Holacracy vs. Boring Old Ideas

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If you're a follower of innovative leadership or management practices, you'll no doubt have seen some of the breathless statements about Zappos' planned (or impending) move to Holacracy. What's a Holacracy? I won't spend your precious time recounting what others have covered except to say it is being hailed in the press as an innovation in management that aims to get rid of managers and hierarchy.

Let me address that last sentence I just wrote. Firstly, the press - in particular the tech press - lives off the "new" and "innovative" but has collective amnesia when the same things are "discovered" over and over again. Secondly, the press doesn't have it quite right, as usual. Holacracy doesn't really get rid of hierarchy, as it is being reported, it just distributes it. These aren't really new ideas at all. The packaging is good though.

This quest for newness extends from the press into companies where jumping from fad to fad does nothing but demoralize, disinterest and frustrate people who have to go through it. In truth, there is very little that is new in the management and leadership realm that isn't known. The problem is, people don't publish their sources of where the ideas actually come from because...well, I'll refrain from speculating on that.

Stanford's James March's quote is particularly applicable in this case:

"Most claims of originality are testimony to ignorance and most claims of magic are testimony to hubris."

I love the fact that Zappos is being experimental as an organization. And I'm impressed that they are making a bold move to further empower their people to be freed from constraints so they can perform to their potential. I would be lying if I said I wasn't a skeptic, however.

For those intrepid souls willing to investigate, there are many well-known, longstanding management practices and approaches that create the conditions for high performance. Most organizations will disregard these for the "flavour of the month," and that can be costly to everyone.

Give me the boring old ideas that have been proven to work. 

 

P.S. Have a look at Bob Sutton's post at LinkedIn for further discussion and enlightenment.

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Clarity Begins With What You Don't Notice

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Meta-cognition. Thinking about thinking. In today's harried, data-soaked world, we rarely get time to think about how we think. The holidays are a good time for that.

If we don’t notice what we don’t notice, we’re much more likely to fall prey to poor decision-making and groupthink. I’ve written about decision-making before, so let’s look at groupthink.

Groupthink is an interesting phenomenon. What is it exactly? I'll rely on Daniel Goleman's description in his latest (excellent) book, Focus: The Hidden Driver of Excellence. When speaking of the financial meltdown and the subprime derivatives scandal:

"Of course, seemingly very smart people did invest in those derivatives, ignoring the signals that they were not worth the risk, and emphasizing whatever might support their decision. When this tendency to ignore evidence to the contrary spreads into a shared self-deception, it becomes groupthink. The unstated need to protect a treasured opinion (by discounting crucial disconfirming data) drives shared blind spots that lead to bad decisions."

Daniel Kahneman also writes about groupthink in Thinking Fast and Slow and in particular how people so easily dismiss disconfirming data and continue on as they always have. Groupthink begins with the unstated assumption that we know everything we need to know.

In Kahneman’s book, he recounts research he conducted when looking at a financial advisory company for high net worth individuals. He was granted access to 8 years of investment results for 25 investment advisors. His conclusion was that none of the advisors was consistently any better than the others at managing the clients’ money. The results were no better than chance.

Yet, when bonus time came around, the executives were “rewarding luck as if it were skill.” When told of the results of Kahneman’s research, it was quickly disregarded. According to Kahneman, “facts that challenge such basic assumptions - and thereby threaten people’s livelihood and self-esteem - are simply not absorbed.”

The research on the effectiveness of traditional management practices aren’t any different than those of the financial advisors above. 

And not surprisingly, the evidence is simply not absorbed.

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What's a Person-Hour Worth?

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As a leader, how do you value the contributions of your people? How do you value an hour of their time? For that matter, how do you value an hour of your own time?

If you're anything like most enterprise leaders that we've met, you guard your time very jealously. Do you do the same for your people?

“It would be difficult to overstate the importance of focusing on knowledge workers’ productivity. The critical feature of a knowledge workforce is that its workers are not labour, they are capital. And what is decisive in the performance of capital is not what capital costs. It is not how much capital is being invested – or else the Soviet Union would have easily been the world’s foremost economy. What’s critical is the productivity of capital.”  Peter Drucker.

If we were to look at the Opportunity Cost of an hour's time, maybe we'd act a little differently? If you compared an hour at work with what you could be doing with that hour instead, like being with family or friends? Time is something we don't get back, regardless of where we sit in the organization. If we are going to value the contributions of our employees properly, we need to respect the Opportunity Cost of requiring their time to do wasteful or ineffective things. 

