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My hypothesis is that victory needs no Faustian pact with dark forces – rather victory comes as a result of employing two delightfully old-fashioned virtues
What Price Victory?
Key note address delivered to Superratings Conference in Melbourne
October 10th 2011
My hypothesis is that victory needs no Faustian pact with dark forces rather victory comes as a result of employing two delightfully old-fashioned virtues common-sense and a strong moral compass. I contend that good people finish first, and I intend to prove it so hang on for a wild ride to the winning post!
A couple of quick definitions first to set the scene.
I'm going to talk a lot this morning about commonsense, and my favorite definition is that of the Canadian philosopher John Ralston Saul, who defines commonsense as using our knowledge of human behavior to predict the future. Using our knowledge of human behavior to predict the future.
In his book On Equilibrium, he posits that enshrining reason as the pre-eminent human characteristic, has caused us to lose our equilibrium and that if we were to value all our human characteristics equally intuition, creativity, imagination, memory, ethics and commonsense, then we might regain our equilibrium, and operate more effectively as individuals, as citizens, and in corporations and governments.
Now imagine that you could successfully predict the future would that give you a strategic edge in business you bet it would! And yet, because we can't measure commonsense, we tend to discount it.
Of course the things we can measure are important, but if they are our only tools then we have a very incomplete picture of our customers and our corporations even worse, we are using exactly the same tool kit as our competitors hard to develop a winning strategy with just evidence-based assessments.
Saul's great example of commonsense is famine we know enough these days about climate, soil composition, people movements and livestock requirements to be able to predict with certainty when a famine will occur anywhere in the world, and thus prevent it.
But we wait for the evidence and when we see enough stick figures on the evening news, enough dead babies, we wring our hands and call in the United Nations how grotesque that we won't rely on our commonsense to anticipate, and prevent it happening in the first place.
And then we have the GFC don't you think that commonsense should have told us that if you lend money for housing to people with no capacity to repay, and then you bundle up all those dodgy mortgages and sell them on to investors, and then bet that those on-sold mortgage products will fail that if we had used our shared knowledge of human behavior we could have predicted that future but no! Cowed by the insistence that markets have to be allowed to work, we collectively sat on our hands and did nothing, except of course, bail the culprits out because we couldn't allow them to fail.
Let me tell you that anyone wanting to assert that markets always get it right can look forward to being flogged to death with a wet lettuce by me!
Stockbroker Marcus Padley writing in the Sydney Morning Herald recently said that markets are a facility for the smart to rummage around in the personal lives of the innocent. I wish I'd said that!
Let's consider some disasters closer to home that we might have anticipated, and consider what might have happened if we had used a bit of commonsense in the first place.
Consider the privatization of the training market. What happens when you invite for-profit companies to provide vocational and language training? If we use our definition of commonsense using our knowledge of human behavior to predict the future what we could have anticipated with absolute clarity is exactly what happened burgeoning class sizes, unqualified staff, a marked drop in quality, dodgy efforts to get around visa restrictions, greedy companies failing, a raft of unhappy customers, and a badly impaired relationship with a major trading partner.
Meanwhile a first-rate, publicly provided TAFE system is starved of funds all in the name of creating competition - qualified teachers are thrown out of work, classes shrink and become unprofitable, as customers predictably flock to the cheapest option how dispiriting, and how utterly predictable.
And do we learn anything by it? We are about to repeat the experiment with public health, with, I confidently predict, equally dire results.
Philosophically, I've always been intrigued that governments see a role for themselves in creating markets that don't already exist to compete with services they already offer I am unconvinced that competition is the magic panacea that governments seem to imagine.
Fans of economic rationalism will tell you that its just a matter of getting the settings right whereas commonsense tells you that people being what they are, if there is a quid in it, some bright spark is going to figure out how to exploit those settings quick smart, and the losers, as ever are you and me.
Second definition how do we define victory? All things in life are a series of tactical, short term wins and losses it's true in business, sport, the arts, our own lives so what constitutes victory?
I'd argue that victory has a number of constituent parts victory confers rewards and benefits on the winners it has to be sustainable over many years the process by which victory has been achieved needs to be recognized by all sides as fair and just victors are gracious to the vanquished, and generous when it comes to reparations.
