When you look at companies that either thrive, manage to survive, or fail, you can cite a multitude of factors as the reasons to explain why. However, broadly success or failure comes down to four things: capital, management, leadership, and luck.
There is an intrinsic relationship between business, capital, and risk. Capitalism is a free-market system that works because there is an incentive to place capital at risk because of the opportunity to realize a profit. The prospect of reward attaches to the risk you willingly take, and success results from some combination of how well you manage the risk and how lucky you are. Generally speaking, reducing the level of risk also reduces your return on the capital you have employed. Eliminating all risk, if it is even possible, also reduces the possibility of earning a profit. Management is how you balance the need for some risk and whatever degree of safety suits your needs and appetite.
Employing capital without managing what you are doing is a fools’ game. It is gambling.
It is why management is essential to business. Poorly managed companies rarely, if ever, succeed. If they do survive, it is never for long. Some companies ride waves of opportunity that mask the effects of mismanagement, but eventually, they become unsustainable and come crashing down.
Running any business is essentially a function of managing things, regardless of how simple or complex it is. Luckily, management is a science. You can learn to manage or hire people who know how to do it for you. There are rules and formulas and room to experiment if you want to buck the establishment.
Management is an evolving science. How well you manage things and the tools available hold to some core economic business fundamentals like profit and loss, cash flows, and the evidence of performance found on a balance sheet. But predictive models and forecasting tools, and enterprise resources management have been radically changed by advances in computer science that expand the insights available. More recently, AI (artificial intelligence) can present options that improve decision-making accuracy at a level that was until recently unimaginable. Yet, with all the tools and available automation, business is still a human function. All businesses are in the people business.
Employing automation to manage things has provided a huge benefit to business – and life in general. We comfortably rely on smart machines to monitor systems and things even more critically than the most diligent human counterpart could. Computer systems monitor and manage a nearly limitless range of operational functions without tiring or losing focus or attention. They measure things with consistent accuracy and often with greater accuracy and speed than even the most capable human beings can. But even with AI, all technology requires competent people to manage the machines. And while machines can monitor and even make decisions based on calculated factors, the ultimate arbiter of how these decisions get made will always come down to a human factor.
The evolution of autonomous or self-driving vehicles is a good case in point. The accident avoidance systems are programmed to manage the steering, acceleration, and breaking systems based on high-speed calculations of the input data collected from highly engineered and redundant sensors. The tricky part is in determining the ethical components of risk beyond the simple magnitude. Damage to a guardrail, a structure, or a vehicle is less critical than damage or death of a human being. In civilized society, a mother pushing a baby stroller across the road while holding the hand of a toddler carries a different level of priority over an athletically fit individual who might have a greater chance of surviving contact or avoiding the vehicle altogether. A human-driven decision will guide the ethics that guide such choices.
The complexity and issues with automation go beyond the need for guidance when making ethical or life and death choices. Empowering machines to impact human life without an overriding human interface is the stuff of nightmarish science fiction where machines rule the earth. But on a much smaller and less sensational level, any attempt to use machines to manage people is a problem. And the problem, in large measure, is that you cannot manage people. You can manage things but must lead people.
There is a human nature to resist being controlled. Even the most oppressive elements of society have eventually collapsed under the weight of what seems to be an indomitable human spirit.
We can and should manage the systems and environment in which people live and work. We have laws that dictate how we drive on public roads, set forth basic standards for education and healthcare, and most things regarding general safety of products, structures, and activities. Human beings generally accept these controls because they manage the environment and things in our environment. But at the same time, people tend to exercise their free will when it comes to how to think, what to think and how to exist. Brutal authoritarian forms of government might effectively control people for a while by making it extremely dangerous to exercise free will. Still, history shows us that no one can ultimately control other people’s destiny in the long term. There is a human nature to resist being controlled. Even the most oppressive elements of society have eventually collapsed under the weight of what seems to be an indomitable human spirit.
The will of others cannot control the human spirit. People rise up against oppression by virtue of principles and purpose. Typically leaders emerge who help inspire people to force change. Leaders elevate the power of the human spirit by exciting people’s free will and showing them what is necessary and possible in the face of what otherwise seems hopeless. We manage things and lead people.
Leadership in business is the most pivotal and uncommon denominator.
Well-managed companies tend to operate reasonably well. They are often efficient and remain sustainable because they provide opportunities to workers and serve customers’ needs. But without strong leadership, the relationship between operating well today and enduring success is fragile. The systems that allow a company to function become broken when the people responsible for those systems abdicate. Companies become infected with dysfunction when the organization becomes riddled with apathetic, uncaring, or incompetent people. Attempting to fix this problem by trying to control or manage people only makes matters worse. The only way to improve human performance is through leadership.
