October 26, 2023

TPL Insights #194 – Old Formulas Won’t Help You Solve Today’s Business Problems

By Rob Andrews

By Rob Andrews with italicized content from the HBR article “Old Formulas Won’t Help You Solve Today’s Business Problems” by Andrea Belk Olson

Three months ago, I started a second master’s degree program at UT Austin called Human Dimensions of Organizations. My list of “reasons why” I’m back in grad school is rather long. Near the top of that list is the simple fact that success in today’s environment requires a mindset unencumbered by limiting beliefs and worn-out formulas. When Charles Butt began his transformation of H-E-B in 1987, the consultant he hired advised him that transforming his company would require a complete overhaul of his current thinking, conventional wisdom, and established success models.

That was 35 years ago, when Butt’s enemy was easy to identify: The Walmart Super Center. For most of us today, the enemy is far more difficult to single out. It is often disguised as an old familiar friend, in the form of a success model or formula that has worked in the past. Human Dimensions of Organizations (HDO) is a multidisciplinary approach to driving organizational performance. My nontraditional cutting-edge professors are retraining me to think differently about the most effective ways to build peak performance cultures. Andrea Belk Olson’s article in HBR caught my eye, and, while our contexts are slightly different, her message resonates with me as I hope it will with you.

The only constant in business is change, and it’s recently accelerated to light-speed. If the rising rates of employee burnout are any indicator, there are no signs of all this turbulence slowing down. People will continue to face increasing stress and anxiety from persistent uncertainty and ambiguity. To mitigate this barrage, organizations often turn to the familiar — those formulas that have had a track record of success in the past. However, what worked in the past can’t fully address today’s challenges, as they were spawned in a wholly different environment.

Why You Can’t Rely on Former Formulas of Success

Formulas may be road-tested approaches to business challenges, but formulas have flaws. What worked yesterday might not be applicable or even plausible today. There are three primary reasons why you can’t rely on former formulas of success.

1. Formulas Don’t Work in All Contexts

Consider JCPenney. In June 2011, Ron Johnson, the man in charge of Apple’s wildly profitable retail stores and former Target executive, took the helm of the flailing retailer. He focused on implementing the formula he found successful with his previous employers — using constant markdowns, turning stores into destinations filled with branded merchandise, and reducing the number of private-label brands. Sixteen months later, Johnson was fired. Same-store sales fell by 25%, the company recorded a $1 billion loss, and its stock fell 19.72%. What worked at Target and Apple didn’t transpose onto JCPenney because their customers weren’t looking for experiences — they were looking for consistent deals, hard-to-find specialty sizes, and an unpretentious environment with high-quality house brands. Ron Johnson’s formula ended up being the exact opposite of what the JCPenney consumer was seeking.

2. Formulas Have a Limited Shelf Life and Can Be Copied by the Competition

Another example is the famed “Toyota Way,” the legendary management system popularized by Jeffrey K. Liker in his 2004 book. The framework centered on a set of principles around organizational culture and continuous improvement (Kaizen), focusing on the root cause of problems, and engaging in ongoing innovation. This formula enabled Toyota to gain significant market share in the American market between 1986 and 1997. However, since then, competitors including Ford, Honda, General Motors, and Stellantis all have adopted the system, significantly diminishing the competitive advantage the formula afforded.

3. Formulas can have hidden risks.

Research on technology startups in Silicon Valley found the “High-Commitment Management Model,” which focuses on hiring employees based on cultural fit and developing strong emotional bonds with them, is less likely to fail and more likely to ensure the company goes public as compared to startups that used other hiring approaches. However, the same study found that changing the hiring structure after a startup launch triples the likelihood of failure. While this may be an effective model for a small, flat organization, once the company begins to scale, the formula isn’t sustainable. This forces a major change in hiring practices, which in turn, puts the organization at risk.

How to Sharpen Cognitive Skills in Your Organization

Cognitive skills are the mental processes that allow us to perceive, understand, and analyze information, and are essential for problem-solving, decision-making, and critical thinking. Psychologists Daniel Kahneman and Amos Tversky first researched these higher-order processes in their best-selling book, Thinking, Fast and Slow. They found that cognitive skills — which they deemed “slow” thinking — require more time and energy to effectively evaluate and apply reasoning to a problem. On the other hand, “fast thinking,” is a more automatic and reactive response. Essentially, we need to apply our “slow” thinking skills to make better decisions and more effectively solve complex challenges. Fortunately, cognitive thinking skills can be expanded and improved with practice and training. Here are three basic ways to sharpen your organization’s cognitive skills:

1. Analyze known unknowns

Donald Rumsfeld, George W. Bush’s secretary of defense, became well known for his famous statement, “As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.” While Rumsfeld didn’t invent the concept, what’s deemed as the Rumsfeld Matrix is a cognitive method for defining the things you think you know that it turns out you did not know.

2. Encourage Divergent Thinking

Divergent thinking is a thought process used to generate creative ideas by exploring many possible solutions. It involves breaking a problem down into its various components to gain insight about its various components. Done in a spontaneous, free-flowing manner, ideas are generated in a random, unorganized fashion. An example of divergent thinking would be generating as many uses as possible for a normal, everyday object. For instance, using a coin as a flathead screwdriver, using a fork to dig a hole. By looking at a situation from a unique perspective, it can give rise to a unique solution. Organizations can apply divergent thinking in a variety of ways. This can be something as simple as bringing groups of employees together who normally don’t engage with one another to practice synetics — the act of stimulating thought processes to uncover alternative ways to overcome obstacles.

3. Apply First Principles Thinking

For instance, Elon Musk, in his mission to transform space travel with his company SpaceX, tried to buy rockets so he could launch them into orbit. However, the costs of buying a rocket outright were too high to make SpaceX a successful company. Instead, he applied first-principles thinking to boil down a rocket to its most fundamental components and materials. He realized the price of the materials to build a rocket were much lower than buying one outright. In other words, building a rocket ship would make more sense for the business model he was creating.

As is often the case, success is found in moderation. Formulas can be a helpful guide, but complex challenges typically require unique insights and perspectives that come from the application of cognitive thinking. Focusing on these skills also helps employees to be more independent learners. If an individual knows how to learn, they will foster abilities and behaviors that are transferable to all kinds of contexts and problems thrown their way. This inherent to the art of effectively navigating change. When we know how to adapt, we can position ourselves for future success in an unknown environment.

To manage a fluctuating business climate, companies need a different toolkit. Instead of relying on static formulas that worked in the past, organizations need to focus on changing the way people think. This requires focusing on refining people’s cognitive skills so that they can better identify, assess, and solve unique problems in unique ways. Our work with Michael O’Brien and our co-created assessments that measure the extent to which we operate with limiting beliefs is typically where we start. Here is a link to a thought leadership piece which will help you begin to redirect your thinking. I sincerely hope this information has been helpful.

Warmest Regards,

Rob