Most organisations like to optimise things. Which is fair enough – why wouldn’t organisations want to be the best at what they do?
But there’s an interesting dynamic at work here. Often the root cause of an organisation’s implosion is because they’ve been a bit too keen on the optimisation front.
That’s generally for one of two reasons.
Either they try to optimise everything or they pick one thing to organise, which turns out to be the wrong choice.
Optimising everything is a fool’s errand
Of course, there’s a superficial rationale for optimising everything. Sometimes it’s one of those well-meaning activities that “seems obvious”.
At other times, an organisation tries too hard to beat the competition and uses optimising as a blunt instrument to do that in every aspect of their operations, instead of thinking things through properly and establishing some meaningful differentiation with their competitors.
The reason trying to optimise everything is a fool’s errand is because pretty much every organisation is trying to accomplish a range of goals which pull the organisation in entirely different directions.
Here’s a simple example.
Your business gets a service call from a client because the equipment you installed broke down. Your service contract promises fixes “normally” within 48 hours, but doesn’t make a firm commitment to do that.
It generally takes two hours for an engineer to get the equipment up and running again, but this client is two hours’ drive from you which means it’s likely that you’ll incur a full day’s costs for your service engineer, but only be able to charge for 2 hours of their time.
Normally, you try to get a number of engineer visits in the same area on the same day to minimise travel time and maximise your ability to charge clients for your engineers’ time.
So the question is, do you send an engineer or not?
And the answer is…well, it depends on what you’re optimising.
If you’re optimising for service, you send an engineer the minute you put the phone down.
If you’re optimising for short-term profitability, you wait for a day or two in case another customer in the same broad geographical area has a problem they can fix in the same trip, and then reluctantly send an engineer anyway if one of those happy opportunities doesn’t come along.
But note this: you can’t optimise for both of these outcomes simultaneously. Doing one guarantees you can’t do the other.
A lot of objectives in the corporate world are like this. Organisations are often a series of silos each incentivised on their own metrics, so they spend large parts of their day fighting with other silos over whose targets are going to take a hit every time there’s a choice to be made.
In the example above, the Finance Department and the Service and Maintenance Department are each going to see this situation rather differently. The CFO will be incentivised on bottom line profits. The Head of Service and Maintenance on response times and client satisfaction scores.
(NB: I deliberately said “short-term profitability” above – in the long run, you will almost certainly experience higher profitability by serving your customers better, even if it costs you a little more in the short-term.)
Optimising everything is pretty much impossible. More likely, all you’re doing is setting up your senior people to spend their time scrapping with one another to protect their bonuses than pursuing the organisation’s objectives.
And the opportunity costs of two senior people scrapping it out are likely to be vastly higher than any benefit the business could ever gain from optimising either of those two perfectly reasonable objectives.
The “one objective” fallacy
Another common approach is to have one overarching objective that everyone is focused on, to the exclusion of pretty much everything else.
Now, you won’t normally work out what that is by looking at an organisation’s website or studying their annual report. Those are more outlets for corporate PR than helpful information in matters like these.
Rather, you have to work it out by watching what organisations do.
Now, I have no idea if this is true or not, but my reading of the situation is that recently one of the world’s largest and most profitable companies has put its very existence under threat by appearing to optimise for one single objective to the exclusion of everything else.
You’ll have heard of this business. It’s called Google.
By any standards, Google has been an exceptional business over the last 20 years or so. In a remarkably short period of time, it’s gone from being an idea in an academic paper written by Google co-founders Larry Page and Sergey Brin to becoming one of the largest and most powerful companies in the world.
Along the way, their business has entered everyday language. Just 30 years ago, nobody Googled anything, because the term didn’t exist, but now “googling” is a word in the dictionary. And, at its peak, Google accounted for well over 90% of all web searches.
So I’m not dunking on Google. They’re an exceptional business.
However, over time, Google would appear to have optimised for a single measure – ad revenue from search results.
In the early days this was pretty harmless. Nobody minded an ad or two in return for a fast answer to their questions from a reasonably reliable source.
But that was so profitable, Google put more and more ads in their search results. From a position on the right-hand sidebar, they started appearing at the top of the search results.
Then more and more ads appeared at the top of the search results, often driving organic posts “below the fold” so you had to scroll down to see them. But people kept clicking on the paid ads, so more and more businesses ended up giving money to Google on a regular basis.
In the short-term, that was great business for Google. They had no meaningful competition and oodles of cash poured into their bank account every day of the week with very little effort on their part. Great times…if you were Google…
If you weren’t Google, however, it wasn’t so great.
People trying to sell you stuff crowded out the information you were looking for. Information you would have found easily on a Google search five or ten years previously became progressively harder and harder to find.
So the average person’s search experience got considerably worse.
Roll the clock forward a few years and in more recent times Google has found itself under pressure from a huge number of AI companies who claim (although, frankly, I’m sceptical about most of them) to give you instant answers to all your questions.
For the average consumer, this means you don’t need to trawl through 10-20 search results of distinctly varying quality, alongside a similar number of ads, to find what you’re looking for.
So why would anyone Google something for a poor experience when they could ask ChatGPT/Perplexity, etc the same information and get an instant answer without any ads (for now, at least).
Let me say, I have no insight into the thinking and strategy of Google on this topic. But as an outsider, it seems to me Google have behaved like a business which was trying to maximise ad revenue at the expense of just about everything else would behave. So my working assumption is that’s probably exactly what they’ve been doing.
