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Managing and the Locus of Control

Fate and Free Will In Business

Recently I found myself in a (mostly theoretical) discussion with my 14-year old son about (admittedly minimally understood) causal factors at work in the universe – more specifically, the relationship between fate and free will. (Apparently he’s been paying attention in his physics class) The discussion morphed from the universe to consumer consumption – for example, is it fate that a teenager finds himself at GameStop or BestBuy pre-ordering the latest video game for the XBox or WiiU? Does the game choose the buyer? Was it all the intentional doing of some unseen religious or intergalactic being? Or did somebody simply have a coupon or a gift card? Was it fate that he was given a BestBuy gift card instead of one from Honey of a Ham? Does the retailer care to quantify these variables? Maybe they just want to sell more copies of SuperMario 37 – A Shopping Cart Adventure. (I made that up).

Naturally my mind jumped to cause and effect in more macro business scenarios. Were the poor operating results of a company related to any one event? Hired the wrong controller? Didn’t sell enough widgets? Warehouse was too big or too small? Competition, beyond our control, made us lose sales to lower priced competitors? Industry changed? Largest customer simply slashed their operating budget and capex? Customers going direct? Maybe your product just has waaay too much high fructose corn syrup.

Was the rapid growth of Apple and Samsung simply just fate? Why are we talking to each other on an Apple I-Phone or a Samsung Galaxy and not a Zenith, Fisher, Sylvania or Atari? Why are the parking lots full of Hyundais and Hondas and not Oldsmobiles and Pontiacs? Which organizations and managers had free will and which ones were merely victims of fate?

How much was really under management’s control? Like most things in life, well, it depends.

Among the plenitude of thoughts that managers have – one of the most elusive is knowing what the right size and scale is for the business. Can you make more profit at $3 million (or $300 million) in sales than at $10 million (or $1 billion)? No question you need top line before you can have bottom line but the model needs to be evolutionary yet sustainable. The fact is, many of the “fastest growing companies” won’t be around in a few years because they are chasing the glory of top line revenue growth (and sometimes, just EBITDA if it’s fueled by window-dressed earnings) instead of good old-fashioned net income. It is also necessary to embrace, and even, force, change.

There are a variety of examples of organizational structures and entities that could catalyze extensive debate as to the roles of fate and free will in determining customer service orientation and outcomes. It’s no accident that the companies with the highest scores for customer satisfaction and quality are the ones who care enough to measure how they’re doing.

Companies must map, track and categorize every aspect of the business – knowing the product and service mix to optimize total revenue and profit, a classically basic exercise done in marketing and finance courses. The old map, measure, modify approach is tedious, but it works. After all, managers should have a certain amount of control over their destiny, and over the relative success or failure of their companies, organizations, departments and people, all with an eye toward the future and the need to invest in research, product/service development, people and other companies as acquisitions.

Internal vs. External

Rooted in the field of Psychology with Julian B. Rotter’s (1916 – 2014) seminal work on social learning theory and locus of control, are business implications for determining internal vs. external success or failure factors. Rotter was an American psychologist who generated some original research on many fascinating aspects of how individuals view themselves and their circumstances – and he sought an understanding of how people’s attitudes and behavior related to their social and work lives.

Imagine a continuum, or better yet, a second grade number line. All the way to the left is the “External” locus of control, and all the way to the right, the “Internal” one. Most of us would argue that most companies and how they operate, fall somewhere in the middle.

Generally, being “externally” oriented means that fate deals your hand and there are outcomes beyond your individual, departmental, or corporate control. These things just “happen” regardless how hard you work, what choices you make, what decisions you make. The complete opposite perspective, way over to the right, is “internally” oriented. Internal locus of control means that outcomes are within your control – that the effort, choices, decisions all within your grasp ultimately determine the dependent variables.

In this case, the empirical logic of course applies, and independent variables are the inputs and the dependent variables are the outcomes. So, what are the managerial implications of this line – which ranges from monk to control freak?

