God Save us from Experts!

Recently a good friend of mine has been through a very unpleasant health scare. Whilst on business in Australia he was overcome by highly debilitating chest pains that pretty much completely immobilised him. Whenever he made any effort to move about the pains kicked in unbearably.

My friend has a history of heart and artery related problems which he has been told will require surgery at some point. He had taken all his medical notes with him as a precaution which he gave to the Australian medics when he was admitted to hospital. They carried out all sorts of tests but could not find a cause for the pains. However they assured him it was not heart related.

Eventually he was crated up and shipped back to the UK. Not a pleasant journey but he made it. More test and observations, still no answers and still "definitely not to do with your heart/ arteries". Last week he had an especially bad attack and was rushed into hospital again. This time and for the first time, either in Australia or the UK, they decided to carry out an angiogram. They discovered three blocked arteries including one that was 99% blocked, operated immediately and the problem is now both identified and resolved. This is after two and half months of suffering and anxiety for my friend and no answers from the combined medical experts of two advanced developed nations!

Now I am no expert. I have not done the 5 years at medical school and all the other training besides to make me technically qualified to comment on this case. However if anyone had asked me "have they done an angiogram on Terry?", given what he has told me previously about his condition I would have replied "well I am sure they must have".

This has got me thinking about another group of experts who are currently putting us all through suffering and anxiety. For example:

• Did all these property developers really look into the market for new offices/shopping centres, flats etc.etc to ensure that the demand was really there? Well I'm sure they must have.
• Did the banks do a thorough study on whether the strategy of falling over themselves to lend on any property deal to build more new shops/offices/flats etc. etc was sound? Well I'm sure they must have.
• Did Northern Rock consider what they would do if their main source of funding from the wholesale markets was suddenly to dry up? Well I'm sure they must have.
• Did Bradford & Bingley fully assess the risk of granting all those buy to let and self-certificated mortgages? Well I'm sure they must have.
• Did all those financial institutions work out why it was such a good idea to lend money to people who cannot afford to pay it back? Well I'm sure they must have.
• Did the accountants who signed off the big banks' accounts all reporting record profits over the last 5 years or so carry out a thorough audit? Well I'm sure they must have.
• Has Hank Paulson worked out what he will actually do with $700bn to bail out the US banking system? Well I'm sure he must have.

And so on.

Why do the "experts" get so much wrong and let us all down so often? Because they think like experts and are incapable of adapting their thinking in the face of change. In fact they dislike and even fear change because it challenges their expert status by making their expertise outdated. They think that because they are experts then only they can come up with the right answers (Hank Paulson a graphic and disastrous example). Even when they cannot find the answer they cannot envisage anyone else being able to because they are not "experts".

So once again we say, what is needed is different thinking and for experts it's accepting they probably don't know and that they need to learn how to find out. In fact this kind of thinking, accepting you don't know but knowing how to find out, is one of the characteristics of the few truly excellent organisations on the planet. What is more research has shown that these excellent organisations consistently outperform the rest and are best able to cope with the nasty surprises. To find out more about why this makes sense and how crucial it is visit the Changeworld website.

Different thinking is especially needed in our banking and financial sectors, their regulators and the governments that ultimately set the frameworks through fiscal, monetary and economic policy. If the thinking does not change then given the same circumstances the bankers, financiers and their associated organisations, will do exactly the same as they have just done, with exactly the same results.

Will the thinking change? Right now I am not hopeful. When I read as I did yesterday in an article by Hugo Dixon in the Daily Telegraph that Barclays and Nomura have set aside a reported $3.5bn in bonuses for the staff of guess who - Lehman Brothers! This it is reported to be based on what was paid in 2007 to the staff of the Lehman's business being bought by Barclays and Nomura. How can basing this year's bonus on last years boom numbers make any kind of sense? As I said I am not hopeful.

However for all our sakes and futures this has to change. We all of us have to insist that is does. This blog and the articles that we have and will continue to write and disseminate are just one part of the effort we are making to get this message across. We would love to hear from people who agree with us, or have another view, or even those who disagree.

The Olympic "edge"

When you are running a blog entitled "Exceeding Expectations" you really have to include an article on the Beijing Olympics and especially the performance of Team GB.

We define Excellence as exceeding both requirements and expectations, requirements being tangible and expectations being intangible. The team exceeded requirements in terms of both medal count and final position in the medal table. In doing so they exceeded the expectations of their funders and sponsors and of the country as a whole. Certainly we did not expect to become a sporting superpower but that's exactly what fourth in the Olympic medal table makes us and boy do we all feel good about that!

