Books and Research

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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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The vast majority of companies continue to gauge their performance using outdated, industrial era measures which have not changed to reflect the new weighting in costs between people and capital.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 Engagement Gap

We define employee engagement (a term that is widely used and misused) as an employees’ willingness and ability to contribute to company success. And the current level of employee engagement isn’t good.

An excerpt from Gary Hamel’s blog at the Wall Street Journal, entitled Management’s Dirty Little Secret:

“Consider the recent “Global Workforce Survey” conducted by Towers Perrin (now Towers Watson), an HR consultancy. In an attempt to measure the extent of employee engagement around the world, the company polled more than 90,000 workers in 18 countries. The survey covered many of the key factors that determine workplace engagement, including: the ability to participate in decision-making, the encouragement given for innovative thinking, the availability of skill-enhancing job assignments and the interest shown by senior executives in employee well-being.

Below you’ll find some supporting graphics taken directly from Towers Watson’s most recent (2012) instalment of the study:

 

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Unfortunately, these results aren’t uncommon or new. Peter Drucker was quoted some time ago as saying, “Most of what we call management consists of making it difficult for people to get their work done.”

But the path to addressing this problem is under our control according to research conducted by Teresa M. Amabile and Stephen J. Kramer:

“Ask leaders what they think makes employees enthusiastic about work, and they’ll tell you in no uncertain terms. In a recent survey we invited more than 600 managers from dozens of companies to rank the impact on employee motivation and emotions of five workplace factors commonly considered significant: recognition, incentives, interpersonal support, support for making progress, and clear goals. “Recognition for good work (either public or private)” came out number one.
Unfortunately, those managers are wrong.
Having just completed a multiyear study tracking the day-to-day activities, emotions, and motivation levels of hundreds of knowledge workers in a wide variety of settings, we now know what the top motivator of performance is—and, amazingly, it’s the factor those survey participants ranked dead last. It’s progress. On days when workers have the sense they’re making headway in their jobs, or when they receive support that helps them overcome obstacles, their emotions are most positive and their drive to succeed is at its peak. On days when they feel they are spinning their wheels or encountering roadblocks to meaningful accomplishment, their moods and motivation are lowest. 
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“You can proactively create both the perception and the reality of progress. If you are a high-ranking manager, take great care to clarify overall goals, ensure that people’s efforts are properly supported, and refrain from exerting time pressure so intense that minor glitches are perceived as crises rather than learning opportunities.
Cultivate a culture of helpfulness. While you’re at it, you can facilitate progress in a more direct way: Roll up your sleeves and pitch in. Of course, all these efforts will not only keep people working with gusto but also get the job done faster.”

Teresa M. Amabile is the Edsel Bryant Ford Professor of Business Administration at Harvard Business School. Steven J. Kramer is an independent researcher and writer based in Wayland, Massachusetts

In short, we believe Towers Waston summarized it best in their report:

Companies are running 21st-century businesses with 20th-century workplace practices and programs. 

 

beacon and the Engagement Gap

How does beacon help battle the Engagement Gap? We simplify, support and automate a set of complementary, evidence-based, high-performance work practices, which includes; ensuring that goals are clear, people’s efforts are properly supported, progress is easy to measure and see, and that collaboration occurs to execute the most important work.

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Roger that: Roger Martin on Management Systems

I'm looking forward to getting my hands on Roger Martin and A.G. Lafley's upcoming book Playing to Win: How Strategy Really Works, which is due out later this month. But in the meantime I've been reading a couple of their teaser articles in HBR and Rotman Magazines. This passage caught my attention:

The last of the five essential questions is about management systems – the systems that build, support and measure a strategy. This last question is typically the most neglected, but is no less crucial to effective strategy than the others. Even if the other four questions are well answered, a strategy will fail if management systems that support the choices and capabilities are not established as well. Without supporting structures, systems, and measures, the strategy will simply be a "wish list" – a set of goals that may or may not ever amount to anything. To truly win, an organization needs systems in place to support and measure the strategy. It needs robust process for creating, reviewing, and communicating about strategy; it needs structures to support the core capabilities; and it needs specific measures to determine whether the strategy is working (or not).

