by Emily Chan
Getting It Right
Being paranoid in a way that promotes survival means getting Plan A right in the first place. Some examples:
A few years ago, shortly before the announcement of a tax increase on new car purchases, the secretary of finance of Hong Kong bought a car just in time to avoid the tax increase. An employee of the car dealer tipped off the local media and a scandal resulted. Eventually, the secretary was forced to resign. The secretary had been a banker and was reasonably wealthy. So, even though it would save tax money to buy a car when he did, he had the money, and he would not have risked the purchase had he been more paranoid about public scandals.
In his book, Andy Grove wrote about a major crisis at Intel around 1994, which you may well have heard of. The company was aware of a bug in its new flagship product, the Pentium processor chip. But analysis showed that an average spreadsheet user would only run into this bug once every 27,000 years. This was much longer than the time it would take for other problems common with semiconductors to crop up. So the company decided to introduce the Pentium chip despite the bug, while looking for ways to correct the defect. Unfortunately the bug was discovered by a mathematics professor and then widely discussed on the Internet. Eventually it got the attention of the mass media including CNN and major newspapers. This resulted not only in a scandal but also a write-off of almost half a billion dollars for damage control, including replacing chips for consumers who would never have run into problems with the bug itself. Again, if Intel had been more paranoid about possible consequences of the bug, it might have adopted a more cautious strategy in the first place.
Managing Change
Exercising survival-promoting paranoia also means being an expert in change management. Change is not easy. I have done a handful of process-reengineering and change management projects in my career. Through these projects, I have come to appreciate that change is easier said than done. These are some of the barriers I have seen:
Lack of pull from within the group that will need to change. Many people naturally resist change. Possible reasons include pressure on them to achieve short-term targets, lack of ability to see the big picture or lack of analytical skills to understand the change, reluctance to admit existing practice is out-of-date, fear of higher transparency and hence tighter control from superiors, reluctance to give up power or learn new skills, or simple inertia.
Lack of push from the right authorities. Sometimes senior management fails to issue enough top-down pressure to drive change. This could be because management is not sufficiently determined or its power base is too weak to drive change.
Lack of skills, tools, or resources to make the change. Sometimes people want to change but are not enabled or empowered. An example is a family company trying to implement the Balanced Scorecard. Although there seemed to be enough pull and push within the company for the change, there were simply not enough human resources for the project. The project needed technical expertise in Balanced Scorecard, analysis, project management, and other areas that the company did not have and could not afford to hire.
It is advisable to hold on to this motto regardless of your level in an organization. Being a paranoid CEO will keep you on high alert for external market and internal organizational developments. To get timely and accurate information, you will actively listen to people at all levels inside and outside your company, especially the lower-level employees who have direct contact with customers, products, and key processes. Because you are impatient of deadwood staff members that stand in the way of change, you will create a culture, an organization, and a power base conducive to change. You will actively manage any change initiative to ensure tools, training, and resources are appropriate. (See Appendix D for a leading change management tool.)
The motto is also very powerful if you are in middle management. In every reengineering and change management project I have done, there was always some dead wood. Deadwood staff members tend to be middle-aged middle management people who have been somewhat successful in the past but fail to change as market and competition demand changes in their skills, tools, and approach. This is often due to the reasons for avoiding change I described earlier. Being dead wood puts you in a very weak position. Either you eventually become obsolete or your company, because of the failure to change, becomes obsolete. Believing that “only the paranoid survive” will keep you from becoming dead wood. This is reinforced by another of my favorite quote, this one from General Eric Shinseki, retired chief of staff of the U.S. Army, who says, “If you don’t like change, you are going to like irrelevance even less.”
If you are only an entry-level staff member, this motto encourages you to have an inquisitive mind. Keep your eyes open for any inefficiencies, ineffectiveness, market changes, or new technologies that indicate change is necessary. Minor improvements you make can get you noticed by middle management. Major discoveries could get you a career break. The story of the Post-it Note is an inspiring one. The technology behind the low-tack reusable pressure-sensitive adhesive was invented by Dr. Spencer Silver at 3M in 1968. But for five years, Silver promoted his invention through many channels, including seminars within the company, with no success. In 1974, Art Fry, a 3M employee who had attended one of Silver’s seminars, noticed a possible use for the technology: sticking bookmarks onto his hymnal for church choir. Art Fry subsequently led the development of Post-it Notes. By keeping an eye out for new technologies (by attending seminars, among other things) and being constantly on the lookout for inefficiencies, Art Fry became a well-known figure, credited with making Post-it Notes available to the market.
However, especially as an entry-level associate, you must be careful before suggesting any major changes to management. You must carefully think through the changes, test the idea, collect feedback from colleagues, and be aware of the power structure, especially the higher-level dead wood within the company. If you have an entrepreneurial idea, it may be useful to keep in mind that your observations could also become major business ideas. If the pressure-sensitive adhesive had not been a company intellectual property, it would have been an exceptional entrepreneurial venture.