Not to pick on the public sector, but stand in line at virtually any state DMV and you’ll quickly believe some or many of the employees are fatalistic and have given all hope. It’s a trap the very providers of the service fall into when they expect the service experience they deliver to be poor. The inscription over the gate of hell in Dante’s Inferno comes to mind: “lasciate ogni speranza voi ch’entrate,” or, abandon all hope, all who enter here. (Yup, take a number, you’re gonna be there awhile.) After all, this is a system which has been in place since Henry Ford was cranking out Model T’s and A’s, necessitating license plates and drivers licenses. There have been 95 years elapsed allowing for a more efficient queuing system and process improvement to expedite customers through the lines. So why hasn’t it gotten better? Meanwhile, elsewhere in the world, you can get anything from melon-on-a stick bouquets to groceries to toner cartridge refills to a black car limo dispatched to your exact location within minutes.

Amazon and Zappos revolutionized distribution by starting with marvelous operations strategy applied to mundane products – books and shoes. PriceLine changed the game on travel by marketing unsold capacity, and in the process Captain Kirk became a pitchman to haggle with to get the cheapest price on your ticket to Tampa.

Think of how many airlines have come and gone in all the years that Southwest Airlines has grown, made profit, and satisfied customers – while giving them what they wanted – cheap fares, timely travel to relevant places, efficient systems and aircraft, and a bag of peanuts – and nothing they didn’t want – assigned seats, cancelled flights, fuel-guzzling planes, filet mignon and first class. Elsewhere in transportation, Amtrak has lost billions during that same time and FedEx and UPS have made money while other carriers went bankrupt. Chipotle and Chick-Fil-A filled the empty space previously occupied by Kenny Rogers Chicken and Boston Market. Same QSR segment, different operations. Many Kohls were built where there were Sears or KMarts. Same retail sector, different operations.

Culture Itself Becomes Fate

Surely the work environments at Amazon, Google, Apple are more stimulating, more exciting than many offices in the public sector, but often the collective psyche and culture of the people in the system have the greatest bearing on the collective “point” on the single continuum of “We make things happen – to – we can control about 50% of what happens – to – Everything is beyond our control and whatever is going to happen is going to happen.” So, are the employees (and their beliefs, attitudes and actions) the single largest determinant of success in a customer-facing system, public or private?

Clearly somewhere in the fate and free will debate, there is a natural selection and the companies who by free will choose their fates, survive. But why? How? The answers lie deep within the collective corporate or organizational culture; Individual belief systems combine into an aggregate mindset, usually the “shadow of the leadership,” and thus become self-fulfilling prophecies.

The opportunities to improve, grow, and prosper come by challenging the organizational inertia and making frequent, consistent, marginal, but deliberate changes. Growth and results come from questioning everything – turning over every single rock in the company. Some examples include:

• The CEO and leadership team – honest 360 degree feedback for every role
• Objectively consider the company name, logo, colors, brand, positioning statement – is it time to rebrand?
• Rethinking the fleet and facilities necessary for your operation
• The accounting software, the inventory tracking system. the technology used by salespeople, technicians, field service employees
• The mix of products and services sold and provided
• The markets served – verticals, segments, geographies, industries, domestic, international, e.g.
• Finding alternative uses for existing products and applications
• Understanding every line of the income statement (P&L) to uncover improvement opportunities
• Renegotiating with your vendors and suppliers every time your customers renegotiate with you
• Consciously choosing growth, quality, results, diversity, consistency
• Refusing unrealistic terms, condition, and pricing from customers that everyone knows isn’t going to work
• The margins? Do you know your true costs? Are you making margin on direct and indirect costs, but sliding backwards into losses because your SG&A is too high?
• The need to simply care more, engage more, work harder, be more attentive

Managers and employees have power to make change and to create positive results by focusing more on internal locus of control issues, but such choice must be supported by a culture that embraces change and rewards results. By doing so, many of the external locus issues will take care of themselves and become less threatening. Apathy and ambivalence will give way to engagement and passion; break-even or loss will give way to profit; stagnation will give way to growth.

That’s not blind fate, that’s opening the enterprise’s collective eyes to the power of free will…and the people who work there.