Beware of Making Decisions

This blog post was featured in the Huffington Post on November 28, 2016.

When companies must make decisions, there are many factors that contribute to the riskiness of the process. If the company is behaviorally young and flexible, and the founder or leader is fully in control, making decisions is not as  dangerous as it is later when the company is large and set in its ways. In a relatively small company and behaviorally young, If the leader makes a mistake, s/he can correct it promptly. S/he is close to the action and can identify the mistake and since s/he is in control s/he can take prompt corrective actions. This is not the case in large, multinational companies.

First of all, as a CEO or top executive in a large company you may be far from where the mistake is being realized. You may not even be aware of it unless the company  gets sued by clients or government. That is what happened to Ken Lay of Enron. He was truly not aware of what was happening to Enron—even his lawyers and auditors were telling him all was kosher. Even if a CEO is aware that his decision has created a mess, his capability to make corrective actions is limited. The larger a company is and the older it is behaviorally, the more political they become. As CEO you have to maneuver through internal and external power structures to make corrective actions if your initial decision was a mistake. The reality is you do not have much  room to maneuver in a highly intensive, politically ridden organization.

If a decision you made is at first resisted by the existing power structure, and you overcome that resistance, the decision now becomes embedded in the political structure of the company. The more they resisted the deeper are the roots of your decision when you finally overcame the resistance. Now, if you try to change it there is new and stronger resistance to change because the roots are deeper.  That is what I believe happened to Wells Fargo. A decision was made somewhere in the structure to reward people based on how many accounts they opened. It became clear that bogus accounts were being opened and unjustified bonuses granted.

Did the company make money on these bogus accounts? I do not believe so. How can you make money on unfunded accounts and it costs money to open and then close them because they were not funded. I don’t believe the fees charged would have covered the administrative expense of opening and closing these accounts, not to mention the bonuses paid.

So why did Wells Fargo continue doing it? I believe it continued because changing a decision was not easy. People were relying on the bonus structure; Sales goals and budgets were based on the projections of how many accounts would be opened; Top executives probably had it as part of their KPI goals. Much was involved here. It was easy to make the decision to implement this policy, but once the decision had deep roots, uprooting the tree that grew from this decision was not easy. True top management could issue an edict to stop the bonus system but it needed to replace it with something else or peoples income will be impacted and it needed to change the whole business model. Can be done but it is not as easy as it looks.

The larger and older behaviorally the company is, the more carefully it has to navigate while making decisions. Choices should be very well thought through and tested on a small scale before being implemented companywide.

The bigger you are, the slower you should move. On paper, many decisions look good, especially ones designed by consultants who have no experience in the field. Consultants are not responsible for the success or failure of their recommendations

I hope this explains why I am scared of Donald Trump becoming the President of the USA. He shoots from the hip, changing decisions when it suits him from moment to moment. I do not see him as the leader of change. I see him as the potential leader of chaos.

America is not just another hotel project, regardless of how large and tall it is going to be. (Even with hotel projects Trump went bankrupt more than once.) America is a complicated, enormous, interdependent machine, where turning one wheel turns thousands of others. It is easy to break the machine and create havoc.

Our situation is like a very sophisticated mine that needs to be dismantled slowly, carefully, and patiently.

Make fewer, carefully considered decisions, rather than rushing to make many decisions carelessly. Then one doesn’t need to rush to blame others when these decisions backfire.

Furthermore , the best remedy is to open the channels for communication from bottom  up so that the mistakes can be identified promptly and corrective action be taken promptly. Adizes program for organizational transformation is a tool designed to achieve that.

Just thinking,
Ichak Kalderon Adizes