Finance and politics – navigating the waters of success

Despite the title of this post, we will not be discussing the current or previous administration’s involvement in the financial sector, the federal reserve bank, or any of a myriad of acronyms from TARP to TALF to PIPP. Rather, we will examine the pitfalls of successful initiatives within organizations due to politics. This article could have been titled, snatching defeat from the jaws of victory.

I recently had the pleasure of lunching with a colleague, who has a great idea for a way to significantly increase business in his division. While I am not expert on his company’s particular sales process and funnel, I trust that he is, and the 50-100x return on investment will indeed pay off. Additionally, the sales initiative he has is perfectly in line with the culture and mission of his company. Nonetheless, he has concerns about approval, despite the piddling sums (under $20,000 per month for a large public company), and has seen attempts to slow it down.

There is an old saying that success has many patrons, and failure is lonesome. While I believe the original phrase meant that many people working together are likely to succeed, and a lone initiative is more likely to fail (see Ecclesiastes, “two are better than one”), in the corporate world, it could just as well refer to the fact that everyone wants credit for and a piece of a success, while failure will be pushed off onto the one individual who cannot send it anywhere else. Who was actually was responsible in either case is, of course, irrelevant.

The Challenge

Within a corporate environment – whether for-profit or non-profit, private or governmental – it is important to understand the financial return to the organization of an initiative. It is important, but insufficient. Let us assume that John has an idea to spend $15k per month on special advertising that will generate $150k in new business. If gross margins are 30%, then the new business generates $45k in profits, for a 3x return on his investment. All told, this is a great idea. However, John works in sales. He may even spend this $15k in concert with the business development group. Thus, the CEO is thrilled with John, and the business development department gets a nice gold star. However, the marketing department is not as happy. Sure, the business makes more money, but the head of marketing is more than a little concerned. At some point, the CEO is likely to see the $5MM annual marketing budget, the $1MM increase request, and ask, “well, how much increase in market share will this generate?” The head of marketing answers honestly, “$6MM in new business.” This sounds great. However, with the 30% gross margin, the new business is worth only $2MM in profit, or a 2x ROI. The marketing head must be nervously aware that John’s idea, along with the business development group, is generating profits 50% faster with their little direct marketing campaign than marketing is. The marketing head will likely take one of two paths:

  1. Torpedo the $15k spend before it gets off the ground.
  2. Torpedo John the next time around

Either way, John is in trouble. Sure. he is a hero… for now. But is it worth creating this enemy for half a million dollars in new annual profits? If he could generate many millions, and get a big percentage of it, sure it is worth it, because he can retire before getting torpedoed. Since this is unlikely to happen, and even then the head of marketing can torpedo the initiative, mostly by a stealth campaign, John is better off getting the head of marketing on his side first. Additionally, he had better identify who else wins, and who loses, from his initiative. Unless his initiative is crucial to the survival of the business, or going to make so much money so fast that there will be plenty to spread around to salve wounds, and perhaps walk away with enough to retire on his own, some relationship planning and politics are crucial.

Incentives

In order to properly manage his initiative to success, John needs to isolate and understand the incentives of every party involved, and even those uninvolved. Specifically, he needs to understand:

  • Financial: Who has a budget that may look better or worse through this initiative? What about compensation? Is there a way to change the measurement of the results such that everyone wins? Continuing our example above, if the marketing department becomes a participant, providing half the budget while measuring market share as part of the initiative, the same net results to the company can lead to direct rewards to both John and marketing. In one instance of which I am aware, changes in budget would have exposed how one group was carrying an inordinately large amount of the fixed costs for another group. If the changes had gone through, the second group’s true costs would have come to light, directly and dramatically dropping the compensation of the second group’s divisional president. Changes in incentive structures can be crucial to gaining support.
  • Political: Who else within the company has been angling for private initiatives? Who is doing what are nominally termed “skunkworks” projects, waiting for the light of day? Who else has promised returns on small initiatives and not delivered? Sharing credit in the right method is crucial. As is so often the case, who gets public credit together is less important than who the true enabler is, a fact normally known by the board and top management. In John’s case, if he is known as the guy who brought the 3x investment, he will be known as a star, for a time, until the next star comes along. However, if he is the guy who brought everyone on board to the 3x investment, he is not only the star, sharing his light; he is the guy who can manage everyone. Which one do you think will next be considered for an executive seat?

Opening Up

The crucial challenge, then, is for John to open people up and discover:

  1. Who the real players are;
  2. What the political drivers of each player are;
  3. What the financial incentives of each player are;

John then needs to determine how to get everyone on board given the above drivers and incentives. The problem is that (a) John has a day job and (b) people can be suspicious of him and less likely to open up. After all, John, too, is a player, and they are all aware of it. These are the challenges. Oftentimes, an outsider can get in and gain trust in the way insiders, even senior insiders, cannot. Once I had a client looking to revamp a major operational area. Unfortunately, the one person who was most dead-set against the initiative had 50% of the information necessary to understand the current structure, finances and culture, either directly or in his organization. This person was 6’3″ tall, ruddy, a big beard, and quite intimidating. No one managed to get him on board. As an outsider, it took me one hour to get him to warm up, and I had all we needed when we were done. This was something only an outsider, with no vested agenda, no promotion battles, no budget concerns, no political history, only the best solution at hand could achieve. In addition to allaying his fears, this person had serious, valid concerns about the initiative that I promised to include in my final recommendations, and did so. Coming from “the obstructionist”, no one gave them credibility; filtered through the outsider, they were credible, and I was even able to give him credit, which renewed the internal working relationships.

Summary

Every initiative must make financial sense for the organization, but that is insufficient. The organization has many perspectives, not just that of the income statement and the individual/group/division making the recommendation. It will impact many other areas, some positively, some negatively. In order to succeed now and the future, an initiator must be able to discover all of the players, drivers and incentives, whether himself or through others he brings in, and move every single one either to support or neutrally abstain. Only then can his initiative be successful and the start of many more.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
This entry was posted in business. Bookmark the permalink.