Conversation 3: Predicting the Quality of Decisions

Now, where were we?

There is change and it will be here forever.

Change causes disintegration.

Problems are manifestations of disintegration.

To manage or to lead means to solve problems caused by disintegration.

In order to solve a problem we need to decide what to do and implement the decision.

The quality of management or leadership is a function of how good the decisions we make are, and how efficiently we implement them.

Good summary.

But how should we go about making good decisions? How do I know if I am making a good decision? I could analyze a decision after the fact and say that was a good decision. But isn’t analysis after the fact too late? You said that the quality of management, leadership, parenting, or governing depends on the quality of the decisions made. Is there a way to know up front if a decision is a good one?

There is. In order to make a good decision, we need to know how to predict the quality of a decision. We don’t want to analyze a decision after it’s been implemented, and then judge it by its success or failure. Right?

Right, but how do you predict whether it will succeed?

Let’s use an example: Say we have a write-up of a problem or a case that contains all the in- formation necessary to diagnose and solve a problem. Assume we give that case to a group of four people. These four people don’t know anything more about the case than what’s pre- sented in the write-up. We ask them to study the problem together and devise the solution. They are instructed to write down both the problem and the solution, seal the result inside an envelope, and return it to us.

Now let’s take another group of four people and give them the same assignment. They too have no additional information beyond what’s written up. They have the same case and the same assignment. After the two groups complete their task, we have two sealed envelopes.

Are we going to find that these envelopes contain the same problem and the same solution?

No. Most likely they will contain different problems and different solutions.

Right, but why? The case is the same. Both groups have exactly the same information. Why are the problems and solutions different?

In order to manage well, you have to manage the people who determine the problem and solution, instead of managing the problem itself.

Because the people are different!

You have just discovered the key factor in the managerial or leadership process. In order to manage well, you have to manage the people who deter- mine the problem and solution, instead of manag- ing the problem itself.

There are managers who say, “I love to manage. It’s people I can’t stand!” If you do not like work- ing with people, you are in the wrong profession. Too many leaders open the envelope and say, “Wrong problem! Wrong solution! The right problem and the right solution are...” They think they are leading, when what they are really doing is just working hard. Even if they accept what is inside the envelope, how do they know they have found the right problem and the right solution?

But if they’re the managers they should know better than their employees. That’s why they get paid more, isn’t it? Isn’t that also why leaders get elected?

They should know better, but do they? Is getting paid more an assurance that a person knows more? Does a leader necessarily know more about every subject he is responsible for?

Then why is the manager getting paid more? What do we reward leaders for?

The role of leadership is to create an environment where the most desirable will most probably happen.

It’s not for knowing more about the problem or the solution. They should get paid more for knowing how to find the right people, the “knowledgeables,” and for managing the environment in which these people operate, so that the people find the right answers in diagnosing and solving the problem.

If a manager claims to know everything, the organization is in trouble. No one can know it all, especially in the very complex environment we live in now.

If managers want to have the right problem and the right solution, they must match the right people to the case at hand. They must create the environment that will enable these people to arrive at the right problem and the right solution. The CEO of Ogden Corporation said it best: “The role of leadership is to create an environment where the most desirable will most probably happen.”

But as a leader or manager, how do I distinguish the right problem and solution from the wrong ones? If I don’t necessarily know more than the people I lead or manage, then how do I evaluate their decision? I could make a mistake, right?

To know whether the people are proposing a good decision or not, you must ask four questions. If the answer is “yes” to these questions, you have the right problem and the right solu- tion. If the answer is “no” to any of the four questions, you have the wrong problem and the wrong solution.

What are the questions?

To understand what those four questions are would take the entire book. But it is worth it, don’t you think?

Agreed.

At the beginning, our conversations may seem somewhat complicated and overly academic. Later, the usefulness and applicability of these concepts, and how they can lead to the an- swers to those questions, will become clear.

The Four Roles of Decision Making

No decision is made in a vacuum. It is made to achieve something. A decision is a good one if it produces the desired results. Thus, if a decision can make an organization be both effective and efficient in the short and the long term, the decision is a good one.

We can present it as a chart:

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I’ve studied management practices in several countries and have observed what happens under different conditions. I was like the British Naval doctor who sailed the open seas for a long time and observed that when people’s diets were deficient in vitamin C they developed scurvy.

