I’ve had the distinct pleasure of working with some of the best run companies over the years and I’ve come to appreciate what really separates them from “the merely good”. Some of what makes great companies so successful, like hiring great talent, is quite obvious. But in this blog I’d like to share one of their lesser known secrets to their success.
Every company has to deal with complex problems, and many organizations become adroit in dealing with them. Here’s an example of a complex problem, “How can we forecast Revenue by SKU?” Another might be “How can we extract data from our G/L and get it into our reporting package?” Another might be “How can we identify our most profitable Product Lines?”
What complex problems have in common is they do have answers… you just know they’re solvable. If you’re willing to burn the midnight oil (or get someone else to work late) you can deliver an answer. Solving complex problems involves a lot of “sweat and stamina”, as one of my old boss’s use to say… there is an answer at the end of the rainbow.
By contrast, ambiguous problems can’t be addressed by brute force. Here’s an example of an ambiguous problem, “Morale is down in the Finance department, what should we do about it?” Another example might be, “How do we get willing participants in our annual planning process, especially from those people outside of Finance?”
Ambiguous problems can’t be solved by an excel model, they can’t be addressed by formulas or by putting in more hours at work. And that’s the chief reason why average organizations shy away from dealing with them. They’re perpetually stuck at the “Where would we even start?” stage.
But the best run companies recognize the enormous value of effectively dealing with ambiguous problems. They don’t shy away from them, instead they call them out. If morale is down in the Finance department they’ll find out why. And they won’t not stop at a superficial understanding, but dig deeper. When they find out the fundamental reasons why morale is down, they’ll work to address the root issues and won’t waste time with window dressing.
What’s the payoff to addressing an ambiguous problem? Well, in the case of turning around the problem of low morale, you can attract and retain the talent the organization needs to succeed. It could even be the key to being able to beat your competition, rather than being beat by them.
The best run companies get that. Sure, they tackle complex problems every day. But unlike everyone else, they go out of their way to name and frame ambiguous problems – and attack them head on.
Now, what does all this mean for you? Let’s take an example. Say you’re contemplating a redesign of your budget process. One of the complex problems you’ve identified is that management wants to get a better grip on Benefits expenses. An important step they want to take is to separate out Payroll Taxes (a big number) from the rest of the benefits expenses. The complex problem is how to (accurately) calculate Payroll Taxes, both Federal and State, applying the appropriate cap and rate. Oh, and calculate it by individual employee, for increased precision and accuracy.
Figuring out how to address this complex problem requires thinking through the math involved and translating that into necessary formulas. Hard, complex work, but you’ll get it done.
But let’s say the redesign of the planning process also includes the goal of getting more willing participation from front line managers. That’s going to require putting yourself in their shoes, and delivering budgeting solution that allows them to “think like a manager”. It’s an ambiguous problem that requires empathy and understanding; not formulas and models.
While the payoff of addressing the complex problem of modeling Payroll Taxes by employee can be big, effectively dealing with the ambiguous problem of getting more willing participation in the process is huge. And what’s more, Senior Management will value the Finance department much, much more, if they can find a way to get willing participants in the planning process. Senior Management knows that particular ambiguous problem is harder to solve, and has a larger payoff to the business, than say, finding the right formulas and models to project payroll taxes.
As Finance professionals we are trained to solve complex problems, but as managers we need to learn how to solve the ambiguous ones.
As usual, your thoughts and comments are welcomed.