HAVE THE TIME OF YOUR LIFE
Warren Buffet says, “I jump out of bed and tap dance to work every day. I’m having the time of my life!”
I am often told by professors and speakers at HBS that a critical success factor in life and in business is to do something you love doing. If you are passionate about your work, you have a much better chance of success. There can be many reasons for this. First, because you love it, you are bound to know a lot about it. Second, you will love spending time and effort on it. Your passion will be a source of inexhaustible energy. Third, life is too short to be wasted on something you do not like.
As I was told this so many times and because people who told me this were all experienced and extremely successful, I do not have the slightest doubt that it is true. However, two points about this quote:
Most of the people from whom I have heard this are entrepreneurs or top executives. They have a lot of control over what they do. They are in powerful positions, making high-impact decisions. It is easier for them to get job satisfaction than for middle managers and entry-level associates.
I have no firsthand, real-life experience and example to share here. I’ve liked all my jobs. I have been an entrepreneur and have worked as an adviser to CEOs and board members. But I have yet to “tap dance to work.” When I was at my tenth-year HBS reunion in 2008, I was glad to find out I was not alone. I spoke to quite a few people who are all happy with what they are doing but they told me they are not “tap dancing to work” either. I guess for people like me, there are only two possibilities—either we eventually find a career that we are passionate about or we do not find a passion in any work (though we do like our work) and will eventually decide to retire early when we have enough investment income. Therefore, do not be discouraged if you have yet to find your passion.
STICK TO IT
“Be like a postage stamp. Stick to one thing until you get there,” writes Josh Billings, a 19th-century American humorist.
Here’s a story I like to tell: When a new salesman asked his manager how many calls he should make to a prospect before he gives up, the manager replied, “It depends on when one of you dies.” This is an exaggeration, but determination and perseverance are indeed key success factors, especially in running a business. Running a business is not easy: getting customers, managing cash flows, organizing operations, motivating staff, fulfilling orders, fighting competition, growing the bottom line, acquiring other companies, attracting investors, and so on and on. You need to be determined to succeed.
Determined people possess the stamina and courage to pursue their ambitions despite failures, criticism, ridicule, or unfavorable circumstances. Many well-known figures in history share the same trait of determination. Who do you think I’m describing in the following list?
This was a man who:
Failed in business at age 21
Was defeated in a legislative race at 22
Failed again in business at 24
Overcame the death of his sweetheart at 26
Lost a congressional race at 34
Lost a congressional race at 36
Lost a senatorial race at 45
Failed in an effort to become vice president at 47
Lost a senatorial race at 49
Was elected president of the United States at age 52
This man was Abraham Lincoln.
APPENDIX A
“WHY” AND “SO WHAT”
A real-life example to demonstrate the use of “why” and “so what” to create effective financial measurements and reports:
Around 2002, when the Hong Kong economy was very depressed, I worked on a study for a leading property investment company. one of its income streams is rental from its shopping malls. The company was experiencing declining income and an even faster decline in share price. This resulted in pressures from shareholders, banks, and rating agencies. The objective of the study was to investigate how to improve performance.
When I arrived at the company, the first thing I did was look at the financial data. I found that only two major reports were readily available: the monthly financial statements and the detailed lists of the rental paid by each tenant. The study went on for three months. Here is a summary of the process:
CONSULTANT (me): So what do these rental figures mean? Are we doing well or not well?
COMPANY EXECUTIVES: We don’t know since we cannot compare with market.
CONSULTANT (ME): Why not?
COMPANY EXECUTIVES: Like most businesses, we don’t know the details of our competitors’ pricing. Even though we have some market intelligence through our tenants and agents, retail is tricky. No two shops are the same. Even if two shops are around the corner from each other, the traffic and storefront can result in very different rentals.
CONSULTANT (ME): So this means we need a way to assess our rental performance. Let’s talk to our friendly competitors as well as our tenants and our staff—people who know about our competitors. Let’s also try to study best practice companies overseas to see how they assess their performance.
After about a month of data collection, the results confirmed that even best-practice retail landlords could not easily compare their rentals with those of their competition. But it was found that retailers assess their store success by measuring sales per square foot. Their rental affordability has a ceiling of about 10–20 percent of sales depending on their category. For example, it is about 18 percent for fashion and 15 percent for restaurants. If a retailer’s actual rent as a percentage of sales is consistently above this ceiling, this means judging from the business that the retailer is conducting, the location is too low to justify the rent. If it is consistently significantly below the ceiling, this means the rent is set too low. If many retailers in the same mall have the ratio above the ceiling, it could indicate an issue with the overall management and marketing of the mall. If most have ratios below and only a few above it, this could indicate the problem lies with the retailers, not with the mall management overall.