I studied management practices in countries where certain managerial roles were forbidden by law, and I observed and analyzed the managerial “diseases” that emerged. I identified the necessary characteristics—the four “vitamins,” which I call the decision roles—that produce healthy organizations that are effective and efficient in the short and the long term:

Performing the (P) role makes the organization effective in the short term. Performing the (A) role makes the organization efficient in the short term. Performing the (E) role makes the organization effective in the long term. Performing the (I) role makes the organization efficient in the long term.

See my book Industrial Democracy: Yugoslav Style. New York Free Press, 1971. Reprinted by Adizes Institute.

Like a missing vitamin will cause disease, a missing role will produce a pattern of correspond- ing mismanagement.

I can analyze and predict the outcome of a decision by analyzing which roles were being performed in making the decision and which ones were missing. It is like a medical diagnosis.

Let us have a simplified example: If sales are going down apparently the (P) role is deficient. The (P) role makes the organization perform the purpose for which it exists, and it can be measured by sales. If profits are lower than the competition’s apparently the (A) role is deficient. The (A) role makes the organization efficient and thus minimizes waste. If the com- pany is not innovating, not coming up with new products and markets, apparently (E) is deficient. Finally, if the company is too dependent on any one individual to survive or even exist, for example if the presence of the founder is indispensible, apparently the (I) role is missing or deficient.

You mean to say you can look at managerial problems as you would medical diseases, and identify which missing role caused them? Then, like you would treat a deficiency in a certain vitamin, “inject” the missing role, or roles, into the system, and lead the organization back to health?

Yes! I look at an organization as a total system and at what makes it healthy or sick. A healthy system is one that is effective and efficient in the short and the long term.

The Adizes Methodology offers a holistic theory of management, both therapeutic and pre- ventive. It does not focus on solving a specific problem. It focuses on the whole system and how to make it healthy. When the organization is healthy, the problem that is bothering the organization will be solved by itself. As a homeopathic doctor once told me: “I do not treat a specific problem. I treat the whole person.”

Being healthy makes the organization successful.

One company helped by this methodology has increased sales from $12 million to many billions in ten years without any dilution of ownership.

Is the benefit permanent?

It can be if the company is constantly nourished and nurtured by repeatedly using the methodology. Otherwise, in the long term, the methodology’s effectiveness will diminish, and eventually the organization will lose the benefits. It’s like exercising or eating right.

See my book How to Solve the Mismanagement Crisis.

Why will the effectiveness diminish?

Because of change. The markets change, the technology changes, etc. If leadership does not manage change properly, the system will become either ineffective or inefficient either in the short or long term.

Can anyone learn how to engage all four roles?

Yes, if properly trained.

How different is it from what traditional consultants do?

Adizes does not prescribe “medicine,” meaning we do not write consulting reports. We em- power the organization to release and utilize its own energies to take care of itself. We coach the whole organization as a system, rather than just individuals, to generate those (PAEI) vitamins so it can stay healthy without further intervention from us.

Typical consultants do not teach you how to stay healthy. Usually you need periodic infusions of their consulting services. This methodology is different. While helping the organization change, it simultaneously empowers it to handle future problems so it doesn’t develop an addiction to outside intervention. It teaches the organization how to manage itself correctly and continuously. It is more akin to therapy than to medical allopathic intervention.

How do the four roles work?

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Let us discuss each role, what it is, and how it works—but careful now:

Some languages do not have a literal translation for either effectiveness or efficiency. For instance Russian has no good translation for efficiency. They use the words organized or effective for “efficient,” and the word resultativno (“producing results”) for “effectiveness.” It is a bad translation because not all results make for effective systems. Hebrew does not have a literal translation for ef- fectiveness. Tahliti (“purposeful”) does not mean that what is attempted is achieved, which is the essence of being effective. Thus, let us define what those words mean according to the Adizes Methodology.

Short-Term Effectiveness

First, a decision must make the organization effective. If the decision doesn’t produce effec tiveness, then the decision is not a good one.

What does “effective” mean?

In the short term, an organization is effective if the decision satisfies the (P)urpose for which the organization exists, thus the letter (P) for this role. There is a purpose to every decision we make.

