“Lean decision-making” lessons learned

Take one look at tech blogs, start-up news or content shared on LinkedIn and you’ll find plenty of the business equivalent of “self-help”. This is not surprising. Tech leaders work in conditions of constant change, and rarely have the luxury of wearing just one functional “hat”.  We need digestible content to help us manage the complexity of our daily lives.

Fortunately, we have easy access to the largest pool of information in history.  Thanks to tablets, e-readers and smartphones, this content is accessible anywhere, anytime. However, there’s risk hidden in this mountain of content – it often contains BAD advice. In fact, some of it’s downright dangerous to your business.

Chances are you’ve seen bad business decisions made based on hope or fear, what others are doing, the latest business trend or what senior industry leaders did or said in the past. In other words, on everything but hard facts. It happens all too often. It unfortunately also happened to me.

Remember the matrix management fad? In a nutshell, matrix management pooled people with similar skills under a functional manager (e.g. head of engineering). They were then assigned work on projects under other managers. In my case, engineers had to report to several managers to get their work done. The matrix was supposed to leverage the skills of our team across multiple projects, making the company nimbler and more effective. In reality, this was a recipe for needless complexity, endless turf wars, competition for talent and many many meetings.

After a couple of wasted months, I untangled this mess by putting one person in charge again. This was a real boneheaded move, but at least I wasn’t alone. Many organizations have tried and failed to implement matrix organizations, often with the help of expensive management consultants. Had I done my homework, I’d have found precious little factual support for this management fad.

The only way to separate success-driving practices from their ineffective (or even harmful) brethren is through evidence-based management.  Eric Reis’s Lean Startup Method^ is an excellent example of evidenced-based management for start-ups. He’s a proponent of making decisions based only on hard facts generated through experimentation and data collection. These quotes from his book say it all:

Test assumptions you’ve made about your business, its customers and how you’re serving them.”

“… productivity is not just making more stuff, but systematically figuring out the right things to build.

“The three A’s of metrics: actionable, accessible and auditable.”

Looking at the facts is not easy, not even for leaders of Fortune 500 companies. Just look at their love affair with M&A. Think AOL-Time Warner or HP-Compaq. Study after study shows that most mergers benefit only investment bankers and lawyers – some estimates are that 70% or more fail to deliver shareholder value (Of course, don’t forget the Pixar-Disney successes either)*.

Of 200,000 mergers reviewed in 93 peer-reviewed studies, analysis shows that the negative effects of a merger generally become clear in less than one month and continue thereafter! So what separates the 70% from the 30%? Facts and strong processes. This is consistent with my personal experience as a lawyer turned-corporate development wonk. The majority of deals I’ve seen ultimately value destroying for a variety of reasons, including culture clashes and lack of investment in integration.*

Companies like Cisco prospered through M&A by identifying success factors, such as merger size (small is better), integration practices and culture compatibility. In fact, Cisco averaged about one merger per quarter last decade, most of which were successful. They experimented to find what works and beat the odds, following a very similar philosophy to the lean start-up method.*

Good decisions, effective business practices and successful businesses are built on metrics, measurements, testing and validation. They are also built on avoiding poor decision-making practice and recognizing biases.

To increase your odds of business success, avoid these 4 big mistakes:

1.  Doing what (seems to have) worked in the past.  Suppose a doctor wanted to do an appendectomy on you. When you asked why, he answered, “because I did one on my last patient and he got better.” You’re going to run from his office, right? Don’t confuse success in spite of from success because of. In addition, your business environment, model or market just might be different enough that the past solution won’t work for you.*

2.  Casual benchmarking.  It’s ok to learn from others – it’s an important source of ideas and practices – but make sure you benchmark based on facts and data. Do your homework, ask the basic question of WHY something works and understand if the practices of others really make sense for your business model using both logic and real data.

3.  Following deeply held yet unexamined ideologies. Many people treat first-mover advantage like dogma. What may surprise some is that this pervasive belief is not supported by the facts. At best, the empirical evidence is unclear. Beliefs that are rooted in ideology are “sticky” and contrary evidence is often ignored. Watch out for this bias, because the biggest risk comes from a failure to question one’s personal beliefs.*

4. Listening to experts too much. Management experts and consultants can leverage their experience across organizations to help their clients learn from the successes and failures of others. Just be careful. Experts are paid to have all the answers, and it is tempting to lean too hard are their advice. It is the job of the leader to logically assess, challenge and adapt expert advice to the needs of their unique business and market.

If you’re interested in learning more about evidenced-based management, I highly recommend the Lean Startup by Eric Reis and Hard facts, Dangerous Half-truths  & Total Nonsense by Jeffrey Pfeffer and Robert Sutton.

* J. Pfeffer & R. Sutton, Hard facts, Dangerous Half-truths  & Total Nonsense, Boston: Harvard Business School Press (2006).
^ Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Crown Business (2011)
 
Advertisements

2 thoughts on ““Lean decision-making” lessons learned

  1. Ted Judge says:

    One other big mistake is to choose facts that fit your preferred choice or solution. This can often happen without even knowing it. This is why having a clear process to gather facts and test hypothesis is important. Customer development as defined in Steve Blank’s The Four Steps to Epiphany is an excellent example of this type of process for defining the business model of a new company.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: