Sunday, May 18, 2014

Decision Making at Strategic Crossroads: Managing Emotional Blinds and Reality Conundrums

Strategy is a unique process that helps firms and individuals steer their future. Many firms and individuals believe in strategic planning over a three or five year horizon and execution within the framework, inclusive of course corrections. Some, of course, do not believe in rigorous strategic planning and move into future based on aspirations. Surprisingly, despite robust planning and execution, firms and individuals face strategic crossroads. If this were not the case, behemoths like IBM and Sony would not have faced the need to divest their computer businesses. Motorola and Google would not have faced the need to divest and re-divest the Motorola mobility division respectively. Oftentimes, however, the choices would not be clear.

Strategic crossroads, and the ways to avoid and face strategic crossroads, is a concept that could add value to the strategy literature. Strategic options are an integral part of the strategy formulation process. Strategic options come with relatively clear costs and benefits. They are often laid out in pursuance of business objectives and have little emotional content, if any.  However, strategic crossroads refers to a situation where a firm or an individual feels that there is no assurance that any of the routes would offer a decisive win. Decision making in strategic crossroads has a significant emotional content. Also, options which have equal advantages, disadvantages or uncertainties qualify for defining strategic options. There is considerable literature on identifying strategic options and facilitating decision making for the options. There is, however, little clarity on decision making when faced with strategic crossroads, which this blog post attempts to fill.
Crossroads to dead-end
Physically, crossroads signifies a place where two roads meet and cross each other. Conceptually and in practice, it signifies an important point in a firm’s or an individual’s life where a decision taken to follow a route could have an irreversible impact. When someone is at crossroads, usually time is not on one’s side; nor will profitability be. At a very simple level, a heritage theatre with dilapidated infrastructure faces the crossroads of modernization, expanding as a multiplex, complete exiting from the theatre business or monetizing the real estate. At an industrial level, when a product technology that forms the bulwark of a firm’s revenues becomes obsolete and needs massive investments, the firm tends to be at crossroads of rejuvenating the technology or going for an entirely new technology, exiting the product and business altogether or in-licensing new products and businesses, for example. The decision in such circumstances is often weighed down by the emotional burden of leadership and managerial failure and a practical burden of ossified organization.
Many times, firms facing crossroads make compromised decisions. These are usually in terms of making too little an investment in product rejuvenation, balking at embracing new technology, keeping the declining products and businesses somehow alive or going in for new but inadequate technologies. As such half-hearted attempts fail to provide any impactful solution, the firm would only slip deeper into red. The ability to exit with a reasonable profit declines even more. The saga of once-upon leaders like Morepen, Koutons and Kingfisher Airlines in India indicates a shared inability to read the signs of crossroads appropriately. Kingfisher Airlines was at crossroads of consolidation versus growth, and of organic versus inorganic development when it decided to acquire the low cost airliner Air Deccan. The obviously wrong route taken has led to the progressive slide of Kingfisher Airlines. For that matter, as it exited Air Deccan itself faced similar crossroads; of riding out the low cost pressures over time versus exiting, exiting with reinvesting in a new business and adding a new business without exiting. Here again, for Air Deccan’s founder, exiting airliner business and reinvesting in air logistics business was a wrong route in combination. A wrong route taken when at crossroads can lead a firm to its final dead-end.
Emotional blinds
Decision making at crossroads is challenging not only because of difficult performance situation and uncertain revival options but also due to the emotional blinds that prevent the leaders from taking an objective review of the past and view of the future. At a professional level, one comes across cases of functional leaders who are unable to make shifts despite apparent failures (or sustained lack of progress) of their approaches. Many  public sector companies such as Jessop, Scooters India and HMT fall under this category where the professional heads and the ownership (in this case, the government) were unwilling to see the writing on the wall, and make an appropriate course correction, including revival or exit, in each case by recognizing the strategic crossroads without emotional blinkers. Such an emotion tinged approach is displayed in private enterprises as well though these are expected to be more analytical and logical in terms of profitability and sustainability. Firms in the airline, retail, realty and infrastructure industries fall in this category. There are many firms in these industries which got stalled facing crossroads, leading businesses to stages that are beyond redemption.
