How business fails ‘The Reality Test’

BY The Delphi Network

This review was first posted on DN member Brian Shaw’s website:

I’ve just read a great book. The author of The Reality Test is Robert Rowland Smith, a former Oxford don. The text is written painstakingly clearly, but does not sacrifice intellectual depth.

Perhaps due to his academic background, Smith doesn’t shout his message and prescribe rules. Rather, he asks a number of unusual questions, as a trigger to make the reader think about his business: Will your business go to heaven? When will your business die? Who is your business (not the more common ‘what’)? What’s your organization for? What makes a CEO worth 1,000x the lowest-paid worker? This thought-provoking format means you could easily use the book as a corporate training manual with your senior management.

Smith identifies a simple paradox. Companies try very hard to be rational and to execute rational strategies. But this is exactly what causes the problem. We try to suppress ‘wild’ reality with our carefully tended corporate version – hence the popularity of ‘strategy’. But reality is far more untamable, and companies far more ‘organic’ than most executives are willing to accept. Smith writes of strategy that ‘it is essentially a work of fiction’.

Smith gives an entertaining selection of the bizarre decisions CEOs make, while thinking they are the smartest possible decisions under the circumstances. The new CEO who fires his just-widowed HR director. The reckless expansion plans in the midst of a serious recession. The obsession with stock price. Sticking to strategies which have no relevance to corporate or market reality.

He also sees many businesses practices as being self-destructive because of the way they try to dupe the customer. His discussion of ‘brands’ is quite biting. Instead, he proposes the idea of ‘pheromones’. This is the natural force-field that companies with strong, confident personalities generate. They suck you in. You adapt. I thought this was a great description of the hold genuinely good companies have over their staff and clients.

Related to this was his idea about the evolution of the services that we consume. Increasingly, we consume services that give life a sense of meaning. “There is nothing quite so pleasurable to consume as a great idea that really speaks to me’, he writes memorably.

The good news is there is a lot of value waiting to be scooped up. Success lie precisely in navigating the space between what is actually going on and what most other companies think is going on. All you need is a better sense of reality than the other guy, and a keener sense of what makes people tick. Smith calls this the difference between the inner market (inside the company) and the outer market. Making a success of the inner market by treating your employees and colleagues right can result in sudden breakthroughs in the outer market.

Smith’s follow-up is to emphasize the organic nature of the business environment, and to show how it can be dealt with. Employees have good days and off days. Overall, they balance each other out. CEOs may recruit second-rate staff for the pleasure of feeling superior – this needs to stop. Bad manners can poison relationships, so rules need to be followed. Above all, humans like to bond. That’s the main reason they come to work, not to earn revenue for the firm. All the org charts in the world won’t overcome the chemistry that turns people into excellent collaborators or deadly enemies. CEOs need to factor this in.

Some of his points are very profound and novel, at least for a business book. His analysis of networking concludes that networking purely for business is a sure way of degrading your personal and work environment. You should work with people you like and trust and show that by paying for people yourself, not on expenses. True, you may lose some business as a result, but you’ll be a lot happier and maybe even richer in the end.

The last part of the book is about CEOs, and builds on his analysis of how executives often create ‘reality distortion fields’, rather than dealing with the truth. He describes jaded CEOs rushing from meeting to meeting and seeking comfort in familiar jargon and protocol. In fact, genuine breakthroughs occur when you do change your routine, or mix up the people you meet. It’s not easy, though.

This is a very useful and thought-provoking book. Any business leader would find it profitable to distribute the book to his/her staff and talk through the questions Smith raises. You would surely obtain some surprisingly interesting results.