The Formula of Success

Are the companies always successful? No. There are some companies that we worked with that are bankrupt today. What happened?

I was talking with my medical doctor, and I told him I had worked so hard on a company that went bankrupt. He said, “You know, Ichak. I’m a medical doctor. All my patients eventually die.”

You cannot make them live forever. But why these companies die? One reason is that they stop practicing healthy behavior. They just go back to their old ways. It requires discipline to maintain this methodology. It’s not that easy to do. Some clients maintained it for a while, then stopped, and they deteriorated until eventually they went bankrupt.

I don’t know of any companies that continue to practice that are in trouble. They’re constantly changing, and if you’re constantly changing there is no reason to get into trouble. If you are listening to each other, looking at problems up front, identifying them from the bottom up and sideways, and dealing with them together, why would you get into trouble? When you are not conscious, when you fall asleep on the job, when you don’t listen, when you become arrogant, you will go bankrupt.

Why does this methodology make companies successful? There is a formula I call the Adizes Formula of Success. It applies to success in any way you define it—in personal life, family life, and companies; it applies to society and to this little planet; it applies to everything.

Success is a function of the ratio of external integration to internal disintegration.

The denominator in this formula, internal disintegration, depends on two factors that in turn depend on four factors. These four factors depend on eighteen factors, and so on. At the bottom of the pyramid there could be a million factors. I have dedicated my professional life, so far forty-one years, to studying this map. Let’s look at how it applies to business.

What is external integration? If you pick up all the books on marketing, and you summarize every book, then you summarize the summary of the books, then summarize the summary of the summary, and so on, you are going to get to the kernel of what marketing and strategic planning is all about. It is how to integrate externally with the market. That is why you do market research, market segmentation, product differentiation, pricing, and chose channels. You have to look at what the changing opportunities are and what your changing capabilities are, and try to match opportunities to capabilities. The aim is to be integrated with the market.

In your personal life it could be career planning. What am I good at? What does the market need? How do I place myself in the right place for my career growth? What are my capabilities versus opportunities? For a country, it shows up in economic policy. What needs to be encouraged, textiles or high tech? How do we integrate with the global economic situation?

What is internal disintegration? For a company, it is all the internal waste of energy; so-called “politics.” All the fighting, rumors, suspicions, backstabbing, backbiting, all the troubles in the company—which we all hate, don’t we?

Internal disintegration is a function of mutual trust and respect. If there is no trust, we waste lots of time wondering, “Why did she say that? What did she mean by that? What is she doing?”

Why does this formula, of external integration over internal disintegration, predict success? We know from physics that energy is fixed at any point in time. I have found that the fixed energy in an organization is predictably allocated. First it goes to where there is internal disintegration. Then only the surplus, if there is any, goes to external integration. For example, God forbid your very good friend is in the hospital. When you go to visit him what does the doctor say? “Please. No more than five minutes’ visit.” Why? Because the poor guy has no energy for you. He needs what energy he has to heal himself. If you have a cold, what does the doctor tell you? Take aspirin and go lie down. Why lie down? What does whether I stand or lie down have to do with my running nose? Because if you lie down, and you rest, you free the energy to heal your cold.

The whole goal is to free energy. If I have internal problems, it takes all my energy. Companies where there is no mutual trust and respect are fighting all the time. When a client comes they say, “Come tomorrow. I am exhausted today.”

We have worked with companies that had plenty of money and a technology the market was dying for, but they were failing because their infighting left no time or energy for fighting the competition.

What does the Adizes program do in companies? We minimize internal disintegration by increasing mutual trust and respect. That frees the energy for external integration. The company, instead of looking inside, turns around and looks outside. Now it is ready to attack the world.

How do you create mutual trust and respect? Four factors impact whether there is mutual trust and respect in a company.

One is the quality of people, of course, but that is the last factor we deal with, not the first. In organizational consulting they often focus on needing good people. They’re absolutely right—you need people who command and grant respect—but that is the last factor you should address.

In my experience, if you take very wonderful people and put them in a messed up company, after one or two years they lose all their trust and respect. It is like taking good steak and making hamburgers out of it. The environment killed them. I have seen this in Russia—I tip my hat to the Russian executives, who as individuals are very good. If you take a Russian executive out of Russia and put him in America or England he will do very well. But in Russia the system is no good.

Changing people without changing the system does not work. Unless, by changing the people, we change the system.

I first try to fix the car. Then I will fix the driver. Changing the driver of a broken car does not fix the problem.

What, then, are the other three factors we should address first?

Do we have common vision and values? In the Adizes Institute we have an Ethics Committee. We insist on values, and if somebody breaks the values, I don’t care how much money he makes for the organization, he is kicked out. Values come first.

The next step is structure. Do we have a diversified structure that enables all (PAEI) roles to be performed? How do we divide the organizational responsibilities, authority, and rewards? These are the three components of structure. I’m going to give you a tip: Never have one vice president for sales and marketing. Never have what’s often called a CFO, in charge of accounting and finance. Don’t have human resources development and human resources administration together. And don’t have one vice president for engineering and manufacturing. That is the wrong structure. (I explain more about why it is wrong in my books.)

The structure has to be right, authority has to be right, and the rewards have to be divided correctly. Usually, companies have an individual rewards system, but expect teamwork. Why would you expect teamwork when the rewards system focuses on individuals? Does the rewards system reflect the vision and values? Does it reflect what people should be doing?

Next is the process. What is process? We want to work together. But we don’t have a protocol. You talk. I interrupt. Then someone else talks. Then this guy talks. Finally the chairman says, “Thank you very much. I heard you all. Here’s what we are going to do.” Is that teamwork?

We teach a system for running meetings as a team—not as a committee. There is a Jewish children’s song that says, “Don’t walk in front of me, I may not follow. Don’t walk behind me, I may not lead. Just walk beside me, and be my friend.” In the methodology, we walk together, one step at a time. It is like a wounded army crossing a jungle. One man is blind, another lost his legs. Alone, the blind guy will go until he hits a tree and will stop. The guy that lost his legs is going to crawl until he can crawl no more. But the blind man has legs, and the man with no legs has eyes.  “Sit on my shoulders, and we’ll cross the jungle together.”

That is what we do in organizations: build a complementary team that knows how to decide together. To teach a company the discipline of deciding together—because there is no respect without discipline—takes about six days.

Our goal is for the organization to have common vision and values, a functional structure that nurtures diversity, and a disciplined process for making decisions as a team. Then we can develop the people who command and grant trust and respect. The result of this program is that there will be a culture based on mutual trust and respect, and the organization will be healthy, which is what really counts.

Thank you very much.

Dr. Ichak Adizes

Read the entire 6 part series: http://www.adizes.com/founder-session/