The Business Book

(Joyce) #1


Black Monday—October 19, 1987,
when stock markets across the world
suffered huge losses—was a strategic
inflection point that caused massive
change in the business environment.

and what it is actually doing?
Actions are driven by the stark
reality of having to win business
in the marketplace against the
competition; a company’s front-line
personnel are likely to see and adapt
to a new reality first. They are the
people best positioned to identify
critical issues.
This means that leaders in the
organization have to be prepared
to listen to people dealing with
customers and suppliers—who
often tend to be at the lower level of
a company’s hierarchy—and absorb
what they are saying. It helps to
have an organizational culture that
encourages this and ensures that
people are not afraid to speak out.
For the same reasons, it is
just as important for senior
management to listen to the kind
of information being exchanged in
corridor conversations, networking
functions, and the general office
grapevine as it is for them to use
competitive analysis and modeling.

The “5-why” technique
To ensure they understand what is
driving or impacting a company’s
performance, and what is happening
in the market and the wider world,
senior executives have to constantly
ask questions. They also need to

understand not just “what” is
happening, but “why.” One method
to achieve this is the “5-why”
technique, invented in the 1930s
by the father of Kiichiro Toyoda,
the founder of Toyota, and used by
Toyota during the 1970s. By asking
“why?” five times, you can move
from the symptoms to the root cause
of a problem. For example, the first
question might be “why did we
miss the deadline?” to which the
answer might be “it took longer
to complete the project than we
thought it would.” Why? “Because
we underestimated the complexity
of the task.” Why? “Because we did a
quick time estimate, without going
through the project requirements
in detail.” Why? “Because we were


already running behind on four
projects.” Why? “Because we are
not allowing enough lead time
when quoting.” The technique can
be used to interrogate internally
and externally caused problems.
It is also important to ask the
right questions. Management guru
Peter Drucker claims that “the most
serious mistakes are not made as a
result of wrong answers. The truly
dangerous thing is asking the
wrong question.”

Which questions to ask
Questioning goes beyond looking at
the competitive environment. Sales
bring in revenue, but companies
also have to look at costs, because
profit lies in the gap between these
two. Managers must question their
processes, to see where they can
drive efficiencies, reduce costs, and
so improve their profit margins.
Managers also need to constantly
question whether there might be
a better way to do something. For
example, perhaps nonessential
functions could be outsourced.
Managers have to be restless,
not complacent, and look for every
opportunity to increase the profit
margin and improve the business.
Managers have to use their
knowledge and experience to
connect all the information they
gather, and try to anticipate what
the world will look like in five or ten
years’ time. What changes might
take place in that new world? They
then have to position the company
to take advantage. This requires
thinking through several different
scenarios and being able to think
“outside the box.” ❯❯

It is extremely important to be
able to listen to the people
who bring you bad news.
Andy Grove
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