Employee Engagement, Fog Sculpting, and Measuring Love

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Do you believe the following statement?

High levels of employee engagement keenly correlate to individual, group and corporate performance in areas such as retention, turnover, productivity, customer service and loyalty.

It’s from Employee Engagement:What Exactly is It? by Patricia Soldati.

How about this following statement?

It’s impossible to overstate the importance of an engaged workforce on a company’s bottom line.

That one is Julie Gebauer (whom I know) of Towers Perrin at The Workforce Disengagement Problem.  

I believe both statements. I believe them a lot, in fact. (And not just because Julie Gebauer says so—though that helps!).

Trouble is—what do you do with it?

“Employee engagement” is one of those concepts that straddle a thin line: how to be complex enough to be true—and yet simple enough to be practical?

• Over-stress explanation, and you risk fog-sculpting—creating beautiful conceptual landscapes that are unactionable;
• Over-stress actionability, and you risk measuring love—mechanizing the things that make humanity human.

Similar issues arise with concepts like loyalty, employee satisfaction, organizational commitment, or identifying customer needs.

There are four risks here.

The first two risks are definitions, and identifying drivers. Soldati says:

In 2006, The Conference Board published "Employee Engagement, A Review of Current Research and Its Implications"…twelve major studies on employee engagement had been published over the prior four years by top research firms such as Gallup, Towers Perrin, Blessing White, the Corporate Leadership Council and others.  Each of the studies used different definitions and, collectively, came up with 26 key drivers of engagement.

Four of the studies agreed on eight of the 26 drivers.  All studies agreed that the strongest driver is the relationship with one’s manager.

Believe it?  I do.  No problem believing that one at all.  But it’s dangerously close to the fog-sculpting end of things, up there with good parenting, moral values and integrity.

The third risk is causality. For example: it is statistically proven that shorter people have lower IQ scores.

Don’t believe it? Compare 7-year olds’ test scores with 20-somethings’ performance on the same test.  See? Height is clearly correlated with IQ.

Correlation is not causality. David Hume (who outranks even Julie Gebauer), famously showed it’s impossible to prove causality.

The search for causality, in service to managerial actions and simplicity, forces us down the path of measuring love—which, like an emotional Heisenberg Principle, can destroy the thing being measured if overdone.

Which leads to the fourth risk—in today’s business environment, the biggest of all: measurement-driven behavioralism.

“Employee engagement” is the latest star in the umpteenth remake of a movie we’ve seen too often: define drivers, measure them, benchmark the measures, attach rewards, and link pay to performance against the metrics.

This leads managers to ask HR to causally link “engagement” to shareholder value, define indicators for the links, and provide incentive plans to drive the whole Rube Goldberg scheme.  By Tuesday, please.

I suspect the HR community is even more at fault for encouraging this kind of thinking.

Of the two sins, I’d rather be subjected to fog-sculpting. At least it fires the imagination.

By contrast, measuring love is inherently dehumanizing.

Turning “engagement” into an engineering exercise is—I believe—a great recipe for disengagement.

Scott Flander takes a good look at all this in “Terms of Engagement” in Human Resource Executive Online.  He quotes Ian Ziskin, chief HR officer at Northrup Grumman:

I’ve found over time that the single biggest thing to focus on is not the actual scores or the response rates — that’s a means to an end. The end is, do you really understand what the issues are in your business, and what are the actions you’re taking to improve them?

I don’t know Ziskin, but he sounds a thoughtful exec; he knows how to sculpt fog, and how to measure love.  And he artfully chooses a Middle Way.

Trust with the Ex: Taking Insanity Out of Divorce

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A good rule of thumb if you’re going through a divorce: at this time, every thought and instinct you have is wrong.

Most divorces I know of are breeding grounds for resentment and bad behavior. The desire for revenge overwhelms most decent and sensible instincts.

There are two reasons divorce so often turns out this way: human nature, and legal nature.

Our baser natures, I think, are focused on self-preservation—including psychologically. That means we react from fear—never a good thing. And nothing hurts like the one who said “I do” saying “I don’t.”

Lawyers operate in a profession where there is no concept of truth—there is only evidence. And marriage—being a civil contract—has grown to be subject to the usual legal framework—opposing interests, plaintiffs and defendants. Husband meets wife in a court of law, to determine a winner and loser. A worse formula for amicable separation is hard to imagine.

Some argue this is fine: it is in society’s interest for it to be difficult to divorce. Maybe—but when you’re the individual, it doesn’t feel good taking a bullet “for society.”

