by: Issues: March / April 2007. Tags: Strategy. Categories: Strategy.

Alfred P. Sloan, Jr. was president of General Motors from 1923 to 1937. He gets my vote for principal architect of the modern corporation and its professionally managed/decentralized structure. His book, My Years With General Motors (Doubleday, 1963), is a gem chock full of wisdom and advice for executives. It is one of those rare books that will “never” be dated. Executives are told to never say never, but here the word can safely be used.

Sloan’s creation, General Motors, endures to this day as North America’s third- largest corporation by revenues ($193 billion U.S. in 2005). General Motors is in trouble right now but that is for the account of Sloan’s successors. That GM still has a fighting chance is perhaps the ultimate testimony to the foundation Sloan laid.

Sloan was that rare combination in an executive: a visionary who could execute; a fact-based decision-maker who could inspire; an idea person who could lead; a strategist at home with tactics. He was flat out a business genius. One of Sloan’s best insights should be front and centre every day of every executive’s career. “Bedside manners are no substitute for the right diagnosis”. This article is about diagnosis.

Diagnosis derives from an old Greek word meaning to know or discern. The word has a long history in medicine, where the notion is one of identifying the root cause of an ailment. You cannot cure if you do not know what is really causing the ailment in the first place.

The crossover to business is straightforward. To diagnose a business problem is to determine the source. Executives who can’t diagnose end up treating symptoms or maybe even nothing at all. The problem probably keeps getting worse. When things in business start going bad, the deterioration usually accelerates until there is active and focused intervention. If an executive can’t figure out why whatever is wrong is wrong, the executive can’t fix it; executives who can’t fix things are at best nice people who are no help and do not get in the way. Almost certainly, they impede performance, competitiveness and progress.

Tim Russert, managing editor and moderator of the highly regarded NBC Sunday news program “Meet the Press”, did a wonderful book on his relationship with his father: Big Russ and Me (Hyperion, 2005). In it Russert talks about a friend’s father. “Doc Tierney taught his son (also a physician) that treatment is the easy part of medicine; the real challenge is getting the diagnosis right.” It is exactly the same in business. Also consider John Keynes. Keynes nails the crucial notion of diagnosis in The Economic Consequences of the Peace (1919), one of the finest pieces of public policy writing ever. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” The real action is diagnosis.

Why is diagnosis so tough? For starters, any serious problem in business, medicine or whatever is likely to be complex and involve multiple causes. The greater the complexity and number of causes, generally the tougher a problem is to diagnose. For example, are poor sales a consequence of poor product design, poor quality, poor reputation, poor promotion, poor service, poor pricing, weak demographics, a slow macro economy, strong competition, or weak management? Each is complicated in its own right and inevitably, of arguable, but ultimately unprovable percentage contribution to the sales problem.

Complexity and multiple causes is not the end of it. There are issues of overlapping problems with overlapping causes, problems that are intermittent, problems that fix themselves, problems that change the way they present themselves and problems for which there is no known testing and analysis methodology. Finally, it is the rare serious business problem that does not involve people and the minefield of behaviour, relationships, emotions and feelings. Correctly diagnosing the people side of a problem is particularly difficult.

Getting it right

Diagnosis may not be easy in business but there are things that can improve an executive’s chances of getting it right.

First, define the problem properly. Time spent getting good definition of a problem is usually time well spent. It is only by luck that you will correctly diagnose a problem that you have not properly defined. Executives need to curb the natural instinct to immediately leap to the diagnosis and cure stages.

Second, listen. Much of the information needed to diagnose the cause of a problem invariably comes from the people associated with the problem. To get the needed information requires asking the right questions of the right people and then having the discipline to be quiet and listen closely. Determining the right questions to ask too often gets short shrift, with predictable consequences for results.

Listening closely is difficult; talking is easier and more fun; but listening closely is what executives must do if they are to get to the bottom of business problems. Listening takes considerable time; you have to restrain the temptation to assert your own views; you need to give people room; you need supportive body language; you need to be non-judgemental. Going back to Doc Tierney in Russert’s book: The key to the right diagnosis, he (Doc Tierney) would say, comes from really listening to the patient. He warned his son against the danger of arrogance. “The minute you think you are any good in this business,” he told Larry (his son) “that’s when you’re going to start harming your patient”.

Warm, respectful relationships with people will also help you find out what you need to know. Those who know what you need to know are unlikely to help you if they don’t feel good about you. Bedside manners may not be a substitute for the right diagnosis but they can’t hurt.

Third, analyze. Analysis is another key to proper diagnosis. Try to quantify the problem at hand; develop hypotheses on causes; collect data; study the data in light of the hypotheses; keep digging in the data; keep an open mind; go where the data and the analysis takes you. So called fact-based decision-making is simply decision-making based on the analysis of facts. Bad decisions are often explained afterwards by inadequate analysis.

Fourth, know the history. Problems usually have long tails through time; they only look like they come right out of the blue. Knowing the history of a problem increases the chances of a good diagnosis.

Fifth, think. Listening is tough; thinking is even tougher. But when it comes to figuring out the causes of a problem, you are unlikely to get far without concentrated thought. Think it through is wonderful advice. After the fact, you don’t want to be saying we never thought of that but in hindsight, it should have been obvious.

Sixth, get advice from experts. No executive knows everything. There is a lot of professional expertise out there that can be brought to bear on the cause of a problem. Physicians are forever consulting colleagues; executives should do the same.

You cannot be a good executive without being good at diagnosis. Alfred P. Sloan, Jr. was right. There really is no substitute for the right diagnosis. Executives should work on their diagnostic skills.

About the Author

John S. McCallum is Professor of Finance at the I. H. Asper School of Business, University of Manitoba, and former Chairman of Manitoba Hydro. Contact