Organizational Health

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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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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"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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Collaboration? Why?

It seems most technology intended for the enterprise is either being tagged with "social" or "collaboration" monikers these days. We understand the need to put new labels on things to grab attention, but both of these are being vastly overused and in many cases, misused.

Why does it matter? Because customers don't need to be confused by undifferentiated products. They've got enough on their plates. If the enterprise market is a $500B opportunity, then there is plenty to go around. The customer should be able to easily figure out how your product intends to create value for them, rather than being lumped into the highly undifferentiated "collaboration" market.

We're not keen on social, because organizations have always been "social" enterprises. People working together to accomplish something not possible as individuals, is the whole point behind creating an organization (you can get a richer description of our position here). This doesn't even account for the confusion caused by the adoption of "social" by enterprises that aim to provide a double, or triple, bottom-line.

And for collaboration? Why could we possibly have a problem with including collaboration in the description of a technology solution? For starters, collaboration in and of itself isn't the outcome people are looking for. Working together is a noble idea. But to make sense, collaboration must generate results. That is the outcome we're looking for.

(figure from IBM Global CEO Survey, 2012)

Dismantling silos and bringing people together are both great. And maybe that's all these "collaboration" systems do, so they may be aptly named. Let's put the focus on what we're going to deliver, rather than focus on how we're going to deliver it.

Secondly, collaboration isn't the best way to generate some results. There is good collaboration, and bad collaboration. If you want to read an excellent book on Collaboration, Morten Hansen has written the definitive book in our view.

"What is the difference between good and bad collaboration? The answer I provide is a set of principles I refer to as disciplined collaboration. It is an answer to a simple question that confronts us all, whether we are business executives, nonprofit leaders, government officials, politicians, mayors, doctors, lawyers, or church leaders: how do we cultivate collaboration in the right way so that we achieve the great things that are not possible when we are divided?"

Collaboration can be thrilling and powerful when it is disciplined and focused on creating the right results. Otherwise, collaboration might just be a path to increased cost and frustration.

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