Paradoxically, divorces—if navigated well—can be enormous opportunities for personal growth. To retain one’s self-worth, to choose the long-term over the short, to remain magnanimous under stress, and to choose compassion over revenge—these are all higher-order acts.

Some initiatives within the legal profession move in a more human direction—in particular, mediation and collaborative divorce. In Keen Interest in Gentler Ways to Divorce, AP reporter David Crary lays out the case.

Both mediation and collaborative divorce are far cheaper, for one thing:

[The Boston Collaborative] analyzed 199 of its recent divorce cases, and found that mediation, collaborative divorce and litigation all produced high rates of successful settlement. Mediation was by far the least expensive option, with a median cost of $6,600, compared to $19,723 for a collaborative divorce, $26,830 for settlements negotiated by rival lawyers, and $77,746 for full-scale litigation.

It also gives lawyers a way out of a nasty business:

Most of us had that moment where we realize the adversarial process is so damaging for our clients — and there’s a recognition that we can do better," said Talia Katz, a former divorce lawyer who is executive director of the International Academy of Collaborative Professionals.

The forces of Good also seem to be winning a few rounds:

Supporters of collaborative law were dismayed last February, when the Colorado Bar Association declared such arrangements unethical on grounds that they prevented a lawyer from exercising undivided loyalty to a client. But in August, the American Bar Association’s Ethics Committee weighed in, endorsing the collaborative process as long as clients were fully informed about its provisions.

People have written that divorce is bad for children; I think it’s the typical divorce that is bad for children. A mediated or collaborative divorce offers the possibility of continued respect between mother and father, thereby not confusing their children for life.

I’ve written elsewhere (Trust in Business: the Core Concepts) that trust can be deconstructed into four components. The most powerful of them is a low level of self-orientation of the one who would be trusted.

I can think of few things that drive us more toward self-orientation, and therefore untrustworthy behavior, than the whirlpool of divorce—as usually practiced.

Sometimes Spouse A suggests collaborative or mediated divorce; yet because of resentment, low trust, etc., Spouse B rejects the opportunity—precisely because it was suggested by Spouse A. Little do they know how much that first sip of poison will infect the rest of their lives.

If you know someone who’s getting divorced, urge them—strongly—to read up on mediated or collaborative divorce.

If you’re getting divorced, and your spouse has suggested it—thank your stars that the one you used to be in love with still has enough respect for your marriage to consider ending it decently.

If you’re the one in a position to initiate it, do yourself and everyone else a huge favor. Mediate, collaborate—don’t litigate.

 

 

January Carnival of Trust: Call for Submissions

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carnival of trust image

Every month the Carnival of Trust highlights ten of the best posts on trust, whether business related or not. The next carnival will be Monday January seventh. If you’ve written a post you think would be a good fit, or if you have read a post by someone else that you think would be great for the carnival I’d like to encourage you to submit it for the carnival. This month’s host is Ford Harding of Harding and Company.

Carnival Submission Guidelines:

  1. The Deadline for submissions is midnight, January 3rd.
  2. Posts do not have to be business related. Trust in personal relationships, politics, or any other sphere of life are more than welcome, and, indeed, encouraged.

Posts can be submitted here.

If you’d like to read a sample Carnival of Trust, both the Carnival of Trust homepage lists all prior carnivals. I look forward to another excellent edition with your help.

Customer Loyalty Meets Rate Tarts

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To the American ear, the British occasionally come up with the most delightfully curious expressions (I suppose it works both ways).

Some of my favorites: a “cheeky pint,” and “chuffed,” as in, “I was bored to tears at the ballet—but then I caught Prince Charles’ eye, and he motioned to me to sneak outside and join him for a cheeky pint of Guinness. We had a blast—I was really chuffed about it!”

Add a new one (new to me, anyway). The BBC TV breakfast show recently introduced a story on credit cards by saying, “There’s no point in being loyal anymore—it only pays to be a rate tart.”

A rate tart. So that’s what it’s come down to.

It shouldn’t really be surprising.

Fred Reichheld’s 1991 book The Loyalty Effect summarized work in the 80s by himself, Bain & Company, and several thoughtful Harvard Business School faculty. Re-reading the preface 15 years later later is enlightening:

We found we could not progress beyond a superficial treatment of customer loyalty without delving into employee loyalty. We found there was a cause and effect relationship between the two; that it was impossible to maintain a loyal customer base without a base of loyal employees; and that the best employees prefer to work for companies that deliver the kind of superior value that builds customer loyalty.