We know that Competitive Strength is strongly linked to Excellence. High levels of Competitive Strength in any context enables people to exceed requirements and expectations. In the case of Olympic athletes this is not just about the talent, dedication, hard work and ambition of the athletes themselves but about the back up teams performing to the same level.

Here is Bradley Wiggins a double gold winner and member of the all conquering GB cycling team on this subject. "We have an unbelievable team behind us, management and technical. I know with confidence that when I step onto the track my bike will be in absolutely perfect working order. I can't remember the last time a mechanical problem was a factor in any GB races. When I start a race it is big boost mentally to have certain knowledge that nobody lining up against me starts with an edge. In fact it is always us who have the edge".

With this level of Competitive Strength our cyclists were nigh on unstoppable. They are best cyclists in the world with the best back up team. How many of us running businesses or public sector organisations can honestly say that our front line people can line up to do their jobs every day "knowing they have the edge"? What could they achieve if they did know this?

Our last few articles have focused on the different thinking that is needed to achieve Excellence through Competitive Strength. So what about Usain Bolt then? This man is not built for sprinting says the conventional thinking. He is too tall, his stride is too long and slow and really he is much better suited to 400 or 800m. Well Bolt and his coaches have rewritten some of the rules of sprinting by finding a way to adapt his stride pattern in such a way that the supposed weaknesses are turned into competitive advantage. With this Bolt made history and now other coaches will have to rethink what it takes to sprint 100 and 200m. It certainly is not going to be "run a bit faster the way you have always run", because that isn't enough to beat Usain Bolt!

The last two articles have focused on British Airways and how their conventional thinking dictates their strategy and response to challenges. In the last article we contrasted this with the different thinking displayed by Virgin Atlantic with an example of a stunningly high standard of customer service. Well today Virgin announced a leap in profits from £6m to £34.8M for the year. Profits for the first quarter of the current year are £23.5m and business class passengers (the most profitable) are up 22% with overall numbers up 7.6%. So whose employees know that they " have the edge" and does it make a difference? Answers in the comments please.

So congratulations to Team GB and here's to London 2012. To find out more about Competitive Strength and different thinking go to the brand new Changeworld website.

Above & Beyond

In our last article on the theme of different thinking we highlighted British Airways' explanation for their falling passenger numbers (increases in fares and the economic slowdown) and their persistance in pursuing their strategy of merging with other carriers. We demonstrated how BA are trapped in their traditional thinking and their strategy and responses are therefore all about how they can keep on doing things the way they have always done them.

This article is a story from the same industry which demonstrates different thinking in action.

Two friends of mine had booked a holiday in Barbados. They arrived at the airport looking forward to two weeks on an island paradise. Unfortunately the flight had left the day before and there was not another flight for 4 days! Our friends had got the wrong date in their heads so it was entirely their fault.

They were flying with Virgin so they were taken to the Virgin desk to see if anything could be done. The Virgin staff worked out a way to get them to their destination that day by flying them to Antigua then on an internal flight to Barbados. With transfer charges and the additional flight this was going to cost a further £500 plus. However when Virgin realised our friends were previous customers they immediately waived all the transfer charges.

What is more when our friends arrived in Barbados they took a taxi to their hotel as the coach transfer was obviously not going to be there for them. The next day when they met their Virgin representative at their hotel she asked how they had travelled from the airport to the hotel. When they said by taxi the representative said "just let me have the receipt and we will reimburse you for that".

To say our friends were impressed is an understatement and they never stop telling people how good Virgin were. They were staring a ruined holiday in the face and would have paid almost any sum to have it sorted out. Virgin not only rescued it but did not take advantage of our friends' mistake and only charged the minimum for solving the problem. This is different thinking. None of the "well we will see if we can get you on a flight later in the week" or "well if you write to Head Office they might be able to do something about the charges". All the decisions and actions were taken by front line staff, no reference to managers for permissions was needed.

Different thinking is the key. No amount of carefully written policies and procedures handed down from above would have enabled the Virgin staff to have acted the way they did. The personal and organisational recognition of the value of the existing customer is a manifestation of this different thinking. They not only represent future repeat business but can also be the strongest and lowest cost advocates for your brand.

