Today I want to talk about how business owners and the senior managers of big companies attribute reasons and causes to business performance problems.
The Art Of The Irregular Verb
First let me explain a concept called an "irregular verb" made famous in one of my all-time favourite TV shows, Yes Minister by the Principal Private Secretary Bernard.
Basically the thinking behind an irregular verb is that what I do is good, what you do is OK and what he or she does leaves plenty to be desired.
Here's an example from Yes Minister.
- I'm an original thinker
- You're a bit eccentric
- He's crazy.
The same kind of things happen when we attribute causes to performance and particularly when performance isn't very good.
I'm Great... He's Not So Good
The human brain is hard-wired to think:
- "If our performance is good, it's because of something I've done."
- "If our performance is bad, it's because of something outside of my control."
Makes sense in a way.
Neither you or I are going to deliberately screw up in what we do.
But our brains are not so charitable when we see good performance from someone else.
- "If things are good, he must have got lucky."
- "If things are bad, well what do you expert. He hasn't got a clue."
We all do it.
Causal Attributions - Matching Causes To Effects
Let's dig deeper into the psychology about causal attributions (that's the posh way of saying how we match cause and effect) and then relate it to business performance problems.
Bernard Weiner identified three dimensions we use to attribute causes:
- Is the cause internal or external to ourselves? Did we cause it to happen or did it happen to us?
- Is the cause controllable or uncontrollable? Things are happening but can't we do anything about it?
- Is the cause temporary or permanent? Is this a short term problem which will go away or is it a long term adjustment to the way our world works?
Applying Causal Attributions To Business Performance Problems
Another academic, Jeffrey Ford took these dimensions of causal attribution and looked at how managers respond to a performance downturn in a business.
This is fascinating research because the causal attribution made by a business owner goes a long way to deciding how the business will respond to the performance problem.
Ford found that the initial attributions were:
- External - the problem is coming from the outside.
- Controllable - but we can do something about it.
- Temporary - the problem will go away in the end but we can take short term tactical actions to fix it.
The basic prescription from managers to solve the problem is...
"We'll do more of what we are doing. That will solve the problem."
[Hidden subtext - we don't need to change because the problem is in the outside world but fortunately we can fix this.]
Fine if it works.
I guess the causal attribution was right but... often it doesn't work.
According to Jeffrey Ford, when performance doesn't get any better, the causal attributions of the business owners and managers changes to:
- External - this recession is deeper and going on longer than expected
- Uncontrollable - we gave it our best shot so I guess there's nothing else we can do
- Temporary - the recession must come to an end soon and then things will be back to normal.
This time the basic prescription is to...
"Sit it out and wait. We'd better cut some costs to give us some more time but things will pick up as our competitors go bankrupt."
[Hidden subtext - if we can't do anything about it, then no one can.]
If the business is losing money, then as each day goes past, the business has fewer resources available to get itself out of trouble.
Some businesses can wait it out.
Especially those with:
- Plenty of resources and especially cash in the bank
- A very low break even position so any losses incurred are small compared with competitors
- A strong competitive advantage
But What If?
It's a great question to keep asking about your business - what if....
What if there is a double dip recession?
Many government debts are frightening and the major Western economies have huge imbalances between spending and tax, between exports and imports and between public and private sectors.
What if the economy you're in stagnates like Japan over many years?
The "sit still and hold on" strategy doesn't look so clever under this possible scenario.
What if the economies bounce back to modest growth but the consumers are scarred by the experience and move from impulse spending to planned long term saving? Suddenly conspicuous spending on must-have items - the new car every two years, the huge flat-screen TV, the latest gizmo from Apple - is out of fashion.
The causal attribution of External, Uncontrollable and Temporary to a business performance problem doesn't look so good under these What Ifs.
Changing While You Can Change
The external, uncontrollable and temporary attribution creates an entirely logical reaction of Do Nothing but it's at odds with your entrepreneurial instincts and probably feels uncomfortable.
You didn't start your own business to be an "out of control victim of circumstances" but to be "in control winner" because you play the game hard and fair.
Take this opportunity to go back to your business performance problem and look for a better set of causal attributions which gives you the incentive to take control.
What if you stop blaming the outside world and accept that your business must change.
Charles Darwin showed that species evolve or die in his survival of the fittest theory of evolution.
It's no different in business.
You have to accept that things are the way they are.
You have the chance to adapt if you change your thinking on the external or internal attribution from:
- The economy is bad and it's causing my business to do badly.
- My business needs to change to fit the economy
And if you change your thinking on the uncontrollable or controllable attribution from
- There's nothing we can do
- We can make our business fit the new world
And finally change our thinking on the temporary or permanent attribution from
- Things will get better soon
- This could be a permanent shift in the way my world works
Now you've got a much healthier set of attributions:
- Internal - we need to change
- Controllable - we can change
- Permanent - we must change
In fact, you now have a real agenda for change.
That's what the Profit Tipping Point is about.
It gives you the tools to look across the five areas which affect your business profits the most, identifying what's happening and then making the changes necessary in your business, first to survive and then to prosper.