The tiny difference that sold 50 million records, and what it means for your business

Business is a tough gig. Fine margins separate the winners and losers.

In two broadly equally-matched companies, success is often the result of something small which gives one party a slight “edge” at first. This compounds over time until one business is top of industry awards lists and the other so far behind, it’ll never catch up.

Here’s three quick examples. Then we’ll get to the 50 million records…

Facebook is currently one of the world’s most valuable companies. But when they started out a dozen years or so ago, was their service vastly better than MySpace, social media’s early market leader?

It was not. Yet today, Facebook is everywhere (perhaps in too many places, if you value your data privacy) while MySpace languishes in some almost-forgotten corner of the internet.

At first, the difference was tiny…and the smart money would have been on MySpace to win. You can read more about it here… Why Facebook beat MySpace.

Then we’ve got General Motors. In the early years of their century-long tussle with Ford over who could claim bragging rights as the US’s biggest-selling automaker, their tiny difference was to offer easy credit terms to people wanting to buy cars, which Ford was reluctant to do. That tiny change to make it easier for people to buy a GM car boosted sales volumes without GM having to solve a single extra engineering problem or make their cars any better.

And VHS beat Betamax, even though Betamax was generally agreed to have been technically better. The tiny difference was that VHS worked out how to put more recording time on a single tape, until movie studios could fit a whole movie on a single VHS tape. By the time Betamax got round to copying this feature, pretty much everyone who was going to buy a video recorder had already bought a VHS-format one and it was “game over” for Betamax.

Tiny differences are talked about more often in the business world nowadays, in no small part due to Dave Brailsford’s approach to leveraging 1% improvements for the British Cycling Team. With his strategies, a team of also-ran’s become world-beaters in pretty short order.

If you’ve made it this far, you might be wondering what all this has to do with selling 50 million records…

Well, those 50 million records (and counting…) were sold by Aussie rockers, AC/DC…

The one tiny thing AC/DC do differently from their industry which has given them a 40-year career at the very top of the music business. AC/DC’s 1980 “Back In Black” album remains one of the best selling albums of all time, outselling arguably more famous collections like Fleetwood Mac’s “Rumours”, The Beatles “Sgt Pepper” and Pink Floyd’s “Dark Side Of The Moon”.

While you might feel that examples from social media companies, the car industry, video-tape recorders and competitive cycling don’t have much relevance for your business, anyone can adapt AC/DC’s “secret technique” to make their business more successful.

And here it is…

When AC/DC make a record, they record it “live” with everyone in the same room at the same time. Many bands record their individual parts separately…sometimes on entirely different continents, not even in the same studio.

You can make perfectly acceptable music by recording each musician individually and stitching the results together in the studio. Most music you hear on the radio today has been recorded exactly that way.

But AC/DC, whose energy-filled live performances made their reputation long before they sold millions of records, recognised the energy they generated when they played off one another in the recording studio, just like they did when they were on a concert stage, gave their music an energy and an immediacy most other acts lacked.

This tiny difference in how AC/DC worked together in the recording studio resulted in “Back In Black” selling somewhere north of 50 million copies, more than just about any other record in history (Michael Jackson’s “Thriller” and The Eagles “Greatest Hits” are about the only albums most published rankings put ahead of “Back In Black”.)

So what’s the business application for all this?

The term “teamwork” is over-used, and often wrongly used, in the business world today.

I’ve only rarely felt part of a team during my working life. “Team” has just become an easier way to refer to a particular group of people – the Sales Team, the Production Team, the Senior Executive Team, and so on.

But in practice, there’s very little true teamwork going on. Most businesses run in a succession of silos with senior executives coming together for monthly meetings where they argue about whose fault it was when things go against them, and scrap for a share of the credit when things are going well, whether or not they had anything to do with making it happen.

Between meetings, however, those senior executives and their respective teams spend very little time with one another.

Some would say it’s more efficient that way. Tasks have been assigned and allocated. KPIs have been set. Bonuses have been tied to meeting objectives. People are often just expected to put their blinkers on and hurtle as quickly as possible towards hitting the criteria that triggers their bonus.

Which, in my view, leaves a major opportunity untapped.

You can’t truly operate as a team with people you never see and only deal with via reports and emails, with only the occasional formal meeting adding a touch of theatre to inter-departmental rivalries.

You get an energy from being together, and feeding off one another that the members of AC/DC, and their ace production team, understood.

When teams get out of their silos, my experience is that not only do you tend to get better solutions, you also find them a lot faster than wading through three or four formal monthly meeting cycles in order to get one department’s pet solution signed off.

And in the Darwinian world of business, as MySpace, Ford and Sony, the inventors of Betamax, discovered, it’s often the fastest to a solution, not necessarily the biggest or the strongest, that wins the battle.

So if you want to get to a solution faster, follow the example set by those best-selling Aussie rockers…make sure everyone is in the same room at the same time. Nobody leaves until you’ve made something you’re proud of.

That’s teamwork.

(Photo by ActionVance on Unsplash )

We should fire him for not hitting his targets…or should we?

Being a Finance Director or CFO means you spend a lot of your time working out what people’s targets should be, tracking their performance against those targets, and reporting any under-performance.

While there are some intellectual challenges to the target setting process, those are generally within the control of the Finance Director or CFO as they are working on a model they built themselves.

