Leaders – Watch the “Net” Effect

Leaders – Watch the “Net” Effect

I was reviewing the details of a large group the other day. The usual headlines, their overall sales and profits, their positioning on their website, org chart, blog posts, just getting a feel for their story. Of course I was looking at their “Net” position. I was looking at the overall final summary of each of these items. But there lies the danger. That lack of curiosity can give the wrong impression. That “blink” test can be wrong, as Malcolm Gladwell pointed out so eloquently in his book Blink!

It turns out that this large group with sales of $1 billion and growing was struggling. Two of the 10 divisions had sales of $30m and were declining.

This “Net” effect is all around us and it’s dangerous.

  1. A bank reconciliation is a pretty standard financial control. Never dismiss the fact that the “Net” difference is 2 cents! There can’t be any difference. These 2 cents could represent an error of $1 million one way and a compensating error of $1 million and 2 cents the other way.
  2. Overall your staff engagement number from a recent survey you conducted was 75%. You are all set. Really? What if someone in the software dev team who didn’t respond to the form is causing havoc with her attitude, arrogance, and sloppiness. Would you notice?
  3. Overall product sales are going well. In fact each product family is doing well. However have you drilled down into the French sales? You have a problem hidden by the “Net” effect.
  4. Overall from 30,000 feet, most managers seem to be moving the ball forward. But if you had the measurements in place that demonstrated that there are vast tranches of the month that nothing happened,would you notice?
  5. Headlines in the press, in reports, in research can be deceiving. Details matter. Digging deep produces clarity around the real story. How many times have you heard an explanation why something happened, that sounded plausible but left a doubt in your mind. One more question would have taken you to the truth, but you didn’t ask.
  6. In understanding success or failure we are often confronted with the “Net” effect. He worked hard and deserved the success he achieved on the track. Dig deeper and you could have seen the pattern of burnout that could have been spotted if you hadn’t been obsessed with winning every race. Or the athlete who is injured beyond repair because the “Net” effect still delivered great results up to the point of breakdown!
  7. We measure product performance by salesman in sales teams because it always reveals blind spots. The sales professional hits targets but underneath that achievement there is unfulfilled potential because of a lack of knowledge, belief or blind spot with a product or service.
  8. Cash flow forecasts can show a remarkable strong cash balance as a net figure at the end of the month. Why worry that on Wednesday the 17th in the middle of the month you will hit a $2 million overdraft, breaching three major banking covenants!
  9. If you are appointing an advisor to sell your recruitment business for say $17m. It is very tempting to be swayed by the Goldman Sachs brand name. However the small investment bank that has sold 5 recruitment businesses in 2 years is probably better evidence.
  10. If someone told you that the vast majority of Americans were employed by really small businesses, it would sound plausible, but it’s wrong. Out of 28 million enterprises, only 108,000 companies employ 55% of the working population. Details matter.
  11. And never let a “Net” statistic deflect you from a cause. The Membership of Royal College of Surgeons of Great Britain and Ireland qualification consists of a multi-part examination including both theory and practical assessments. It has a pass rate of around 30 per cent. But if you work hard, are talented and focused, who cares what the “Net” pass rate is.
  12. Acquisitions claim to have a success rate of somewhere between 20% to 50%. Having seen many acquirer’s processes, I’m amazed these success rates are so high.

Be careful with “Net” thinking. Be curious and dig deep to understand the true story.

TPP is an operational consultancy that scales businesses organically and by acquisition. Every client team consists of one or more partners with successful C-Suite track records. Our biggest added value? We align effort with strategy. Scaling is not the same as sales growth. There’s more to it than that.

 

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