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The Opportunity Mirage: How
to Spot When A Rose Is Not A Rose.
Is that great
looking opportunity a mirage?
Sometime last
year I had a conversation with a CEO who was frustrated by the poor performance
of his company’s U.S. subsidiary. Sales were down and the management was
disappointing. None of this was surprising since they were in a highly
competitive market and offering little unique value.
After some discussion, I
suggested that it might be time to shut down the subsidiary and focus elsewhere
where the company was stronger. The CEO hemmed and hawed and finally
confessed. “You know, the United States is such a huge market. I just can’t
believe that there’s no room for us there.”
A few months later I read in
the papers that the U.S. subsidiary had defaulted on its loan terms and their
bank was freezing their credit line.
This CEO was no dummy. The
parent company was a shambles when he arrived and he was responsible for huge
improvements. He trimmed the labor force and outsourced manufacturing. And he
opened this U.S. subsidiary.
But when it wasn’t working,
why couldn’t he see that the opportunity was a mirage? Why couldn’t he see that
this rose wasn’t a rose?
More below…
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Why
Defining Strategy Is A Waste of Time – and What to Do Instead.
By
Dov Gordon
http://tinyurl.com/qpegn
=============
Continued…
The field of behavioral
economics
offers some explanations for why the best and brightest amongst us are liable to
trip over the wires in our own brains. Here is a brief overview of just three
of our tendencies.
1.
Overconfidence and
over-optimism.
Confidence and optimism give
us the gall to venture out and start a business in the first place. But they
can also drive us to base our plans on unrealistic assumptions about the
marketplace or our own capabilities.
2.
The status quo bias – or the “endowment effect”:
According to Charles Roxburgh in The McKinsey Quarterly*, this tendency gives
people a strong desire to hang on to what we already own. The very fact that I
already own it leads me to perceive it as more valuable. “Richard Thaler tested
this effect with coffee mugs imprinted with the Cornell University logo.
Students given one of them wouldn’t part with it for less than $5.25, on
average, but students without a mug wouldn’t pay more than $2.75 to acquire it.
The gap implies an incremental value of $2.50 from owning the mug.”
This bias,
according to McKinsey research, makes CEO’s reluctant to sell businesses,
amongst other things.
3.
Misestimating future hedonic states.
We are bad at estimating how good or bad we will feel if our situation changes.
We tend to expect it will be worse or better than it usually turns out to be.
In truth, “People adjust surprisingly quickly and their level of pleasure
(hedonic state) ends up, broadly, where it was before.”
Dov
Gordon’s CEO Thought-Provoker™ Questions:
i.
Have you or anyone on your team recently expressed
strong confidence in something when the evidence is in fact inconclusive,
neutral or indicative at best? If you’ve decided to act on this confidence,
have you at least prepared thorough contingency plans should your assumptions be
proven wrong? (Perhaps go back to basics?)
ii.
Has your organization resisted making changes that
must be made – perhaps due to fuzzy fears or excessive concern for what might
be? (Status quo bias. Misestimating future hedonic states.)
iii.
Do these first two questions, when taken together,
strike you as something of a paradox?
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Open phones
with Dov Gordon: Call to discuss an issue that you are dealing with and hang up
with greater clarity as to what you need to do next. No charge. First come –
first serve. Tuesday, March 21st 4pm – 5pm GMT+2.
=============
You can comment
on Dov Gordon’s CEO Thought-Provokers™ at our blog:
http://ceotp.blogspot.com/
Archives
of The CEO Thought-Provoker are here:
http://www.gordongroupec.com/CEOTP/CEO-Thought-Provoker-Archives.html
*Read more about
these and other ‘flaws’ in our brains and how they affect our strategic thinking
at The McKinsey Quarterly. “Hidden Flaws In Strategy” by Charles Roxburgh.
Registration is required, although at no charge.
http://www.mckinseyquarterly.com/article_page.aspx?ar=1288&L2=21&L3=37&srid=253&gp=0#foot9
+++++++++
Dov
Gordon
helps senior executives at small and mid-sized
companies around the world to earn the respect and admiration of their
marketplace. Clients benefit from clarifying their strategies, sharpening their
focus, making better decisions, improved teamwork and growing into great
leaders.
Management and
Strategy Consulting.
Executive
Coaching.
www.GordonGroupEC.com
+++++++++
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Copyright 2005 © by Dov Gordon. All rights reserved. |
