Wednesday, 3 November 2010

Why did you do that?

Those of you who have been reading the business news this week will be able to guess who the latest Business Bloop award goes to. Yes it's Serco for their incredibly crass and doomed attempt to screw rebates out of their suppliers as a means of offsetting potential loss of margin resulting from renegotiation of their contracts with the government.

Not only was this bound to rebound on them in the form of damning PR, but anyone with half a brain should have worked out that this would seriously embarrass and consequently upset their main customer - the government. And so it has proved with Serco now having to publicly apologise and withdraw the demands. We are not going to add further to what has already been written and said about this. What we are more interested in is why did this happen and what lessons can the rest of us learn?

What is even more perplexing it that it is Serco that should do this. They have shown themselves to be an innovative and resourceful business with an ability to handle change successfully. This has been the foundation of their growth and success. Their Chief Executive, Christopher Hyman is a religious man who has incorporated his beliefs into the Serco ethos since becoming CEO six years ago. Attempting to screw your suppliers in this bullying and unimaginative way is more the behaviour of a uncaring business that has run out of ideas. So why should they decide to do something that is on the face of it completely out of character?

This is a phenomenon that can even affect organisations that have hitherto been regarded as outstanding examples of excellence. Just at the point when it appears a business can do no wrong, it goes and does just that. Being excellent is no guarantee of staying excellent. This happened at Toyota where of all things their product quality failed with consequences that we all know about. What appears to happen is that they lose touch with what it is that has enabled them to achieve their previously high standards, in particular how the way they think and behave has been such a vital factor.

This can be a consequence of growth that has involved a substantial expansion of the workforce at all levels. This brings in different thinking and behaviour which weakens the core ethos of the organisation. It also diminishes the conscious awareness amongst the leadership of the importance of this for its ongoing success.

However it is caused what happens is that a business that was previously in an "excellent" condition slips into a "comfortable" condition. Assumptions about still being excellent (Toyota) or making out of character decisions (Serco) are characteristic of this weakening in the Competitive Strength condition

The consequences are significant. If you have got a really good reputation to lose then when you lose it the damage can be enormous and potentially fatal even for the very best. Serco's shares dropping 27% is just one manifestation of this. Serco's leadership needs to look very hard to find the root cause that produced this disastrous and totally out of character decision. It is not something that can be easily reversed once the cultural change has taken hold. The rest of us need to learn the lesson from Serco's and Toyota's experience.

Business Bloop Award is brought to you by Steve Goodman and Tony Ericson of Business Breakthrough Coaching. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Exceeding Expectations," "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

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