Critical Thinking Cafe

A Lesson from Societe Generale's Loss

For over a decade Nick Leeson's name has been a painful memory in the minds of the world's financial institutions--a vivid reminder of the importance of checks and balances in a bank's risk control systems. Leeson's loosing bets on the Tokyo stock exchange index and his ability to hide his losses by serving as the back office clerk for his own trades resulted in the $1.4 billion loss that brought down Barings Bank, an institution whose historic investments including financing the Louisiana Purchase.

But Leeson was severely upstaged this week when French bank Societe Generale pinned their $7.1 billion loss on a single junior trader whose knowledge of the bank's risk-control system enabled him to create what SocGen called "an elaborate assembly of fictitious transactions" that concealed the tracks of his losses until the scam blew up and became the financial story of the week.

Is this financial fiasco a problem that SocGen should have anticipated and prevented? Unfortunately, many risk control processes are based on what has occurred in the past. The rapid evolution of technology and the flattened structure of organizations makes catching fraud before a cataclysmic loss increasingly difficult.

But more significantly, the risk avoidance strategy in some organizations is closely linked to the self-preservation strategy of its leaders. Problems that erupt are often dealt with as isolated situations that are quickly "resolved" and diluted into non-issues. A failure or unwillingness to investigate a problem's role within the context of a larger system, the inability to get to the root cause of a problem, and infrequent questioning of the way business is conducted create an illusion of organizational health while something deadly grows beneath the surface.

Banking analyst Axel Pierron's explanation of this disaster is a good reminder that an organization's greater risk may not be the "enemy within" as much as the institutional thinking that often hides his existence.

Does High Potential Equal High Risk?

Companies making huge investments in developing their "high potential" employees also need to invest in helping those top performers keep from drowning in their own wakes. A recent Personnel Decisions International evaluation of 500 mid-level managers found that 27 percent of leaders who are viewed as high potential employees also have a high risk of demotion, dismissal, or performing below expectations. (The complete study is available from PDI as a free white paper.)

While quantum-leap opportunities can keep a top performer engaged, if the manager/wanna-be executive is not prepared for the distinct challenges that come with greater responsibility, difficulty and possibly derailment can be expected. Fast-tracking high-potential employees is another version of the scenario that has played in business development groups for decades--a top performing sales person is promoted to sales manager where the individual stumbles, struggles, and eventually fails. From sales to finance to technology to marketing the technical and tactical strengths that get you recognized and promoted are not the skills that will make you successful as a senior leader. New executives often don't realize that the independence that got them to a senior role will destroy them once they arrive.

As the Steven Roth Professor of Management at Dartmouth's Tuck School of Business, Sydney Finkelstein has conducted one of the most extensive research efforts into corporate mistakes and failures. His insights are captured in his book titled, Why Smart Executives Fail. Finkelstein says that one of the most prevalent warning signs of executive failure is success and the arrogance that often accompanies it.

Outstanding results in one role won't equate to great performance in a more senior leadership position unless the individual is equipped with the interpersonal skills needed to interface with, lead, and relate to diverse groups of people. "It is important to remember that corporate mistakes are about people," says Dr. Finkelstein.

A successful marketing executive was hired by a world-renowned organization and she quickly set out to accomplish the aggressive agenda placed before her. She successfully achieved what she was hired to do, but she did it without building a network of relationships with those she led and with other departments in the organization. As soon as she completed the initiative, the executive's employment was terminated. Tactical strength resulted in strategic failure.

There are at least 135 very talented, high-potential managers currently on a course toward derailment. How many of them are in your organization?

Is it a Problem When Intellectual Capital Walks out the Door?

In the January issue of T&D magazine, senior associate editor Michael Laff reports that over 900 companies surveyed by Boston-based Novations Group have no method for transferring the knowledge of retiring baby boomers to other workers. The survey was completed by 2,046 human resources and training executives and revealed that the majority of companies seem to have little concern for gathering the intellectual capital of retiring employees before they take a hike out the door to retirement, or more often, to another career.