Also Virgin clearly understand the business they are in and it is not simply transporting people from point A to point B. They know they are in the holiday business and that their customers value their holidays highly. So meeting or even exceeding their customers expectations is the key to success. In the case of our friends it was "you have given us your business, not just on this occasion but previously so we will see that you get your holiday".

This is just one story from one source and no doubt Virgin do not get it right every time. However would you honestly expect to hear even one story like this involving BA, even though they give themselves plenty of opportunities and don't have to wait for a customer to slip up?

This demonstrates the superior level of Competitive Strength that Virgin's different thinking has enabled them to achieve. When Richard Branson set up Virgin Atlantic in direct competition to much larger and often heavily subsidised national flag carriers few industry insiders gave him any chance of surviving. However his airline and the accompanying holiday business has both survived and prospered. As the sector faces up to the massive hike in its fuel bill and slowing demand which business do you think will emerge the strongest? BA with its strategy of getting bigger so it can be what it always has been or Virgin with its highly developed customer service ethos and consequent superior Competitive Strength.

Any business can do what Virgin does and profit from it. To find how and perhaps more importantly why, go to the Competitive Strength website.

BA - Same thinking, same excuses, same result

From The Times, July 4, 2008, David Robertson


Cost-hit British Airways flies with quarter of seats empty

British Airways flights are taking off with almost a quarter of their seats empty after higher air fares and a slowing economy led to 87,000 fewer passengers using the British flag-carrier last month.

The airline said it carried 2.9 per cent fewer passengers than the same month last year with traffic to Africa, the Middle East and the United States being the weakest.

The load factor on BA's aircraft, a measure of how full each plane is when it flies, fell 3.8 percentage points to 76.7 per cent. That means nearly one in every four seats is now empty on BA flights.

The traffic figures are disappointing because June usually produces an increase in the number of passengers because people begin their summer holidays.

BA blamed the fall on “significant” increases in ticket prices because of the record high price of oil and a tough consumer environment in the UK.

Further on his report David Robertson writes:

IATA, the air travel industry body, said that International air traffic held up against the economic slowdown in May, rising for the first time in three months to 74.3 per cent.
The figure shows a rise of 6 per cent on May last year.

Of course air travel will be affected by the economic slowdown and by the need to raise prices in the face of significantly increased fuel costs. No one would expect BA to be immune from this and they still appear doing better than the IATA average. However BA is experiencing a drop in load factor at a time of year when an increase is usually expected. The IATA figures indicate this seasonal increase is happening, albeit perhaps at a lower rate than previously and both Easyjet and Ryanair report no drop off in passenger numbers.

Has it not occurred to BA that their appalling customer service record might also have something to do with why fewer people are using its services? In our last two blog articles we highlighted the crucial need for different thinking as a pre-requisite for finding solutions to today’s challenges. BA appears unable to change its thinking. It claims it has been forced to increase its prices and that customers just have to accept that is the way it is. Well they might if they thought that BA offered fair value in return, but they don’t and BA cannot, it appears get its head round this.

This is about both “value” and, crucially whose opinion of “value” really counts. Way back in 1987 Robert D. Buzzell and Bradley T. Gale wrote in their book The PIMS Principles:

“Value is the relationship between quality and price. A customer who gets superior quality at a low price gets better value; a customer who gets inferior quality at a high price obviously gets worse value. But who determines what counts as good or poor quality, high or low price? In a competitive context the customer’s behaviour is crucial: who he buys from and at what price, determines who wins and who loses in any competitive market. Therefore quality is whatever the customer says it is, and the quality of a particular product or service is whatever the customer perceives it to be. How does a customer decide whether a particular offering represents superior or inferior quality, or a high or low price? He makes that assessment on the basis of comparison; is this offering (product or services) better or worse than those of competitors? and; At how much higher or lower price?" (Buzzell & Gale. 1987.111)

So in a few succinct words, based on the extensive research from the PIMS database, Buzzell & Gale explain exactly why “Customers Count” and why customers’ perception is all. “Therefore quality is whatever the customer says it is, and the quality of a particular product or service is whatever the customer perceives it to be”.

As costs rise and the economy slows businesses are faced with some difficult decisions about value. Increasing prices, even if apparently justified by passing on increased costs may push the price of a product or service beyond the point where the customer consider it to be good value. In certain instances this may be the point at which some items actually become unsaleable as the price they must be sold at to recoup costs becomes such poor value. Furthermore customers may change their basis of comparison in assessing value and concerns about the economy can influence customers thinking in this respect.

