When a Loss of Urgency Occurs

The workplace is constantly changing with new policies, procedures, and corporate initiatives that companies are expected to implement based on the prospect of anticipated growth. However, of late, the overwhelming behavior that is being exhibited by many companies is a specific loss of urgency. This applies to the practice of hiring, or more accurately, not hiring favoring a more pragmatic approach of job redefinition or overhead consolidation of current employees. It also applies to the aspect of simply getting things done to move the business forward. Status quo used to be unacceptable, but currently the status quo seems “good enough”. Corporate leaders are not only allowing this pervasive attitude, but are fostering its acceptance within the business. Why has this lethargic attitude become accepted in many companies? What is the overall effect in the marketplace? Why is the loss of urgency accepted today and not in years past? What are the economic ramifications? Is this attitude more prevalent in some industries and less pervasive in others? Can it be changed? Do the corporate chiefs want to change it and if not, what expectations can the economy anticipate? Many factors seem to be at the forefront of this business lethargy. The world had seen a rise in terrorism which has made company leaders and employees realign their personal priorities. Work is no longer the most important aspect of individual lives or living. The rise of new governmental initiatives that require individual corporate executives and their Board of Directors be responsible for corporate fiscal responsibility, i.e. Sarbanes-Oxley1, have shaken employee and stockholder confidence. Though Sarbanes-Oxley was indeed a reaction to the loss of employee and shareholder confidence and not cause, this new law has greatly contributed to the realignment of managerial concerns. The rise in unemployment and the massive corporate layoffs that have been prevalent have fueled the concern that job security is rare. Not “rocking the boat” is a better course of action than the required degree of risk to make decisions with unconfirmed outcomes.

The behavior that is being displayed is in part at the root cause of the loss of urgency. People tend to stay where they feel safe about their environment and relationships. This provides a quiet solace that things will indeed be alright as long as controversy does not become part of the equation. One of the central themes of economic theory since the late 1800’s has been concerned with how a given amount of resources can be allocated efficiently between individual consumers and companies. It has become known as the theory of competitive equilibrium.2

“The theory is based on a series of postulates about human behavior and the workings of the economy. Designed as a logical description of how rational individuals and companies ought to behave, the emphasis lies equally on the words ‘rational’ and ‘individual’. Individuals act so as to maximize the value of their own circumstances. Firms, for example, are interested in profits, so are deemed to act in a way which maximizes profits. Individuals are concerned with their ‘utility’ – the jargon term for over-all well being – and hence are assumed to behave so that their utility is maximized. But the tastes and preferences of every individual agent, whether a person or a company, are assumed to be fixed.”3

Basically in limited contexts, the theory can provide a reasonable approximation to reality in a business setting. Individuals respond accordingly to cover themselves and minimize the chances of being singled-out. If singled-out, the uncertainly of the situation increases requiring decisions which incur risk. It has become a regular occurrence for both owners and employees to avoid the uncertainty of risk by simple postponement. As a result, nothing moves forward or gets done and a lethargic environment is born and thrives.

Recently a company contacted a consulting firm to inquire about instituting a behavioral change within their telemarketing force. The employees had become complacent resulting in reduced daily call time on the phones and lower expectations of customer contact. The company had recently gone through an ownership change which had caused great uncertainty within the group. The attitude of doing just enough to get by but nothing that would draw attention was purveyed by the departmental leaders within the organization. Employee utility was paramount within their understanding of the new owner’s expectations that were being required. At the end of the project, behavioral assessments were administered and several employees were released based on their individual skill sets and their lack of performance in their perceived job requirements. New hires who were tested prior to being hired were placed within the group. These new hires, along with the remaining employees within the department changed the departmental approach and acted in concert as a team. Utilitarian attitudes changed resulting in increased sales performance. The departmental lethargy was eliminated and the company revenues increased dramatically. The early situation experienced by the company can be viewed as a microcosm of many companies today. The overall effect in the marketplace is costing untold billions of dollars in productivity losses resulting in slower or sluggish economic conditions throughout the marketplace and it all starts with the individuals that make the functional decisions for organizational growth. This is the central core of conventional economic theory. It provides insight into how the individual behaves within the organization. It shows how he or she maximizes utility in a rational way given all the information or decision-making criteria that are available.4

