High Performance Practices

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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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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Death By Growth

There is no easy way to say this, organizations don't scale well using traditional management practices. In fact, the returns on productivity for adding more people are actually sublinear; which means adding a person doesn't get you a full person's contribution. Just listen to what Geoffrey West, Distinguished Professor and Past President of the Sante Fe Institute has to say about it:

"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."

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As the graphic, excerpted from a McKinsey study, illustrates exactly what West and Bettencourt found. As companies grow, their profit per employee drops. Yes, these are very large enterprises. Does this occur on a smaller scale? Our first-hand experience working with enterprises as small as 25 would indicate it does.

The next obvious question is how can you contain the "burdens of bureaucracy" so growth doesn't kill your organization? If so, how?

Something to consider as you grow your team or enterprise.

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Closing the Science-to-Business Gap

 If you think of the items we have outlined in the Noise section as symptoms, the Science-to-Business Gap should be classified as one of the diseases that causes these symptoms. I'll write about four other diseases in future posts (Sublinear Productivity, Strategy-to-Performance Gap, The Engagement Gap and Organizational ADHD). Each of these produces a number of unwanted symptoms and impediments to good performance in your organization. If you can head these off before they take root then you'll be ahead of your competitors.

“If we want to strengthen our companies, elevate our lives, and improve the world, we need to close the gap between what science knows, and what business does.”

Daniel Pink

Drive: The Surprising Truth About What Motivates Us

Closing the gap between research and practice (or what science knows and what business does) represents a change from the dominant approach to management behaviour – which operates more on intuition, anecdote and experience. 

“Most managers are notoriously subjective, prone to manage by anecdote, quick to adopt best practices, and fond of big, visible initiatives...” McKinsey Quarterly, 2006, Number 3

And if we want to move away from commonly used management practices, we need to understand that change itself is a difficult process.

According to the authors of Switch and Made to Stick, “the primary obstacle is a conflict that's built into our brains. Psychologists have discovered that our minds are ruled by two different systems—the rational mind and the emotional mind—that compete for control. The rational mind wants a great beach body; the emotional mind wants that Oreo cookie. The rational mind wants to change something at work; the emotional mind loves the comfort of the existing routine. This tension can doom a change effort—but if it is overcome, change can come quickly.”

The second part of the challenge is answering the question, “what do we change TO?” If you are operating based on experience and intuition now, what approach do you rely on? Do you just pick one of the billion books out there trying to sell you on the latest management fad (while selling out theatres on the rubber chicken circuit)?

Our goal is to avoid any whiff of a fad and stick to the properly-researched territories. So, rather than follow any “model” which espouses particular techniques, we like the approach of Evidence-Based Management, which “is a commitment to finding and using the best theory and data available at the time to make decisions.” We see this as a practical way to bridge the gap between science and business.

The 5 Principles of Evidence-Based Management

  1. Face the hard facts, and build a culture in which people are encouraged to tell the truth, even if it is unpleasant.
  2. Be committed to "fact based" decision-making -- which means being committed to getting the best evidence and using it to guide actions.
  3. Treat your organization as an unfinished prototype -- encourage experimentation and learning by doing.
  4. Look for the risks and drawbacks in what people recommend -- even the best medicine has side effects.
  5. Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or on uncritical "benchmarking" of what winners do.

There is a significant movement in medicine to apply Evidence-based Management. We think it's time for businesses to catch up.

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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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