Lessons throughout history inform us that cause precedes effect; actions create results. Plato explained the principle of causality saying everything that becomes or changes must do so owing to some cause; for nothing can come to be without a cause (Timaeus 28a). In Codex Atlanticus, Leonardo DaVinci wrote No effect is in Nature without cause; you understand the cause and you do not need any experience. And as every school child learns for every action, there is an equal and opposite reaction per Sir Issac Newton’s third law.
With depth of affirmation around cause preceding effect, why do business leaders focus so heavily on analyzing their numbers, or, focus on the effect instead of the cause? A recent conversation with a community bank CEO focused on his vision for the company. He opened the dialog saying he and his leadership team had put a lot of thought into where they want to take their bank, and the vision they committed to was to deliver top decile ROE, ROA and topline revenue growth. A quintessential example of focusing on effect, not cause.
In their CFO Magazine piece, How An Obsession with Metrics Is Killing Your Company (https://www.cfo.com/analytics/2016/04/obsession-metrics-killing-company/), authors Alexander Van Caeneghem and Jean-Marie Bequevort, write “the quest for financial performance and the pressure to measure can corrode organizational cultures, narrow the focus of leadership, reduce intrinsic motivation, and support unethical behavior. With a similar theme, Michael Harris and Bill Taylor’s Harvard Business Review article, Don’t Let Metrics Undermine Your Business (https://hbr.org/2019/09/dont-let-metrics-undermine-your-business) said “A company can easily lose sight of its strategy and instead focus strictly on the metrics that are meant to represent it.”
Logic tells us we can manage cause, but only measure effect. Yet we often overlook the real story – the aggregation of activities that created the results reflected in our numbers. Leading by Cause is an approach that says – use results to understand activities, effectiveness, and efficiency in context of the organization’s vision and strategy. When results do not meet expectation, the root cause is embedded in one (or more) of these elements – choices of activities performed, performance effectiveness, and performance efficiency. Shifting to cause-based analysis of results positions leaders to laser-target interventions – coaching, guiding, managing or taking direct action – to change the trajectory of outcomes. There are three paradoxes to navigate in making the shift to Leading by Cause:
- Effect vs. Cause Conversations – Cause-based performance analysis requires understanding composition of activities that created results. A common effect-based conversation among managers when results that don’t meet expectations starts out with “fund raising is 5% below target, so let’s do everything we can to drive it up to make plan”. A cause-based conversation gets at the root – “What were the development activities over the past quarter that created these results? Which donors did we focus on? How did we engage those donors? What was their reaction to what we have to offer? What is getting in the way of our new fundraising development activities?”
- Appearance of Improvement vs. Improvement – In the effects domain, managers often look for steps to improve the appearance of their P&L results, yet no real, underlying change takes place. For example, delaying travel or deferring other expenses in the last weeks of a quarter to create the appearance of lower operating costs, thus a better bottom line. Results look better, but the root cause creating undesirable results has not been sleuthed-out.
- Math vs. Behavior – Operating results presented in an organization’s P&L reflect an aggregation of activities. It’s easy to analyze operating results in a sterile manner, quantifying month-over-month changes and variance to plan; of course, numbers don’t lie! But, every numeric result – fund development, events, marketing, or operational activities – reflects human behavior. Cause-based analysis of results seeks to understand the behavioral factors contributing to outcomes reflected in the P&L – “What changed in our development activities last quarter vs. the same period last year? What effect is our largest peer nonprofit’s new development strategy having on their results? How effective is the collaboration between departments?”
Leading by Cause requires deconstruction of results into elements. Understanding the numbers is important; knowing what caused the numbers is empowering.
*Based on an article originally published by the author in Lead Change (www.leadchangegroup.com)
Dave Coffaro is a strategic advisor, executive coach and author. His areas of expertise include leading organizations in the process of strategy development and execution, change leadership, organization transformation and innovation. Coffaro is principal of the Strategic Advisory Consulting Group, a management consultancy, and co-founder of Atticus, a fintech firm providing individuals and professional advisors with easy to use, do-it-yourself tools for fiduciary-based activities. His new book is “Leading from Where You Are” (January 2020). For more information, visit www.davecoffaro.com
Author: David Coffaro, Executive Coaches of Orange County, www.ECofOC.org