Saturday, October 25, 2008

Saturday Morning Kick in the Pants

Wisdom from Harvey:

Harvey Mackay's Column This Week

Beware of danger in safe havens

"Bad habits," a pundit once noted, "are like a comfortable bed, easy to get into, but hard to get out of." Sticking with what's comfortable might be one of the deadliest habits of all.

In the bullfighting arena, expert matadors have long gained an edge by pinpointing a bull's comfort zone. Former Hewlett-Packard CEO Carly Fiorina has studied this phenomenon. "In bullfighting there is a term called querencia. The querencia is the spot in the ring to which the bull returns," she explains. "Each bull has a different querencia, but as the bullfight continues, and the animal becomes more threatened, it returns more and more often to his spot. As he returns to his querencia, he becomes more predictable."

What are the consequences of predictability? "In the end," Fiorina says, "the matador is able to kill the bull because instead of trying something new, the bull returns to what is familiar. His comfort zone."

Many businesses retreat to their comfort zones when challenged. A new form of competition emerges. Or, threatening research undercuts a core product. This is bad news, and who wants to hear that? Even skilled managers sometimes tune out the static.

Merck's arthritis medication Vioxx became one of the most widely prescribed drugs in history. As early as 2000, some research indicated that Vioxx might pose unacceptable associated cardiac risks. Merck & Co. dug in its heels. The firm didn't withdraw the product until further research prompted it to do so voluntarily in 2004. In 2007, Merck agreed to pay out nearly $5 billion to settle existing Vioxx lawsuits.

Few companies were more oblivious to the risks of complacency than the Wall Street giant Lehman Brothers. Lehman started tinkering in sub-prime mortgages in the mid-1990s, lending money to an outfit named First Alliance Mortgage. In 1998, some financial firms began to distance themselves from First Alliance as regulators bored in. Not Lehman. First Alliance's fate? The company shut its doors in March 2000.

Undaunted, Lehman finished gobbling up BNC Mortgage, another sub-prime lender, in 2004. In August 2007, Lehman closed it down. The lure of fast cash had been so great, Lehman spent years in deep denial about the wisdom of subprime lending. Yesterday's cash cow proved to be today's pot roast, as Lehman became the biggest bankruptcy in U.S. history last month.

Here are Seven Urgent Hazard Signals that should alert a company when it has become too comfortable for its own good:

  1. Do you continue to invest in business strategies with fundamental flaws solely for short-term gain?
  2. Have competitors found a way to deliver your core goods or services at a lower cost than you can?
  3. Are your suppliers suddenly treating competitors with more favorable terms than you enjoy?
  4. Are competitors shifting the spotlight to you as their number-one rival? A good tip-off: Are you losing your best trained and highest potential talent to aggressive competition?
  5. Are customers telling you they are taking their orders to new sorts of businesses you have never considered competition before?
  6. Is there candid—and sometimes heated—debate inside your organization about what your core business should be today and five years from now? There should be. It's healthy.
  7. Are you investing in new product development so that at least 10 percent (preferably 20 percent) of your business will come from products and services you don't even offer right now?

It isn't just companies who scurry for safety in the arena. Individual careers are vulnerable as well:

  • Many of us get passed over for a promotion we thought we deserved. Are there new reasons for not making the grade this time?
  • Have you recently matched your credentials, background, and training against other comparably paid people in your specialty? Make sure your skills are fresh and current.
  • Are you projecting yourself as someone who wants to advance to a higher level? Are you a toreador or a "sitting bull" begging to be gored by an aggressive internal competitor?
  • Do you volunteer for new assignments and projects? They can teach you new skills and increase your value to your company.

Retreating to the comfort zone is all about how one takes bad news and what one does with it.

"Bad news isn't wine," former Secretary of State Colin Powell once said. "It doesn't improve with age."

Mackay's Moral: In rough water, sometimes it pays to rock your own boat.

Miss a column? The last three weeks of Harvey's columns are always archived online.

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