies much smaller than Intel.

Whether you're facing a dangerous challenge or just the usual entropy, what's the smart way forward? The antidote is to build in a constant search for the next quantum opportunity. If the opportunity comes wrapped in an exploding problem, how do successful leaders approach it?

One of my clients is a successful real estate developer who also builds his own buildings. Growth and a flood of new opportunity began submerging the quality of his company's work—a key competitive advantage. Next, he:

• Went to several job sites to see the problems for himself.
• Asked each key leader what his group would need to handle 50 percent more business.
• Reviewed those requests in his full leadership group.
• Found new ways to:
  • Share parts of the work and organize the follow-through.
  • Change parts of the leadership structure to fill unmet needs.
  • Split some jobs and create others.
• Planned to build a division that could fill unmet needs in the current organization.
• Identified key training needs.
• Identified changes in major processes: job descriptions, financial planning and analysis, project management.

Here's a simple frame that will usually work well to get you started. Occasionally, these steps won't be enough, and success will require other actions. But first:

1. Is it true? Problems hit leaders daily, like spaceships hit by meteorites. Usually, they are exaggerated. Taking the hits means coping without much investment, following these steps, which ask, “How do you know?”
2. Ignore it until you hear it from several sources.
3. Check the data. Train your leaders to bring data when they raise a problem.
4. Go to the source if you can. Nothing beats seeing for yourself.
5. How often has it happened?
6. How will it impact us?
7. What do we do now? Be slow to change strategy but quickly adjust tactics.

If tsunami-size problems aren't washing into your reception area, here's your other tactic: The moral isn't that when you're on top, you need to rip it up and start over (Andy Grove's paranoia notwithstanding). Instead, winners develop a constant laser site for quantum opportunity, especially when it requires disciplined adjustment over time. The magic word is “quantum.” Most organizations are lousy at that because the busyness and allure of current success subverts their will to jump higher to reward marginal improvement (and properly so).

Instead, create a hard-wired look for breathtaking opportunity. Build into your three-to-five-year strategic plan the expectation that the search for breathtaking opportunity is constant, formal, and articulated in every annual plan. As entrepreneur Larry Pexton said, “When you spot a great opportunity on your plate, stab it before it gets away.”⁵

Because the search can't be delegated to a “planning team” unless you have Intel-size resources, here are the steps for ordinary mortals:

Sell the concept to your top leaders. They already have full-time jobs balancing incremental improvement with daily operations; their bonuses, reviews, and daily conversations reinforce that focus. After all, you've built that focus into your successful company. Show examples from other companies, describe in alive terms the benefits, and open the door to compensation and recognition as dramatic as the new opportunity.

Resist the pull of an acquisition. That's a cop-out, usually producing moderate returns at great personal and financial cost.

Specifically include the quantum button in every annual plan. Like every other item, it needs to be described, planned, reviewed, celebrated, and so forth.

Emulate 3M, whose innovation is ranked just behind Apple and Google.⁶ 3M built innovation into its culture in many dimensions, including annual celebrations of innovation, a separate Innovation Center in the company, and paid work time set aside for creative thinking. Emulate this continuing commitment in time, treasure, and recognition, instead of hoping to run into the quantum button on your way to a meeting. It won't be found unless there's a real search built into your mission.

Emulate Intuit. The thirty-four-year-old accounting/tech business is now a $5 billion company with revenue up 24 percent in 2016 versus 2011, and financial performance in the ninety-ninth percentile of all public companies. Their secret is a focus like 3M, but with special tools:

• Dig into findings that “make no sense.” Instead of avoiding them, actively search out what they are and how pervasive they are. Example: A special version of Intuit used by gig economy (shared cars, homes, etc.) entrepreneurs.
• The “Follow me home” initiative sends a pair of employees to observe customers using their products, currently at about 10,000 hours per year.
• “Tiny teams” are groups of three people with intensive training by the CEO, tasked with developing a new process or service.⁷ When digging into findings that make no sense uncovered the unserved gig economy entrepreneurs, a tiny team worked out how to serve the new customers.

Search relentlessly. Convert the search from “once in a blue moon” to “something we do here.” Bring it alive in quarterly reviews by asking, “What should we do about this that would make a big difference?” when you talk with folks about their current work situation. If you don't ask, you won't receive.