Profit should not be the purpose. Profit should be the result of fulfilling the purpose correctly.

When you read a book you have expectations about what you will get out of it. If reading the book doesn’t satisfy your expectations, you might feel you wasted your money and time. It’s the same with marriage. We marry somebody because we have certain needs and expectations. If those expectations are not satisfied, we might feel we made the wrong decision, we mar- ried the wrong person; the marriage is not functioning.

Every decision, whether we are aware of it or not, is made to satisfy certain needs, although we often don’t or can’t articulate those needs. Every decision is made to function, to produce cer- tain expected results.

For a business it’s profits, right?

Profit should not be the purpose. Profit should be the result of fulfilling the purpose correctly.

I do not understand.

Have you ever seen companies so preoccupied with profits that they’re going bankrupt? They’re losing money not in spite of, but because of their preoccupation with profits. They cut costs to maximize profits although cutting those costs, like for research and develop- ment, will hurt them in the long term.

If you are preoccupied with happiness as a goal and you wake up every morning telling yourself, I must be happy today, you can make yourself quite miserable. The same with health: Obsession with the subject can make you a hypochondriac.

Profits, like happiness, health, and democracy, are a grand output, a result of doing many things right. Focus on managing right. If you manage well, you will be profitable. Focus on the process to produce the results. Focus on being healthy. If the company is healthy it will be profitable sustainably.

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Too many people watch the score rather than the ball when they’re playing tennis. If you have a good tennis coach, he’ll tell you not to focus on the score when you’re playing. Every volley should be like the first of the match, as if you were starting from zero. If you’re preoccupied with the score, you can’t play well. Just play the best you can and if you do, the score will tell you how well you did.

Management for results and by the right process.

It is the same with managing. I disagree with books whose exclusive focus is management by results. It should be management for results and by the right process. Management by results is mechanistic. It’s primarily managing by output, or by the score, with less focus on input and throughput. No primary attention is given to the means of achieving the goals.

Marksmanship is a good example of paying attention to the means of achieving a goal, which is to hit the bulls-eye. To hit the bulls-eye, you must focus on the sights of your gun in the direction of the target. The sights are the means by which you hit the target. If you focus on the target and defocus on the sights, a slight deviation of the sights will make you miss the target.

The human eye cannot simultaneously focus with the same clarity on the target, which is a hundred yards away, and on the sights, which are inches away. Most people focus on the target, on what they want to achieve. In the process of doing so they de-emphasize the sights, the means of achieving the goal. A mistake of one hundredth of an inch in the sights can make all the difference in where the bullet will hit the target, or whether it will hit it at all.

Train your mind to focus on the means, in the direction of the goal or the results you want to achieve.

One of the “sights” in management is your values. Focus on your values, and manage the (PAEI) roles well in the direction of your goal, and you will score better than if you focus on the goal, compromise your values, and mis- manage (PAEI). You might achieve the goal, but it will not be what your real purpose in life is. You will be sorry.

There are people who believe that the goal is more important than the means, so they ignore the importance of the process by which the goal is achieved. Yet a slight misalignment in the process can defeat the desired results, eventually. You must focus on your values and be sure not to violate them. Then focus on what you want to achieve without violating those values even a bit. Focus on the sights and accept the relative haziness of the target. Train your mind to focus on the means, in the direction of the goal or the results you want to achieve. I repeat again, for em- phasis, one of the most critical inputs into your decision-making process is values. What are the values that govern your behavior? Which values you will not violate?

The goal does not always justify the means. Rather, it is the other way around: Focus on managing the means in the direction of the goal.

I always think more about where I want to go then about how to get there.

You’re not the only one. Goals are exciting. Thinking about means and the values that should govern how those goals are achieved is frequently boring and complicated. And people take them for granted. They are not easy to articulate and operationalize.

What should we focus on in managing a company if not on profits? Are you ignoring profits? Isn’t the purpose of playing to win?

Good question. What is the purpose of an organization? Of any system and for that matter of any object?

The (P)urpose of Business

Look around you. The light that is lighting your room does not exist for itself. It exists to light the room. The pen you are using to write exists to serve you to be able to write. And the table you are sitting at is there to satisfy your need to put something on it.

