Organizational Insanity Revisited

Organizational insanity is on my mind a lot lately.

This week I received a notification that I owed a penalty of almost $6,000 on my Franchise and Excise Taxes for one of the businesses I have. Since the amount paid was correct and the payment was made on time, I was a little confused. But of course I shouldn't have been!

I called the state and was told that I had not paid estimated taxes. I checked with my accountants and they thought, as did I, that we had paid estimated taxes as we should. My accountants then called the state and of course were told a different story. Shocking!

As it turns out, the state is saying that I signed a form in 2007 agreeing to pay electronically, and that if you sign the form, ALL future taxes have to be paid electronically.

Of course that is not true, since in 2008 I paid by check and there was no notice and no penalty. But this year, even though I paid the correct amount and on time, I received a penalty of almost $6,000 because I mailed in a check.

Maybe I filled out the form but I don't remember--it is not what I wake up every morning thinking about. It does not add value to anyone--ops, maybe it does. It certainly does not add to my bottom line. Even if I filled it out, I probably would not have related it to the April 15 annual filing.

Maybe I am crazy, but a $6,000 penalty for taxes filed in the correct amount and on time by check instead of electronically is insane!

But wait, this is the same organization that gives you the option of filing your Annual Report online and paying online, BUT you are charged a service fee for filing online instead of sending a paper form through the mail. Now maybe I am just misinformed, but it seems like I have heard something about electronic filing costing less, rather than more.

Before I have to go check my blood pressure, let me address how smart people working in an organization can become so dumb. I believe there are several reasons and will address a few of them here.

1. They are not as smart as we thought--just kidding, sort of!
2. They lose sight of the ultimate customer and focus internally. Internal customers have different needs than external customers. In large, bureaucratic organizations, one need is to comply with every rule and regulation. And there are other needs that vary with circumstances. Right now most states need, or feel like they need, every penny they can get their hands on.
3. They tend to migrate toward complexity which results in inefficiency, waste and bad decisions. When organizations start, they are generally pretty simple, logical and are set up to serve the customer. Then something goes wrong, and another action or step is created to be sure it does not happen again. Then another and another. It doesn't take long until what originally took three steps now takes fifty-two. For those familiar with the work of W. Edwards Deming, this is a result of what he called tampering--changing the system when you should just address the immediate problem.
4. On the other hand, they often work in a system that is not capable of processing the complexity in the environment. They are set up to respond "A", "B", or "C". If they get a question that does not fit any of the three options, you are out of luck and they appear to be insane. I have experienced this problem with two other organizations recently. I ask questions and the people responding literally have a cover sheet with responses. They put a check mark next to one of the boxes and send it back to me. It doesn't seem to matter that I would write a full page explanation of my unique situation, the response comes back with one of the boxes checked. They do not have the training or authority to literally think "outside the boxes", and address the complex questions I have.

I am sure there are others, but this is a start. The amazing thing is that what appears to be insane to us--and it really is--makes sense to those inside the organization, at least much of the time.

I must admit a sane explanation for paying a service fee on electronic filing versus paper filing is challenging, but I expect inside the organization it went something like this, "We are saving businesses postage and maybe time, so they should be willing to pay a little more to file electronically. And we may get promotions for figuring out a way to generate more revenue without raising the annual fee or taxes. Wow, what a great idea!"

Of course those of us who are the ultimate customers of that organization probably think that electronic filing probably saves the state somewhere around $25 to $35 per annual report in processing cost. And it might make sense to charge no more or maybe even less to file electronically.

But then that would be sane!

Is a Business Plan Really Necessary?

It takes a lot of time and effort to write good business plan. Sometimes I wonder if all that time and effort could be better spent actually starting the business rather than researching and writing and editing. It really is a lot of work.

It clearly depends on the nature of the business you are starting. Actually I am doing both now--starting one business without a plan and one with a plan, or should I say trying to start them. It is never a given that they will get off the ground.

Remember rapid cycle failure. Instead of spending months writing a business plan, sometimes it is better to lay out your plan in a simple concept paper--three or four pages. Scoping out what you plan to do helps you think through the process and is highly recommended.

Then get to it. If it seems like it is beginning to work, you can always go back an write a detailed plan. If not, you have not wasted a lot of time.

If your business requires capital that you are going to ask others to put into the company, unless it is a small amount coming from close family and friends, a business plan is a must. People who invest want to know that you have very carefully thought through the concept and have looked at every important aspect of the business.

