Family-Firm ‘Stewardship’ Offers Model for Long-Term Management Success

Posted by Adam Gordon on Mar 1, 2011 in all, decision-making, leadership, management, strategic foresight

In the pivotal moment of the movie “Remains of the Day,” US Congressman Trent Lewis (Christopher Reeve) in England in 1936 declares to the “gentleman-amateurs” around him who are blunderingly cosy-ing up to the Nazis: “leave politics to the professionals.”

It’s an expression of the 20th century zeitgeist shift to professionalization of not only politics, but all significant decision-making and management. Business certainly led the way through the century with the rapid rise of managers as a distinct class of professional, expecting the commensurate erosion of family-run firms of any real size and clout.

The problem with family firms are legion: under-qualified if not downright incompetent heirs thrust into positions they can’t cope with or don’t want, family wrangles, inheritance disputes, relative non-accountability of management leading to quixotic decision-making, secrecy mitigating against access to capital and therefore growth, and so on.

So the wisdom became that the family-firm management was appropriate in start-up mode, and then as companies scaled up and moved to external funding and responsibility to multiple stakeholders, professional management should take over for the good of everyone.

Generations

Or so we thought. There is a long-running counter-argument that family firms do many things better, even at scale. Key decisions are made with the fearless straight-talk that is often required, and without bureaucracy up and down the chain. Families may have their politics, but they don’t have the chronic office politics nor resume-polishing that besets so much of corporate life, wasting countless person-hours.

Furthermore, industry and business wisdom that is built up over generations stays in the firm rather than getting washed down the river every time the executive door revolves. The bottom line: family firms remain a more-than-viable model very much alive and kicking all across the world.

These are background issues to Randel Carlock (INSEAD) and John Ward’s (Kellogg) new book “When Family Businesses are Best,” (Palgrave, 2010) which is broadly about navigating a family firm in the changing, globalizing world.

What got my attention particularly is the authors’ contention that family firms are better at developing, retaining, and working to a long-term management perspective. That is, the family is an inherently long-term institution, and well-run family enterprises are run in such a way as to endure for the future for the family – and this is an advantage in navigating and surviving a changing world.

The term the authors’ use is for this kind of management is “stewardship.”

The root problem of most professionally managed businesses is they are run without stewardship  – without concern for long-term well-being of the firm or its stakeholders. If we needed reminding, the banking crisis was the product of management that couldn’t be further from stewardship – taking absurd risks with other people’s money for short-term personal wins.

Banks have become the poster child for the follies of short-termism, but the reality is short-termism remains endemic across professional management, both in business and politics. Long after “après moi le déluge” CEOs have taken their packages and are on the golf course, others – employees, taxpayers, the environment, etc. – are paying the price.

What’s measured

At least, post-crunch, it is now incontrovertible that short-termism is an extremely poor strategy for managing a complex and uncertain future. “What gets measured gets managed,” and when what is measured is only the next quarter’s profit figures, bigger failure looms.

The family-run businesses offers a model of long-term management. It is a conservative non- “bet-the farm” model to be sure, but perhaps the path a real steward of value genuinely operating in the best interest of valued stakeholders would follow.

So how might one, without the real flesh-and-blood bond of family ties, get senior executives to think through the effect of their behavior on employees or stakeholders 10- or 20 years in the future, as the head of a family would? Surely only by creating incentive structures that mimic family stewardship – incentives that mean that leaders can’t walk away smiling until the organization (or the value it represents) has been safely passed on to the next generation.

Future Savvy, as viewed by ‘Info-Savvy’ Peter Stoyko (SmithySmithy)

Posted by Adam Gordon on Jul 29, 2010 in all, decision-making, failed predictions, forecast filtering, Future Savvy, managing uncertainty, scenario planning, strategic foresight, trend tracking

I was lucky enough to have Future Savvy included in a lengthy review of critical thinking in forecasting & foresight, done on the SmithySmithy “info-savvy” blog. The post also included Nassim Taleb’s ‘The Black Swan’ (2007) and ‘Fooled By Randomness’ (2005); Kenneth Posner’s ‘Stalking the Black Swan’ (2010), and Chris Luebkeman’s Drivers of Change (2009).

As Stoyko’s is head-and-shoulders the most insightful and thorough assessments of the book itself, and the book in context, I’m reposting it here, with thanks. There are also fabulous graphics added, such as these (see more below):

“My search led to Adam Gordon’s Future Savvy. Like Posner, Gordon challenges Taleb’s blanket dismissal of forecasting. Gordon does not deny the existence of Black Swan events. And his book is a giant compendium of all of the things that usually go wrong with predictions. Moreover, Gordon offers a sceptical discussion of the subject that chastises simple-minded futurists, tech enthusiasts, and various other prophets of doom and boom. The difference between Taleb and Gordon is that Gordon doesn’t dismiss out-of-hand the usefulness of structured thinking about the future. Many important decisions require us to speculate about what the future might hold. Gordon wants us to be savvy in the way we anticipate the future instead of flying by the seats of our pants, so to speak.