Emotional blinds work through several beliefs and perceptions to deter or defer meaningful action when at strategic crossroads until it is too late. The first is an ingrained belief that businesses are cyclical and, therefore, things would perforce improve; this approach fails to recognize that it is the firm’s actions, rather than the environmental cyclicality that leads to the crossroads situation most times. The second is that undertaking organizational changes in times of crossroads aggravates the already difficult position; this approach fails to recognize that organizations under stress are often in search of, and welcome, turnaround options. The third is that when at crossroads firms should minimize investments rather than commit more; this approach fails to recognize that reversal of failure and acceleration of success can only occur with investments in hardware (facilities, technology and equipment, for example) and software (people and processes, for example), the mix of hardware and software varying on a case by case basis. The fourth is that firms at crossroads cannot attract external support (financial or otherwise); this approach fails to recognize that there would always be objective supporters for objective plans.
Reality conundrums  
The root cause for emotional blinds developing in an organization is often deep and certainly not any of those emotions that underlie the strategic behaviors that are displayed when crossroads are faced. Fundamentally, the inability to understand and appreciate realism as a way of life creates emotional blinds. When an infrastructure firm which is well aware of the long term nature of infrastructure investments, protracted payback periods and the inhibitory nature of the external environment that are inherent in Indian infrastructure projects draws up plans of quick returns to the investors, the inherent unrealism of the plan becomes the core weakness for the future. Granted, no one can predict the future from internal or external perspectives and therefore no one can also come up with a realistic path forward; the concept of realism, however, is more than that. Realism is being in touch with oneself, people, organization, environment, plans, execution, results, competition, and all such stakeholder interests. Unrealism, apart from not being realistic also includes being unduly optimistic or pessimistic, unwarranted by reality.
While several emotions such as feelings of infallibility, invincibility, egoism, and such others are often touted as reasons for leaders bringing their firms to crossroads and thereafter not being able to course-correct, the root cause would still be unrealism as defined above. Being unreal and being excessively optimistic or pessimistic is at the core of all strategic crossroads issues; the run-up, paralysis and dead-end. It is not the intent of this blog post to advocate a nebulous quest for realism nor is it to decry optimism and deprecate pessimism. The fact is that for the future only an aspiration exists, and a future reality can never be seen by mortals; every plan or action, therefore, tends to be only either optimistic or pessimistic. And, many times it lies in our own hands to turn aspirations into reality. What this blog post does advocate is the need for people to be in touch with reality at every step or slide of progress. When faced with reality that is not aligned with aspiration (could be better or worse) it pays to be optimistic or pessimistic on future course as warranted.
Realism as DNA
Lest it should sound philosophical or theoretical, the blog post would clarify that realism in reality (no pun intended) is a way a person is wired and evolved from birth to think and act, talk and listen, evaluate and respond. A realistic person, like everyone else plans and acts unrealistically (that is, either too optimistically or too pessimistically) but he or she is wired to continuously measure the variance and calibrate his or her subsequent thoughts, actions, communication and collaboration. The realistic person unlike most persons does not get typified; he or she, on the other hand, is a continuously adaptive individual or leader. The realistic person, like most others, lives on, and for, aspirations; however, he or she never loses track of the variance between aspirations and the results. If the results are lower, reformatory actions are taken, and if the results are better, aspirations are set higher by such individuals and leaders.
The ability to treat optimism and pessimism as modulators to move towards realistic realization of aspirations is vital for individuals, leaders and firms. Just as being extroverted and introverted becomes relevant contextually, being optimistic and pessimistic is also contextual. Optimism drives action and aggression while pessimism enables caution and conservatism. As individuals and leaders remain realistic, and absorb and assess the aspiration-result variation realistically, they would need to apply optimism and pessimism in tandem to set high aspirations and consistently achieve them. There have been excellent case studies of institutions in India, outside the normal business milieu, which have done exactly that with their leaders being responsible for such strategic approach in no small measure. Indian Space Research Organization (ISRO) is a striking example of live-wiring realism towards consistently higher aspirations, and achieving them despite resource constraints. Individuals, leaders and firms in their strategic journeys, and those at strategic crossroads may strive to embed realism as their DNA.
Posted by Dr CB Rao on May 18, 2014

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