THE EUROZONE CRISIS – A LESSON IN BAD STRATEGY AND INCOMPETENT LEADERSHIP

19 05 2012

As the Eurozone stumbles from crisis to crisis and the continent’s leadership stumble from emergency summit to emergency summit it is worth reminding ourselves that the issues they face were predictable and, with earlier action, avoidable.

As they continue to falter, as they struggle for solutions, Europe’s politicians provide invaluable learning for all in business.

A journey through the evolution of the Eurozone Crisis shows a number of stages where bad strategy and incompetent leadership have meant that, far from resolving the crisis (as numerous pronouncements have declared), its continuation and downward spiral have been guaranteed to continue.

However, that bad strategy and incompetent leadership provides plenty of lessons for those in business hoping to avoid their own crises or, if facing difficulty, in how to handle it. Here are four of them:

STRUCTURE SERVES STRATEGY

It is human nature to want to define structure early in a project, even one as large as the Euro. It is also a mistake. From its outset the Euro project has suffered from a rush to establish the structure prior to clearly defining why it was even a good idea and how it would work.

In this rush to structure, unsound decisions were made based on wishes rather than facts. Primary among these was the failure to recognise the limitations of some southern European economies. Too late Jacques Delors, the man generally heralded as the architect of the single currency, recognised this when he said in December last year; “in the 1990s leaders chose to turn a blind eye to the economic weaknesses of some member states,” before going on to say (of the rush to launch without proper strategy in place), “the finance ministers did not want to see anything disagreeable which they would be forced to deal with.

Good strategy faces up to and addresses the issues. Good structure services good strategy in the most effective, efficient and economical way feasible. Neither has been the case from the outset for the Euro project.

HAVING A STRATEGY IS NOT THE SAME AS HAVING A GOOD STRATEGY

The rush to structure when launching the Euro created the need to force-fit strategy to pre-defined structure. This limited the quality of any strategy then or since. This lack of quality strategy has continued throughout the current crisis. Delors somewhat understated the case when he said, “the response now the issues had surfaced had generally been inadequate.

The fact of the matter is that throughout the current crisis Europe’s politicians have failed to respond adequately with strategy to target the real issues. The growing likelihood that Greece will have to leave the Euro and the worrying downgrading of many Spanish banks, come fully five months after those same politicians ignored the need for strategy to address the current crisis, instead opting for structure to service the (hoped for) future. It comes ten months after the first Greek bail-out was announced as a great triumph. Finger crossing has no place in good strategy.

NOT ALL STRATEGY IS VISION-BASED

In December last year, following a week of frantic discussions, Europe’s ‘political management’ declared they had come up with a solution which safeguarded the future of the Euro. They had a vision of where the Euro should be and put in place a new structure to service that future. What they overlooked was (is) that the Eurozone Crisis is of the present, the here and now. What they failed to address was the current issue(s) facing the Euro, instead designing the future. Where Issue-Based Strategy was desperately required, they opted for a kind of Vision-Based Strategy (albeit more structure than strategy).

That we arrived where we are today; deeper into crisis with the threat of at least one, if not more, nations potentially having to leave the Euro should surprise no one. It certainly will not surprise any semi-competent strategist who has been looking on.

MANAGEMENT AND LEADERSHIP ARE NOT THE SAME THING

Crisis summit after crisis summit has seen Europe’s politicians enter into discussions on a continent-wide issue with the mind-set that they are there to manage their own national interests. And why shouldn’t they, that is what they were elected to do. Unfortunately this left the door closed to genuine leadership; leadership designed to offer a strategy for a solution which would work and which would take the rest with them.

And that is a fundamental problem for the Euro, that the flawed structure relies on politicians elected to manage the interests of individual countries and economies within the Euro, not the Euro itself. Where managers look after and make best use of the resources at their disposal (i.e. service structure), leaders recognise issues, find solutions and take people with them in addressing issues and delivering solutions (i.e. service strategy).

WHERE TO NOW?

Until Europe’s politicians realise the need to include genuine leadership and good strategy alongside the managers and the economists the crisis is likely to continue its downward spiral. Indeed, through their bad strategy and incompetent leadership those politicians might already have signed the Euro’s death warrant, at least in its current format.

For business the lessons are clear:

  • ·         Have a clear, well researched, non-delusional strategy in place prior to designing the structure best suited to its delivery.
  • ·         Understand that simply having (or claiming to have) a strategy is not sufficient for the pursuit of anything bar mediocrity or failure. Good strategy goes far further.
  • ·         If faced with a crisis face it head-on and honestly. There is no point in ignoring it to design a future which might not exist. There is no gain to be made by denying errors made in the past. Vision-Based Strategy is great for getting to the future but if you are facing serious difficulties in the present only an Issue-Based Strategy will do.
  • ·         Make sure your board (or decision-making group) is functional; include management and leadership, economist and strategist. Leave one or more out at your peril.

 

Also on the Eurozone Crisis from Cowan Global:

The Eurozone Crisis – The Management Of The Continuation Of Mediocrity By The Unaware (3rd December 2011).

The Eurozone Crisis – Still No Strategy And Still No Real Fix (10th December 2011).

Eurozone Credit Downgrades Should Surprise No One (14th January 2012).

© Jim Cowan, Cowan Global Limited, May 2012

Read more blogs by Jim Cowan

info@cowanglobal.net

Twitter @cowanglobal

Facebook.com/cowanglobal


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