Jeffery Pfeffer, noted Stanford professor, scholar and author states,

“There’s a disturbing disconnect in organizational management. On one hand, research, experience and common sense all increasingly point to a direct relationship between a company’s financial success and its commitment to management practices that treat people as assets. Yet even in the face of this mounting evidence, trends in management are actually moving away from these very principles.”

We should get a little pissed that we're taking something that can't be given back when we lead or manage in a way that is wasteful or ineffective. Just as we would if it were happening to us.

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Wishing won't make it happen

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Getting things done in organizations can be difficult. There seem to be a million reasons why people don't deliver. Among our favourites are the promises made during or after meetings like, "I'll get that done prior to our next meeting" or, "I'll get to that this week." And then the vow is quickly forgotten and not delivered. Sometimes the same vow is made over and over and continues to go unfulfilled!

Research lead by Peter Gollwitzer shows that vowing to do something is often useless. What works is making concrete and vivid plans that include answers to the following: "What is the problem you have to confront?" "When will you follow through on your plan?" "Where will you do it?" and "How will you do it?"

Further research conducted by Dr. Gail Matthews provides empirical evidence that writing goals down, making concrete action plans, and sharing them with others generates the highest levels of accomplishment.

Based on our own research, we would go even further to suggest that adding an specific, externally verifiable metric which accurately gauges success (or lack thereof) will also deliver higher levels of accomplishment, or at the very least drives learning.

Otherwise, you're more likely to fall into the human tendency to rationalize any outcome as more or less what you expected.

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Avoiding Failure: Two Areas to Mind

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I believe the quote by Churchill goes something like, "success consists of going from failure to failure without loss of enthusiasm." Some people can't do that.  Turns out it's a mindset thing.

Carol S. Dweck, the Stanford psychologist, researcher and author of Mindset, The New Psychology of Success is a favourite of ours. Her work is excellent and incredibly important.

Are you in a fixed-mindset or growth-mindset workplace? Do you feel people are just judging you or are they helping you to develop? Maybe you could try making it a more growth-mindset place, starting with yourself. Are their ways you could be less defensive about your mistakes? Could you profit more from the feedback you get? Are there ways you can create more learning experiences for yourself?

In our work helping people to implement Evidence-based management, an understanding of mindset's is vitally important because putting effective practices in place in an organization can be challenging if people don't understand their own mindset. Do they feel metrics are just set up to judge them? Or, are they looking at them as an opportunity to learn and grow while helping the organization?

Matthew Lieberman, one of the founding fathers of a field called social neuroscience, brings another apparently "soft" characteristic to light in in his new book, Social: Why Our Brains Are Wired to Connect.

As explained by David Rock in his Fortune article, people's drive to be rational agents is only half the story. We also have a drive to be social. "We have hired and promoted generations of managers with robust analytical skills and poor social skills, and we don't seem to think that matters."

"A lack of social skills is behind some of the biggest challenges in organizations. Starting from the top, if leaders are not good at understanding others, they are likely to develop a strategy and expect everyone to get on board, without stopping to imagine how others may feel about that plan. In fact, just 30% of change initiatives succeed, according to 15 years of data from McKinsey & Co."

While good evidence tells us that using metrics effectively throughout the organization to clarify and focus efforts is critical for high performance, it can't deliver the optimum results unless we all understand the implications of personal mindsets and our need to factor in human needs as well as the numbers. As usual it's simple, it just isn't easy.

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Spreadsheets: The Devil's Device

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Spreadsheets are the perfect device for those looking for trouble.

On the surface, they appear to be straightforward, easy and well-intentioned. How else can you explain their widespread use as a management tool?

Yes, spreadsheets can be fantastic for number-crunching. But even here they have a dark side, as people start to think their “models” represent, forecast, or predict what will actually happen. It’d be nice if things were that simple and predictable.

I’m not sure if it’s the long history of the spreadsheet that has lead to its ubiquity and widespread use for almost anything? Or, is it the universality of the columns and rows format as an organizing structure that just invites it’s use as a default tool?

Whatever the answer, we see even the largest, seemingly sophisticated enterprises using spreadsheets to communicate and manage their strategies and their execution.

This is surely the work of evil. You get sucked in by thinking it’ll be easy to do because you know how to use spreadsheets and it’s easy to create an indented hierarchy of strategies/objectives/targets/etc.