There is a common denominator to it all. Everything in this world exists to serve something else.

This applies to human beings as well. We are a system of interdependencies. The heart exists for the rest of the body.

Everything in this world exists to serve something else.

So do the kidneys. And so does the liver. And, by the way, do not ignore the rectum. Although we degrade its importance and have lots of jokes about it, it has a very important role for the whole body.

We call leaders “the head” of the company as if the workers are “the rectum.” But as I already said, the rectum can cause lots of problems for the head if it refuses to cooperate. You know the expression “a pain in the arse.” It can hurt a lot.

Which means that whoever is a member of the organization, of the system, has a role for the rest of the system and thus is as important as other parts of the system. Okay, go on.

Everything in this world exists to serve something else. So, what is the purpose of an organization? To serve the clients for which it was created.

This idea has repercussions for personal life as well. You will not find the answer to your purpose in life by focusing on the question “Why am I on this earth?” Exchange the word why with for what, which is the same thing but has different stimuli: For what do you exist? You must have a client. Someone whose needs you have to satisfy. The more needs you satisfy the more alive you are.

So, what is the purpose of an organization? To serve the clients for which it was created.

Not strange that Buddhist monks say: “Thank you for allowing me to serve you.”

What about satisfying my needs? I am my own client, no?

You should satisfy your needs, but not exclusively. If there is any component in your body that satisfies no one else but itself what is it?

Cancer.

To serve life you have to exist for others as well, not just for yourself. You have to serve. Cancer serves only itself.

Some companies do not serve their market. They only focus on making profits in the short term. They only focus on their needs and forget or ignore market needs, the needs of their clients. You can predict that they will eventually die.

Some governments serve the electorate. Good. Some forget those who elected them, and serve only the needs of the elected. That country is doomed to fail eventually.

Always ask yourself: “Who will cry if I die?” If no one will, maybe you should die. What is the purpose of this organization’s existence if it does not serve those it was established to serve?

I see. I should analyze my customers’ needs!

To serve life you have to exist for others.

“Who will cry if I die?”

No. I purposely used the word clients, not customers. Many people confuse the two.

What’s the difference?

Every organizational entity has clients. These are the individuals or groups of individuals whose needs the entity was established to satisfy. Every organizational unit, even if it does not deal with customers, has clients.

Customers are different. Paying clients are called customers. For the sales department, their clients are the...

Customers.

Right. They are the outside, paying clients. But where are the clients of the accounting department?

Inside the organization.

You should do with the inside what you do with the outside. With customers you do marketing research, don’t you? You ask them, “What do you want? Are you satisfied?” Well, do the same thing with internal clients.

Focus on the clients for whom the entity you are managing exists and was designed to serve. With internal clients, research their needs. You’ll learn a lot, just as companies learn when they perform marketing research. Sometimes companies learn that what the customers don’t want is being provided amply, while what the customers do want is not provided at all. The same holds true for internal clients.

Can I measure effectiveness?

Sure. Usually people measure it by sales, but that is not good enough.

How should it be measured then?

How do you know if a restaurant is effective? If it satisfies clients’ needs?

Would you not measure it by revenues? If the customers are buying it means that they are satisfied. No?

Not good enough. It should be whether the clients come back. If there are repeat sales.

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You do not see an animal going back to a dry waterhole, do you? People go to where their needs get satisfied. If their needs are satisfied they come back. Otherwise they do not. So, are your clients coming back?

This metric applies to any organization: a marriage, family, or country. If your spouse is not coming back there is a reason.

If your grown children do not come back for a visit there must be a reason. If people want to leave a country, there must be a reason. Isn’t it interesting that they don’t check your passport going out of the United States, only coming in? Easy to get out, tough to get in. In the Soviet Union, it was easy coming in but they had guards with machine guns keeping people from getting out. Which country satisfies its people’s needs better, the one whose citizens want in or the one whose citizens want out?

Tell me how many people want to join your company versus how many want to leave the company, if they could, and I will tell you how good your company is.

The same is true for a country. Are your entrepreneurs leaving the country? Are foreign entre- preneurs investing in your country? That is a pretty good measurement of how effective the social, economic, and political systems of that country are.