It follows therefore that victory doesn't happen all that often. We all hope to get to the end of our careers, indeed, the end of our lives, with more wins than losses, but genuine victories are elusive too often claimed too early, and without sufficient evidence. Tiger Woods may well be the best golf player the world has ever seen he sure won a lot of matches but his life is a mess, and the arse has fallen out of his golf game and I doubt even he would describe himself these days as victorious.
So, in business, what constitutes victory? Consistent, stable growth in shareholder value, an effective long-term strategy clearly articulated and understood by all the relevant stakeholder groups, a well-trained workforce in a calm industrial environment, a transparent and accountable governance structure, a disciplined and committed executive team, an equitable remuneration policy that achieves a sensible ratio between the highest and lowest paid workers, a robust competitive environment, a good regulatory framework, a mechanism for capturing good ideas, and rewarding those who provide them, a reputation for prudence and fair-dealing these are just some of the elements of a victorious organization.
Let's think about some of the characteristics of companies who might have a number of short-term wins, but who are unlikely to be around for long enough to be considered genuinely victorious a charismatic CEO on an internationally competitive salary, a short-term strategy that lurches from quarter to quarter at the mercy of analysts, a board of dozy old duffers who all belong to the same club, high turnover in the workforce because of bad or unsafe conditions, and uncompetitive pay structures, products or services that are so complicated no-one can understand them, funds diverted to expensive,loud-hailer style lobbying campaigns aimed at preventing governments from protecting citizens from some of their more egregious, gouging practices, any firm whose first line of a response to a customer query is your call is important to us, and has been placed in a queue (It's an oxymoron, stupid! - both statements cannot be true.)
Are you getting the picture?
And who would you rather be working for? Who would you rather be investing in?
My contention is that not selling your soul to the devil is the single most important decision any individual makes about their career or indeed, their life. Let the smart arses and the spivs gravitate to places like Lehman Bros - although it would be good to figure out how we can prevent a complete global meltdown when these guys get caught out by their own cleverness. Good guys finish last is a complete furphy, put about by bad guys.
Good guys finish right where they should victorious in life and work because they rely on their commonsense, and their sound ethical framework.
So having begun with some sweeping generalizations, let's get specific here how does any of this impact the superannuation industry.
The regulatory settings for the superannuation industry are currently in transition, and it's timely, I figure, to talk about what you would like your future to look like.
The success of this industry is key to the future of the country, and all its citizens. If we use our definition of commonsense here, we know, based on our shared knowledge of human behavior, that in the future Australians want to be financially secure in their old age, they want access to good quality health care, and they want to stay in their own homes for as long as possible.
Alas, we also know that most Australians are notoriously uninterested in their superannuation, and apart from expecting it to be there at the end of their working life, and a vague understanding that superannuation is a good thing they know precious little about it.
Although once they are being charged for advice, their level of interest might escalate!
In recent years the superannuation industry has got much better at converting its communications into plain English, and I understand that the legal requirements mean that documents are still eye-glazingly long and hedged about with qualifiers. I suspect there is not too much you can do about that.
But I do think there is an opportunity to have a different sort of conversation with your customers one that talks about what's happening to their super right now how its being used to develop Australia's infrastructure, how it's being invested in Australian companies and creating jobs, talking about all the good it's doing now, while it's waiting to reach its ultimate goal of providing a comfortable retirement it seems to me it's a way of making super relevant through an employee's life cycle. It would bring to life all the good work (and employment opportunities) provided by super, and showcases the industry to its members.
There will be risks of course in the new environment, and I hope you are all giving thought to how you might handle it.
In particular, it seems to me that, while the abolition of trailing commissions will help to rebuild trust in financial advisers, any attempt to get cute around fees for financial advice should be strenuously resisted. If consumers suspect that fees are being artificially inflated to replace the lost value of commissions then the industry's reputation will take another needless hit.
Maximum transparency should be the aim of all the players no weasel words no hidden agendas fees for advice should be exactly what it says and the advice has to be demonstrable and fair. Who knows? maybe the quality of the advice could be a service differentiator something consumers would be prepared to pay a premium for if it really delivered value.
Which brings us to the power of brands there are any number of well-known brands in this industry, from the industry super funds to the major financial services players, and because superannuation is probably the largest asset most Australians have outside their own homes, the value of a good reputation, and the contribution that makes to the development of a powerful, recognizable brand is really important.
