Sometimes rules lead to unintended consequences that cause more damage than the problem they were designed to prevent. Here’s a classic example, and advice on what to do about it.
Phil Renshaw is a consultant and coach for financial executives at Circulus in Buckinghamshire, England. Having spent seventeen years in corporate finance himself, he’s personally seen the downside of relying too heavily on rules. One of his favourite examples is escalating the level of manager authorised to approve expenses, thinking it’s a good way to reduce spending. It may succeed in reducing spending. But that doesn’t mean it was a good idea.
According to Phil, here’s how that typically plays out. A company has just entered the final quarter of the fiscal year, and is woefully behind its earnings target. In order to save money, a temporary rule is put in place for the rest of the year. A senior executive, such as a vice president, must approve all expenses, no matter how small. The result is an absurd set of consequences.
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