This is where the different thinking comes in. Our work on Competitive Strength has shown that those businesses in the strongest Competitive Strength condition – Free and at the top end of Excellent – think differently to the rest. One of the characteristics is an ability to see things through the eyes of their customers. This is not about good market research but about a culture that is focused on the customer and makes its decisions based on what the customers want first and foremost. Consequently they can identify quickly and clearly how their customers perceive the value in their products and services and when and why those perceptions might change.

The second characteristic of this different thinking is high “Changeability”. So not only can they identify changes in customers’ value assessment perceptions earlier and better than their competitors, they have the ability to respond to any changes faster and more effectively, including the unexpected ones!

BA is not exhibiting this different thinking. Indeed it is still pursuing a merger with American Airlines and Iberia that would create a dominant carrier on transatlantic routes with the semi-monopolistic culture that BA has never been able to shake off. It is pursuing the merger not thinking about its customers but about how it can carry on the way it always has. Trapped in its traditional thinking this merger may be the only way BA can find to survive the economic slowdown.

Applying yesterday’s thinking to the challenges of today and tomorrow is not going to work. For more information on the different thinking that comes with High Competitive Strength and consequent Changeability please look at the Competitive Strength Report website– and the ChangeWORLD website.

Just how different does your organisation's thinking need to be if you are going to survive these turbulent times?

Nassim Nicholas Taleb: a Scary Message you must not Ignore

Some extracts from The Sunday Times June 1, 2008

When this man said the world’s economy was heading for disaster, he was scorned. Now traders, economists, even NASA, are clamouring to hear him speak
Last May, Taleb published The Black Swan: The Impact of the Highly Improbable. It said, among many other things, that most economists, and almost all bankers, are subhuman and very, very dangerous. They live in a fantasy world in which the future can be controlled by sophisticated mathematical models and elaborate risk-management systems.
To explain: black swans were discovered in Australia. Before that, any reasonable person could assume the all-swans-are-white theory was unassailable. But the sight of just one black swan detonated that theory. Every theory we have about the human world and about the future is vulnerable to the black swan, the unexpected event. We sail in fragile vessels across a raging sea of uncertainty. “The world we live in is vastly different from the world we think we live in.”
In December he lectured bankers at Société Générale, France’s second biggest bank. He told them they were sitting on a mountain of risks – a menagerie of black swans. They didn’t believe him. Six weeks later the rogue trader and black swan Jérôme Kerviel landed them with $7.2 billion of losses.
As a result, Taleb is now the hottest thinker in the world.

Taleb goes much further. In his book he claims that the increasing centralisation and consolidation of both economic and financial structures is leading to two very dangerous outcomes. The first is the excessive and little understood dependence of large lumps of the economy upon each other – now trouble in one area brings unexpected repercussions in another. The second is the “brittleness” that results from over-complexity and over-control. By brittleness we mean the combination of rigidity and slowness of response from which an organization will go much further down the path into serious trouble before it either becomes aware of the risk to itself or able to do anything about it. Recent examples include Northern Rock and Bradford & Bingley - oh yes, and the Gordon Brown Government.

Taleb spells out for economists and financial analysts what every control engineer has always known – lack of damping produces massive instability and over-damping leads to sluggish response. He illustrates what every scheduling engineer has always known, that over-utilisation leads to performance failure and unexpected costs. He spells out, albeit in less than simple terms, that over-concentration of resource, over-regulation, over-complexity of systems and organisation, over-attention to “efficiencies” all add up to excessive fragility - to a lack of robustness – to a loss of agility - and inability to cope with the unexpected.

He says that the people who lead the economy are Not Thinking Right.

Taleb argues that every major change, either good or bad, is unexpected – is a Black Swan. We agree very strongly with his analysis. We have been arguing for years that the key to success in an uncertain world is Changeability – the ability to manage change rapidly and effectively for yourself, the people you work with, and your organisation. We maintain that flexibility and agility are the keys to rapid response to unexpected events. We say that 100,000 tons of gun boats will beat 100,000 tons of battleship every time and then be ready to do something else very different but useful as soon as that is sunk.

This is a Different Way of Thinking.

We are certain that high Changeability is one of the determining attributes of organisations that massively outperform their competition, that win Excellence awards and that have been shown, by Dr Vinod Singhal of Georgia State University, to deliver outstanding financial results. We suspect that our long held view about the high agility of small organisations compared to large is supported by Taleb’s analysis. We do not believe that centralisation and consolidation of systems and resources will necessarily deliver “efficiency”. All too often the opposite can be seen as the wrong measures drive in the wrong results*. The NHS may prove to be a case in point.