Conventional economic theory suggests that by understanding the real business cycle (RBC), a better understanding of the behavioral aspects of individuals within companies can be found. Real business cycle theorists focus on two particular aspects. First they focus on the validity of the output data. This refers to the typical range of the rates of growth of output within an economic cycle or the trough of a recession and the peak of a boom. Second, they focus on the variability of the different components of output relative to one another. But taken with only these two components the RBC theory leaves a great deal of wiggle-room for companies to deal with the uncertainty of growth.5

The RBC theorists believe that consumer behavior towards technology drives the marketplace. When consumer behavior is positive, the optimism drives employees within companies to work harder and expend more energy thus pushing the marketplace along creating forward motion, or a momentum toward progress. When consumer behavior is negative, employees become lethargic and negative. They take time off and tend to put more emphasis on themselves and not their work creating a cyclical downturn in the marketplace.

It is important to remember at this juncture that the behavior at the aggregate, macro level must also be explained by the behavior of individuals at the micro level. The behavior of the organization as a whole is simply the sum of its individual component parts, or employees. One may want to draw the inference by examining the behavior of a single individual or employee. In many instances, a “herd” mentality is exhibited leading to the conclusion of aggregate behavior. However the behavioral rules employees follow are complex and do not necessarily lead to this conclusion. The risk of making uncertain decisions becomes prevalent in the decision-making process and the overall behavioral mode of the organization may not be the same as the component parts, or the individual employees which make up that company.

Is this business lethargy more accepted today than in years past? The cycles have been documented in many post-war economies.6 The recognition of the cycle has certainly been part of conventional economic theory, but the explanatory reasons for the cycle have not been expanded upon until the last two decades by recognizing the technology boom and bust. Prior to September 11th, 2001, the world focused on positive externalities that kept the flow of business and economies moving forward. Of particular influence was the technology sector in the economy that was running rampant with growth, although also rampant with lack of profits. The technology growth bubble had actually burst months prior to that tragic day. Many companies in this sector simply forgot that in order to have a PE Ratio it is first necessary to have earnings. These phenomena produced behavioral attitudes of the individual workers in general that were more upbeat than is the case today. Today, the managed practice of resource limitation seems to be more prevalent since the tragedy of the World Trade Center. Knowingly or unknowingly, many companies have put the theory of competitive equilibrium into their managerial folders and provided limited resource allocation for individual workers. These fixed preferences and tastes are set by both positive and negative externalities, in this case mostly negative which have resulted in a more general acceptance of a lethargic behavioral attitude. The overall effect on the economic environment has produced stagnated growth in virtually every business sector and record high unemployment.

Is this lethargic attitude more prevalent in some industries and less pervasive in others? As mentioned before, the general state of the technology sector is continuing to be affected. Other sectors, including transportation and utilities, are experiencing a similar set of circumstances. Although the airline industry has had to cope with a separate set of issues based on not only poor management techniques but also the concern by the consumer to use airline services in the wake of the terrorism scare. But based on current economic trends that are recalled daily in the news, most companies in most economic sectors seem to have a shared view that they should take a “wait and see” approach rather than making aggressive forward-thinking decisions. The decision might involve added risk for the company and particularly for the employee responsible for the decision itself.

Can this attitude be changed? Each economic agent, whether an individual or a company, have their own rules of behavior for making decisions, whatever these rules may be since they generally vary from one organization to the next. But the overall effect of these rules and how individuals react to each other’s behavior is usually unpredictable. Thus if an attitude of lethargy is prevalent within a company, or even a department of a company, the pervasive attitudes are shared within the set group of economic agents. It becomes difficult to change without replacing personnel or instilling an organizational culture change.

Do the corporate chiefs want to change it and if not, what expectations can the economy anticipate? Currently there seems to be little interest in changing the sense of urgency within individual organizations. Personnel at lower levels within every organization are mimicking the behavior of top management. Henry Ford stated it this way:

“You can show your authority till doomsday and make people fear it too; but you will never make them respect it…Handling men, giving them leave to act upon their own goodwill and not under compulsion, emaciating them from all fear and anxiety and insecurity in their thoughts of the shop and the job – his is the secret of goodwill in production.”7

Until the confidence level is increased at the corporate level, and there is a sustained increase in revenue growth, it is unlikely that company ownership and top managers will instill the necessary change to increase business urgency.