We then found that our concern with employee loyalty entangled us in the thorny issue of investor loyalty, because it is very hard to earn the loyalty of employees if the owners of the business are short-sighted and unreliable.

Finally, predictably, we found that investor loyalty was heavily dependent on customer and employee loyalty, and we understood that we were dealing not with tactical issues but with a strategic system.

The credit card industry was a prime example for early loyalty research (MBNA in particular, if I recall), and “loyalty” is a term used heavily in financial services these days.

How, then, did a focus on “loyalty” yield today’s “rate tarts?”

Very simply, the case of “loyalty” is Exhibit One in a lemming-like rush by business to over-stress three simple concepts:

1. Profit is a measure of business activity effectiveness

2. Measurement is a valuable tool for management

3 . Activities can be disaggregated into smaller, measurable activities.

Those reasonable beliefs have metastasized into these distorted versions:

1a. Every business activity has value only insofar as it increases profit

2a. If you can’t measure something, you can’t manage it

3a. Anything worth measuring is even better measured in shorter durations and smaller units.

This extreme thinking has meant that the management of business these days is centered on short-term profit manipulation—not on long-term value creation.

Ironically, this is an area where political “liberals” and “conservatives” agree—their only difference is whether they consider it a sin or a virtue.

It was only in 1991—just 17 years ago—that we saw a different view entirely, a view that “we were dealing not with tactical issues but with a strategic system.” In only 17 years, that viewpoint is nearly gone.

In that time, almost every major strain of business thinking has moved in the direction of shorter measurements, more separation between employees, customers and investors, and more emphasis on reducing everything to its impact on the bottom line. Think CRM, collateralized debt obligations, outsourced recruiting, private equity, synthetic hedges, flipping companies, IPOs.

Most ironic of all: go back to the creators, the originators of loyalty programs—the airlines’ frequent flyer programs. Since frequent flyer programs’ profitability is measurable and separable, profit-challenged airlines are now thinking of selling their own frequent flyer programs to third party buyers.

This is the end-game; not just to outsource the management of “loyalty,” but to literally put a price on it and sell it. The buying and selling of “relationships”—it’s beyond absurd metaphors.

A Rumanian expat in the 70s explained to me the difference between the Russian KGB and the Rumanian Secret Police: “The Rumanians think they can corrupt you with sex, blackmail and money. The Russians are more experienced; they just cut to the chase and lead with money—it trumps the others.”

As credit card and other companies give customers more experience in the cynical management of "loyalty," why should anyone be surprised that the result is "rate tarts?"

A Better New Year’s Resolution Redux

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Some of you recall a blog post I wrote last year on New Year’s resolutions. Frankly, it was good. And frankly I haven’t been able to write a better one. Next year, maybe.
So, apologies to those who read it last year—though I suspect some of you won’t mind.

Happy New Year.
——————————————-
My unscientific sampling says many people make New Years resolutions, and few follow through. Net result—unhappiness.

It doesn’t have to be that way.

You could, of course, just try harder, stiffen your resolve, etc. But you’ve been there, tried that.

You could also ditch the whole idea and just stop making resolutions. Avoid goal-failure by eliminating goal-setting. Effective, but at the cost of giving up on aspirations.

I heard another idea: replace the New Year’s Resolution List with a New Year’s Gratitude List. Here’s why it makes sense.

First, most resolutions are about self-improvement—this year I resolve to: quit smoking, lose weight, cut the gossip, drink less, exercise more, and so on. All those resolutions are rooted in a dissatisfaction with the current state of affairs—or with oneself.

In other words: resolutions often have a component of dissatisfaction with self. For many, it isn’t just dissatisfaction—it’s self-hatred. And the stronger the loathing of self, the stronger the resolutions—and the more they hurt when they go unfulfilled.  It can be a very vicious circle.

Second, happy people do better. This has some verification in science, and it’s a common point of view in religion and psychology—and in common sense. People who are slightly optimistic do better in life. People who are happy are more attractive to other people. In a very real sense, you empower what you fear—and attract what you put out.

Ergo, replace resolutions with gratitude. The best way to improve oneself is paradoxical—start by begin grateful for what you already have. That turns your aspirations from negative (fixing a bad situation) to positive (making a fine situation even better).

Gratitude forces our attention outwards, to others—a common recommendation of almost all spiritual programs.