Can you clearly describe what you plan to do? What is your product or service? Who are the customers? Who is the competition? What is the experience of the management team? What do the financials look like? How much capital is required? How do I get paid back? What are the risks?

You have to be able to answer each of these, plus a few others thrown in for good measure, in great detail. Now that doesn't mean that the investor will always read the complete business plan, but you better be prepared to answer any questions that is asked. The business plan is critical in your preparation for this important exam.

When I write or read a business plan, the one thing I know for sure is that the business will not turn out exactly as the plan projects. But it is a road map and critical planning tool.

So, if you do not need outside investors, write a concept paper and spend your time starting the business. Do not waste months writing a detailed plan.

If you need investors, write the plan. Do the research and learn the material. The test is not the quality of the plan. The test is do you know the business well enough and are you experienced enough to make the right adaptations when the plan falls apart.

You are the plan--not the document--and you are the focus of investors interest!

Stress Test for Entrepreneurs

If Stress Tests are able to tell us if a bank can survive tough times, then maybe entrepreneurs should take a stress test before starting a new venture. And if current trends continue, the government may require such a test before we are allowed to start a new venture!

So, what would a Stress Test for Entrepreneurs look like? Here are a few sample questions:

1. Do you have a clear idea of what you want to do and are you committed to sticking to it until it succeeds or fails? If the answer is yes, you fail the stress test. To be a successful entrepreneur, you have to have a clear idea of what you want to do and then make adjustments as you begin to implement. That does not mean reacting to every event but it does mean learning and adapting. The one thing you can be sure of, no new venture looks exactly like the business plan that was originally drafted.
2. Do you have financial resources to survive while you learn and adapt the plan until it is profitable? The correct answer is of course "yes". There is no shortage of good ideas. The problem is that most do not work as planned initially. A good entrepreneur, given enough time, is capable of solving the puzzle. Unfortunately, what often happens is that we run out of money and resources before we get there?
3. Are you prepared for rejection, criticism and failure? Again, the answer better be yes. Entrepreneurship involves selling--selling the idea to investors, to future employees and of course customers. And maybe most importantly, to friends and family. While you think the idea is brilliant, you will get many more "No's" than "Yes's". Entrepreneurship is heroic until it looks like it may fail, and then people start to question your judgement--why are you putting yourself or your family at risk? And, of course the odds are not necessarily in your favor.
4. Is your idea potentially a billion dollar venture? If you answer yes, again you fail. First of all, if you think your idea is likely to create a billion dollar venture, you probably need counseling for grandiose thinking. Sure, we are told to thank big and we should. But we also have to be in the real world. Do you know the odds of a new venture turning into a multimillion dollar business much less a billion dollar business? You have a much better chance of being successful with a small idea, maybe even several small ideas. Only the most experienced entrepreneurs with proven track records are able to secure the resources to run with big ideas.
5. Is the pain of Not doing it greater than the pain of Doing it? The correct answer is yes. This, of course, is fundamental to basically all decisions we make, but especially true for entrepreneurs. There will be pain in the process. The question is, will there be more pain and regret in not doing it? For many of us, the rewards that come from adventure and following our dreams outweigh the risks.

OK, how did you do? Entrepreneurship is not for everyone. We all should carefully assess ourselves and our current life situation before taking the plunge.

Organizational Insanity

Most of us are all too familiar with the definition of insanity commonly used in organizational settings--continuing to do the same thing and expecting different results. Unfortunately it is too common and too true.

But today I would like to speak to another type of organizational insanity. It may be more prevalent and more destructive. As customers and stakeholders, we deal with it almost every day.

Shall we call it "internal organizational intellectual delusion"? Or "organizational insanity"? Or just"stupid"? My mother wouldn't like stupid so I think we will go with organizational insanity!

It is probably most notable in large bureaucratic organizations, but occurs in organizations of all sizes and in every industry. Just because you are in a small, nimble, organic and maybe virtual organization, it does not mean that you are free from organizational insanity.

How do you know if your organization suffers from this illness? There is a very telling and clear symptom--the people in the organization do totally insane things on a routine basis and sincerely believe that what they are doing makes sense.

It is important to note that this is an organizational malady. If the same people were outside the organization they would immediately recognize that what they were doing is insane.