Here's another definition for you a brand is the intangible values associated with a badge of reassurance it's the way people feel about you and the most important feeling that any brand needs to have, but this industry in particular, is trust. If this industry ever lost the trust of its stakeholders you would have a national panic on your hands.
Another key feature of brands is replicability the customer's experience of the brand has to be the same every time they encounter it McDonald's is the obvious example but the point is that the treatment of customers needs to be absolutely consistent the language needs to be consistent in tone and helpfulness but please god no call centre workers reading responses off their computer screens that sort of consistency is self-defeating.
The message that sends to customers is you're just a statistic to us we won't treat you as an individual because it's too expensive.
And the response from customers is a sort of sullen acquiescence they know why it's happening, but they're irritated they can't do anything about it and they're never going to like the organizations that do it to them, and they won't miss an opportunity to publicly sledge companies who they see as being indifferent to their customers.
Vodafone is the perfect example here doesn't matter how many shiny new ads you make if your customers are bitching about you on Facebook and Twitter and are sufficiently organized to put up a website to tell the world how slack you are you are in deep trouble.
Another hallmark of great brands is the implacable self-belief of the people who work for the brand in the brand Apple is a great example so is Harley-Davidson their people are evangelists for their products and that's immensely powerful. Developing that sort of corporate culture demands skilful, committed, idealistic leadership if your people think superannuation is boring what chance have you got of persuading anyone else that it's an exciting dynamic industry which plays a key role in Australia's economic future.
And of course integral to brand value is an intimate understanding of what customers want. Now that might be tough in the superannuation industry after all, its compulsory so it's probably a grudge purchase, and rightly or wrongly, it's probably a low interest category.
But for an industry in transition, it makes sense to be actively engaged in brand-building.
The evidence seems to suggest that customers are more likely to choose a fund that they've heard of, rather than the one providing the best returns and however curious that logic, if that's where customers heads are at, then you need to make sure they've heard of you.
So investing in harvesting customer insights, understanding what motivates them, and tailoring messages to suit seems to me to be an absolute no-brainer for victorious companies.
Of course, none of this is to downplay the importance of solid financial performance over time but these days, I think most people take that for granted. They are not sufficiently interested to comb through a bunch of numbers trying to pick winners.
And who's to say they're not right!
I found a wonderful quote in a book called The Tyranny of Numbers by David Boyle. He says There is a hard-headed myth that numbers are serious and words are not that counting things is a rigorous business for a serious man's world.
When you can measure what you are speaking of and express it in terms of numbers, you know something about it, said the scientist Lord Kelvin. When you cannot express it in terms of numbers your knowledge of it is a meagre kind.
Lord Kelvin was the early precursor of If you can't measure it, you can't manage it Hall of Fame.
Armed with this attitude, Lord Kelvin dismissed radio as pointless, aeroplanes as impossible, and x-rays as a hoax and thus history has not been kind to him.
And Lord Kelvin was no dummy he was the first scientist to demonstrate that there is a lower limit to temperature absolute zero and was a much honoured scientist in his lifetime and, although this is no more than an educated guess, I suspect Kelvinator refrigerators were probably named after him - but total reliance on numbers left him looking foolish to later generations.
In much the same way, I suspect our total reliance on market forces is not going to make us look like intellectual geniuses to the people who come after us.
I gave some global examples of this at the beginning of this talk, but let's reflect for a moment on what this obsession with numbers has contributed to business over the last couple of decades.
Consider if you will the Customer Relationship Management industry (CRM)
Billions of dollars have now been spent on trying to quantify and manage customer relationships for the purpose of trying to extract a greater share of wallet from our existing customers, and I wonder if we were to try to measure the return on investment in these programs whether they really would stack up. Early studies seemed to indicate that at least half of CRM programs showed no result, with 20% of managers complaining that it failed to deliver growth, and even damaged long-standing relationships.
I would argue that if we had applied commonsense to the whole issue of customer relations we might never have gone down this treacherous path.
Because common-sense tells you that you can't measure human relationships, let alone manage them. Let me prove it to you. How much do you love your partner? More than your mother, less than your kids, more than your best mates?
Any mother with more than one child will tell you that the notion of measuring relationships is absurd.
As for managing relationships, women absorb those lessons at their mothers' knee. We know all there is to know about managing relationships, and trust me, it doesn't come in a computer program.
