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Real Problems are Best Resolved by the Audacious—not the Pusillanimous

May 20th, 2013 · 4 Comments · Business Management

Doing the unthinkable is often easier than merely thinking about what cannot be done.

When faced with seemingly intractable complex problems, most leaders, if they act at all, seek a solution by applying complicated, tedious, timid and incremental actions. More often than not, this approach not only fails to uncover a workable solution, but actually exacerbates the problem. The reality is that the more imponderable a problem seems to be, the more likely that audacious, bold, but simple actions will be the easiest to implement and offer the greatest opportunity for success.

History offers a cadre of individuals who, when faced with a seemingly insurmountable problem, fell upon audacious ideas and actions to achieve success.

  • In 218 B.C., Hannibal, a Punic Carthaginian military commander, embarked on an audacious act for which he is  still remembered 2,200 years later. He marched his entire army, including war elephants, from Iberia over what was thought to be the impenetrable Pyrenees and the Alps into northern Italy. This action allowed him to hold the “invincible” Roman Empire at bay and occupy much of Italy for 15 years.
  • In 1776 a group of patriots stymied in their efforts to resolve the problem of continued harassment and impositions of British colonial rule had the audacious idea that they could defeat the most powerful nation in the world and start a new country with a republican – as opposed to a monarchical – form of government.
  • At the end of World War II, Secretary of State George Marshall had an audacious plan to break the cycle of centuries of constant wars in Europe. Where endless treaties, alliances and conferences failed, the “Marshall Plan” (financed by $15 billion of American aid) created an economic interdependence among the nations of Europe that set the foundation for the European Union of today.
  • In 1967, despite the 200-year existence of an effective vaccine, millions across the globe were still dying from the scourge of smallpox. The World Health Organization set upon an audacious goal to immunize every individual in the world. In a short 12 years later, smallpox had vanished from the world.
  • In the 1970s, when computers were housed in sterile, warehouse-sized enclosures, Bill Gates had the audacious idea of “a computer for every desktop and every home.” And he called it Microsoft. (The “Micro” being a small computer to run the software his company was developing.)
  • At the same time, as the U. S. Post Office struggled to find a way to deliver mail in a week, another individual – Fred Smith – had the audacious idea to deliver mail “overnight”; and he called it Federal Express.
  • In 1987, when the insurance industry was burdened under the weight of stagnant institutions, antiquated processes and obsolete products, a group of individuals had the audacious idea to start an entirely new insurance company. That company – LifeUSA – sought to introduce a new type of corporate culture to revolutionize the way companies did business and create a new approach to products. Despite the odds against it, this company quickly became the fastest growing and one of the most successful in the industry.

The point here is that as counter intuitive as it may seem, the best way to overcome difficult challenges and complicated problems is to be audacious, not precautious. While the tendency is to seek a solution to complicated problems with timid tinkering or complicated fixes, real answers are discovered in audacious reinvention, not re-engineering. The core of real problem solving is not found in trying to fix the results of what has gone wrong, but by correcting what it is that caused things to go wrong. The difference between the timid and the audacious is that the former seeks to fix the problem, while the audacious seek to eliminate the causes of the problem. The path to audaciousness is to challenge the way things have been done in order to find ways to do things that should be done.

History Should Teach Us a Few Things 

A real-life example of this type of situation exists now as the country is confronted with three seemingly intractable problems that, if not resolved, could have a dramatic, negative impact on the country. These conundrums are: Social Security, Medicare and our convoluted tax code.


We have witnessed the inability of political leaders to solve the problems inherent in these existing systems. If ever there was a time that called for audacious actions to solve a problem, that time is now. But instead than being audacious, the politicos timidly dance around the edges, offer short-term patches or suggest complicated changes; all of which are designed to respond to the result of the problem, not the problem itself.

Take Social Security, for example. Established in 1935 as a federal program designed to provide a guaranteed lifetime basic income for those in retirement. The concept was and is a good one. But the problem is that the solvency of the current system is at risk because of unfunded promises and assumptions that are no longer valid. Because of this, fixes that only address the result of this problem don’t go to the heart of the issue and only make things worse.

