In last week’s blog I discussed some of the considerations that PMs should take into account once the nominal business re-start mayhem begins. This week I would like to examine a couple of long-held management tropes that should definitely be avoided, both in the short term and, well, permanently, if I were to get my way. Last week we looked at some useful business structures to help place our organizations with respect to the competition along the lines of the axiom, Quality, Availability, Affordability – pick any two. But what happens if we take a look at the macro-economic restart picture from the other side, as in the characteristics of the business models of the organizations that are about to fail? I’m thinking analysis into a pair of highly suspect management science “theories” will reveal them for being the invalid ideas that they have been all along, widespread acceptance notwithstanding.
First Up: Our Friends the Asset Managers
I’ve often criticized, questioned, and even ridiculed the core belief of Asset Managers, that the point of all management is to “maximize shareholder wealth.” Adherence to this mantra is extremely common among college-level business schools; in fact, it’s usually thought to be challenged only by the most ignorant of managers or students. Its logical (if extreme) extension was perhaps best articulated by former General Motors chairman Thomas Murphy, who is credited with having said “General Motors is not in the business of making cars. It is in the business of making money.”[i] This was supposedly asserted in the 1970s, when GM was king of the automobile market. Within the decade it would find itself in serious trouble from a variety of competitors who were, apparently, more interested in making cars (superior products), confident that the profits would follow. GM would ultimately – and notoriously – need a government bailout due to its bankruptcy –yes, bankruptcy – in 2009. The bailout costs the taxpayers of the United States $11.2 billion dollars. How’s that for pursuing a business strategy predicated on “maximizing shareholder wealth?” Indeed, the landmark book Crossing the Chasm, by Geoffrey Moore (Harper Business Essentials, 1991) pretty much solidified the case that organizations only concentrate on the maximizing of shareholder wealth at a phase in their life-cycle when they are no longer concerned with attracting or retaining customers.
Apparently, none of this textbook case of a management science disaster predicated on a tightly-embraced concept has made even the slightest dent on the faculty lounges of the major business schools of the United States. So, here’s my little litmus test, to see if this axiom has any legitimacy: Of those organizations that have based their business models on the “maximizing shareholder wealth” cliché, which ones will be the most successful at the restart? Consider that such organizations will be more inclined to send revenue towards dividends, rather than paying down debt or enlarging reserves – the same reserves (or credit ceiling) needed to retain or rehire staff. Contrast this approach with the Project Management-centric organization, oriented towards attaining customer-specified goals of scope, cost, and schedule. Such organizations will be far more likely to have built a larger, more loyal customer base, the same customer base needed to return to a profitable operational status quickly. For now, we can speculate, but it won’t be long until more empirical data will be available to test the robustness of the organizations that have embraced the “maximize shareholder wealth” hypothesis.
Next: One of My Favorite Targets, the risk managers
I get the impression that if a statistically significant number of project risk analyses had included the threat of a global pandemic bringing a massive amount of disruption to the normal business cycle, we’d be hearing about it by now, even if the estimated impact was off by a large factor. The fact that this exact scenario did occur points to yet another shortfall of modern risk management theory, perhaps best articulated by Nassim Taleb in his can’t-miss book The Black Swan; The Impact of the Highly Improbable (Random House, 2007). Taleb defined Black Swan events as having three characteristics:
- Completely unexpected,
- Had a large, significant impact, and
- After the fact, people tend to convince themselves that the event could have, in fact, been predicted.
…which brings us back to how a project risk analysis is currently performed. Scenarios that include bad weather, or changes in prices for materials, parts, or specialized labor, can have their cost and/or schedule impacts
guessed at estimated, budging the cost and schedule baselines maybe 5 – 20% over plan. But, as COVID 19 has shown, to bring truly massive amounts of disruption into a project plan requires a Black Swan event which, by definition, is completely unexpected. In short, having an advanced risk management (no initial caps) capability in no way adds to an organization’s ability to survive a significant macro-economic disruption. So why does anybody think it will help in managing the more mundane PM events that unfold?
Despite their widespread use, I’m convinced that management strategies based on the Asset Managers’ or risk managers’ basic tenets are flawed, and ought to be abandoned straight away. If not, then we’ll see what characteristics are shared by the organizations that survive the current stress test. My bet: the survivors will be more project/product oriented than those that don’t make it.
[i] Wikipedia contributors. (2019, May 27). Thomas Murphy (chairman). In Wikipedia, The Free Encyclopedia. Retrieved 18:53 MDT, May 4, 2020, from https://en.wikipedia.org/w/index.php?title=Thomas_Murphy_(chairman)&oldid=899030673