Now it’s got you. You’re committed. You’ve chosen your tool, invested time, input important content and maybe even emailed it to your team...now they’ve been invited into your special circle of spreadsheet hell.

What could possibly go wrong?

Localized not Centralized

Great for the first, one-way download. But then try consolidating changes, roll-up’s or keeping everyone focused what’s important now.

Multiple Versions

There is immediately a problem keeping alignment and focus consistent as multiple versions proliferate and out-date themselves.

No Change History

Forget about answering the question, “How did we get here?”

 Multiple Points of Failure

Any hardware failure, or email mistake or breach, and important information is lost or compromised.

Singular, Not Collaborative

What was done, by whom, and what did we learn individually and collectively? Difficult, if not impossible.

Not Scalable

If you want to cascade your leadership and management system to others easily across your enterprise, you compound each of the above problems.

Viewing Privileges Challenge

You want to easily share some relevant information to some of your team or partners, but keep other information out of view? Sorry, not that easy.

Not Adaptable

Sometimes, in business, events occur (that don’t perfectly coincide with year-end) that require you to rethink and re-prioritize what needs to be done. Try changing and prioritizing on-the-fly while still keeping everyone synchronized with spreadsheets.

Opportunity Cost

If you calculated all the time required to update, consolidate and report on all the spreadsheets, it’d be significant. But imagine what could have been done with that time if used driving performance?

Spreadsheets are great for what they were intended to do. We have seen some pretty incredible implementations of macros over the years which generate some very useful numerical insights. But with management systems, the Devil is in the details. And that’s precisely where spreadsheets can get you into trouble.

 

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Your Business Is Not A Project

“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it was a nail.” Abraham Maslow.


The tools you use everyday at work have an influence on how you see things and how you approach problems. Craftsmen are very particular about their tools. The carpenters, cabinet makers, metal workers and boatbuilders that I’ve had the pleasure of coming in contact with are fanatical about their tools and their regular maintenance. Over the years, they’ve come to know which tools are exactly the right tools for each job they are undertaking. They understand the trade-offs that are made when they choose one tool over another.

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“If you want to teach people a new way of thinking, don’t bother trying to teach them. Instead, give them a tool the use of which will lead to new ways of thinking.” R. Buckminster Fuller.

Choosing the wrong tools for a job can have a downside. They can focus your attention on the wrong things. They can force you to work in a manner which doesn’t align with your goals or philosophies. They can limit or stunt the potential of your people and their interactions.

In the BYOD (Bring Your Own Device) world in which we now live, and the new dynamics of consumer software applications influencing enterprise purchasing decisions (BYOA?), businesses need to be careful about how these seemingly innocuous decisions (“Oh jeez, it’s only software”) about adopting tools, impacts the operations of the business.

Lots of the decisions being made to adopt free, or inexpensive consumer-first applications are good ones; they provide excellent functionality at a competitive price without the administrative overhead or IT department headaches that one often encounters in business.

The downside is the proliferation of applications which can disrupt your ability to tie together your people with a backbone that keeps people aligned, effectively executing and able to adapt and learn from experience.

Project management software, for example, always garners a high level of interest within organizations. People become quite religious about their devotion to a particular PM tool and want to see it proliferate throughout the organization. Part of this is probably confirmation bias, but part of it is also an interest to share something good with other people.

The big problem is when people start promoting Project Management applications and processes over leadership and management needs. That, and when a significant amount of your people’s time is being spent on selecting a PM tool that has little strategic value.

You can be excellent at managing projects which do nothing to drive results for your organization, yet still manage yourself right out of business by focusing on “doing things right” instead of “doing the right things.”

One only needs to think of the opportunity cost of spending time selecting and implementing a PM application rather than tools for Leadership that are focused on the entire enterprise’s performance. PM tools are important in many cases, but they should not be the tail that wags the dog.

If you are considering PM tools or Leadership tools, don’t hesitate to contact us for free guides to help you make the best vendor and application selections.