When Social Security was enacted 75 years ago, the life expectancy of the average male in the United States was age 54. This meant that with the initial retirement age set at 65, most of those eligible to receive payments would never collect; and those who did receive payments would do so for a short period of time. That made sense, but today the average American male can anticipate living to age 74 (almost 80 for women) and the life expectancy of a male child born today is well into their 80s. And most people now spend 15 to 20 years in retirement.

Yes, there has been tinkering with the Social Security retirement age, but such provisional tweaking don’t address the fundamental problem of people living remarkably longer. The vast majority of Social Security payments still commence at age 65 (or even younger) and those payments will be made for a lot longer period than initially anticipated. The reality of extended longevity and longer periods in retirement makes a shambles of the original assumptions for the funding of Social Security and are at the core of the system’s problems.

There are other underlying issues as well: At the time Social Security was enacted it excluded more than 50 percent of social-securityworking males (and 90 percent of working women and minorities). Now the system offers virtually universal coverage along with extended widows and disability benefits. The payroll tax collected to pay for Social Security benefits is capped, so the wealthy pay a smaller percentage of their income for benefits received. Social Security was intended to be a “safety-net” for low income individuals, but there is no “means-testing” as to need; so the wealthy receive the same benefit as the poor.

The takeaway here is that all of these issues have converged into what seems to be a complicated and intractable problem that defies solution. Unfortunately, that is the case when those charged with solving the problem offer only complicated, tedious, timid and incremental actions. If this approach continues, the end result will be a continuing problem for current and future participants, along with the country as a whole. If ever an audacious solution to solving a problem was needed, Social Security fits the bill. So what might that audacious solution be?

Social Security was intended to be an actuarially sound universal insurance program, so let’s be audacious and treat it that way. When an insurance company discovers that it has written a “bad-book” of business it does not continue to add additional policies to the book or go to policyholders and ask them to accept reduced benefits. What the insurance company does is “close the book” and allow the existing liabilities to run-off. Then, using updated assumptions and experience, the company designs a new policy for the market.

When a company takes this action, it still has to take its lumps for the bad business written, and the existing participants will receive the benefits that have been promised, but the ultimate liability (losses) are capped and eventually will disappear naturally as policyholders die. This would be an audacious approach to solving the problems of Social Security, but it would work.

What the government could do is simply “close the book” on the existing Social Security program. Those already receiving Social Security benefits and those 55 and older would remain in the current program, with no change in benefits. Deficits in the funding for the existing program would continue – quite possibly increase – for a period of time, but they would be capped and ultimately disappear as participants die.

At the same time, an entirely new program – based on current assumptions and experience – could be designed and implemented for those under age 55. It could, for example, set the age for receiving benefits at 70 or even 75. The payroll taxes necessary to pay for the benefits of the new program could be applied to total income and not capped at an artificial level. Benefits would be “means-tested” so that a certain level of income or assets, some participants would receive benefits equal to what they put in and no more.

Certainly these ideas may seem extreme, but it is the type of audacious thinking needed to solve real problems. In reality, the ideas suggested are not as radical as them may seem at first glance. The original Social Security plan set the age for receiving benefits at least 10 years beyond what was the current life expectancy; setting receipt of benefits at the current life expectancy is actually a more liberal approach. In addition, a recent survey discovered that over 60 percent of those between the ages of 45 and 60 want and plan to work beyond the “normal” retirement age.

The audacious idea to freeze the current system and reinvent a new system with future benefits based on up to date assumptions and experience would protect the benefits of those currently receiving Social Security and assure future retirees that a viable program will be there when they need it.

Of course you have to be audacious to think that our political leaders have the courage to do what it takes to really solve problems. And that may be the biggest problem of all.

And the Moral of the Story …

When faced with what seems to be an intractable problem, most make the mistake attempting to implement fixes that respond to the results rather than the cause of the problem. Problems can be intimidating, complicated and seemingly insoluble when the approach to solving the problem is a combination of complicated, tedious, timid and incremental fixes. Meeting challenging problems is often best accomplished with audacious reinvention, rather than timorous reengineering.

Often the most significant impediment to solving a complicated problem is an unwillingness to be audacious enough to solve the problem.

 

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