There is a great story on business performance, from Harvard professors Donald Sull and Kathleen Eisenhardt who write and teach on strategy and decision-making. They tell the story of a private equity firm that bought a portion of a government run railroad network, America Latina Logistica (ALL).
Years of chronic underfunding meant the railroad network was in poor shape. Most of its revenue was generated during just a few months of the year when soybean farmers shipped their harvest to the market. They were often forced to turn farmers away because many of the tracks were damaged or they did not have the capacity to ship the goods. It was a losing scenario for everyone. Farmers watched their crops rot in the fields while ALL turned away business.
CEO Alex Behring was put in place by the private equity firm and he needed to find a way to prioritize how the company would allocate its resources. He and his team needed to focus on two things: creating alignment across the organization and generating revenue. Behring and his team developed four prioritizing guidelines for ranking projects and the ideas to be implemented:
1. Removal of bottlenecks to growing revenue.
2. Provision of immediate benefits.
3. Minimizing up-front expenditure.
4. Wherever possible, reuse of existing resources.
Within three years, ALL had increased revenue by 50% and tripled operating cash flow, while maintaining the best safety record of all the freight lines in the country. There are number of reasons why I love this story and why we use it in Business Builder Academy.
“He and his team needed to focus on two things: creating alignment across the organization and generating revenue.”
1. Simplicity often outperforms complexity
Businesses face increasing complexity. Instinct tells us to match complex solutions with complex problems. Gerd Gigerenzer has demonstrated, however, that simplicity often outperforms complexity. For example, on January 15th, 2009, Flight 1549 crossed paths with a flock of Canada geese minutes after leaving LaGuardia airport. The plane lost both engines and the pilots needed to decide whether to return to LaGuardia or land in the Hudson River. They had mere moments to calculate if time, speed, and distance would enable them to return to LaGuardia. Captain Chesley Sullenberger made quick use of a simple rule: Fix your gaze on the tower. If the tower rises in your windshield, you won’t make it. The pilots saw that LaGuardia was rising in their screen, so they went for the Hudson River and successfully landed the plane. The entire ordeal, from crossing paths with the geese to landing in the Hudson River, lasted just three minutes. Had the pilots tried to calculate trajectory, not only could they have miscalculated, they would have also used up precious time. They were able make a decision in a high risk, complex scenario. Most important, the guideline did not remove complexity. Like Captain Sullenberger, Behring and his team developed guidelines that were simple and easy to follow. They focused on the company’s most urgent needs. They kept costs low without eroding quality and allowed employees from all areas of the business to propose ideas.
“Behring and his team developed guidelines that were simple and easy to follow. They focused on the company’s most urgent needs.”
2. Guidelines give credibility to counterintuitive ideas
While their competitors focused on buying new equipment, ALL leveraged existing resources by upgrading old engines and they bought used locomotives to increase capacity within their system. Having the guideline ‘Wherever possible use existing resources’ allowed employees to propose ideas that might have otherwise been rejected. One employee suggested increasing the size of the gas tank so that it reduced downtime and allowed trains to travel for longer periods. This relatively low-cost change significantly increased capacity.
3. A light touch creates alignment
Many organizations focus on giving employees precise instructions. Guidelines give employees constraints within which to operate and create alignment across organizations. In the Business Builder Academy, we teach entrepreneurs that if they delegate tasks they will be doing that for a long time. Instead, they should delegate functions. When someone else is responsible for a function like marketing the principal is not left to delegate a task like the development of a monthly newsletter. When you create the guidelines and the objectives for the function of marketing, the individual is allowed to bring his or her creativity and intelligence to the tasks involved. This frees up the principal and gives employee the flexibility to generate their own novel solutions to the function they are responsible for. Simply by setting guidelines, ALL created alignment across the company. Everyone became focused on implementing projects and ideas that followed the guidelines. They spent less time saying no to ideas and more time implementing the ideas that helped meet the stated objectives.
“Guidelines give employees constraints within which to operate and creates alignment across organizations.”
4. Inclusion is enabling
Behring and his team conducted interviews at all levels of the organization. The data they got from these interviews informed their strategies. For example, they selected 30 managers and created a ‘Praetorian Guard.’ Behring and his team did not impose solutions: instead, they gave each person a say in their processes. A key component of building healthy teams is the belief of members that the ideas and work they put forward will affect the outcome. Behring and his team did a very good job of including all the internal stakeholders that are so often overlooked.
In the Business Builder Academy, we spend a lot of time focusing on strategy – a clear plan of action for achieving your objectives. Simple guidelines have become a major part of understanding strategy and working with participants to implement approaches that ultimately help make better decisions. Simple guidelines help us navigate complexity. They provide us with structure and they create frameworks in which better decisions are made. The more you are able to provide your team with the tools for better decision-making, the more likely yours is to become a high performing organization.
Gigerenzer, G. (2014). Risk Savvy: How to make good decisions. Penguin.
Sull, D.N., Martins, F., & Silva, A. D. (2003). America Latina Logistica. Harvard Business School Organizational Behavior Unit ….
Sull, D., & Eisenhardt, K. M. (2015). Simple Rules. Houghton Mifflin Harcourt.
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