“To set the stage, Gordon talks about how the forecasting industry is rife with problems. There are no standards, no accepted methods, no standard terminology. There are no penalties for failure given that people tend to forget forecasts by the time they can be proven wrong. And when dealing with the forecasts offered by pundits, stakeholders, and activists, Gordon reminds us, “we are knee deep in predictive wishful thinking, scare-mongering, or blatant self-promotion.” (p. 5) Buyer beware.

“Then there are the data problems. Forecasters use data from the past to project trends into the future. They rely heavily on data gathered for other purposes, not gathered for the task at hand. Availability is patchy. The data comes from multiple sources and is created using different methods. Important statistical caveats get lost. The context of the original studies gets forgotten. Variables are often defined loosely … and change over time … and are measured differently in different places. Data gathering methods often change over time in ways that exaggerate or obscure a trend. Sensationalist “newsy” data often commands the most attention. Some things are inherently difficult or impossible to measure accurately. All sorts of assumptions get embedded in data projected into the future. Furthermore, Gordon talks about the ways in which numbers can be finessed in an underhanded way. He advocates “number scepticism”, warning: “But no matter how scientific the data appears, choices have been exercised at every point about what to observe, what to count, how to measure it, and how to report it. … But numbers are not bedrock. There is no bedrock.” (p. 59)

“As an aside, statisticians have a snide nickname for analysts who mix’n’match statistics from a hodgepodge of sources to create complicated models or story-lines. That nickname is junk-yard dog. Gordon gives the impression that the forecasting business is, by necessity, heavily populated with these collectors.

“The sources of potential error don’t end with data. Our biases cause us to misinterpret and misreport the data.

“Some bias is intentional manipulation. Rascally analysts ignore or downplay countervailing evidence. They give evidence less scrutiny if it confirms the desired result. Emotionally charged language and associations are used. Terms are defined in leading ways. Extreme cases are used to represent the norm. Forecasts that don’t accord with an agenda get ignored, especially if the forecast is sponsored by a powerful interest. Organisational incentives can cause those being scrutinised to fudge the numbers. When forecasts are presented to the media, the most extreme trends get attention and important caveats remain unreported. Gordon is particularly critical of the so-called futurists who use “stretch thinking” and “big-picture thinking” to imagine a world full of only big changes. Many have a technophile bias, or the assumption that technology is the sole motive-force of large-scale societal change. Gordon’s advice is to keep your guard up and be wary of motives.

“Setting aside the thinness of this advice, Gordon has a strange attitude when talking about manipulation. He makes a distinction between forecasts that attempt to be accurate and forecasts that attempt to influence. Employee-prodding managers, partisan policy wonks, and alarmist activists use loaded forecasts to move minds. Humility, qualification, and tentativeness don’t have a place in these circles. There may be a legitimate reason for using leading forecasts, such as communicating the art-of-the-possible or giving someone an ambitious target to strive for. However, leading forecasts without full disclosure are instruments of underhanded manipulation. Gordon is eerily agnostic. His advice and tone of voice suggests that he is oblivious to the ethical problems posed by the manipulative use of forecasts. It’s a strange contrast with Gordon’s advice about being careful and pragmatically sceptical. [Editor's note: Agnostic? Moi? Hardly, but perhaps the chill of my irony was not chilly enough.]

“Back to the sources of error.

“Gordon itemises a number of cognitive biases that are inherent to the way we think. We often miss Black Swan events and abrupt changes in prevailing wisdom (“paradigm shifts”), he argues, because we are always filtering information based on perceived relevance. This “inattentional blindness” causes us to not notice important influences on the future. We also overemphasize recent happenings over older events (the recency effect). We’re susceptible to herd thinking and faddish ideas. A few chance events are often mistakenly interpreted as a trend or other pattern. Gordon places particular emphasis on how our current context frames the way we see and think (situational bias), especially how the prevailing mindset and preoccupations of an era skew the way we think about the future (Zeitgeist bias). For example, nuclear-powered airplanes may have seemed inevitable to someone living in the 1950s, a time preoccupied with thoughts of nuclear technology, suggests Gordon. That notion seems absurd today. To counter this problem, he argues for the need to extract the assumptions underpinning our expectations. Those assumptions need to be questioned and tested. And one good test is to reverse the assumption; that is, consider how the future would be different if the opposite (or very different) assumption were used.