The article this was excerpted from is called A Playbook for Strategy: The Five Essential Questions at the Heart of Any Winning Strategy, and was published in the Rotman Magazine Winter 2013. As always, Roger has produced some well considered and thought provoking work. You should give this article a read for a quick preview of the book's content.

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Okay, Bosses Suck. But Why?

There have been some fairly depressing findings being published over the last couple years about the failure of managers/bosses in business. One such study undertaken by Michelle McQuaid was particularly bleak.

The study found that: 

  • Only 36% of Americans are happy at their job.
  • 65% say a better boss would make them happy while 35% choose a pay raise
  • 31% of employees polled feel uninspired and unappreciated by their boss, and close to 15% feel downright miserable, bored and lonely.
  • Only 38% of those polled describe their boss as “great,” with 42% saying their bosses don’t work very hard and close to 20% saying their boss has little or no integrity.
  • Close to 60% of Americans say they would do a better job if they got along better with their boss.
  • Close to 70% of those polled said they would be happier at work if they got along better with their boss, with the breakdown equal amongst men and women, but younger workers in their 20s and 30s skewed even higher (80%).
  • Over half (55%) of those polled, think they would be more successful in their career if they got along better with their boss, with 58% in managerial and professional careers saying so, and only 53% in service and manual labor positions feeling that way.
  •  In terms of the impact a boss has on employee health, 73% of those in their 20s and 30s said their health is at stake, while only 40% of those 50 and older felt that way.
  • When stress levels rise at work, a disturbing 47% say their boss does not stay calm and in control. Although 70% of boomers polled say their boss doesn’t lose his/her cool in times of stress.
  • Only 38% of Americans will thank their boss on National Bosses Day with most believing that their boss wouldn't care enough to bother. Close to 10% said they would use the day as an opportunity to talk to their boss and improve the relationship.

Studies like this are important in identifying and baselining the situation at work. Clearly there is much to be done. But I can't help but think that rather than blaming "bosses" and working to avoid them or "manage" them, that we need to think about the systemic reasons why they are failing their teams? What are the root causes?

If we understand the root causes, perhaps we can help change the conditions for managers and the managed? Rather than just creating strategies for finding a less-crappy manager.

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No Ambiguity with Ambiguity

We're big fans of Dan and Chip Heath's work. You'll see it referenced in our materials frequently as they undertake very solid research and present their findings in readable and interesting ways.

We were especially pleased when they highlighted one of the behaviours we have identified as organizational Noise which waste people's time, resources and potential:

Good leaders excel at converting something ambiguous into something behavioral. Take Terry Leahy, one of the leaders responsible for reversing the fortunes of Tesco, now the U.K.'s No. 1 grocer. One of Tesco's ambiguous goals was to do a better job "listening to customers." Leahy broke down that goal into a set of specific actions. For instance, cashiers were trained to call for help anytime more than one person was waiting in the checkout line. In addition, Tesco received 100,000 queries per week from customers. Leahy's team made sure that all Tesco managers had access to customer concerns. (If you want to listen to customers, you had better make sure your managers can hear what they're saying.) As a result, they learned counterintuitive lessons, such as that customers dislike stainless-steel refrigerators, which remind people of a hospital -- not an ideal association for a grocer.

Ambiguity simply isn't good for individuals, teams or entire enterprises. Read the full article at Fast Company here:

http://www.fastcompany.com/1676957/dan-and-chip-heath-say-nix-ambiguity-and-focus-lasting-change

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Five Forces vs. The Customer?