CONSULTANT (ME): Can we generate a report with data on sales per square foot and rent as a percentage of store sales for each tenant? We should do this by retail category, as rent affordability is different for different retail categories.
COMPANY EXECUTIVES: But we don’t have sales data.
CONSULTANT (ME): Why not? Why do competitors have them and we don’t?
COMPANY EXECUTIVES: Leading competitors ask tenants for a base rent plus a turnover rent. Turnover rent is a percentage of sales. For example, they may ask a tenant to pay a base rent of US$2 per square foot plus one percent of each month’s sales if sales exceed a certain threshold. Say the threshold is US$100,000. If sales are below US$100,000, tenants pay $2 per square foot. If above US$100,000, they pay US$2 per square foot plus one percent of the amount over US$100,000. To calculate the dollar value of this one percent, tenants have to submit monthly store sales.
CONSULTANT (ME): Why are we not charging turnover rent?
COMPANY EXECUTIVES: Because we have little negotiation power in this depressed market.
CONSULTANT (ME): So does this mean we can never get the data?
COMPANY EXECUTIVES: Well, maybe we can charge a turnover rent with a high threshold so tenants will know they probably do not have to pay turnover rent unless business is very good. This way, turnover rent is not an income for us. It is a data source.
Consultant (me): Assuming we can have the data, we can display the data on a graph and draw some conclusions (see Figure 3.8.)
COMPANY EXECUTIVES: So what do we do after we have these conclusions?
CONSULTANT (ME): We should have an action item for each tenant. For example, if a certain restaurant tenant has low sales per square foot and high rent as a percentage of sales, we know it is not doing well in business. We should meet with its owners to discuss the problems and solutions. We should also be monitoring them very closely as small restaurant and small business owners often default on rental.
COMPANY EXECUTIVES: Yes! We once had a steakhouse owner who just closed down overnight and left town! Maybe we should also have a monthly meeting to discuss and brainstorm on actions.
So at the end of the three-month project, we set up a new rental policy, a new report format, a regular rental meeting, and a small task force that provides advisory services to tenants with depressed businesses. The client’s business steadily improved. As you can see from all this, the outcome was driven by asking “why” and “so what” on financial data available.
APPENDIX B
KEY INTERVIEWING TECHNIQUES FOR DATA COLLECTION
SETTING UP THE INTERVIEW
Cold calling is probably the last resort. Things will always go more smoothly if you can arrange an interview through a contact. Your chances of success are likely to be much higher if you can say, “Peter Chan referred me to you. He said you would be the right person to give me some advice.” If you and the interviewee both know this middleman well, it would be a good ice-breaker to talk about some harmless and positive topics about the middleman—things like “How long have you known Peter? He is such a good golfer!” Again, this is related to the topic of social networking discussed earlier. The bigger your network, the easier it is to get the right interviewees.
Receptionists, secretaries, and personal assistants are some of the most powerful people when it comes to arranging for an interview. Show these gatekeepers that you respect them and appreciate their help. if they like you, they can always “put you through over the phone” and “sneak you into” their boss’s busy schedule. If they are in a lousy mood, they can say, “Please leave your name and telephone number and I will call you if we are interested.” I have a rule—at the end of my first conversation with strangers that I might need to contact again, I always ask for their name. Then I always address them by name before
I hang up. I will say, “Thank you, Susie” or “I appreciate it very much, Tom.” Then I will make a note of the name. I will look for the same person next time I call. I will start chitchatting a little more to get to know the person, saying, “How was your weekend?” or “It must be a busy time for you! Some will eventually feel they are my friends and should help me. Of course, I am not saying this works every time. Nonetheless, my chances of success are higher than they’d be if I were to snub people so well-placed stand in my way.
PREPARING FOR THE INTERVIEW
Always have a list of questions to prompt you during the interview. If you do not have a list, the risks are significant. First, you may digress and fail to discuss key issues before your interview time is up. Second, you may lose your train of thought and run into “dead air” when you cannot get the conversation going. This will make you look ill-prepared and not as competent as you actually are. Designing the list is an art. The question list should be roughly in the order you would ask the questions. The order and flow should be somewhat logical so you do not seem to jump from one topic to another. More important questions should be asked earlier in case you run out of time before the end of the list. However, questions that are important but may be more sensitive (such as financials, market share, and the like) should be left to near the end of your allotted time. Hopefully by the end of the interview, the interviewee will have loosened up enough to answer such questions. If someone refuses to answer, at least leaving these questions to the end hasn’t jeopardized your chances of getting the other questions answered. Each question on the list should be worded succinctly so you will not have to spend a lot of time reading it during the interview.