By Mubarak Sooltangos
By definition, an objective assessment of a situation and objective decisions in any field of activity are those which arise out of a reasoned, scientific and clinical approach or analysis. This analysis is done while taking into account known facts, methods, set rules and existing laws. Decisions in business are often made by entrepreneurs without a reasoning process, out of instinct. In as much as such impulsive decisions are sometimes reckless and lead to failure, an over reliance on objectivity, i.e., going strictly by the rules and precedents, can paralyse a system and not allow the best to be made out of its potential.
With the rapid development of digital means of running businesses and more and more dependence on figures and data, the human factor in business tends to be minimised. Exceptions of diverse nature in business are being side-lined because digitalisation has no consideration and no space for them in modern business formulation. What we call “subjective” is that which obeys no rules, which is fortuitous, which often springs out of nothing or which follows a reasoning not made according to set rules.
The more we think about subjectivity, the more we realise that it stems from human behaviour, for the better or for the worse, and human reactions are difficult to predict and control because the factors that motivate them are most of the time not known to anybody but the person concerned. In spite of all the technological developments which tend to mechanise business, the human element remains omnipresent at all stages of business, from Chairman to Board of Directors, CEOs, middle managers, workers, bankers, regulators and legislators. Since the human element is at all times present in decision making as well as in the execution of tasks which require labour, any businessman would be lacking in judgment if he does not admit the presence of the unavoidable subjective element in any business and take it into account in his decision making.
About starting a business
Big companies often take ages to venture into a new activity, because it takes time to think about a business possibility, to research it, to make feasibility studies (often accompanied by market surveys), to brainstorm over it, to evaluate its profit (and risk) potential and to convince a Board of Directors. Individual businessmen, and for that matter, CEOs who tend to be autocratic often detect business opportunities which are not obvious to other people, out of everyday happenings This faculty, which is a personal and not a collective virtue is what we call “business acumen”.
Some persons systematically look for potential business opportunities in whatever happens regularly in their environment and most of the time, they first make their decision to venture into one of them, then try to justify their initial and often impulsive decision by objective analyses. It makes a world of difference between a corporate body researching a possibility before making a decision, and an open minded and bold entrepreneur who first makes a decision to embark on a business, then tries to justify it to his Board of Directors with objective reasoning. Very often, this is what makes the difference between a successful, progressive business and a stagnant one which allows itself to be overtaken by competitors because of procrastination.
Business acumen is a totally subjective virtue because the person who has it relies on an observation and on his own perception of what he can make out of a given situation without having to go through a detailed analysis. Bill Gates is the person who has made the most money out of computerisation, without ever having produced a single computer, but who has seen the opportunity to develop operating systems and software to feed computers, so as to make them universal in reach and user friendly for the ordinary business driver. This is business acumen, and it is driven mostly by subjectivity.
Human reactions are difficult to predict and control because the factors that motivate them are most of the time not known to anybody but the person concerned.
About successful CEOs
These are people who have business acumen, common sense, who think fast, who take timely decisions, who have a dose of impulsive reactions, who know how to take “calculated risks” (as opposed to taking reckless risks or being risk-averse) who have a fair degree of psychology to read in peoples’ minds and who communicate effectively. You will be surprised, if you would ponder over each of these qualities, to realise that they are all subjective virtues, not linked to any university degree, any special training and any pre-set methods which have been the subject of any meaningful analysis.
About risk taking
Modern business is plagued with new categories of professionals who did not exist 30 years ago. They are Compliance officers, in-house Lawyers, Risk Officers and Corporate Governance officers. A layman will imagine that they make businesses more orderly, less risk-prone, better analysed and more transparent. My assessment as a hands-on business driver is that they are brakes to business when they are given too much importance because they make business more bureaucratic, more risk averse, and they tend to deviate attention from processes (which include a number of tasks and require thought) to procedures, which are mere tasks, often requiring little or no thinking.
The scourge of modern business is risk averseness at all levels, because any risk which escapes the scrutiny net and ends up in a loss is considered as a personal failure of the “policeman” concerned, and is a blemish on his own career. This is how the urge of professionals to develop their own career has become more important than increasing company profits and creating shareholder value, without realising that their salaries are paid out of what the business generates, and that this requires the taking of risks, albeit calculated risks.
This is what over-development of objective means of doing business has landed the business world into. Business thought, innovative forward thinking, risk taking, pre-emption of change will be virtues of the past if things continue on the trend they are taking. We reach the extreme when middle managers start asking written orders from their CEO, or any of them from the list of officers named above is given a seat in the Board of Directors. Whether they are board members or not, they often cripple the forward-looking CEO in his decision making by being overly risk averse, by constantly unearthing potential problems instead of proposing solutions and literally taking him to ransom. Paradoxically, in as much as subordinates of the CEO limit his personal decision making, which more often than not stems from his business acumen (which they do not have), no-one among them will admit, in case a decision turns out to be wrong, that it was a collective decision.
Communications can be of various types, depending on who is targeted by the exercise. True, the communication of figures, accounts, forecasts and results have to be 100% objective for the sake of transparency, but most effective communication exercises have a higher dose of subjectivity than objectivity.