I would add that people habitually rely on lazy assumptions about the future in general. As Howard Segal points out in his book Technological Utopianism in American Culture (2005), late-19th and early-20th-Century intellectuals assumed a technological plateau when describing the future. Even today, we assume our arrival at some destination—a future steady state—instead of a world of on-going change that is unevenly distributed and erratically paced, as exists now.

Gordon invites us to consider the utility people derive from a particular technology before jumping to conclusions about how it will revolutionise everyone’s lives. Tech-happy futurists are too quick to assume broad public acceptance of a new technology while ignoring the trade-offs of adoption. There are costs to be considered. In many cases, the price is too high and existing technologies do a good enough job. Or old technologies have an inertia, such as when users are “locked in” to a particular technology. Or social values change. Or switching creates undue inconvenience and aggravation. Or the technology has uneven appeal across diverse groups in society. Or, or … Gordon reminds us that simple technological domino effects almost never happen. The pace of change is usually slower than anticipated. A variety of factors determine how successful an innovation will be.

That leads us to the dynamics of change. I’m not going to describe each dynamic in detail. Gordon devotes a lot of space to them. Instead, I’ve listed them iconographically in the following diagram. Note that the darker lines signify consequences (and consequences of consequences; a.k.a. second-order and third-order events).

“A trend observed today may not continue onward along a straight-forward path. Trends peter out … change course … hit limits … get caught in reinforcing loops … have side-effects … provoke reactions … et cetera. The same goes for underlying causes. Trends can be particularly difficult to track within the complex systems that govern our lives. Thus, Gordon offers a chapter on system analysis.

“As someone who studies organisations, I’m often seeing policies and strategies change with sadly predictable pendulum swings. Gung-ho leaders push in one direction with gusto only to get a lesson in humility. Their efforts hit limits and opposition. Their assumptions hit reality. Subsequent leaders see wreckage everywhere and push in the opposite direction, looking for balance. Balance alludes them and they go to far. Another pendulum swing begins. Some swings happen from season to season. Others happen over decades. These swings may be predictable, but their exact timing certainly isn’t.

“Gordon rounds out Future Savvy with a utilitarian survival-guide of sorts. His big advice is that “it’s better to be vaguely right than exactly wrong.” Success is being alert to important changes and being prepared to cope, not with having accurate predictions. Narrowing down the things that need to be prepared for is an important practical benefit. In that spirit, Gordon talks about the strengths and weaknesses of using multiple scenarios instead of pat forecasts. He steps the reader through the analysis of some forecasts while looking for weaknesses. A chapter-long battery of questions is offered to guide the analysis. These questions do a good job of summarising the book.

“All told, Future Savvy is an excellent textbook for those who want to discipline the way they think about the future. I disagree with Gordon’s tangents about the inherently subjective nature of truth. I also have a few qualms about his take on scepticism. But these tangents rarely get in the way of his stock-taking exercise. That exercise has led me to be even more suspicious of forecasting, especially forecasts in volatile industries where data is patchy and assumptions are legion. I’d love to know the success rate of high-tech cheer-leaders … er, research firms that peddle forecasting numbers. Gordon dismisses the tracking of forecast failures as “smirk lists”. I’m with Taleb and his tsk tsking. If these numbers are just part of the hype machine and have a dismal track-record, then what good are they? Validation for reckless investment strategies? Fodder for misleading Power­Point slides? Numbers that give a false sense of being in-touch with the market? Tsk tsk.

“That said, Future Savvy has increased my interest in foresight more generally. Gordon’s guide left me wondering how I can better prepare groups of decision-makers to think about the future. How do we get them to see the many changes afoot with greater foresight?”

Industry foresight, or how to avoid ‘the dog-chase problem’

Posted by Adam Gordon on Jun 7, 2010 in all, decision-making, Future Savvy, management, strategic foresight

I’m always looking for ways to explain the role of quality foresight in everyday management, so I liked this little animated gif from managewell.com.

Imagine driving down a country road when a street dog starts chasing your car. The dog attacks the car, but by the time it gets close, the car has moved ahead, so the dog changes direction and attacks the new coordinates. This goes on as the dog adapts, but it never quite catches up, and once it is following behind it is obviously too slow to catch up. Had it thought ahead and run straight it would have had its day with the tires.

The resulting curve looks something like this:

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In mathematics, this is known as the ‘curve of pursuit. The dog is attacking the problem as it sees it right now, but by the time it reaches it, the problem has moved on a few steps. A ‘problem-solving’ approach like this is going to prolong the time it takes to get to key decisions, and give the initiative to competitors. The better approach in managing moving situations — and all situations are moving — is to anticipate and tackle tomorrow’s position today.

Obviously the devil is in the quality of the anticipation, but for that there is Future Savvy and other key resources that exist for determining quality in foresight work. Industry foresight can never be done perfectly, but it can be done well enough to avoid the “dog chase” future-management style that characterizes much of industry leadership.