Is this a problem? Will a lack of attention to "knowledge transfer" become an issue when an operations executive wakes up and realizes that critical client or process information just left for a ski trip in Colorado or started a three week cruise in Russia? While it is easy to find and hire bright minds and new talent, can a person's brilliance compensate for the fact he or she has not traversed the often treacherous waters of client relationships and corporate culture idiosyncrasies?

Long-term success is enhanced by the ability to anticipate and plan for problems. Perhaps the loss of critical information and not knowing the history of a client relationship is a bigger problem than many organizations realize--or it's a problem they'll discover in ways they could easily avoid.

Critical thinking involves using information to assess a situation and plan a course of action. According to Novations Group, a majority of companies need to give critical thought to how they manage one of their greatest assets--the knowledge of the people making their organizations successful.

CEOs Still Struggle with Implementation

What good is a market-transforming idea if you can't move it beyond an idea? According to a Conference Board survey conducted in 2007, CEOs in 769 companies crossing 40 countries define their greatest challenge as "excellence in execution" (38%) with their third highest concern being "consistent execution of strategy by top management" (31%). (HR Magazine, January 2008, page 10.)

It appears that senior executives continue to underestimate the energy, relentless focus, and broad engagement across an organization that are required when trying to implement strategic and lasting change. Perhaps a close second is the dramatic need for mid-life leaders to take the time to understand what people in their organizations need and want before they will embrace and execute wholesale or even minor change.

We've known for a long time that people do what they do for their reasons, not ours. I can't help but wonder if our on-going corporate struggles with executing change are less a statement about the face of change than they are a statement about leadership's lack of engagement with the people a change impacts.

Prioritizing by Problems

Some time management gurus tell us an "A" task on a list of things to do is something that has a high reward for getting completed--and carries a big consequence for not getting done. You know, like filing your taxes--the possible reward of a refund if you get them done, and the reality of nasty penalties if your taxes aren't filed by a specific date. (This blog is not suggesting that you skip this annual ritual.)

While this approach to managing activities can get you through a crisis, using this mantra as a model sets you up to allow your problems to determine your priorities. Whatever is loudest and carries the biggest threat becomes the primary focus of your energy and time. A large, demanding client company consumes huge amounts of time and resources (usually at lower margins) while easier, more profitable clients that might eventually become large customers quietly go away due to your lack of availability.

If your world is driven by noisy, demanding problems you have a bigger problem than the one you label "time management." When your problems determine your priorities you can be sure whatever you're trying to solve isn't the source of your problems.

Deja vu Problem Cycles

If you have this uneasy feeling that you're seeing the same problem scenario over and over again, it may not be an experience of deja vu as much as it is the result of inadequate cause analysis. We all have those occasional waves of paramensia when we feel like we've witnessed or experienced something before. But when you keep seeing the same problems recurring in your job or your life don't blame your experience on parapsychology.

Former Dale Carnegie CEO Stuart Levine writes, "If you're making a lot of different mistakes, you're learning. If you're making the same mistake more than once, you're wasting time. Successful people learn from their mistakes right away and don't repeat them" (Cut to the Chase, page 187, Currency/Doubleday, 2006).

Mistakes are like problems. We all have them and we learn a lot from them. But if we keep having the same ones over and over--we're wasting valuable time and resources.

If you're staring into the same problem you faced last week, last month, or last year, whatever you've done to fix the problem isn't addressing the real cause. Any relief you've gotten for the visible symptoms may ultimately make it more difficult for you to identify the root cause.

A thorough cause analysis process can require valuable time. In the press to do more each day, it is tempting to affix the blame for a problem on the first likely suspect in the lineup. But if you don't have time to get to the root cause now, what makes you think you'll find time to fix the problem again later? You will see it again and again and again.

Maybe a good resolution for a New Year is to slow down and get off the deja vu cycle of repeated problems. Repeated problems drain your energy, kill motivation, sour morale, and waste resources. Make certain your problem solving efforts this year target the real cause of a problem--not just the symptoms.

Ten Symptoms of Ineffective Problem Solving

Any doctor that focuses on an isolated symptom without considering a patient's overall physical condition, can easily make a careless if not dangerous misdiagnosis. Managers who tend to see problems as isolated events, often fail to recognize the inter-relationship between solutions for problems, people not supporting decisions, and new problems emerging when solutions are implemented.