Each of us could probably point to hundreds of examples. The government is of course ripe with examples.

Shall we start with the recent bailout funds that involved spending billions of taxpayer dollars in a bill thousands of pages long that was passed by congress without reading or knowing what was in the bill. Now whether you supported or didn't support the bailout, that is insane.

I recently heard a congressman sincerely and passionately defend his support for and leadership on a bill involving substantial taxpayer dollars and he admitted that he did not know what was in the bill. That is insane but seemed to make perfect sense to him.

The IRS has a tax code that is thousands of pages long. You may have tried to file your own taxes and gotten to one of those lines that says subtract line 47B from line 32A on Form 1372 and multiply by .0375. If you contact an IRS representative for an assistance, they will walk you through a five minute explanation, plus point to the five additional forms that you were not aware that you need to fill out. That is insane but is perfectly logical to the person on the other end of the line.

OK, enough with the government, what about the health insurance company I currently am dealing with. I am told by the representative of the company that my fax was received one day, was logged the next, would take 5 to 7 days to process and then they would send me a letter letting me know the results. I am very concerned about whether my daughter has coverage, and when I ask if they could call me or send me an email, the response, even though we were on the phone talking--I know they have phones--was NO. That is insane but made sense to the person I was talking to.

What do you hate most about going to the doctor? I guess it could be a lot of things, but most of us hate waiting. So what do doctors and hospitals do--they build Waiting Rooms! They design "waiting" into the system! Talk to almost any healthcare professional--smart people--and they will give you a ten minute explanation of why it has to be that way. That is insane!

Newspapers run editorials on global warming, the green movement, sustainability end environmental friendliness in "paper" editions. And they must believe it makes sense or they wouldn't keep doing it, right? That is insane.

Does your organization have any symptoms of organisational insanity? That may be an "insane" question, because it is virtually impossible for someone in an organization to recognize symptoms--there is always an logical explanation!

In later posts we will talk about those explanations and ways to address the dreaded organizational insanity.

What Happened to Customer Focus?

I have been trying to get my daughter back on my group health insurance plan. I have been dealing with problems related to her insurance for well over a month. I have dealt with her former employer and multiple insurance organizations and it has taken hours and hours of my time--on the phone listening to really bad music and talking to people who cannot make decisions.

This morning I was told by a person at my insurance company that they received my latest fax, notice I said "fax", on Wednesday, it was logged on Thursday, and that it would take 5 to 7 days to process and they would send me a letter, notice I said "letter", once they review it and make a decision. I asked if there was any way to find out if everything was in order and I was told that they have to work their work flow!

Amazingly I stayed calm this time. What a lesson in basic management. Besides being on the cutting edge of the 19th century, they have a total inward focus. You would think that they would be a little more concerned about satisfying customer needs--I have a daughter whom I am not sure is insured and that concerns me a great deal.

I have been talking to this company for some time, have had numerous conversations, and they previously told me that everything was in order. When I found out that everything was not OK, I was told that it was another department that said that--now I am getting upset just typing this post!

A company that has an internal focus and does not focus on customer needs will ultimately fail. Over time we find ways to meet our needs without having to deal with these companies.

We are drawn to those who are committed to serving and solving our problems. There is a person at another insurance organization that I also have been dealing with who has gone out of her way to assist me. Imagine how I feel about her compared with the person and company I dealt with this morning.

Customer focus and meeting customer needs is at the core of every successful organization.

Four Elements of Great Communication in Organizations

To some extent great communication depends on the context--a salesperson talking to a client over lunch, a board meeting, a social gathering, a keynote presentation, a presidential campaign debate or a blog post. But there are a few things that are fundamental to all effective communication.

• Passion - If the person speaking or writing doesn't really care enough to communicate with passion, why should I put in the time and energy to hear or read. Passion covers up a lot of other deficits, unfortunately sometimes in a negative sense. If I am drawn in only by how a person speaks or writes without attention to what is said, I can be badly misled. Passion certainly is not sufficient, but is necessary. The best points often are missed when there is no passion.
  
• Listening - It may be hard to get passionate about listening because it seems like the passive part of communication. But ask yourself, who are the people you know who are the best listeners and how do you feel about those individuals? Effective speaking and writing follows focused listening, whether it is a social setting or sales presentation or editorial column--are there still editorial columns? Listening may involve attention to the other person in the moment of the exchange or it may be attention to and understanding of the needs of broader audience you are addressing. In either context, it is fundamental to great communication.
  