 

Less Noise. More Signal.: 


When selecting potential technology tools for your organization, keep the following in mind:

  • Prioritize and rank the business or performance outcomes you are looking to address by purchasing and implementing the technology (hint: what are the things you are looking to "maximize" and what things are you trying to "minimize" by implementing technology)
  • Identify and rank the challenges any technology is going to face and how each potential choice can mitigate or exacerbate those challenges.
  • Account for "Espoused Technology" versus "Technology In Use." Using Analyst reports and feature comparisons doesn't tell you if the technology being considered is actually being used by people. The best technology is the technology that gets used. Talk to real users and find out what they use, like and dislike.
  • Plan for a 10:1 expenditure on people and process education versus the technology spend. If you fail to invest the appropriate resources around training and process refinement, no technology selection can succeed.
  • Avoid the common Decision Traps: see The Most Critical Technology post...

 

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Your PpE Needs Attention

Profit per Employee (PpE), should be a critical metric for you as a leader if your shareholder value is driven by the contributions of your talented people, rather than your capital (ie. a People-centric Business).

If your people costs are higher than your capital costs, you’d better take a look at your PpE. If you’re people costs are 3 times your capital costs, you’re really going to need to look at PpE or an equivalent metric.

The vast majority of companies continue to gauge their performance using outdated, industrial era measures which have not changed to reflect the new weighting in costs between people and capital. People-centric businesses not only need a change in performance metrics, but a change in the management practices used to generate that performance.

A people-driven performance metric is important as well because it has direct connections to overall profitability and market capitalization. Together with ROIC, PpE and the number of employees you have will drive your market capitalization in people-centric businesses.

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PpE does not require any complicated calculations and can be drawn directly from your current financials. There are more sophisticated approaches which may reduce some biases or risks, but PpE is an excellent metric to use in running your business.

Once you adopt PpE or an equivalent, you’ll start to see how even small changes in how you manage can have a major impact on returns.

“Consider a typical security and facilities management company in which operating profit is 10% of employee costs and economic profit is 8% of employee costs. In such a case, a 5% improvement in employee productivity increases operating profit by 50% and economic profit by over 60%.”2

So, if you’re a people-centric business, may sure you pay some attention to your PpE and then start making changes to your leadership and management practices to unleash the potential of your people to generate higher PpE and the resulting market capitalization.

 

Less Noise. More Signal.: 

 


  • Calculate your Profit per Employee for the past few years (Total Profit/# Employees)
  • Track your total People Costs over the same period
  • If your People Costs continue to rise and your PpE isn't rising at the same rate, then Waste & Complexity are likely growing in your organization.

 


For more research on this subject:

1. The new metrics of corporate performance: Profit per employee

   Lowell L. Bryan

   McKinsey Quarterly 2007 Number 1

 

2. The Surprising Economics of  a “People Business”

   Felix Barber and Rainer Strack

   Harvard Business Review June 2005

 

 

3. Mobilizing Minds

   Lowell L. Bryan and Claudia I. Joyce

   McGraw-Hill 2007

   http://www.mckinsey.com/client_service/strategy/latest_thinking/mobilizing_minds

 

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The Most Critical Technology

Making decisions lies at the heart of all businesses. Thousands of decisions get made by everyone in your business every week. The problem is we generally stink at making good decisions. Why? 

First of all, we're basically lazy thinkers. As Daniel Kahneman says in Thinking Fast and Slow, we rely too much on our intuitions. And despite what Malcolm Gladwell may lead you to believe, that is a bad thing in the majority of cases.

"..many people are overconfident, prone to place too much faith in their intuitions. They apparently find cognitive effort at least mildly unpleasant and avoid it as much as possible." 

Secondly, when we do engage actively our brains, we have a whole host of built-in biases that we have to overcome in order to make decent decisions; including anchoring, status quo, sunk costs, confirming evidence, and estimating and forecasting biases.

In our business, people tend to think of the term technology to mean hardware or software, but technology means more than that.

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The practical application of knowledge is a technology in itself. And we need to start applying what we know about the way we think and our biases, to make better business decisions.

Everyone benefits if we do.

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Less Noise. More Signal: 


Apply the WRAP process from Decisive (the Heath Brothers' latest book)

  • Widen Your Options
  • Reality-Test Your Assumptions
  • Attain Distance Before Deciding
  • Prepare to Be Wrong

For more details and research, see: 

Daniel Kahneman, Thinking Fast and Slow (New York: Farrar, Straus and Giroux, 2011) 

Chip Heath and Dan Heath, Decisive: How to Make Better Choices in Life and Work (New York: Crown Business, 2013)

J. Edward Russo and Paul J.H. Schoemaker, Decision Traps: The Ten Barriers to Brilliant Decision Making and How to Overcome Them (New York: Simon & Schuster, 1989) 

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