Okay. I have to satisfy the needs of stockholders. Does not the company exist to satisfy their needs? The company was established to use their investment and give them a good return.

No. Stockholders are stakeholders. You have to satisfy their need to get a good return on their investment, somewhat more than what they would get from a risk-free saving account.

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Profit should be a constraint goal: Do not have less than so much.

In investing they took a risk, and taking that risk needs to be rewarded or people will not take the risk, will not invest, and there will not be much economic growth and everyone will suffer. But you need to pay them just enough to cover the need of investors to be rewarded for taking risk. This means you should make no less than X% profit for them. It should not be more and more profits. It should be just enough not to lose investors.

Profit should not be a deterministic goal: the more the better. Profit should be a constraint goal: Do not have less than so much.

Where you have to focus is on the market, the needs of your clients. That should be your deterministic goal: the more you satisfy them, the better.

What about government agencies, the bureaucracies? How does this principle apply to them? They have a monopoly in satisfying client needs in the same way that internal clients in a company have no choice. Everyone has to use, say, the accounting department of the company. You cannot go outside to get the service. You are not allowed to have your needs satisfied by anyone else.

It’s a difficult assignment to really focus on satisfying clients because you could easily avoid doing it. There is no competitive pressure to do it. Some clients have to come back because you have a monopoly over what they need. At best, they will complain. The worst is when you hear no complaints. It seems good because you hear nothing, but apathy is one step away from death. In these cases where you have monopolistic exclusivity, you have an even bigger responsibility to take the initiative and find out if clients are coming back because you are satisfying their needs or because they have to come back.

What should we do in this case?

You have to be honest with yourself as a manager, as a leader. Close your eyes and ask yourself, honestly, now: If my clients had a choice, would they come back? Put yourself in your clients’ shoes. If you were them would you come back to get the service or the product?

That is also why in a marriage we should not take our spouse for granted simply because, supposedly, he doesn’t have a choice to go outside the marriage to satisfy his needs. We have to pay special attention to the needs of our spouse, to what he expects from the marriage.

Let me now summarize the first role, the (P) role: Satisfying present clients’ needs makes the organization effective, (P)roviding for the present needs of your clients.

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To perform this (P) role what characteristics must a leader possess?

To (P) you need what psychologists call achievement motivation. You must want to accom- plish things. If you know the client’s needs and how to satisfy them, but lack achievement motivation, you could be a good staff person, you could assist managers, write memos, and make recommendations. But for the (P) role, this need to achieve is required.

Achievement motivation is a necessary but not sufficient condition for the (P) role. If you have the motivation to achieve, but don’t know what must be accomplished or how, you are dangerous. You’re an unguided missile. This combination of qualities is often seen in eager young executives. They are enthusiastic but lack knowledge or experience.

Good leaders, to be functional and make effective decisions, must be knowledgeable achievers, not just knowledgeable and not just achievers.

I disagree with books that say a manager is a manager is a manager. Or a leader is a born leader who can lead anything. This claim, that if you are a leader you can manage anything, is wrong—unless you add three more words: after some time.

What does that mean?

When you change jobs, either within a company or when you leave for another company, you come across a new organization, a new set of clients. No two identical organizations exist, just as no two identical people exist. No two identical branches of the same bank exist. They’re on different corners of a street, have different parking problems, and attract differ- ent customers from different industries. They may be similar, but never identical.

But people usually focus on similarities. They try to find out whether they recognize anything. They find comfort when they recognize a task they already know.

You’re wincing. Is this a typical mistake?

You have to look for the differences too. Only then can you design a custom-made strategy to satisfy the specific needs of that moment.

When you meet a new love in your life, do you look for similarities and say, “You remind me of an old flame,” or do you look for what is unique in this new person?

Better to do the latter, obviously.

How is this task different from any other task I know?

The same is true in managing. You should ask, “How is this task different from any other task I know?” To be effective, good leaders, whether supervisors, department managers, parents, or sociopolitical leaders, should know the unique needs of their clients at that moment and then be skillful with their unique capabilities to satisfy those needs.

Okay: Identify who your internal and/or external clients are. Identify their needs. If you satisfy their needs, measured by whether they are voluntarily, willingly, coming back for more, your organization is effective.

What about efficiency?

That is what we will discuss next!