Muddling through

Last week I suggested that there are times when it is better not to address issues but to let sleeping dogs lie. My favourite example is a situation where you don’t get on well with your boss. The delicate balance of power and risk means that an intervention will often make things worse rather than better.

One reason why I recommend patience in that situation is that time often heals the issue on its own. One of you will move job, or there may be a general reorganization. The problem will eventually go away in most cases.

I also suggested caution when dealing with an issue with your life partner. Here, the problem won’t go away on its own, unless one of you decides to give up on the relationship. But it is still risky to act, because you can’t put the genie back in the bottle, and any intervention is sure to have consequences. The choice is whether to accept those consequences or whether muddling through is good enough for you. Think before you act in those situations.

Muddling through is what most of us choose to do, most of the time. Where we delude ourselves is that things will improve without intervention. We might think we can change our partner subtly, or that some other change such as a job move, house move or new child might somehow work to our mutual benefit. In all probability it won’t. Sores do not often heal on their own, they take careful intervention followed by compromise and hard work.

So what it takes is a careful calculation. Can the intervention make things better? Might it make things worse? Without intervention, are things likely to improve or get worse? Might the problem solve itself? Is the status quo more agreeable than dealing with a failed intervention?

Companies face the same dilemma and leaders have to weigh the consequences carefully. There is a strong school nowadays that argues that constant change is the new normal and an imperative for success. I disagree. Some of us like change and some of us don’t, but all change has consequences, and many of these carry severe risks.

A key risk is distraction. During reorganisation and change processes, staff are focused inwards. They are thinking about their own jobs and trying to work with new colleagues and processes. The customer can get forgotten, and the competition can take advantage. Add in the fact that inevitably targets are ill-defined during change, and underperformance is likely to follow. This is even worse during acquisitions.

But stability brings its own risks. In my experience, costs tend to creep up when there are periods without reorganization. Few companies seem to be able to keep a constant gentle pressure on costs. People have ideas that require investment, and everyone tries to build their empire and career. Departments get slightly larger each year.

The result is often a cycle of reorganisation every five years or so. Perhaps it is no coincidence that CEO tenures tend to last about five years. Perhaps it is also the time that excessive promises to market investors can no longer appear sustainable.

Then there are changes of strategy. Key here is to understand key trends. If a company is in a fast moving market like mobile devices, it cannot afford to stand still for long. Look at Blackberry. Both Samsung and Apple look vulnerable now. Google seems to go the other way, lurching after every opportunity – I am not optimistic for them, even though their core business looks strong for many more years. Amazon has followed a consistent strategy from the start, and, because it is still supported by key trends, maybe the strongest of the lot going forwards.

In other industries, stability can bring rewards for an extended period. Look at Exxon. I made a mistake with Tesco, missing that their star would fall. The problem is the positioning of their asset base, in over-sized out of town locations which no longer meet the market trend. I should have seen that coming.

With politics, change often costs votes, so smart leaders undertake the tough reforms early in their tenure. On balance, David Cameron did this well. Narendra Modi seems to be missing a generational opportunity in India.

It is no surprise that many leaders follow a muddling through strategy. When asked what his biggest problem was, Harold MacMillan answered “Events” – in other words dealing with stuff from left field, and implying that the regular business should be as minimal as he could get away with.

But muddling through carries long-term costs. Over time, institutions and policies drift out of line from where they need to be. As people live longer, health care becomes unaffordable unless constantly subject to tough reform.

But look at the crippling political capital a modest health care reform cost President Obama, and you can see why most just muddle through. In his new book, Francis Fukuyama describes a new political reality he calls a vetocracy. He believes that change has become all but impossible in the US now. Meanwhile, not just healthcare, but also welfare, the tax landscape, inequality, environmental policy and many other areas become ever more unfit for purpose. In the end, muddling through can lead to crisis.

There are two other excellent examples in Europe. One is the democratic deficit in the EU. First, elites implement policies without consulting people following their interpretation of what is best for Europe. The policies are generally sound. But slowly it becomes impossible to make a positive case for the policies, and opportunists build opposition. It becomes impossible to reform and the bunker gets deeper and deeper. In the end the institution itself is threatened.

The institutional framework of the UK is another example, made current by the fallout from the Scottish referendum, and elegantly described in the Economist this week. The four constituent parts have led to a series of ugly fudges that now look hopelessly unjust and untenable. As an example, Scottish MP’s can vote on purely English matters while English MP’s cannot vote on Scottish ones, yet there are more Scottish MP’s per head of population than English ones.

But a discussion of the options to unpick the mess shows how this will be next to impossible, since some interest group or another will not accept each possible change and an overall settlement is politically out of reach. Here, Cameron has done less well, for he torpedoed some sensible changes proposed by Nick Clegg early in his term on cynical political grounds. That decision has come home to roost, and will stymie governments for at least another generation.

So what are the lessons from all this? Intervening will often make matters worse, yet muddling through can be unsustainable.

As an individual, we need to choose our battles carefully, judging the potential risks of intervention with the likelihood that a situation will improve of its own volition. As an investor or company leader, it is really the same thing, with the key market trends being the determining factor – in a fast moving environment and one where our legacy is moving against trends, we need to change more quickly than is comfortable or risk irrelevance.

As a national leader it is much the same. Chances to reform are few and far between, so need to be grabbed boldly when they arise. Well done John Key in New Zealand, who has just won a third term and has seen a unique moment to define part of his legacy by changing the national flag, and wasting no time in getting on with it.

Fukuyama despairs of US politics and US prospects as a consequence, and joins the growing ranks of commentators openly questioning the superiority of democracy over a system like China’s. I retain a bit more faith in democracy, especially as our young become better educated and informed, and as technology can speed decision-making. But it would be a brave man who would bet that in thirty years time we will still have a UK, an EU and a world-leading US. By then, muddling through might have reached its limits in all those cases.