Finally, gratitude calms us. We worry less. We don’t obsess. We attract others by our calm, which makes our lives connected and meaningful. And before long, we tend to smoke less, drink less, exercise more, gossip less, and so on. Which of course is what we thought we wanted in the first place.

But the real truth is—it wasn’t the resolutions we wanted in the first place.  It was the peace that comes with gratitude.  We mistook cause for effect.

Go for an attitude of gratitude. The rest are positive side-effects.

The Year In Review?

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I’d like to thank everyone who has read this blog over the past year.  In fact, I’d like to hugely and profoundly thank you all.  Those who contributed, but also those who also just read.  (I’m a lurker myself on lots of sites).

I’m going to take a few days off from December 21 to December 30.  I’ll be back with some New Year’s thoughts at that time.

Meanwhile, I’d be curious to ask this readership if there were any particular postings that stuck in your mind this year?  You can refresh your memory by going to the bottom left of the blog page (click here if you’re reading from email), and having a look.

In any case, may I wish you all a very fine holiday season.

Learnings from the Used Car Salesman

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One of the strongest stereotypes in the business world is that of the used car salesman.

Close your eyes for 3 seconds and get a mental image. The odds are very high that:

a. You envisioned a man, not a woman
b. He’s wearing a suit
c. with a plaid pattern
d. with polyester fabric.

The used car salesman generates such antipathy not because of tactics per se, but because of his motives. It’s a great example of a core issue in trust: there isn’t a single behavior or phrase that either guarantees the establishment of trust or its destruction. Everything is colored by intent.

An interesting example of this can be found in a delightful posting called The Used Car Salesman’s Training Manual: 25 Tricks They Use to Charge You More.
(Thanks to Amy Quinn for pointing this out).

If you’re in the car market, it’s a good piece to read before going to dealers. And if you’re a student of trust, it’s a fine list as well. In the 25, for example, you’ll find “limited time offers,” “puppy-dogging,” “highballing,” and “lowballing.”

It’s a great list for raising your defenses.

Interestingly, it’s also a pretty good list for creating trust. Strip out all the negative, value-laden terms, and you’re left with characteristics which can be spun one way or the other—depending on motives.

For example, number 23:

Selling Up: If you’re not specific enough about your sales needs, you may get swindled into purchasing a car that is much more expensive or fancy than you need. After all, this is a salesperson’s job. So be very specific about the year, miles, models and colors you are interested in so you won’t feel motivated to buy something that wasn’t what you really wanted.

Let’s reword this in a way that you might expect to find in a sales training manual.

It might sound like:

Help Customer Determine Needs: If the customer isn’t clear about what kind of car they’re seeking, then you have an opportunity to help them define their needs, and then to identify the type of car that would best fit those needs. After all, this is a salesperson’s job. So don’t go first to specific details about the year, miles, models and colors they are interested in. Instead, learn about their habits, what they like and don’t like about driving, what role a car plays for them, what a car says about them, and what range they are willing to spend. That way you can either improve (or, at the least,validate) their insight into what they want from a car, rather than just being an order-taker for a pre-existing idea that hasn’t been thought through.

Which is right? Precisely what behaviors are different in one scenario vs. the other?

I would argue, not much. In sales, as in other rich human interactions, our intent infuses our words and behaviors.

This argues for high-bandwidth communication: voicemail over email, phone calls over voicemail, and meetings over phone calls.

But most importantly, it reminds us: the best way to be trusted is to actually be trustworthy—worthy of trust.

Do you have your customer’s best interest at heart? Or not?

The answer to that question overrides all the skills-oriented approaches you might learn.

European Fish, the Commons, and Business

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The sea and its denizens have long been fertile subjects for myth and metaphor. That tradition continues in The Economist, December 15-21, “A Fishy Tale”.

Excerpts:

The [EC’s] Court of Auditors recently found that the European Union’s Common Fisheries Policy does not work…A survey found 81% of fish stocks to be dangerously over-exploited.

…the commission proposes quotas that are larger than those recommended by its scientific advisers. National ministers then expand the quotas once again [by about 50%]. And then national fishing fleets break even these higher quotas.

To most Eurocrats, the problem is selfish national interests, and the solution is tougher EU-wide controls…but if countries parceled out the fish among themselves there would be none left, says one official…some fishermen quietly discard lots of fish so as to pack their holds only with the most valuable.

