Alliance Voices: Making Great Decisions – David Matheson

Transcript

Head and Heart: Driving Organizational Change

Speaker: David Matheson, CEO of SmartOrg

Introduction: The Illusion of Rationality

How do you make a great decision every time? I don’t just mean make it—I mean actually drive organizational change. Do you just come up with something and then persuade everybody? Do you inspire them with some great tagline? Do you manipulate them all by adjusting the incentives?

I can tell you that I actually have a PhD in organizational decision-making, and I thought I knew it all until I met a man named Mel Harris of Sony Pictures in the early ’90s.

The Financial Reality of Hollywood

At the time, I was working with Sony Pictures on their strategy. They were under a lot of threat; there was the rise of home theater, and content was no longer as powerful as it once was. They didn’t know what to do, and I had this great job of working with these guys to figure out where to take the company next. But Mel Harris told me everything I thought I knew was wrong.

You see, Mel was really brilliant intellectually. He knew that they had to do something different. The way a movie or television program works is you produce it and you dig this gigantic financial hole. Then, in theaters, you dig your way a little bit out of it. Next, you release it to the next window—like home video—and you make a little bit more. Then it goes to television, you make a little bit more, and seven or eight years later, through this massive chain of events, maybe you actually get all that money back.

The problem was that content wasn’t as powerful as it once was. What they needed to do was own more of their distribution channels so that on every one of these steps, they could squeeze a little bit more money out of it and thereby return to more reliable profitability. He was smart; he knew that.

Surviving a Cutthroat Industry

But Mel was also people-smart. Mel Harris was one of the few survivors as an executive in an absolutely cutthroat industry. Most of these executives lasted maybe two or three years. The number one method of promotion was betrayal—you backstab the guy above you and take his spot. So everyone was always looking behind their shoulders, trying to figure out who was going to come after them.

Mel had been there for like ten years, and one day I asked him, “Mel, what’s your secret?”

He said, “Oh, David, it’s very simple. I smoke.”

I said, “You smoke?”

He said, “Yes. You see, smoking is illegal in this building, and when I smoke, I leave the fourth floor where all the executives are. I go behind the dumpster with everybody else. And I have a choice: I can either be that SOB executive with my fancy cuffs and my little kerchief, where everyone will be afraid of me—and I’ll feel great, they’ll treat me like royalty—or I can go down there and I can piss and moan along with the rest of them about how bad it is that we all have to smoke behind the dumpster. I hold it as a sacred trust. I don’t abuse these guys, and what they do is they tell me what’s actually going on. I’m many steps ahead of all the rest of the executives. That’s how I survived.”

This guy was a genius. He was smart, and he knew people.

The PowerPoint Pitch

Well, there I am. I had spent six months working on where Sony Pictures should go next and what they should buy to fill out their distribution channels. I had done the facts, I had done the figures, and it was a rare moment because rarely does the analysis come together so strongly, so powerfully, and so clearly. Usually, there is a lot of uncertainty; this was a total no-brainer.

I was working with Mel to prepare for the executive retreat—this is with all the big folks—and I was explaining the strategy to him. My explanation looked something like this: I went through the numbers, the facts, and the figures, and Mel said, “David, I don’t get it.”

“Oh, well, let me try again. You see these facts and these figures, and how that’s bigger and these are smaller? We need to do more of the big stuff.”

Mel repeated, “David, I don’t get it.”

Well, I was starting to get nervous because I knew this guy was smart enough to get it. I started to sweat a little. He said, “David, you’re going to have to simplify this story a lot. I just don’t get it.”

The Pivot to the Narrative

I said, “Okay, let me try a different way.” I said, “Mel, what you guys all want to do is buy up domestic channels. These are things that air in the United States, right? Well-developed markets, because it makes you feel big and powerful. The problem is you’re paying retail for all that, so there’s no room to make money. But in the early ’90s, the Berlin Wall has fallen. Eastern Europe is trying to reintegrate, they’re rebuilding their entertainment infrastructure, and there are companies out there desperate for your content. They don’t have much money, so you go in there, you make deals, you get in on the ground floor, and you help them grow. That’s how you make a lot of money. Do you guys understand that story?”

Mel said, “I’m sorry, David, I don’t get it.”

I thought, Oh, sh*t. This is the moment where I’m going to be fired. I started sweating and shaking. He looked at me, and I said, “Mel, that’s all I got.”

I was waiting for the guillotine to drop, and he said, “David, you’re a smart guy. You know what your problem is?”

“No.”

He said, “You don’t know how to explain something.”

I said, “I’ve been explaining this for an hour and a half, and you don’t get it!”

He said, “David, what you need to do is tell them that we could have owned BSkyB.”

TheBSkyB Story

I said, “What? BSkyB?”

BSkyB was a satellite company. It was one of the first satellites that was able to broadcast over a whole continent, and at this time, it was one of the most profitable companies in history. Mel told me they could have owned BSkyB, and I said, “What the [expletive]?”

Mel explained, “Look, we’re digging our way out of this hole, so we extract every single dollar we can get from a movie. BSkyB came to us a few years ago, and they needed a lot of money because they were launching a satellite and they needed content to be legitimized. They wanted our content, and we extracted every dollar from them. We negotiated for top money, and they said, ‘Give us a little discount, and we’ll give you a lot of equity.’ We should have made a different choice, because we could have owned BSkyB.”

Landing the Recommendation

So we came to the executive retreat, and I was there explaining my story. I explained, and the eyes glazed over. I explained more, and then I realized that I had to make a different choice.

I said, “You could have owned BSkyB.”

The executives went from slouching over to sitting up straight. “What? We could have owned BSkyB? Oh, sh*t, he’s right. We could have owned BSkyB.”

In 10 to 15 seconds, with the right story, I landed the recommendation. Perhaps more importantly, I gave those people a path from the past to the future that guided their action. That was it. It had to be the right story, and it was more powerful and more motivating than all the analysis I had done.

Conclusion: Integrating Head and Heart

What I realized through all this wire-brushing was that I had spoken only to their heads. I really had applied the rigor; I really did know what direction we had to go. It was a great direction, but I spoke to their heads, and that’s not enough. What Mel was doing was speaking to their hearts, and that’s done through narrative and through storytelling. That’s what motivates strong action.

Now, you can make a purely logical argument, but you might just end up with a useless PowerPoint presentation that tries to argue and persuade. On the flip side, you can get people all fired up and inspired without substance, and then what you get is a sort of riot or lots of well-meaning but scattered action.

But when you put them together—rigor plus the right story—that’s how you get a great decision every time.

I had scars from this experience for a long time; it’s no fun to get a wire-brushing from a superior. But I’ve come to realize that Mel knew people. In Mel, I had a great mentor who was actually looking out for me. That is what it takes: head and heart integrated to get a great decision every time.

Thank you.