Liz Truss, Britain's shortest-serving Prime Minister, resigned after 45 days in office. Previously, she had promised a revolutionary new era of economic growth by reducing taxes. While it may sound crazy – cutting taxes in the era of high inflation and high-interest rates – the move has a logic, i.e., lower tax rates would lead to productivity growth. In turn, the productivity growth would lead to higher income and hence higher taxes.
Of course, some people have different views. They believed in higher taxes and spending cuts to balance the government's book. So, they criticized her strategy and reacted badly.
However, what significantly damaged Liz's reputation was not her strategy. But her failure to commit to her original strategy. She quickly took 180-degree U-turns, swayed by what people said, and threw her closest ally "under the bus" (i.e., firing her chancellor for doing what she instructed him to do).
Due to her failure to commit to her strategy, Liz Truss will be remembered for her many U-turns, unforced blunders, and having the shortest tenure of any British prime minister in history.
At first, it seems that Liz is 100% committed…
Initially, Liz Truss condemned the economic ideas of the past 30 years, which she called the "Treasury orthodoxy," and claimed that she was prepared to "bulldoze" opposition to her plans. The mood in her leadership campaign was "revolutionary," as Liz claimed she was resolved to do or die. Sounds like a firm commitment to your strategy.
The Conservative members like the tax cut commitment. No wonder Liz Truss won the campaign against her rival, Rishi Sunak, and became the UK's new prime minister.
Lesson learned: A strategy with solid resolve and sharp focus increases your odds of winning.
Overly committed even…
Liz was so committed to her strategy that officials who challenged her were "executed in the room." Within days after she became Prime Minister, she sacked a top treasury official, i.e., Treasury Permanent Secretary Tom Scholar, a senior civil servant who had been in Her Majesty Treasury for 30 years (1992-2022). She is on-vendetta against the Treasury Orthodoxy.
Liz Truss even bypassed the Office for Budget Responsibility because it didn't share her belief that tax cuts could stimulate growth and, eventually, pay for themselves.
Furthermore, she sacked almost all in Conservative Party who disagreed with her.
Lesson learned: Don't remove opposing views too early. As I suggested in the GOSPEL of Strategy, during strategy development, you need to have diverse views and heated debates. But during implementation, you need to have unity in actions and remove blockers. Unfortunately, Liz Truss removed all the diverse views before the strategy was completed.
But she failed to convince people of her strategy…
While Liz Truss's strategy could work, she failed to produce a credible plan/story demonstrating how she would cover the gap caused by the tax cut (amounting to several billion pounds sterling).
If you think about it, to cover the gap, the government needs to either:
reduce its spending (hard to do, given it has cut down public services to the bare minimum in the last 20 years),
raise non-tax revenues (not possible because, after the privatization of state-owned enterprises, almost 90% of the UK government's income comes from taxes), or
take more debts (most likely – a man who doesn't have income but needs to spend would be forced to take a debt).
Lizz instructed her chancellor to focus his mini-budget speech on tax cuts without explaining how to close the gap – as they can "worry about it later."
The lack of a credible plan/story spooked the financial market – if the government has lower income but higher debts, the probability of default is higher. So, they increased the interest rates (higher risk requires higher return) and avoided the pound sterling (hence the value of the pound sterling dropped significantly – making imports more expensive). When the cost of borrowing and importing becomes higher, this means the government has even lower spending power (and the UK people suffer too).
The IMF, Bank of England, financial institutions, and politicians heavily criticized Liz's policies, which further unnerved the market and exacerbated the issue needlessly.
Lessons learned: For your strategy to be bought by people, you must have a credible plan and a convincing story to support it. At McKinsey, the consultants spend a lot of time not only analyzing the data and building the strategy, but also developing the story and getting buy-in from key stakeholders.
Then, she failed to commit to her strategy…
After the financial market reacted badly and many people criticized her strategy, Liz's confidence wavered.
So, instead of doing everything possible to restore market confidence, Liz did all the opposite things to those she promised. Within days, she started to do 180-degree U-turns.
First, Liz Truss reversed her plan to cut the top tax rate (45% tax). But instead of silencing her critics as she hoped, she actually encouraged them to demand further changes. So, she got more critics. As per a famous political saying: "Concede on one, you would end up conceding on all."
At the same time, she:
destroyed her reputation as "the lady who is not for turning,"
betrayed the confidence given to her by the Conservative members who voted for her,
alienated her allies, and
sent signals to the public and the financial market that she didn't know what she was doing.
And when she did more U-turns, even her most ardent supporters were worried. At that point, it was very difficult to see how the whole thing could work… She was ending up doing all of the opposite things to those that she promised.
What kind of leaders changes their mind so quickly? Weak leaders. Where was her initial firm conviction? Was it all a mere façade?
Lesson learned: If you yourself don't have a conviction on your strategy, how can others be convinced?
Then, she failed to take responsibility and betrayed her loyal ally…
Just days after her U-turns, when she failed to stem the critics, Liz Truss sacked Kwasi Kwarteng, her friend, long-term ally, and the man who had implemented her ideas.
What a crazy move! If Liz thought she could shift the blame to Kwasi by sacking him and delaying her fall, she was utterly wrong.
This move accelerated her downfall because it signaled to the public and her allies that she was a leader with no loyalty, didn't know how to take responsibility, and could not be trusted.
Even crazier, Liz replaced Kwasi Kwarteng with Jeremy Hunt, who tore up almost every one of the policies in Kwarteng's mini-budget. This move suggested a complete surrender of one's own conviction, a complete U-turn of strategy, and a complete betrayal of supporters' votes and allies' trust. All the wrong signals that a leader must not send.
Sir Graham Brady, Chair of the influential backbench 1922 Committee, could sense which way things were moving: "at that point, it was very difficult to see how the whole thing could just work."
In the end, Liz Truss was forced to resign – only 27 days after she revealed her strategy (via Kwasi's mini-budget).
Lesson learned: Instead of being swayed by harsh critics, you should stick with your strategy and do everything possible to restore people's confidence in your strategy.
Had Liz Truss focused on restoring the market confidence in her strategy and executing the strategy well (instead of doing all of the opposite things to those that she promised to do), she could have successfully unleashed the era of productivity growth in the UK.
Well, her strategy failed before it had time to create the intended impacts – because Liz herself undermined it.
Continue exploring winning strategy here.
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