You may have seen the reports of Monitor Group's recent demise. Steve Denning of Forbes wrote a forceful blog post entitled, "What Killed Michael Porter's Monitor Group? The One Force That Really Mattered." This article has been the basis of a lot of bandwagon jumping lately. Not in a good way in my view.

I like strong opinions. As such, I like the Denning piece. But as a skeptical consumer of information, I'm not convinced that the conclusions he's drawn are correct.

Are we to believe the very approach that Porter and Monitor were famous for was exactly what lead to their demise? It may be a poetic and clever assertion, but I don't buy it for a second. You'd also have to forgive me for questioning the motive of the article itself, since Denning is clearly a management consultant. It feels a tad righteous and self-promotional as well.

But that's not my real beef with the article.

I take umbrage with anyone who thinks they can stand back from a safe distance and accurately assess why a particular business succeeded or failed. Looking retrospectively at any event, whether it is a game of schoolyard basketball or the management of a multinational, is incredibly problematic. Suggesting you have the definitive viewpoint is just plain fatuous.

There are thousands of moving pieces, decisions, people and contributing and conflicting influences that we could never appreciate or comprehend. Even if we are intimately involved in the enterprise we still don't know the totality of things that were going on around us. If you’ve ever worked in a dissolving business you’ll know what I’m talking about. Everyone on the outside has an “expert” opinion as to why the company failed. And yet, I doubt any of them are fully correct.

Just as the validity of predictive forecasting is suspect, so is the validity of retrospective analysis of business failure. It would be nice if things were as cut and dried as some would have us believe.

“When the number of factors coming into play in a phenomenological complex is too large scientific method in most cases fails. One need only think of the weather, in which case the prediction even for a few days ahead is impossible.”
― Albert Einstein

“The cord that tethers ability to success is both loose and elastic. It is easy to see fine qualities in successful books or to see unpublished manuscripts, inexpensive vodkas, or people struggling in any field as somehow lacking. It is easy to believe that ideas that worked were good ideas, that plans that succeeded were well designed, and that ideas and plans that did not were ill conceived. And it is easy to make heroes out of the most successful and to glance with disdain at the least. But ability does not guarantee achievement, nor is achievement proportional to ability. And so it is important to always keep in mind the other term in the equation—the role of chance…What I’ve learned, above all, is to keep marching forward because the best news is that since chance does play a role, one important factor in success is under our control: the number of at bats, the number of chances taken, the number of opportunities seized.”
Leonard Mlodinow, The Drunkard's Walk: How Randomness Rules Our Lives

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"Killzone" Economics. Why You Should Care.

Decreasing interaction costs and sublinear enterprise productivity could create market volatility that can be your friend, or your enemy, when building and managing your enterprise. Are they your friends?

Let’s start with some definitions.

Killzone is a military term, or at the very least a gamer term (from Urban Dictionary):


“A military term describing an area of ground that is well defended, possibly including pre-sighted machine guns, mortars, artillery, as well as a variety of obstacles such as razor wire and tripflares. (Weapons will be pre-sighted to these obstacles, as approaching troops will get caught in them, making them ideal targets.) This creates a literal "killing zone," hence the name.”


Clearly from that definition, this is not somewhere you want to end up as a company. Your odds of surviving a trip to the Killzone are low.

To understand interaction costs, you need first to understand transaction costs. Transaction costs, which were the focus of Ronald Coase’s Nobel Prize winning work in the 1930’s, include the costs related to the formal exchange of goods and services between companies, or between companies and customers (ie. How much does it cost me as a company to sell you, the customer, my goods or services?).

These costs play a critical role in determining how large your firm can grow. Coase’s work included a linkage between transaction costs and the size of a firm. Simply put, Coase’s Nature of the Firm suggested that a firm will continue to grow to the point where an internal transaction can be outsourced more cheaply than if executed within a company. When a transaction can be accomplished more cheaply outside of the firm, there is no incentive to continue growing.