Many fishermen cheat because they believe the scientists are wrong, or because everyone else is, or because they cannot make a living otherwise.

And so it goes.

Economists know this as “the tragedy of the commons,” based on the problem a few centuries ago of sheep overgrazing the town lands held in common. The problem is that people’s individual search for economic self-interest ends up, paradoxically, destroying everyone’s self-interest.

The airline industry knows this dilemma well. Any given airline on any given route is incented to have a plurality of available-seat-miles. This leads to endemic over-capacity, hence lower profitability for all. The only sure-fire route to airline profitability is not clever marketing, a la Southwest Airlines—it’s domination of routes, something Southwest also knows a thing or two about.

But back to fish. Issues of the commons show up first in government, later in business, because government by default gets the un-economic propositions. But the issues are increasingly not unique to government.

The business world has its own version of the commons. When every company seeks to gain sustainable competitive advantage, maximizing its own shareholder value, driving that logic into every transaction, you end up with systemic suboptimal results.

Example: mortgages. In the old days, savings banks held the loans, lived in the community, knew the borrowers; the borrowers kept the house, and kept the mortgage company. Inefficient, yes; but the common interest was enforced.

Today, we got efficiency—but at the cost of a common interest. The players in the subprime mortgage game ended up just like Portugal, Britain and Poland duking it out over declining fish stocks. The only losers were the fish. Until the fish disappear.

Business is diving headlong into certain practices—the slicing and dicing of business processes, the slicing and dicing of securities into finer and finer tranches of ownership, the rapidly diminishing time of ownership, and the establishment of myriad markets where ownership and time can be freely exchanged.

Lots of markets, lots of efficiency—and very little overlap of the common good.

The ideology of competitive separateness is precisely the wrong ideology in a world of increasing interdependence.
Ironically, since the “commons” problems first show up in government, it is government that must provide examples for business to follow—yet we are saddled with an ideological bias that says business has nothing to learn from government, only the reverse.

The Economist’s conclusion about fish is as right as it is predictable: Europe needs to “ponder the example of one of the EU’s few uncontested triumphs, the single market, and apply its lessons to the seas. That would be rational. It might even be good for the fish.”

And for business at large. It’s difficult to believe that a global economy built on the theory of sustainable competitive advantage is going to solve the energy problem. Or the health care problem. Or the immigration problem. Or the trade problem.

We need an ideology of trust. A set of beliefs that link, rather than divide.

Why Your Sales Process Is Bad for Sales

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At a holiday party this weekend, I chatted with two friends about life at their companies.

Each has been around long enough to see several generations of approaches to selling. We seemed to notice a few things in common.

1. The term “sales approach” has increasingly come to mean a “sales management process;”

2. Which means selling has come to be seen as a business process, not as a human interaction;

3. The “management” of selling has come to mean box-checking and numbers-tweaking, much like an engineer might summarize the readings from a series of flow-meters;

4. A major objective of these processes seems to be forecasting. Yet forecasts themselves are often ignored on the upside because of the risks of hiring, and on the downside because of the cost to people of short-term firings.

Which begs the obvious question, why are we doing this?

Of course this is just anecdotal party chatter—but it rings true to me.

Sales is one business area (others include HR and purchasing) that has been hit by a case of physics-envy: the belief that quantitative analysis of physical behavior at a micro-scale holds the key to understanding business performance (and the meaning of life to boot).

Google “sales management” and look at all the process models—CRM systems, sales force automation, lead tracking, right-pointing chevron graphics—that pop up.

The message? Selling is nothing more than a simple business process. Identify leads, screen-call-screen-meet-screen them, question them, trial-close them, identify/answer objections, repeat trial-close, repeat as necessary, close. Return to start.

Identify the steps at a sufficiently detailed level, then just collect enough data, and you too can be selling, or better yet, managing the poor slobs who actually have to slap shoe leather. Just follow the steps in the order given. Paint by numbers. Connect the dots. Just do it.

Got a sales problem? It must be a process problem, which means—you must have the wrong sales process—time to switch processes! You need consultative selling, or power-based selling, or buyer decision analysis selling. You need data. Analysis. Tweak the process.

It’s easy to caricature this approach, harder to describe just what’s wrong with it. But here’s a shot.

Selling is not at root, despite what web-searches will tell you, about process. It is about people and relationships and trust. We are in most cases far, far past the point of significant value-add by linking systems. And in getting there, we have run roughshod over the value-add by human connections.

