Risk and failure are an important and necessary part of business. The freedom to operate with an innovative, entrepreneurial spirit requires the ability to take chances and absorb mistakes. Fortunately for many successful companies, the return they achieve from ongoing operations is usually enough to cover their investments in change efforts. But Pivotal Resources is not sure we wouldn’t see some panicked looks if, instead of quarterly sales or net profit figures, leaders were asked to present the return on their IT, new product, process improvement, and other projects.
Jim McNerney, who was CEO of 3M Corporation and is now at the helm of Boeing, recalled an “ah-ha” he had while running GE’s Lighting business. McNerney told Pivotal Resources:
“Every year we had our productivity goals, with projects to achieve those goals. Every year we’d aim to boost our efficiency by 2 percent, 4 percent—and we’d usually declare victory based on successful projects. After a few years it occurred to me that if we’d really achieved those returns, by then we should have been getting 50 percent profit margins!”
A partial justification for the phenomenon McNerney notes is that an active effort to improve the business is necessary just to avoid deterioration. We’re all, in a sense, swimming against the tide: part of our energy is expended to avoid getting washed away. But that kind of investment is just “loss avoidance.” It does not provide any positive return. You need to improve your stroke, expend more energy perhaps, but use it more efficiently as well, to really make progress against the tide.
Anytime you start to think all these change investment decisions are made “on high,” just ask the senior executives, who can find it very challenging to make anything happen in the face of passive resistance, priority overload, or just plain obstinacy on the part of what some of our clients have called the “frozen middle.” Achieving the best possible return on your portfolio demands leader engagement at all levels of an organization. Your initiative can make a difference.