Fast learners
To be fair to Google, they are fast learners.
They developed at lightning speed…or released something they’d had for years but kept secret in order to protect their ad revenue, depending on how much of a conspiracy theorist you are…an AI product of their own, Gemini. Which is actually quite good.
Now a Google search shows results from Gemini first, then some ads, then the organic results.
The only difference is that now Google are scrapping it out with Microsoft’s CoPilot (which is also quite good), ChatGPT, Perplexity, Claude and whatever else is the AI flavour of the day.
They’ve gone from having an impregnable position in online search to having to fight over a market they used to call their own.
While I don’t think Google is likely to go out of business any time soon, they will almost certainly never again have the share of search and the endless waterfall of cash into their bank account they had in the pre-AI days.
Some people might think that’s a good thing. After all, the principle of creative destruction is hardwired into capitalism. If you don’t keep up with your market, sooner or later, you’ll become an irrelevance. That’s how the system is supposed to work.
But imagine this…
What if Google had optimised its business for search experience rather than ad revenue?
Sure, it might have forgone a bit of ad revenue in the short-run, but it would have meant that there would be very little opportunity for the AI companies to encourage people to cut Google out of the equation altogether and go straight to them for a simpler, faster, better answer to their questions.
Odds are Google would still have well over 90% of the global web search market.
And…if some people are to be believed and Gemini had existed “secretly” for quite some time before being released to the public…had Google released their own AI-powered search experience while owning 90%+ of the search traffic, would ChatGPT and other AI companies have got off to such a rapid start?
I suspect not.
The AI upstarts would have been pushing hard to solve a problem pretty much nobody had, because a Google search experience with fewer ads and built-in AI would have given the average person everything they needed.
By prioritising short-term profitability, Google has probably put a big dent in its longer-term profitability.
Maybe one day we’ll even speak of Google the way us old-timers speak of AltaVista or Yahoo.
Google blew them out the water with much better search results and a much better user experience. Could someone else do the same to them?
Well, I don’t know.
But whereas five years ago I’d probably have said that was impossible, now I’m not so sure. By at least appearing to optimise a single, short-term objective, namely ad revenue, it’s possible that Google have sown the seeds of their own demise in the longer term.
What to do instead
So, if it’s not a good idea to optimise everything, and it’s equally not a good idea to become obsessive about a single measure, what should you do instead?
Well, there are two answers to that question.
There’s a simple one and a more complicated one.
The simple answer is to optimise the experience you give to your customers. The better you serve them, the less likely they are to go elsewhere and the more likely they are to give you whatever you want (within reason) to keep serving them in the way they’ve become used to you serving them.
Yes, you need to keep an eye on your costs and manage your business professionally, but as long as you raise your time horizon beyond just this week, this month, or this quarter, that’s not as difficult as most people seem to think it is.
And you get big benefits from this approach, which are not usually brought into consideration when someone gets the spreadsheets out. For example, you are much more likely to get a stream of pretty much free, high-converting referrals from existing customers if you provide a great service vs a poor-to-average service, although that never shows up in an RoI calculation.
The more complicated answer is to have a hierarchy of principles that guide your decisions.
You might say, for example, that you always put customer service first – and do whatever it takes to wow them – unless it’s going to cost more than $1,000, in which case you need to get a manager to sign off your proposed actions in advance.
You could take that a step further and add in that, in addition to the $1,000 limit, a decision can’t result in any of your service engineers working more than an average of 40 hours a week, measured on a rolling monthly basis, without also getting approval from a manager.
Now, you don’t want to have too many layers to this or it becomes unmanageable.
But it’s entirely possible to have a three or four-layer hierarchy that governs your decisions…or at least 90%+ of them…without requiring an enormous management overhead to keep track of everything and/or to referee fights between different members of your senior management team who are each incentivised differently, and in a mutually-exclusive way.
The key, however, in the words of Michael Porter, is to recognise that strategy is about choices.
What you decide to do…and often what you either decide not to do or ignore completely…ends up determining what sort of business you end up with.
There’s nothing wrong with maximising profitability. But if you over-maximise it, you’re probably just opening up a space for a competitor to step into.
Away from the tech world, I can’t help noticing that every major UK supermarket now uses “price-checked with Aldi” as a shorthand way of saying “you couldn’t buy this cheaper anywhere”.
Aldi (and Lidl) only exist in the UK grocery market today because the established operators optimised their performance in a pretty uniform manner (one reason I’m deeply wary of adopting “industry best practice”).
The more they became like one another, and the higher they jacked up their prices, the bigger the market the major supermarkets opened up for their “upstart” competitors.
From pretty much zero a few years ago, Aldi and Lidl between them now have almost 20% of the UK grocery market.
At a time when household budgets are under pressure, and the cost of living is a frequent headline in our daily newspapers, it turns out that two German companies who optimised for low cost over whatever Tesco and Sainsbury were optimising for was a winning strategy.
For a while Google, Tesco, and Sainsbury looked like they were impregnable.
But in over-optimising to compete with one another on a broadly similar basis, all the major supermarkets did was open up a fair chunk of a market they’d previously had to themselves to a couple of upstart competitors.
So be careful what you optimise for.
You might win a battle. But you could increase your chances of losing the war.