It is an axiom of business that organizations attempt to make reality fit their perceptions, and that large and powerful organizations may actually succeed for a time. Reality, of course, always wins ultimately, and enterprises whose perceptions are in conflict always lose. The Communist Party of the Soviet Union comes to mind, as do, less dramatically, many of the large number of companies in the Fortune 500 in 1968 that are nowhere to be found in 1998.

There are myriad theories to explain success in business - in fact, each year's new variations appear to be awaited eagerly by the publishing industry. But there are few if any coherent theories designed to predict mediocre business performance or failure, which are much the same over time. As you've no doubt guessed, I happen to have evolved just such a theory.

I think of it for the present as the Limousine Syndrome.

Anyone not utterly mean-spirited will concede that it is very difficult to perceive that anything is seriously amiss with one's business, one's decisions or the way the world works when sitting in the back of one's own chauffeured limousine. Even when a company is going down the tubes, and this appears obvious to a host of employees, observers and critics, it can be difficult to see from the back of a limousine. Many of us have watched managers run their companies right into the ground over years from this position. This preferred perch tends to assure you that whatever you've been doing so far has worked pretty well. And if all the plays you have run thus far have led to the back of the limo, any arguments for changing those plays now tend to lack persuasion. It can also be very difficult for people in limos to take counsel from those whose playbooks lead them to the subway.

Of course many, indeed most, of the business managers who suffer from Limousine Syndrome seldom get near a limousine. But all who do contribute generously to what I believe is one of the most enduring and enigmatic question in American business: Why, for so many people, is the first step toward launching a new idea, product or business strategy leaving their jobs?

A better view of the situation

The first reason, in my observation, is that too few business organizations have effective radar. They are not designed to focus on anticipating either challenges or opportunities that lie at too great a distance from the tip of their collective nose, nor do they encourage employees to "waste time in speculation." Vision is reserved for top executives and the strategic planning unit.

Second, I think there is widespread disdain for the small ideas and innovations that I believe are the lifeblood of competitive leadership. Small changes are too hard to control.

Third, more senior managers need to learn that failure is simply an investment cost, and a certain amount of failure may actually be a sign of robust health. It says that employees do, in fact, have a sphere of authority in which to take risks and test ideas.

Countering the culture of under-performance that results from these characteristics does not require either soul-searching or a major reorganization. All that is demanded is a fierce commitment, broadcast throughout the organization, to what might be called (for lack of a catchy slogan) "a better view of the situation."

Here is a current view of the situation: New competitors are coming into our market and threatening our market share. Here is a better view: we will go into their markets and kick their butts. Current view: Joe is a hard worker, but lacks the skills and adaptability we need going into the next century. Better view: Joe is a hard worker who, with the right training, can be a major contributor to our future success.

Simple, even simple-minded? On the contrary, in my experience, profound, capable of changing the way an organization performs and employees work. A better view is nothing less than a new way of seeing.

The difference a better view makes

When assigned to manage the subsidiary of a U.S. bank in Greece in the 1980s, I found an organization in a serious tailspin. The source was fairly obvious: mounting customer disaffection as a result of lousy customer service. Lacking time to hatch a grand strategy or resources to hire consultants, I did the best I could. I brainstormed with the employees to try to find a better view of the crisis we faced together. The small change we chose to implement was disarmingly simple. We moved the president's desk into the middle of the lobby. Employees and customers could see at once that major change was underway, and could now take their concerns and complaints directly to the top.

The president, who had never been especially excited about this idea, now learned firsthand what was wrong and why. This led him to initiate a total operations overhaul, to adopt new technology that revitalized the business, and to add so much value in the eyes of customers that we achieved a 5000 percent profit increase in less than five years.

When later running the same bank's Italian subsidiary, we suddenly faced a new Italian tax law that threatened a countrywide run on banks. Our competitors ran ads and crash marketing programs to try to reassure their customers. Searching for a better view of a bad situation, we concluded that sincere pronouncements wouldn't succeed in reassuring anybody, least of all Italians.