The objective purpose of leadership is to cause people to perform, at minimum, to the level necessary to accomplish the organization’s determined goals and continuously improve and adapt that level of performance to maintain a sustainable advantage over any and all things that stand in the way. It means also managing things to support the effort, but the effort fails without competent leadership driving competent performance from the people they lead.
The concept of competence speaks to the goal of accomplishment. Therefore, there is no competence without there being meaningful accomplishment.
The foundation of competence is competencies. These are the knowledge, skill, and experience (sometimes demonstrated by specific credentials) of the people engaged in advancing the organization’s objectives.
Talent plays a role in that it augments a person’s ability to acquire the requisite knowledge of skills they need, but in and of itself, talent has no value unless it is developed and employed.
Modern business has adopted talent as a euphemism for the workforce. It may be of little surprise, then, that the average company finds itself mired in mediocrity and dysfunction.
Assuming that talent can be developed by management: that by my employing things like training, incentives, and so-called human-resource tools that there is a reasonable expectation that people can acquire the knowledge and skills necessary to do a good job, the best you can expect is people who have the potential to accomplish what matters. You cannot be sure they actually will.
Having the requisite competencies does not guarantee performance. How much talent, knowledge, and skill is wasted by people who don’t care?
Knowing what to do or how to do something might represent half the battle. High-performance requires conscientiousness. People who care deeply about doing things well, who demonstrate grit in making themselves comfortable being uncomfortable all do so because they have a personal reason that drives their performance. Conscientiousness is the product of having purpose that aligns with the activity or actions they undertake. The word literally speaks to conscience – operating with the internal guidance of distinguishing right from wrong – and most often the belief that you are serving something beyond your personal needs or interests.
Everyone cares about something. Some people only seem to care about themselves, while others may care too little about their personal needs. Sociopaths care about themselves at the expense of others. The people we deem to be conscientious are those who care about the things necessary to our cause in life. Leaders endeavor to attract and select people who care enough to elevate their performance to accomplish the things that matter in support of that cause.
It is the crux of leadership. You cannot motivate or inspire others, but you may be able to help people choose to be inspired and who will motivate themselves to rise up to meet challenges, defer gratification for their efforts, expose themselves to risk and danger and sacrifice their comfort and even their lives to serve a great, worthy cause. Leaders don’t make people do things they don’t want to; they make people want to do things they never thought possible because they feel inspired by what they believe they can accomplish.
The final piece is luck. Life is inherently perverse: you can do the right things and get bad results, and you can do the wrong things and still prevail. So you might find comfort in convincing yourself that it all evens out in the end. However, there is no certainty that this is true, and there is virtually no certainty about much of anything in the world.
You can acclimate yourself to uncertainty by learning to muster the courage you need in the face of the risks you encounter. Likewise, you can create certainty in failure by giving up or sabotaging your chances to succeed. But success is hardly ever guaranteed. It helps to be determined and to develop the habits of thinking that might best prepare you for the prospect of success. Still, no degree of diligence, no amount of preparation, and no level of conscientiousness will ensure that you capture what you aim for – in business or life. This perversity speaks to the notion that luck is not only an unavoidable factor in life; it is something you can learn to work with.
Napoleon Bonaparte asked, “I know he’s a good general, but is he lucky?” Experience and wisdom also suggest that no battle plan ever survives contact with the enemy. And Thomas Jefferson famously wrote, “I am a great believer in luck, and I find the harder I work, the more I have of it.” A simple way to sum this up is perhaps in the well-worn words of a little-known baseball player, Lefty Gomez, who played for the NY Yankees in the 1940s and often suggested, “I’d rather be lucky than good.”
Being a great leader requires some luck. You will need to be in the right place at the right time. But you also need to be prepared to seize that moment and know what to do with it. If you lack the capital or the agency to do so, you will fail. If you cannot manage the situation, you will most likely also fail. But if you have prepared yourself to be lucky, you might have a fighting chance at success.
Knowing what to do is critical but not sufficient. It comes down to what you must be or who you are in the moments when you cannot manage your way through adversity.
The greatest leaders in business and all areas of life are those who elevate the performance of others. They draw people out of hiding and find ways to ignite the inspiration that causes them to use their talents and competencies to make a positive contribution. As a result, they not only bring great accomplishments to the world, they bring great joy to those who contribute and celebrate all that is the indomitable human spirit.