What’s much harder to assess is what…if anything…it means when people don’t hit their targets and what…if anything…the business should do about it.

But wait, I hear you say, if someone doesn’t hit their targets, shouldn’t we send them on their way and find someone else who can deliver what we need instead?

If only life was that simple.

Firstly, there’s an underlying assumption here that the person you’ll bring in instead will do a better job than the person you get rid of. I’ve seen this hundreds, perhaps thousands, of times and all I can say is that in a significant number of those cases that assumption turns out to be wildly over-optimistic.

There’s also an assumption that the reason for under-performance is the fault of the individual. This is often overly simplistic. Yes, maybe you have other people who can hit their targets, which in your mind means it isn’t impossible for everyone to do so. But perhaps there are other factors which mean that in practice not everybody can.

In a surprising number of cases, a thorough investigation into the reasons for an apparent under-performance throws up some systems or process issues outside the control of the staff member which means they were never going to achieve the targets which had been set.

Of course, statistics cuts both ways, so just as there are people who vastly under-perform against some sort of average, there will be people who vastly out-perform. That, after all, is how calculating an average works – there will always be some people above the line as well as some people below the line.

So just not hitting a target (which is nearly always calculated as an average of some sort) doesn’t necessarily mean anything at all. I once heard a speaker say that at school he was in the 10% of the class that made the top 90% possible.

It was a matter of fact that he was below the class average, but statistics says that any time you measure the performance of a group of people, somewhere around 50% of them will probably be below the average of the group as a whole, and a broadly similar proportion will be above it.

The degree of variation is the key here.

W. Edwards Deming’s work on statistical control is the definitive manual on acceptable degrees of variation in work performance. I won’t go into the maths in detail here, but in Deming’s book “Out Of The Crisis” he shows how to calculate the level of acceptable variance in a stable system that’s operating under statistical process.

In our modern world full of “knowledge work” this is less obvious than when people are watching over car parts hurtling down a high-speed factory production line. But exactly the same principles apply.

In Deming’s world, the acceptable degree of performance around an average, or arithmetic mean if we’re being statistical about it, was +/- 3 times the square root of the average actual performance. (Please note that whatever you had set as a target isn’t relevant for this purpose as there may be factors affecting the group as a whole, either positively or negatively, which could make any target either too easy or too difficult to achieve.)

When you work through the maths, you’ll realise that the boundaries for acceptable performance are much wider than businesses typically allow in their performance management systems where amounts somewhere between 0% and 5% tend to be arbitrarily used to determine an acceptable degree of shortfall, if any, in meeting targets.

Deming’s view, as one of the foremost management thinkers of all time, is that the responsibility for under-performance is more often down to management’s poor understanding of the laws of statistics and unwillingness to improve the systems and processes used in the business which would raise the standards of everyone working in it.

And if you don’t think that’s possible, have a chat with your front line staff and your customers. I can guarantee they’ve got a long list of things that would help the business run more smoothly, even if you can’t immediately think of anything.

That’s not your fault. If you’re not working on the front line you’ve no way of knowing what that experience is like.

But it is your fault if you never ask the people who do work there how to make things better for them, and, in the long run, for the business too.

So next time someone isn’t meeting their targets what should you do?

Apply a bit of Deming’s thinking, even if just in concept without getting too deep into the statistical modelling, to work out whether the problem is really with the member of staff or with the systems and processes instead, even if other people are somehow able to achieve the targets.

Perhaps without realising it you just got lucky in the employee lottery and ended up hiring a bunch of people who happened to be unusually good performers who somehow managed to get the results you were hoping for in your initial planning assumptions.

More often than not firing people is a very expensive way of trying to solve a problem. Studies have shown that the cost of recruiting and training a new person to replace someone who’s left can equate to between six and twelve months’ salary.

And if all you end up with is someone the same or only slightly better…which statistically is a likely outcome…all you’re doing is loading cost into the business for no meaningful return.

So next time you’re wondering whether to fire someone who isn’t meeting their target, pause for breath. It’s probably not going to help solve whatever you think the problem is.

For sure, it’s harder work getting stuck into the issues and unpicking whatever is getting in the way of people hitting their targets. But it’s the only way to fix the problem for good.

Maybe a few exceptional performers can hit the targets anyway, even with less-than-perfect systems and processes to support them, Building your business model on the basis that every person you hire will turn out to be an exceptional performer is an assumption I’ve seen many business make, explicitly or implicitly. Although I’ve yet to see one where that superficially reasonable-sounding objective was ever their experience in reality.

Mostly those businesses were on a perpetual “hire ’em and fire ’em” cycle which led to enormous hidden costs within the business…bloated HR departments to handle all the hiring and firing, costs for advertising vacancies, reductions in customer loyalty and lifetime value as a result of putting rafts of under-trained, less-experienced new hires on the customer service front line and many other costs that dragged the business down, although they never appeared explicitly on anyone’s budget report. (If they had, someone would have done something about it long before now.)

Don’t be that business. Next time someone appears to be performing poorly, break out a calculator and see how the numbers stack up first. The staff member may well be doing their best in a difficult situation…the problem may, in reality, be something else.

I can’t claim statistics is always fun. But, done properly, I can claim that it helps prevent making the same mistake over and over again without realising it…which has got to be a good move for your business.

(Photo by Annie Spratt on Unsplash )