There are several areas that will provide the necessary indicators that will signal a behavioral change is coming within many organizations.

Increased Competition Monitoring – Increasingly important within the framework of the current business cycle is how companies perform in terms of market share and new product introduction against their major market competitors. This is a strong indicator for success with many companies. Securing short-term advantage by increased marketing budgets or price promotion is temporary. The continued challenge is to understand the broader market, obtain sustained growth for the brand and manage the growth while keeping a watchful eye on the competition.

Strategic Plans that Emphasize and Reward Individual Contributions – Plans that are strategic in nature must have a tactical side that has buy-in at the individual level. It is the individual contributions that contribute to the whole enterprise. Willingness to take risk is more likely and an increased need to show urgent results begins with individual tactical objectives. If the individual can be convinced that the risk is indeed worth the reward, the forward motion should be evident internally by revenue growth and externally by increased brand cache.

Definition of Maximum Risk Acceptance – Small changes will have only small consequences, just as common sense suggests they should.8 But unfortunately, common sense may not always be the best guide when it comes to understanding the consequences of risk acceptance. Guidelines within each individual organization and each department within that organization have to be established. Without knowing the boundaries of acceptance, risk becomes an individual behavior that is subject to personal heuristics and biases, and not organizational definition.

Objectivity in Performance Measurements - Maximum returns with minimal risk is very prevalent within the business environment. The use of metrics has provided a more objective approach to challenges faced as an organization and those that are faced with individual demands. The use of performance measurement in conjunction with a comprehensive compensation plan pushes the individual to step outside the comfort zone to take risks that will provide monetary reward if successful. Compensation models should to be considered in conjunction with the level of risk the company is willing to accept when a decision is made by one of its employees. Stock options or uncollateralized employee loans are excellent examples of companies willing to accept the upside of risky decisions and slow to make accountable the employee or ownership is a decision produces poor results.

Repositioning as Economic Change Requires – Even the best captains occasionally have to change direction in order to get their ship to port. So also do companies in order to remain viable players in the economic arena. Many organizations often have to “re-invent” themselves in order to move forward. Because the future is uncertain and no business has a crystal ball, the use of repositioning serves to keep many businesses viable when economic change occurs. This can be done through merger or acquisition. It can also be done through planned diversification of product lines or sales channels within a core market.

The continuing evolution of business and the decisions that are made to complete the business cycle will continue in the future. The behavioral attitudes that produce the decisions will always be an inherent feature of market economics. Decisions made by individual agents within an organization operate under daily business uncertainty and it is this uncertainty that is the cause of the permanence of the business cycle.9 Without the thorough grounding of leadership and significant changes in the behavior of the decision-makers in organizations, the loss of urgency will continue to be a deterrent to business growth for the foreseeable future.

RESOURCES:

Butterfly Economics, by Paul Ormerod, published by Random House, Inc., New York, New York, 1998.

The General Theory of Employment, Interest, and Money, by John Maynard Keynes, published by Prometheus Books, Amherst, New York, 1997.

Henry Ford’s Lean Vision: Enduring Principles from the First Ford Motor Plant, by William A. Levinson, published by Productivity Press, 444 Park Avenue South, Suite 604, New York, New York, 2003.

Notes:

1The Sarbanes-Oxley Act became law as a result of the poor corporate policy resulting from the Enron scandal. Other companies as well, including WorldCom, Tyco and others, pushed the limit and caused great harm to company employees by offering off-balance sheet loans to corporate officers and pension borrowing without stockholder, employee, or SEC knowledge. The result was a law that requires CEO and corporate boards to be individually responsible for the accuracy of the financial accounting. The law has other provisions which are numerous.

1Butterfly Economics, written by Paul Ormerod, published by Randon House, Inc., New York, New York, 1998, pages 59-74.

2Ibid., Ormerod, pages 63-64.

3Ibid., Ormerod, pages 109-110.

4Ibid., Ormerod, pages 115-120.

5Ibid., Ormerod, pages 122-123.

6Henry Ford’s Lean Vision, by William A. Levinson, published by Productivity Press, 444 Park Avenue South, Suite 604, New York, New York, 2003, pages 46-47.

7Ibid., Ormerod, pages 182-183.

8Ibid., Ormerod, pages 187-188.

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