Interaction costs are now more widely used than transaction costs as they include transaction costs, but also add the costs of exchanging ideas and information. Thus they cover a more full picture of economic interactions between companies and their customers. Interaction costs are comprised of search, information, bargaining, decision, policing and enforcement costs. As more and more work is information related in our economy, interaction costs can be incredibly important to watch and manage.

Most importantly perhaps, interaction costs are exactly the kinds of costs that are rapidly decreasing due to the ubiquity of connected devices and the growing power of functionality facilitated by this connectivity.

Now for sublinear enterprise productivity. Wha? Yes, sublinear enterprise productivity. In short, this refers to some interesting work done by Geoffrey West and his collaborator Luis Bettencourt recently where they discovered when studying 23,000 publicly traded companies, that as the number of employees grows, the amount of profit per employee shrinks. Corporate productivity then, was shown to be entirely sublinear. This should not be taken as the last word on the topic, but they are interesting results. In particular their assertion that, “the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy.” Furthermore, they go on to state that, “the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility.”

So what if your firm is experiencing both decreasing profit per employee from the growth dynamic described by West and Bettencourt, and is also seeing interaction costs drop as value chain activities migrate more to information-driven interactions so as to be more exposed to interaction cost decreases? Wouldn’t that lead to even more volatility? Wouldn’t that that promote unequal rates of change inside and outside of companies?

It’s a hypothesis at this point. And it’s probably not original. I’m inclined to invoke Bob Sutton’s law in this regard, “If you think you have a new idea, you are wrong. Somebody else probably already had it. This idea isn't original either; I stole it from someone else."



 

If there is any validity to the hypothesis, it might suggest there is a systemic way to identify which markets and companies are ripe for disruption. If interaction costs are dropping around you in your market, and your profit per employee is declining, perhaps it’s time to think about disrupting yourself before someone else does? At the very least, you’d better get a grip on your interaction costs so they are in line with the market.

If you’re an insurgent, this seems to be a particularly good time. Dropping external interaction costs and decreasing profit per employee might suggest a market which is stumbling into your Killzone.

 

[Author’s note: I am not an economist. The post above is based on a hypothesis only. The underlying science surrounding transaction and interaction costs and sublinear enterprise productivity are well-known and evidence-based to the best of my knowledge. However, my leap to a meaningful connection between the two is only hypothetical at this time. Contributions and refutations are welcomed. My goal is to explore some of the possible underlying reasons (outside of the current political and monetary policy upheaval, of course) for what I perceive to be the current economic conditions for enterprises: characterized by hypercompetitiveness and increasingly volatile markets.]

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Game-ify This

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Any man who can drive safely while kissing a pretty girl is simply not giving the kiss the attention it deserves. 

Albert Einstein


I've always loved this quote. Although, I would like to understand the context in which it was given. Perhaps it was uttered in the same vein as his quote about intelligence being the capability to hold two opposing ideas in one's mind at the same time...? Or, sometimes a cigar is just a cigar...I'd like to think he was being literal in this case.

 

Either way, I'm mulling over two things I've seen or read lately and a recurring theme in the industry that's been bothering me. So inevitably, I won't be giving any of them the attention they each deserve.

The two things that have interested me are some of the most recently published research on the neuroscience of leadership and organizational change (thanks to my friend Michael Buckstein) and the website funtheory.com (thanks to Dan Pink for this one). The other item is the annoying present theme of "gamification."

First the interesting.

In issue 43 of strategy + business, authors David Rock and Jeffrey Schwartz summarize some of the latest findings in the neuroscience of leadership that would have been considered "counterintuitive or downright wrong only a few years ago:"

 

 

Change is pain. Organizational change is unexpectedly difficult because it provokes sensations of physiological discomfort.
 


Behaviourism doesn't work. Change efforts based on incentive and threat (the carrot and the stick) rarely succeed in the long run.
 


Humanism is overrated. In practice, the conventional approach of connection and persuasion doesn't sufficiently engage people.
 


