With March comes blustery weather, the delicious anticipation of a favorite college basketball team making it to the Final Four and signs of spring. For me, there are other signs: economic uncertainty, continued market turbulence and questions about our business in 2010 and beyond.
In earlier columns, I discussed some of our efforts to prepare for the business equivalent of March Madness. This got me thinking: how do we sustain this forward looking effort? Is it really worth continuing once we have everything dialed in? My thinking and research revealed important information I’m going to share with you.
Jim Collins, in his 2009 book How the Mighty Fall and Why Some Companies Never Give In, describes a common pattern in the decline of once-great companies. He divides the downward spiral into five stages; the first is “Hubris Born of Success.” He cites common attitudes at this stage:
- Success is viewed as an entitlement.
- The rhetoric of success, “We’re successful because we simply do these things,” replaces understanding and insight, “We’re successful because we understand why we do these things and under what conditions they would no longer work.”
- The role of luck is discounted or ignored by presuming success is due entirely to the superior qualities of the business model and management.
- A decline in learning orientation takes place, as leaders lose their inquisitiveness and don’t maintain as steep a learning curve as when they first began the business.
Let’s focus on the last marker, as this can spell the difference between continued success and growth—or mediocrity and eventual failure—for you. You might be thinking, “Hey, we take continuing education for our license renewals—we’re learning, right?”
That’s not the learning I mean. I’m talking about a total, pervasive, cultural change in organizational thinking.
W. Edwards Deming, a leading pioneer in quality improvement, said this about organizations and learning:
- “There is no substitute for knowledge.”
- “The most important things cannot be measured.” Deming believed it was not easy to understand the critical factor to success in advance. Think about the market downturn of 2008-2009. The triggering factors were observable, but few understood their implications in advance.
- “The most important things are unknown or unknowable.”
- “Experience by itself teaches nothing.” This sounded odd to me, considering the old saw, “Experience is the best teacher.” However, Deming was on to something. He believed in applying information against a framework of knowledge about a system. Without a mastery of the underlying system, he discovered information was often misinterpreted with disastrous consequences. This has huge implications for advisors and managers in our industry.
About a year ago, I said that all businesses are adaptive systems operating in a complex adaptive economy, using social and physical technologies to survive. A 1983 Royal Dutch Shell study found one-third of the 1970 Fortune 500 companies were off the list and estimated the average lifetime of the largest industrial companies to be less than 40 years. So, learn and adapt—or die. In the long run, the only sustainable competitive advantage your organization has is its ability to learn faster than your competition. So how can you do this?
Peter M. Senge, in the 2006 edition of his book The Fifth Discipline may have the answer. He says there are five major components, or disciplines, necessary to build a learning organization, including personal mastery, mental models, building a shared vision, team learning and systems thinking. While many firms have individuals who have the right stuff, such as personal mastery or shared vision, truly successful learning and adaptive firms have the systems thinking discipline to integrate all components. What this means is a firm utilizing all five disciplines continually expands its learning capacity. It has gone beyond adaptive learning—survival—to generative learning—creating its future.
BREAKING THE MOLD
To move your organization to a level of generative learning, you need to understand and employ Senge’s five disciplines. This column is only long enough for a brief overview:
Personal mastery is continually clarifying and expanding your personal vision and what’s important to you, seeing reality objectively, focusing your energy on your commitments and developing patience to realize your goals. Knowing what you want and clearly seeing where you are relative to what you want develops the creative tension and personal force necessary to bring them together. Your personal vision becomes a calling rather than simply a good idea.
Mental models are deeply ingrained assumptions, generalizations and frameworks that influence how we interpret the world and how we react and take action to events as we perceive them. For example, when you first meet someone, your impression is influenced by your mental model of how they dress and talk. Getting rid of limiting mental models is imperative to generative learning.
Building a shared vision is the responsibility of the firm’s leaders. To develop a shared vision, they must uncover pictures of the future that foster genuine commitment, rather than trying to dictate a vision. Does your firm have one? Just ask everyone, “What do you want to create?” Only when everyone has a similar picture of what they want and are committed to one another having it, can your organization have a shared vision.
There are striking examples of team learning in sports, music and business where “team intelligence” exceeds “individual intelligence.” To have effective team learning, members’ individual interests must align; they must also think insightfully about complex issues and act in an innovative and coordinated fashion—something called operational trust. Developing operational trust is key to exceptional team learning—and learning organizations.
The fifth discipline is the integration of all the previous disciplines in to what Senge calls systems thinking. Many of you have heard of systems engineering. The successful learning organization generating ideas for tomorrow will address the problem and solutions as an interactive system. Here are some examples:
- “Yesterdays solutions” create today’s problems. Last year’s federal “Cash for Clunkers” program seemed to be a success at selling new cars. But, according to the experts all it did was cause a single surge in new car sales, followed by a huge slump. Our firm created the small firm solution for our legacy clients, but unexpected growth of the firm has led to challenges in defining and providing appropriate services.
- I’ll push hard, but the system will push back harder. The systems folks call this “compensating feedback.” When one company lowers prices to gain a sales edge, so does the competition, leading to a financial death spiral in that market for both firms.
- The easy way out usually doesn’t fix the problem. The simple, familiar solution often won’t fix anything. Regularly, managers suggest increasing salaries as a way to “fix” employee dissatisfaction, which often doesn’t work.
- Faster is slower. For our firm, the optimal growth rate is not the fastest possible rate. It’s the rate which matches the on-the-job training and experience, and professional education of our younger professionals.
- Cause and effect are not closely related in time and space. For an extensive discussion of this phenomenon, read Freaknomics by Steven Levitt and Stephen Dubner.
- Small changes can produce big results, but the areas of greatest impact are often not obvious at first. Our firm went paperless eight years ago before it was popular, amidst a chorus of groans and expressions of concern by the staff. Looking back, that small idea paid huge dividends in terms of cost savings, convenience, and information security.
Getting Tuned In
How are all these disciplines effectively employed? By using the techniques of dialog and discussion between members of the learning teams. The terms may seem similar but are very different in actual practice. In my next column we’ll cover dialog and discussion, and why systems thinking is so important to your business future. Until then, enjoy March Madness!
Glenn G. Kautt, CFP, EA, AIFA, is a financial planning practitioner and chairman of The Monitor Group. You can reach him at email@example.com.