• Argument - Argument may seem like the opposite of effective communication, but all great communication has a point, even in a social context. Some would point out, or should I say argue, that all communication is persuasive and that argument is how we learn. Argument can take many forms. It can be subtle or aggressive, but it always is aimed at moving a person or audience to agree with my position, or to accept and maybe even like or love me, or to take a particular desired action. All great communication has a desired outcome.
  
• Authenticity - Communication can be passionate, grounded in attention to the other person or audience, and have a clear point, but if it is not authentic, it will fall flat. This means that great communication will be different for each person. We cannot copy another person and be a great communicator. Great acting is just that--acting. Great communication must be you and perceived as you.
  

While in some respects, communication is very complex, the fundamentals are pretty simple--passion, listening, argument and authenticity.

Four Basics of Leadership

While leadership is very complex in so respects, in my experience there are a some basics things that have to be in place and must be priorities for leaders.

1. You have to have a shared vision of where you are going. It cannot just be the vision of the leader. It has to be shared by the key players in the organization. Without shared vision you simply have activity.

2. You have to have the right people in the right roles. If you do not have the right people in key roles, the leader becomes overwhelmed trying to make sure the basics get done. It does not matter if you are the CEO or a department supervisor, you have to have the right people in the right roles.

3. You have to have processes in place that allow you to accomplish the work of the organization and achieve the vision. Once you have a clear shared vision and the right people in the right roles, a leader can spend time refining and improving how the work is done.

4. You have to develop a supportive and positive culture. If you have a shared vision, the right people in the right roles and are focused on improving, you probably will have a healthy culture. But a leader must constantly monitor and assure that things do not come in from the environment and poison the culture.

Now of course, anyone who has ever been a leader knows that it is not always easy to achieve these things, but at its core, this is what leadership is about—a shared vision, right people in the right roles, continual improvement of processes and a positive culture.

Fail Wisely, But by All Means, Do Not be Afraid to Fail

While this may be difficult to hear, in my experience failure is fundamental to being an entrepreneur. The truth is, the odds are not real good when you start a new business. While we have all heard the stories of people who have an idea, start in the garage and end up on Wall Street, we hear about those stories because they are so rare and they are news.

The untold stories are those who have an idea, start in the garage, and end in the garage. Failure is a part of being an entrepreneur. If we are afraid to fail, however, the ideas never get to the garage.

If failure is fundamental to entrepreneurship, the the key is learning how to fail. If you spend a lot of money and a lot of time on an idea and it does not work, then you have lost a lot of money and a lot of time. You may have learned a lot, but at a great cost. While this sounds so simple, for most entrepreneurs it takes a while to figure out.

What I have finally learned is that if you invest a little money and little time and the idea is not successful, you still have learned but have not lost a lot. I like to call this Rapid Cycle Failure. Develop an idea and get it going as quickly and for a little money as possible. Most will probably fail, but if you do several you have a chance that at least one will be successful.

This is really a hard lesson for entrepreneurs. I believe the reason is that most of us have a dream of hitting a home run. And home runs must require a lot of planning and obviously a lot of money. Most of the time we never get the idea to the garage, and if we do, our odds are not very good.

Learn to fail quickly and inexpensively. Always learn from the failure and occasionally you will hit that home run.

Solutions

Is it ironic that the first post on this blog comes on the the day that GM files for bankruptcy? Wow, do we need solutions!

This blog is focused on exploring solutions related to management, leadership, communication, organization, quality, customer service, strategy and entrepreneurship.

The lessons learned should be applicable in any environment--from large corporations like GM to small mom and pops. And yes, entrepreneurship is applicable in large companies like GM! They also apply beyond business to volunteer organizations, religious organizations, schools and of course government.

I personally have had the opportunity to work in both large bureaucratic organizations and start ups. I have had the privilege of working with entrepreneurs as a principal in a seed investment firm. I have learned as a staff person and sat in the CEO chair. And I have trained and consulted with organizations from healthcare to manufacturing. My graduate studies were in organizational communication and I have taught organizational behavior and strategy at the MBA level.

Experience on a foundation of theory can be a powerful teacher, but I by no means begin to have all the answers. I have, however, learned a lot of the questions to ask.

Join me in this exploration, add your questions to mine, and let's learn together.