Companies are driven by vision of linking all that data so they know just what to pitch you and me—to decrease time-to-“you-want-fries-with-that?” Most customers would gladly trade some Big Brother capability for less time on-hold and more genuine concern about our wants.

Why this obsession with metrics, behaviors and processes? Like I said, physics-envy. For over a century, many academic disciplines—including business, more recently—have had a case of “physics-envy.”

They believe that only “real” data is meaningful, only particles and precision make for real “science.” Neuro-fill-in-the-blank is just the latest manifestation.  Sociologists have had physics-envy for years, as did MIT’s Business School.  Harvard used to be immune, but caught it as well a few decades back.

Hey—sales is still the fulcrum point of the commercial interaction between a buyer and a seller.  Somewhere in there humans still lurk.  Sales process descriptions leave something out. Sort of like writing about the physics of love.  Neither quite gets at the point.
 

Destroying Shareholder Value: One Quarter, One Customer at a Time

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I spoke with a mid-level consultant at a medium-large American consulting firm. His project had an overrun. Question was, how to handle it.

Me: How big an overrun?

Him: $80K—a 50% overrun.

Me: A big percent, but not a big dollar number. Tell me about the client.

Him: Medium sized for us; decent relationship; we do 5-6 projects a year with them.

Me: What do you each say?

Him: They agree they signed a contract saying they were responsible for the disputed work. We thought their interpretation was wrong. We ended up doing the work, but disagree about who’s responsible.

Me: Of the $80K, how much would they agree is their fault?

Him: Maybe $20K of the $80K.

Me: And you?

Him: We think $70K of the $80K.

Me: That is a mere $50K issue. You’re a big company, this is a good client relationship—$50K is chump change.
Why don’t you go to them and say, ‘Look, we value this relationship. There is an $80K overrun here; why don’t you pick the number between $0 and $80K that you think is most fair, and we will pay it.’ Give them total choice. Let their choice reveal their character and their intent, and show good faith on your part. Work the relationship, not the negotiation.

Him: Well, they might take advantage of us.

Me: Of course they could. And if they do, you’ll know if these are people worth trusting in the long haul, or whether henceforth you get tighter controls and/or give this client over to a competitor. Do you want a relationship, or a petty quarrel? How much do you think they would offer?

Him: I’d guess they’d offer us maybe $40K. And I think what you say is the right thing to do. But my [service offering] leadership team won’t go for it.

Me: Why not?

Him: They think we deserve more, and they can get most of it by holding out.

Me: For how much?

Him: They think they can get $70K.

Me: You realize, that is only $30K of difference between the two of you.

Him: Yes, but they are really under pressure to make their profit bogeys. There’s really nothing I can do.

If you’re not sickened by this dialogue, let me break it down.

It sounds like a bad divorce settlement. Two large firms wasting time and creating bad blood—over $30K. A true imbalance.

But it’s worse.

This was probably a good relationship.  Let’s assume it might have generated five projects a year for 8 years going forward. Further, that benefits to the client would have increased as the consultants gained more familiarity and expertise over the years.

Suppose that amounts to a present value of, say, $10M in fees.

Assume that the bad blood generated results in lower trust—more haggling over fees, lower fees, more competitive bidding, more audits, more skepticism over advice—all resulting in, say, 30% reduction in the present value of expected fees.

That’s $3M reduction in present value. For $30K on a quarterly P&L.

Many think it doesn’t matter because it doesn’t hit the P&L. It’s true that FASB rules don’t book present value, at least not through the income statement.

But it is real. The eagle eyes on Wall Street know very well how to discount future streams. Private equity firms know the value of customer retention rates.

In other words, the financial metrics that matter most—those of the market, not of the accounting books—do know the cost of this firm’s decision.

You may think the young manager is at fault for not standing up for what he knew was right. Or, you may think his bosses are to blame.

I think the real culprit is endemic bad business thinking. Business thinking that mindlessly focuses on short-term metrics of short-term behavior, linking the two by short-term incentives. The solution doesn’t lie in more short-term thinking ("I know, let’s analyze imputed market discounts and allocate them across quarterly bonus pools for each decision!").

The resulting behavior is value destruction by any sensible definition. Bad business. They call it financial management. It is anything but.

Yet this way of thinking, as anyone in the corporate world knows, is the rule, not the exception. Anyone who believes in perfect market theory need only look at daily management behaviors to find their disproof; everywhere managers behaving in ways that destroy value. Believing that they’re creating it.

Bad thinking.