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Most companies are in it for the money. And
why shouldn’t they be? After all,
without profits, how would the company survive?
Well, I believe that profits come as a result of providing a needed
product or service. Providing it with
high quality, on time and at a competitive cost improves the chances of making
a profit. Now I know that sounds simplistic,
but profits come as a result of meeting a need or doing something. We don’t just create corporations or LLCs and
expect to be profitable. Read on for a
great example to help prove my point.
In the decades after World War II, Boeing had one overriding purpose: to make the
best, most advanced planes. In the words of Bill Allen, Boeing CEO from 1946 to
1968, the purpose of Boeing was to “eat, breathe and sleep the world of
aeronautics.” By the early 1990s, Boeing was the world’s dominant civil
aviation company. Under new CEO Phil Condit, however, the goal of the company
changed dramatically. Success was now defined in terms of profits, not
aviation. “We are going into a value based environment where unit cost,
return on investment, shareholder return are the measures by which you’ll be
judged,” Condit explained. “That’s a big shift.”
In the years that followed, Boeing lost its lead in civil aviation to rival
Airbus, the stock market turned sour on the company and, in 2003, Condit was
forced out. Boeing returned to aeronautics and aviation goals, and, with the
success of the new 777 and with the groundbreaking Dreamliner on the horizon,
the company was soon putting itself once again in position to dominate the
world aviation industry.
In short, when Boeing focused on aviation, it was a profitable and successful
company. When it focused solely on financial measures, its bottom line
suffered.
Why are companies who have the No. 1 goal of making profits often unprofitable?
And why, paradoxically, are companies who have different, more qualitative
goals often quite profitable? The answer, writes London
School of Economics professor John Kay in his new book, Obliquity,
is simply stated: broadly defined or complex goals are best achieved indirectly
— a phenomenon that Kay terms “obliquity.”
For example, in the same way that the most profitable companies are not those
whose goal is to pursue profit, the wealthiest individuals are mostly those who
are less interested in pursuing wealth. Their wealth is a byproduct of a
different mission. Henry Ford was passionate about cars and bringing cars to a
mass market. Sam Walton wanted to build the world’s best retail company. Bill
Gates was fascinated by the potential of computing to change people’s lives.
Their No. 1 mission was not to become rich — although they all amassed
fortunes.
Adapting and Learning
Obliquity is not an argument that goals are useless — that you never reach what
you strive for. Instead, Kay explains, obliquity is the recognition that we
cannot plan and control every step of a path toward a complex goal.
Broad, complex objectives are achieved through a process of risk-taking,
experimentation and discovery, a continuous circle of learning and adaptation.
The direct approach doesn’t work, Kay writes, for a variety of reasons. One
reason is what he terms “pluralism.” There is often more than one
answer to a problem. Also, most real-life, high-level objectives problems are
broadly defined and can’t be broken down in advance into specific goals or
actions. There are many paths to building a successful business or even
becoming financially secure. A third issue with the pre-planned, direct
approach is the unpredictability of interactions with others. Will others react
as we plan for them to react? Probably not.
In the final section of the book, Kay lays out some of the ways we can use the
concept of obliquity to make better decisions and to solve problems more
effectively. For example, make a determined commitment to overall high-level
objectives, but do not stubbornly cling to specific intermediate or basic goals
or actions. Franklin D. Roosevelt achieved two
major objectives: preparing for and leading his country to victory in World War
II, and securing the survival of American capitalism through the New Deal. He
achieved those high-level objectives, Kay writes, “through pragmatic
improvisions in the face of circumstances that neither he nor his outstanding
advisers could predict or control.”
Another application of the concept of obliquity is to admit that we cannot know
everything about a situation. Both Warren
Buffett and George Soros are legendary investors, but both acknowledge that
they cannot plan for investment success. “In many industries,” writes
Buffett, “I cannot be sure if we are dealing with a ‘pet rock’ or a
‘Barbie.’”
Intellectually stimulating and filled with vivid, pertinent examples, Obliquity is a
thoughtful analysis of how the world truly operates. It brings home reality.