Viewing an organization as a system of interrelationships and patterns of behavior is essential if you want to solve problems and prevent their recurrence. The following list identifies ten symptoms that tell you the problems you encounter aren't isolated incidents--they are visible indicators of systemic needs throughout your organization or team.

1. People do not identify or accurately describe problems when they occur, often delaying needed action.
2. People spend a lot of time fighting fires and are not proactive in resolving issues.
3. Meetings lack focus and often fail to produce the desired results.
4. Solutions often lack innovation and don't make measurable improvements in performance.
5. People do not identify the real cause of problems, resulting in ineffective solutions.
6. Decisions aren't thought out and miss important factors that should have been considered.
7. Decisions fail to get buy-in and support or aren't communicated well.
8. Avoidable problems emerge when new processes or procedures are implemented.
9. People have difficulty prioritizing and resolving complex problems.
10. Teams tend to assign a lot of blame when facing difficult problems.

You can measure your problem-solving bench strength and receive a free report by completing a five-minute organizational assessment.

Problem Solving Insights from a New Year Polar Plunge

From Seattle and Vancouver on the west coast to Fon du Lac and Sheboygan in the north to more Atlantic coast cities than you want to list, hundreds of people engage in what observers might consider to be a bizarre New Years ritual that dates back to the early 20th century. Some do it for charity, others for a cheap memento. Many believe the act develops stamina, better health, even virility.

Whatever their motivation, scores of senior citizens, athletes, business professionals, and even young children greet the New Year by jumping into an ocean, the Missouri River, or one of the Great Lakes. The Coney Island Polar Bear Club claims to be the oldest established venue for this heart-stopping event, listing their first frigid plunge as early as 1903. For the annual event of 2008, some of the participants (those with operative brain cells) donned wet suits. A guy from Sturgeon Bay, Wisconsin wore a new $30 Speedo bought for the occasion. A couple in Massachusetts jumped into the Atlantic wearing the wedding outfits they were married in the night before.

So how does this strange, even bizarre ritual relate to problem solving and critical thinking? Not a whole lot--but it does remind me that we are always surrounded by people making choices that, from our individual perspective seem unusual, illogical, or even bizarre. When we approach any problem-solving effort we need to remember that apart from acts of God/natural disasters, most problems are in some way linked to people and their choices. And normal, intelligent people often make choices you would never consider. An effort to isolate the cause of a problem that ignores or minimizes the relational and interpersonal dynamics surrounding the problem will usually result in a short-term, symptomatic fix that does not resolve the bigger or root issue.

I was amused to hear a general who had served in Iraq tell about his arriving in that country and suggesting that the best way to resolve some of the immediate problems with snipers, bombers, and other assorted jihadists would be to sit down with the leaders of these groups and ask them why they want to keep killing people. (He actually did that.) That leader recognized something many of us miss when trying to solve complex problems: when you attempt to isolate events and processes from relationships you overlook important contributors to the root cause of a problem.

You might not choose to greet a New Year by plunging into 39 degree water, but don't allow your reasoning to discount the logic that motivates people that do. All problems are the result of change--and most changes are the result of choices made by people.

Looking at Problems Through a Lens of Hope

Today's blog is an excerpt from Joe Jordan's book Wireframe: Creating the Structure for Enduring Success which will (hopefully) be published in 2008. This content is copyrighted and used by permission. All rights reserved.

After a year of unplanned challenges, unexpected setbacks, and unheard of problems it is tempting to pack your hope in a box in the attic of your mind and think the worst that could happen might be the best that will happen. You start sounding like the Peanuts character Snoopy as he bemoaned, "Yesterday I was a dog. Today I'm a dog. Tomorrow I'll probably still be a dog. Sigh! There's so little hope of advancement."

He was born in 1936 into one of the wealthiest and most influential families in Prague. His grandfather was a major leader in the arts and his uncle's work laid the foundation for the Czech film industry. Following the Communist coup in 1948, his family lost most of its wealth. A gifted author and playwright, he was banned as a writer after his condemnation of the Warsaw Pact invasion. In 1977 he was charged with trying to subvert the state and in 1979 was sentenced to four years in jail. Ten years later he was again incarcerated, this time for standing in the street.

