Beware Of Simple Rules And Slogans—They Can Kill Your Business

Business today moves fast. So we like simple statements that speak to larger truths. It always seems that if we can find a simple rule of thumb—or maybe 3 to 5 bullet points for the really big picture stuff—managing a business would be much easier. Whenever a decision needed to be made, we could simply refer to the rule and go on with our day.

Unfortunately, that often leads to cartoonish slogans rather than genuine managerial wisdom. Catchy ideas like “the war for talent,” “focus on the core” and “maximizing shareholder value” end up taking the place of thorough analysis and good sense. When that happens, we’re in big trouble.

The problem is, as the philosopher Ludwig Wittgenstein pointed out, “no course of action can be determined by a rule, because any course of action can be made out to accord with the rule.” In other words, rules may seem to make sense, but when we try to apply them in the real world we find that things are far more complicated and simple rules aren’t much help.

The War For Talent And Enron’s Downfall

In 1997, three McKinsey consultants published a groundbreaking book, The War for Talent, which argued that due to demographic shifts, recruiting the “best and the brightest” was even more important than “capital, strategy, or R&D.”  The idea made a lot of sense. What could be more important for a company than its people?

The problem is that “talent” is a fairly ambiguous term that may refer to innate traits, learned skills or proven performance. A talent-focused firm might want to recruit at the most prestigious schools, invest in training, generously reward top performers, or maybe implement some combination of the three. Suddenly, the simple rule is not so simple.

As Malcolm Gladwell explained in an article about Enron, strict adherence to the talent rule contributed to the firm’s downfall. Executives that were perceived to be talented moved up fast. So fast, in fact, that it became impossible to evaluate their actual performance. People began to worry more about looking clever than doing their jobs.

As we now know, it didn’t end well. Enron went bankrupt in 2001, just four years after the The War for Talent highlighted it as a model for others to follow.

The truth is that talent is overrated. It is not uncommon for people with meager early promise, like Michael Jordan and Albert Einstein, to go on to great achievements. At the same time, many child prodigies fail to accomplish anything of note. There is also mounting evidence that individual accomplishment is not as important as the ability to work in a team.

Focus On The Core While You Innovate Or Die

Not to be outdone by his colleagues at McKinsey, Bain and Company’s Chris Zook published his own bestseller in 2001, Profit from the Core. He argued, also using Enron as a featured example, that successful businesses beat the competition by focusing on their “core” and not getting distracted by ill advised forays into non-core activities.

Like the war for talent, focusing on your core seems like a sensible idea. Yet as Phil Rosenzweig points out in The Halo Effect, “core” is also an ambiguous term.” It can refer to core markets, core competences, core customers and lots of other “core things.” So should you focus on all of your “cores” or some more than others?

The “focus on your core” rule becomes even more troublesome when combined with the rule that we should “innovate or die.” Wasn’t Steve Jobs straying from his core when he branched out into music players and smartphones? What about GE when it moved into finance? Xerox missed out on the personal computing business by focusing on its core copier business.

You could argue that Jobs and GE made the smart move by expanding their cores, while Xerox was too dumb to see that personal computers were a legitimate expansion of its core office machine business, but then we no longer have a simple rule to follow. Instead, we have a set of complicated decisions that require judgment

Shareholder Value—The Dumbest Idea In The World

Another popular maxim is that managers should focus their efforts on creating shareholder value. Again, on the surface, this makes sense. After all, isn’t that what all businesses—from plumbers and pizza shops to Fortune 500 companies—are supposed to do. It’s hard to see how any enterprise that fails to create value for its owners could be considered successful.

What has made the concept of shareholder value even more influential and pervasive is that it is often attributed to Jack Welch, the legendary longtime CEO of General Electric. But Welch himself has called shareholder value the dumbest idea in the world because, as he rightly points out, it is an outcome rather than a strategy.

Think about it for a second and you can see what he means. Should you cut employee salaries? One manager might say yes, because doing so would increase margins and enhance shareholder value. Another might say no, because doing so would reduce morale, make it hard to recruit talent and destroy shareholder value. Who’s right?

In the final analysis, saying that managers should focus on shareholder value is no different that telling an athlete to “win the race” or an astronaut to go to the moon. It’s completely useless advice.

Life Is Not An Algorithm

The reason that so many managers fall prey to simple rules and slogans is that they promise to make life easier. If all we have to do is follow a clear set of rules, then the world makes a lot more sense. Once we have to depend on judgment—of both others and ourselves—things seem a lot more precarious.

But by relying on those simple rules and slogans, we often fail to think things through. If we merely say, “we have to win the war for talent,” we are less likely to think about what kind of talent we want to develop. Reducing decisions to “focusing on the core” negates serious analysis of threats and opportunities. Shareholder value is basically a license to do anything.

The truth is that the real world is a confusing place. We have little choice but to walk the earth, pick things up along the way and make the best judgments we can. The decisions we make are highly situational and defy hard and fast rules. There is no algorithm for life. You actually have to live it, see what happens and learn from your mistakes.

And that’s what makes it all exciting and interesting. The future is always unknowable, we have to experience it as it happens. Along the way, we meet new people, learn new things and, hopefully, become better versions of ourselves. As John Lennon put it, “Life is what happens when you’re busy making other plans.”

– Greg