A trade union asking more than what is reasonable in terms of employee benefits is more subjective than objective in its approach, because it cannot explain the legitimacy of its demand. The level of subjectivity increases when it encourages go-slow and absenteeism among employees as a means of pressure on the employer, and it reaches the extreme when the threat of a strike is brandished. This sort of behaviour from trade unions rarely obeys any common sense or set rules.
A business owner or CEO who does not get prepared for these situations and stands firm against such a threat, on objective grounds according to his own thinking, is looking for trouble. It is often better to offer in excess of what he thinks reasonable, to be able to defuse a time bomb, than to be adamant on what he objectively considers to be reasonable. This is an example where subjective thinking allows an explosive situation to be calmed down, but the wise CEO will try to get something out of this tug of war in which he has been made to surrender, for example by seeking an efficiency gain in linking his offer to an increase in staff productivity. This is a perfect example of a win-win situation, led by subjective thinking.
The scourge of modern business is risk averseness at all levels.
Presenting a business plan is fundamentally a communication exercise. It has become so common in business that business books teach how to make such plans and some gurus go to the extent of proposing a template to produce them. This stems from a total ignorance of what a business plan is and what it is expected to achieve. This is where psychology steps in, and the maker of the business plan must understand the psychology of the one for whom it is intended, and read into his mind, which is a wholly subjective exercise. The making of a business plan should imperatively be based on assumptions regarding the state of mind of the recipient. Here are a few examples concerning the ins and outs of a single business proposal which has to be presented differently to each of the stakeholders concerned.
A business plan presented to a board of directors needs to convince its audience of its growth and profit potential, but more importantly it must clearly determine the amount of funds to be invested in capital expenditure and working capital requirements, state from where they will be sourced and whether this will jeopardise the future borrowing capacity of the company. Another requirement of this document is to give a worst-case scenario, namely what would be the amount of financial casualty in case the project fails.
A business plan presented to a banker must in priority assure him that there are no risks of credit impairment for the bank, and must incorporate a plan B in case the original plan does not work. Banks are not concerned with the level of profits which the borrower will reap from the business.
A business plan presented to a government body to obtain an operating license must address different issues, namely how to address the potential risks of pollution, like the disposal of waste water, the risks of traffic congestion, the number of jobs to be created and the potential earnings in foreign currency out of exports, if any.
A business proposal addressed to a multinational to obtain its license to manufacture its product under its brand name must assure its addressee that the integrity of its brand is not at risk by faulty products, bad after-sales service, disregard for basic workers’ rights, indulgence in child labour and frequent out of stock situations which are likely to give a bad name to its brand.
A communication exercise to staff cannot be the same for all categories of employees, and any CEO must first find out what are the aspirations of each category, what they are able to understand, what motivates them to work better and what levels of details should be communicated to each of them. I have learnt with experience, that giving employees a concerned and a winner attitude by communicating good and bad news regularly, talking to them about their career path, announcing new projects well in advance, making them aware of how we are beating competition and making them take ownership of the success and difficulties of the company is a stronger motivating factor than just giving salary increases regularly. Employees tend to consider a salary increase as an acquired right after a few months, and it does not motivate them to perform better.
The maker of the business plan must understand the psychology of the one for whom it is intended.
A thinking person will realise the amount of subjectivity that has to go into communications at diverse levels, from the way of presenting things, to looking credible, being forceful and convincing, showing mastery over the subject, and reading into people’s minds to try to pre-empt their reaction and address it even before it is formulated in the form of a negative comment.
About giving image to brands
On a final note, I will talk of the total subjectivity which sometimes prompts consumers to adopt a brand. A person who buys a shirt off the shelf for Rs 500 is almost totally objective, because he would have figured out, in his mind, the cost of the fabric and accessories involved and that of the labour element. A person buying a Christian Dior shirt at Rs 5,000, is totally driven by subjectivity, namely by his ego, by his wish to be exclusive and different from others and because he wants to make a statement that he can afford a designer shirt. It would suffice for the designer logo to be displaced from the pocket to the inside of the collar for 80% of his motivation to vanish. Business entrepreneurs in the luxury goods market are aware of affluent people’s behaviour and cravings, and they make the most of them. Even in their advertising, they will communicate what feeds the ego of their customers. In other words, they will endeavour to make the most of their customers’ subjectivity in willing to buy an expensive item to make a statement.
Coca Cola sells mainly on the basis that it gives a special drinking sensation. I doubt whether the manufacturers can say what this sensation is. On the other hand, if we make a tasting exercise to know from drinkers of Coca Cola what this sensation is, we are likely to get a different reply from each and every taster.
This is the trait of genius in the Coca Cola marketing strategy, and it is based on 100% subjectivity, not abiding by any set marketing rule. This is what image building in brands is all about, and this is what allows a product to be sold at a premium price by switching the customer’s behaviour from being objective to incorporating a higher dose of subjectivity.
The strong and successful CEO is he who makes a judicious blend of objectivity and subjectivity in his decision-making, and the weightage of these two elements in this blend is most likely to vary from case to case.