During long nights in prison, Vaclav Havel could not have imagined that he would one day emerge as the central figure of the Velvet Revolution and become the first president of the Czechoslovak Socialist Republic. Repeatedly slammed by discouragement, defeat, and the unfairness of life, Havel continued to pursue his dream of a better future for himself and his nation. He learned to see beyond his current circumstances, refusing to allow the realities of the present to dim his convictions about the future. In 1995, Havel shared a message that articulated the beliefs that kept him pressing forward after hitting wall after wall of opposition.

Many times in my life and not just when I was in prison, I found myself in a situation in which everything seemed to conspire against me, when nothing I wished for or worked for seemed likely to succeed. . . Whenever I found myself immersed in such melancholy thoughts I would ask myself a very simple question over and over again, 'Why don't you just give up on everything?' . . . Each time, I would eventually realize that hope, in the deepest sense of the word, does not come from the outside, that hope is not something to be found in external indications simply when a course of action may turn out well . . . hope is a state of mind, and we either have it or we don't, quite independently of the state of affairs immediately around us . . . Indeed, only the infinite and eternal, recognized or surmised, can explain the no less mysterious phenomenon of hope. (Speech by Vaclav Havel at the Hiroshima Memorial)

Wherever you are in your journey as a leader, remember that your attitude is not dictated by your circumstances. The attitude you carry today is the attitude you choose to carry. Choose to look at life through a lens of hope. Unexpected vents often bring unwanted adjustments. Difficulties in business and in life are not dispersed through a merit system. Doing what is right--even solving a difficult problem---can make a situation more difficult than before. If you fixate on the tough things that cross your path you will likely become a very negative person.

One of the treasured gifts you can always give to yourself--and to those around you--is your genuine hope that tomorrow will be better than today.

Don't Be a Scrooge About Having Problems

What do you get when you mix a bit of information, a healthy imagination, and someone with too much free time? The answer is--an urban legend--one of those intriguing stories that sounds plausible, but turns out to be more fiction than fact. (If you want to read some of the wildest--and the tales they're tied to visit http://www.snopes.com/.)

There are also stories floating around that sound like legend, but are anchored in reality. For example, did you know that. . .?

• Two of Santa's reindeer were originally called Dunder and Blixem, not Donner and Blitzen.
• Rudolph the Red-Nosed Reindeer was created for a Montgomery Wards marketing program.
• Wassailing originated as a custom of honoring one's livestock and crops in hopes of a better yield next year.
• Two brothers exchanged the same pair of pants at Christmas for 20 years.

Here's one more line that is often assumed to be as fanciful as Marley's Ghost but is as solid as last year's fruitcake: Having problems isn't a problem.

If I asked you to make a quick review of the past 12 months and to identify the moments when you learned the most or matured the most--either professionally or personally, those defining chapters of 2007 were probably connected with your involvement in solving problems. Knowing how to engage in critical thinking doesn't insulate you from life's problems--it just gives you a more defined and reliable method for solving them.

Speaker and author John Ortberg reminds us, "When teachers want students to grow, they don't give them answers--they give them problems! ('If a train leaves Cleveland at 3:00 going 50 m.p.h...') It is only in the process of accepting and solving problems that our ability to think creatively is enhanced, our persistence is strengthened, and our self-confidence is deepened. If someone gives me the answers, I may get a good score on a test, but I will not have grown. Just as our bodies simply will not grow stronger without being challenged to the point of exertion, so it is with our minds and our spirit" (If You Want to Walk on Water, page 47).

An effective critical thinking process begins with a healthy attitude about problems--accepting the reality that life has problems and even the best efforts to anticipate and plan for them won't protect you from all of life's unexpected turns. As one wag put it, "There are only two problem-free states: comatose and dead."

From delayed flights, to unwanted gifts, to overconsumption, to weird family dynamics--the holidays carry with them an abundance of problems. If you perceive every challenge as a battle to be won, you can expect a lot of conflict during the next two weeks. If you see problems as opportunities for addressing the bigger issues (root cause), using creativity, making good decisions, and looking for what you can learn in each situation--you'll start the New Year wiser than you ended this one.

Happy Holidays--