Essays on Management: Focus on external results

When someone is asked who they work for they commonly give their organisation’s or manager’s name. This risks a focus on internal processes, personalities and how things are done rather than why they are done and in whose interests.

All effective organisations and people within them work for purposes external to the organisation, because all results are external. These external interests, results or outcomes may be customers for a business, students for a university, patients for a hospital or citizens for a government. The need to focus externally is critical for both high level managers focusing on the big picture and technical specialists who must apply their expertise to external stakeholders.

Organisations have to resist strong pressures to look internally because anything inside an organisation is cost and is never by itself a benefit. A failure to realise all results are external is the single most important cause of organisational failure. Therefore people in any high-performing organisation should not say they work for someone internally, but they work for an external purpose (and report to someone who also works for this purpose). An external focus is a necessary condition of effectiveness and effectiveness means external contribution. External focus helps distinguish between activity and purposeful results-orientation, so Brownian motion is not confused with results.

Any organisation, private or public, market and non-market must therefore focus on positive results in the external community and work back from that. Performance standards in fields such as industry policy, health and education must focus on external outcomes not on compliance-driven internal process, or what is convenient for staff.

Clinicians must be on duty when people are more likely to be sick or injured, police officers must be on patrol when crime is most likely to occur and teachers must be teaching when learners are best able to learn, rather than these professionals working at times suiting themselves.

Over the 1990s and early 2000s New Zealand hosted many visitors from China and Eastern Europe. They purportedly wished to learn from a small, open, trade-exposed economy that had responded well to change from the over-regulation of a Polish shipyard to an economy where regulation was seen as a marginally peripheral irritation or a necessary evil to be contained, as one contains nuclear waste.
New Zealand officials noticed their Chinese counterparts were deeply concerned to learn from our experience. They wanted to know how we had managed agricultural deregulation without severe social conflict, and their demeanour and what their questions focused on reflected Chinese peoples’ interests. A number of Eastern European visitors acted differently, in their own rather than their nationals’ interests.

John Kay refers to obliquity, whereby results are the side effect of pursuing another end more directly. Shareholder and management demands often drive a business to focus on an internal objective of making profits. However, profit is a by-product of the paramount objective to deliver value to customers. Bill Gates love software, Warren Buffett love investing, and they both make a lot of money as an indirect side effect of this. Tait Communications focuses on quality radio systems often needed in life-threatening circumstances. Merck focuses on drugs that improve health and save lives, and makes money as a side effect. Even Donald Trump, perceived as a “money-making creature” said “I don’t do it for money…deals are my art form.” Compass bearings are still needed, but the desired port may be reached via a circuitous route.

Any business that places profit first and loses sight of its fundamental external purpose of serving its customers will fail to both serve its customers or make a profit. This is because energy, learning and innovation are scarce resources, and if not focused on delivering results to external people then the chance of delivering quality to them is diminished, often in ways risking the whole business. In pragmatic commercial terms, it is bad business to focus on money rather than delivering to customers.

An external results focus means seeing things outside an organisation and not just what is internal to an organisation. This has implications for organisational design and explains much about how smaller organisations can be more responsive to customers and faster to see and respond to external environmental changes. Bigger is often better for organisations because of scale and scope economies and the ability to maintain core competencies and retain learning. However because results are external smaller organisations can be more effective because more of their staff interact with external people. Chemistry and geometry help explain why smaller organisations can be more responsive to external stakeholders.

Activated carbon is used for filtering and in medical applications, and biochar to sequester carbon in soils, improve nutrient recycling and bind toxic substances. These carbon forms are effective because of their high surface area for their mass. Organisations and organisms have surface areas that go up with the square of the radius and a mass that grows with the cube. Analogously, smaller organisations may lack scale, critical mass, economies of scope and deep core competencies, however they have a higher surface area that interacts with the external environment, allowing them to respond faster to external stimuli.

Smaller organisations may also have less historical baggage and lack incumbent endowment effects which can make them quicker to change. They can put more effort into new learning because they are not captured by old learning.

External results orientation is essential for functioning democratic societies and the civil society and social norms supporting them. In market economies success depends on getting inside the heads of customers and working out what can satisfy them. It is the opposite of statist economies where powerful people satisfy only themselves. In such states, people are more selfish and individualistic because they are not used to seeing through others’ eyes. This explains much of the social pathologies that have occurred when states such as Russia moved from a communist system to a market one without the psychology, social norms and civil society needed to underpin it.

A focus on external results is also a good principle for individuals. In the Christmas Carol, Scrooge’s psychology misfired because money, the means to the end of a good life, became for him life’s end purpose. A life well-lived may be self-authored, however it must be lived in relation to and for others to be meaningful and fulfilled. This means “good lives”, like good businesses, are externally focused, other-centred and almost spiritual in nature.

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About Peter Winsley

I’ve worked in policy and economics-related fields in New Zealand for many years. With qualifications and publications in economics, management and literature, I take a multidisciplinary perspective to how people’s lives can be enhanced. I love nature, literature, music, tramping, boating and my family.
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