Can a company ever survive on strategy alone?
'Culture eats strategy for breakfast.' American management guru Peter Drucker’s saying is a nice metaphor for the fact that even the most brilliant business strategy will always lose when coupled with a weak corporate culture. A typical example of a company that eats strategy raw before lunch is Tesla with their Elon Musk-led culture. On the other hand, Ray Dalio, founder of the world's largest hedge fund Bridgewater, could teach Musk a thing or two.
It is widely accepted that companies are successful because they have a good strategy. Though it is absolutely a condition for success, it is certainly not enough.
Only by having a strong corporate culture is it possible to lead a company through an uncertain world over the long term. This is achieved by successive good strategies that carefully weigh opportunities and risks. As a risk manager, I am fascinated by the corporate culture of decision-making.
Tesla CEO Elon Musk is undeniably a great and charismatic leader with brilliant ideas. His implementation of the Tesla strategy, however, has been raising eyebrows for years, not least among its own investor base.
Why does this company stall despite a brilliant man at the helm?
Tesla has an autocratic corporate culture. Musk does not leave decisions to a democracy or a meritocracy, in which individual achievements count, but only to Musk. Therefore, he has to work very hard. As long as 120 hours a week, he lets the outside world know through tired and tearful eyes.
This tough entrepreneur can do everything himself much better than others. He thinks. Here is the halo effect at work. You are good at one thing and you think – encouraged by your whole yes-nodding environment that you have cultivated – that you are good at everything. Toxic for the shareholders and toxic for the employees.
A democratic corporate culture – a kind of ' wisdom of the crowds ' – though perhaps an alternative to autocracy, is not practical for making complex decisions. This is because the knowledge and experience of talented specialists on a specific topic do not carry more weight.
The most effective way of getting the best out of a company's human capital is meritocracy. by allowing experts with diverse opinions to participate in debates about complex decisions and giving them responsibility in their field of expertise.
Ray Dalio is the founder of the hedge fund Bridgewater. Indeed he is a lesser-known person than Musk, but Dalio has built one of the top five largest non-listed American companies on what he calls 'idea meritocracy'. He did this after he, as an autocrat with the same overconfidence as Musk, almost ruined his company in 1983. Dalio had the humility and wisdom to learn from his painful failure: by working differently as a person and within a group.
In his recently published book Principles, Dalio elaborates his approach in great detail. Over 500 pages he explains step-by-step how he determines how credible someone’s opinion is. The greater a person's credibility, the bigger impact their voice will have in decision-making.
Opposing opinions are cultivated, as well as radical transparency. All management meetings at Bridgewater are integrally recorded this way. Some view it as a sect, others find it the opposite of it because no top-down orders are given. In this environment, each junior can exert a lot of influence on a decision, provided the input is qualitatively of a high level.
An amusing side-effect of this practice is that Dalio is no longer the CEO of his business, but is one of three chief investment officers. He likes to leave the 'executive role' to others, because his measurements show that others are better at it.
I am curious about what Elon Musk’s role would be if he decides to build an idea meritocracy at Tesla. I would guess that of chief innovation officer, with a lot of good people under and above him. They would take so much work off his hands that he, with his brilliant ideas, can finally help Tesla make a profit. It would also give Elon the opportunity to spend more time with his five children. But then he would first have to read Dalio’s book and well...