My favourite Gary Larsen cartoon shows a mother snake, facing dozens of identical, butt-ugly baby snakes, and the caption says Come on mum, you can tell us, which one do you like the best? It's been on my fridge for over a decade yellowed now, and curling at the edges, but it's never lost its capacity to make me laugh.
If commonsense is shared knowledge, then we can say that we know all human relationships are unpredictable, and that expecting customers to want to have a continuing relationship with a supplier that can be measured is baying at the moon.
And if we acknowledge that the cornerstone of all relationships personal or business is trust, then one can only ponder the wholesale destruction of trust that has occurred as consumers wrestle with industry trying to reduce them to a set of numbered boxes.
Perhaps if there had been an independent, sensible director on the board that approved the installation of the first CRM program, the conversation might have gone a little differently.
Perhaps that director might have said something like this: Customer relationship management is an interesting new development, but we have to consider the damage to our brand that will result from the bad publicity that massive lay-offs of our own customer service people will inevitably attract and we have to consider that computerized phone answering antagonizes customers, and that perhaps our customers will reason that if their call has been placed in a queue, then it's not possible that their call is important to us and that if the new people who are going to handle these calls are not members of our customers communities, but rather in another country reading a spiel off a computer screen then the outcome can only be a profound loss of trust in us, and consequent damage to one of our most valuable assets our brand.
Now the loss of trust in all our major institutions is well documented politicians, media, the church, sport, business we don't trust any of them anymore. But we still have trust in our family, our friends, and our community, so we know trust is still out there.
So perhaps our mythical independent, sensible director, relying on her commonsense might have been moved to say:
We know trust is the cornerstone of all human relationships, and the hallmark of all great brands. So instead of investing in something as risky, and expensive, as a customer relationship management program, we are going to invest our money and our energy in integrating our brand values throughout the organization. We are going to drive our culture by ensuring that every employee knows that earning the trust of our customers is job one. Because if we do that, everything else will follow loyalty, commitment, repeat business. For that trust to be sustainable over the long term, we will have to behave ethically and consistently, and this will deliver sustainable, strategic advantage, as well as minimize risk. Commonsense would argue that our independent sensible director had a point!
So let's start to draw all these threads together what am I really saying here.
Simply this over the last decade in particular, but indeed through all history, we observe that extremism of any sort is dangerous, de-stabilizing, and non-productive. Ideas and practices that alienate people and emphasize division are impediments to growth and social cohesion.
Our best hope for sustainable communities that host profitable growing businesses is to achieve equilibrium that is a healthy balance, where we value equally reason, intuition, imagination, creativity, ethics, memory, and today's hero, commonsense.
Just as a sidebar, I was encouraged to see the economist and journalist, Jessica Irvine, writing in the Sydney Morning Herald recently, suggest that if industry wants to increase productivity, maybe the way to do it is not by flogging wage slaves harder by tackling pay rates and conditions, but rather by encouraging our elites to work harder those people already earning lots of money, and who are meant to be the ideas leaders of industry her point was that we are not pushing creativity hard enough as the growth engine it needs to be. There are many paths to equilibrium!
The message I want you to take away today is to trust your own commonsense. Maybe you call it gut instinct if you're a bloke, or intuition, if you're a woman but that little voice you hear that tells you when your brain is recognizing a pattern of behavior it's seen before, and predicting an outcome that's commonsense listen to that voice!
Make heroes of the people in your organization whose creativity and imagination develop new products or bring you new insights into customer behavior.
Honor the ethical frameworks you were raised by your mother was right if you are kind and fair to the people you meet, chances are they will be kind and fair to you too.
And when she told you that if everyone else is jumping off the Harbour bridge, that doesn't mean you have to do it too that's still good advice. The purpose of reason is to cultivate independent thought to bring some rigor to what we observe around us not to bludgeon us into mindlessly accepting whatever is the current fashionable market obsession.
If someone tells you markets are infallible it's OK to blow them a raspberry.
And memory that huge, often untapped resource that is the best argument for retaining older workers. As Sol Trujillo used to say, although in a different context they've seen this movie before. They remember patterns, and can intuit when they are beginning again. They remember the history of relationships with customers and suppliers they have the resilience that comes from surviving downturns and surfing upturns they are the walking, talking embodiments of an organization's culture.
So that's my recipe for victory finding the balance between commonsense, reason, intuition, imagination, creativity, ethics and memory. Victory in those terms is both free, and priceless.
And as a measure of that victory, you will be trusted and admired because you deserve to be!
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