Expectation shapes reality. People's preconceptions have a significant impact on what they perceive.
 


Attention density shapes identity. Repeated, purposeful and focused attention can lead to long-lasting personal evolution.
 


As usual, this excerpt doesn't do justice to the entire article.

 

After reading this article and mulling it over a few days, I got wind of the thefuntheory.com. I love the idea...making behaviour change fun. The winner of the contest was a speeding lottery where the goal was to make obeying the speed limits fun. It's entertaining to review some of the submissions. But I have to wonder given the above, does any of this lead to long-term behaviour change? I know it's a theory (hence the name) and probably more of a marketing scheme than anything...but more data please.

Now, moving completely to the extreme end of the spectrum...gamification. It sounds suspiciously like technology in search of a problem again. Where's the evidence that this is effective in a workplace? I know, I'm channeling Grumpy Old Men again, but c'mon...if people have to be "gamed" at work to do things, shouldn't they be looking for alternate employment? 

Isn't this also another form of carrot and stick incentives which we know don't work in many scenarios? As usual, I have more questions than answers, but this one is giving me the itchy scratchy's right now...perhaps I'll be a born-again convert with the proper evidence.

 

 

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Is Declining Enterprise Productivity Hackable?

 

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I work pretty hard at trying to manage my signal-to-noise ratio when it comes to social media. So I follow very few people and almost never check FB. But thanks to following Vinod Khosla on Twitter, I followed his link to a NY Times Magazine article about Physicist Geoffrey West and his quest to explain cities, and in particular urban population growth, with mathematical formulas. It's a great read.

What interested me most was that West and his collaborator Luis Bettencourt have started to turn their mathematical modeling toward companies as well:

"But it turns out that cities and companies differ in a very fundamental regard: cities almost never die, while companies are extremely ephemeral. As West notes, Hurricane Katrina couldn't wipe out New Orleans, and a nuclear bomb did not erase Hiroshima from the map. In contrast, where are Pan Am and Enron today? The modern corporation has an average life span of 40 to 50 years.

This raises the obvious question: Why are corporations so fleeting? After buying data on more than 23,000 publicly traded companies, Bettencourt and West discovered that corporate productivity, unlike urban productivity, was entirely sublinear. As the number of employees grows, the amount of profit per employee shrinks. West gets giddy when he shows me the linear regression charts. "Look at this bloody plot," he says. "It's ridiculous how well the points line up." The graph reflects the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy. "When a company starts out, it's all about the new idea," West says. "And then, if the company gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end."

The danger, West says, is that the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility. Since the company now has to support an expensive staff -- overhead costs increase with size -- even a minor disturbance can lead to significant losses. As West puts it, "Companies are killed by their need to keep on getting bigger."

For West, the impermanence of the corporation illuminates the real strength of the metropolis. Unlike companies, which are managed in a top-down fashion by a team of highly paid executives, cities are unruly places, largely immune to the desires of politicians and planners. "Think about how powerless a mayor is," West says. "They can't tell people where to live or what to do or who to talk to. Cities can't be managed, and that's what keeps them so vibrant. They're just these insane masses of people, bumping into each other and maybe sharing an idea or two. It's the freedom of the city that keeps it alive."

This got me thinking two things.

Firstly, is profit per employee the only factor that should be used in this scenario? Perhaps, since we're looking at the long-term viability of these enterprises. It may be a good proxy for an enterprises' health, but it is pretty one-dimensional when considering the kind of impact good organization's can make on society.

Secondly, I wondered how interesting it would be to see if enterprises using Evidence-based Management practices fared as a subset of this group? That is, enterprises lead and managed using well-known, evidence-based high-performance practices rather than managing by intuition, anecdote and myth.

Is it possible to hack the sublinear productivity returns as companies grow by applying Evidence-based Management practices? That would be a very interesting experiment. Something to do in our spare time perhaps.

 

 

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