Instead, convinced that seeing is believing, we took all the cash out of the vaults in our branches and piled it up on tellers' counters where everyone could see it. Customers were both charmed and reassured. The more cash we displayed, the more new accounts flooded in from other banks. Our response to the crisis, and the subsequent innovations its success encouraged us to launch, turned a $40 million annual loss into a $50 million profit.

Seeing the limo that's going to run you over

Former House Speaker Tip O'Neill once said that the most important talent needed in a politician was an ability to count: By knowing how many votes your bill could hope to carry, you could avoid wasting time and energy on lost causes.

The prescription for staying well clear of the clutches of the Limousine Syndrome is an ability to see: to see past the conceptual barriers that surround us, to open our minds without losing them, to have a vision of what is possible on the road ahead of us. What is possible on the road ahead may not be what is aimed for or wanted. It may be an accident.

On a dramatic scale, Adam Smith lived in a still agrarian England, yet conceived of an economy with manufacturing at its core - an economy that would not emerge for half a century. But Smith could "see" the forced migration of people away from farms to swelling cities, and "see" this unemployed mob as a resource for labor. The people of England were destined to either starve, form criminal gangs, emigrate or find work in some kind of manufacture. In the end, they did a fair bit of each.

Today, Bill Gates sees a future in which the PC is a universal home and business appliance - a machine for living. Oracle's Larry Ellison sees a world in which PC's are soon obsolete, and replaced by low-cost, network-linked terminals. One stands to be terribly wrong. No one, no matter how brilliant, gets to define reality. Customers do that.

In the more down-to-earth realm of contemporary business, network television executives clearly did not "see" that cathode ray tubes would be used for a variety of other purposes besides viewing broadcast television. Isn't it curious that America Online is not the creation of a broadcasting company? And isn't it just possible that, while the Federal Reserve believes banks as presently constituted are essential institutions, that neither individual nor business customers might agree, given alternatives? We may find out. Richard Branson, the visionary behind the Virgin empire, has decided that Britain's banks are expensive and inefficient for retail customers. He's now betting that millions will prefer doing their financial transactions with the familiar, trusted and admired symbol of Virgin.

"We have met the enemy, and it is us"

Of the major obstacles to seeing, I believe the most pervasive is the phenomenon called "the nature of our business." Virtually every corporation, irrespective of its age or history, builds up a repository of received wisdom. Left for too long undisturbed, or confused with a company's culture, this wisdom can become a set of boundaries that enclose a status quo organization.

In the status quo organization, employees believe the boundaries to be real because they experience them as real. Who, then, is going to ask hard questions? Who will question old assumptions when they conflict with emerging new realities? Who outside the rarefied upper reaches of the corporate pyramid has the power to trigger the changes vital to the ability of an enterprise to adapt to a continuously shifting competitive landscape?

The consequences of being a status quo organization can be devastating. Surely among the tens of thousands of highly intelligent people who worked at IBM in the 1980s - a very large proportion of whom no longer do so - there must have been hundreds who sensed that the company's strategy for entering the PC market was destined for disappointment. The market was being defined as business users, not consumers. The initial products were premium priced though undistinguished, testifying to a deep and - as events would prove - misguided belief in the company's marketing muscle and the marketplace's valuation of the IBM brand name.

Is it is really too much of a stretch to say that IBM effectively enabled the creation of Compaq because, as a then status quo organization, it was blind to the possibility of being Compaq?

Contrast this history with that of a company in Kalundborg, Denmark, in one of the most rigidly regulated and narrowly delimited businesses, electric power generation. The company faced limited, highly predictable growth prospects in its core business in a mature market. Fortunately for its shareholders, the employees were not blinded by "the nature of their business." On the contrary, they saw their 1,500-megawatt coal-fired plant not just as a generator of electricity, but as a producer of industrial gypsum - a waste product of its scrubbers formerly discarded at substantial disposal cost - that could be sold to manufacturers of sheetrock for walls. They convinced their management that the fly ash residue from coal burning could be marketed as a raw material for cement and road building. The waste steam produced is now sold to heat Kalundborg's 5000 homes and buildings, displacing 19,000 tons of heating oil a year. The water used to cool the generators now feeds a fish farm that produces 500,000 pounds of fish per year as well as tons of fertilizer.