* Want a Wrong Measures example?
A large company decides that a new single networked linked printer will save cost compared to the many desktop printers scattered around its offices. The print-cost-per-copy saving is massive. It’s a no-brainer. It’s obvious. They install it. Now they have staff queued up by the machine, or walking to and from it, waiting for print outs instead of being at their desks talking to customers and dealing with transactions. That is not a real saving – invisibly their overall costs will increase (lower productivity), very probably their customer service level will decrease. (But do they measure that?)
This is a simple example, maybe you have experienced something similar yourself once upon a time – just how many other parallels can you think of?

Taleb is telling us that we need to be ready.

Are you Ready?

Have you any idea just how Different your Thinking might need to be? You can measure your own Changeability – you can get a very good idea of how well your organisation will handle the next Black Swan to come your way – you can even give some of your white swans a brisk shaking to see if they conceal black. And you can decide quickly what to do about all this.
You can do all this with the Competitive Strength Report process. It is rapid but rigorous. It is simple to do but without simplistic answers. You can complete the process within 3 weeks: 40 minutes on a web questionnaire, 2 hours of homework with your 60 page workbook and two half day workshops. And it is designed to be highly affordable.

The Competitive Strength Report is the World’s first speedy, affordable and totally objective measure of Comparative Competitive Strength. You can find out more at our web site www.changeworld.co.uk/csrataglance.

The “Nice Decade” – was anybody listening?

Last week saw the media pick up on the statement from Mervyn King the Governor of the bank of England that the “Nice Decade” was over and something altogether nastier is now upon us. Significant column inches were devoted to comment and analysis of the Governor’s remarks, including multiple attempts to come up with four words starting with letters that spelt out the word for the economic brown stuff we are now in.

However amongst all the words that were written and broadcast on this subject I can find no mention of the fact that Mervyn King first warned us about the “Nice Decade” coming to an end in October 2003! He said the same in a speech in Leicester four and half years ago as he said last week, but this time with the benefit of hindsight, on risk, asset prices, oil prices etc. He was also too polite to say “told you so”.

In spite of the fact that this man is paid to give us these warnings and that he did so in plenty of time, clearly nobody listened first time round. Government didn’t, banks didn’t, the FSA certainly didn’t, consumers didn’t and many business leaders didn’t. This is in spite of the fact that history shows us that a “Nice Decade” is an aberration, a highly unusual and temporary occurrence and therefore could not possibly last. The current level of economic and business challenge is actually closer to normal conditions; it’s just the nature and causes of the challenge that differ.

Why didn’t they listen? Can it be just explained away as a natural human trait that does not want to hear bad news and in the good times finds it easy to forget the hard times? Or is it the combination of short termism and herd instinct in financial markets? Whilst these have an influence we believe that the root cause is conventional thinking in finance, business, economics and in government. If the thinking does not change, then decisions and action will not change and results will be no more than what you deserve.

Applying our Competitive Strength perspective we can see that those few organisations who have achieved the Competitive Strength condition we call “Free” think very differently to the rest. This is why Warren Buffett enters the downturn with billions of dollars available to make acquisitions whilst the UK government’s coffers are empty. One aspect of this different thinking is that “Free” organisations always expect the unexpected and continuously improve their organisational competence and agility. This “Changeability” is at such a high level that they can respond to both positive and adverse circumstances as they happen, taking maximum advantage of both.

The Competitive Strength point of view shows that the deep seated managerial and behavioural values and competences of a business are the main differentiator of whether over time they will substantially outperform their competitors and successfully withstand unpleasant surprises. Yet this is not conventional thinking. This is not how analysts study performance and share values to make their recommendations, this is not how companies and their advisors evaluate the potential of a merger or acquisition and it is certainly not how government makes and attempts to implement economic policy.

This is just not good enough, as we are now finding out. Applying yesterday’s thinking to the challenges of today and tomorrow is not going to work, whether this is about dealing with the effects of the credit crunch, entering new markets, finding and keeping the skills you need or any of the many challenges we all face. For more insights into why Competitive Strength is such a key factor for business, the economy and even for our ability to tackle global challenges such as climate change please look at the Competitive Strength Report website– and the ChangeWORLD website