By breaking through boundaries that defined their company as an electric utility, these employees created thriving new businesses, sharply reduced burdensome waste disposal costs and transformed a utility into a marketing organization. What, then, is the nature of their business? Where are the boundaries now? What are the barriers to using this new cash flow to invest in a completely new business?

What business are your customers in?

People who run failing businesses have an unerring ability, I've noticed, to suddenly discover problems that often they themselves have created in years past, and then to ascribe them resignedly to fickle and unpredictable consumer tastes. Nowhere is this phenomenon more evident than in the current decline of major league baseball.

After years of transforming the sport into a seemingly endless season of games played by highly paid mercenaries who travel blithely from team to team to play for the highest bidder, team owners now focus on marketing gimmicks in an attempt to spur attendance and combat public indifference. Some factors were at play that they couldn't control, such as the ubiquitous spread of air-conditioning and the decline in shift-work. (In the 1950s, people often went to ball games during the week because they worked shifts and because many companies closed in the afternoon on days when the temperature exceeded 90 degrees.)

But that is hardly why television schedules demoted baseball years ago. It just may have something to do with a fan's inability to care very much about players who move from city to city but always seem to live in Florida. It might also reflect the estimate that, for a family of four, going to a major league ballgame is now a $200-plus adventure. It may be that it mattered to people that the Brooklyn Dodgers lived in Brooklyn and never dreamed of playing for another team, or that Ernie Banks played his entire career for the Cubs and was adored by every kid in Chicago.

Ironic, isn't it, that in the meantime minor league baseball is enjoying a boom unprecedented in the game's history? Instead of resigning themselves to a parallel decline as a step-child of major league baseball, at least some minor league team owners appear to have found a better way, betting that their customers would be people in the business of hometown loyalty, nostalgia, local heroes, inexpensive family outings or all of the above.

The market punishes nothing so certainly and inexorably as blindness to the business of one's customers, and an inability to see through the apparent to what is, to them, actually real and meaningful. Yet this is Limousine Syndrome in its worst and most common manifestation.

Customers alone determine value, and insights into how they made those judgments - and how we can add value - are all around us. Our employees are very often also our customers, or know people who are or could be customers. Do your employees use your products? Do they recommend them? What do they think of your competition?

Getting out of the car, thinking out of the box

The ethos of looking constantly for a better way is an empty one unless it permeates an organization, unless employees are trained to break out of their mental boxes and overcome the habits, traditional assumptions and even the fears - of you, of their bosses, of failure or ridicule - that hold them back. Making this challenging of the system work is a demanding and a continuous effort.

But the return is not only an enterprise that expects and feeds on ideas and innovations, but one with eyes focused everywhere on customers, on the way we work, and on better ways. One dimension of the value of unleashing this resource is that in my business, banking, as in perhaps most, rank and file employees know a great deal more about our customers than I do. Because in many businesses they are more like our customers, and closer to them.

When we at Finance One saw that the branches of our parent company, BANC ONE, turned down billions of dollars in personal loan applications each year because of insufficient credit standing, we wondered what the people who were turned down did next. Our employees were able to tell us that these folks went to finance companies and got loans at much higher interest rates. Competitors had nearly $1 billion dollars in loans outstanding to applicants that the Bank One branches had rejected.

We then moved quickly and enthusiastically to market our company to our colleagues at Bank One, proposing to team up to provide these applicants with a solution before they walked out the door. For Finance One, this search for a better way played a significant part in growing our pre-tax profits more than five-fold from 1992 to 1997. For our parent company and our colleagues, it meant satisfying and retaining customers with whom the bank may have - or could have in the future - a number of relationships.

Better ways add up. But if you stay secluded in the back seat of a limousine, literally or figuratively, the world of people who get turned down for bank loans, and the valuable and profitable business they can represent, never enters your field of vision.

Copyright 1998 Directorship, Inc., 8 Sound Shore Drive, Greenwich, CT 06830 (203)861-7000. Reproduction in part or in whole by any means is prohibited without permission of the publisher. All rights reserved. Reprinted from Credit Magazine with permission from the American Financial Services Association.