The Leader's Guide to Radical Management

A Podcast with Richard Florida about The Great Reset

I talked this week with Richard Florida about his exciting new book, The Great Reset How New Ways of Living and Working Drive Post-Crash Prosperity (Harper, 2010).

Richard is wonderfully passionate and articulate about what needs to happen after the financial meltdown of 2008. This is not about getting back to where we were. This is going to be wholly different.

You can listen to the podcast here (25 minutes, 8 megs, mp3).

 

After the Meltdown & the Oil Spill: What’s Next? The Great Reset by Richard Florida

The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity by Richard Florida (Harper Business, 2010)

Many of us have the sense that the financial meltdown of 2008 and the Gulf oil spill of 2010 signal something more profound than a couple of unfortunate and massive industrial accidents. But what? Richard Florida (The Rise of the Creative Class and Who’s Your City) offers some answers in his wonderful new book, The Great Reset.

He suggests—persuasively—that we are undergoing a great reset—one of those periods of transformative upheaval "when new technologies and technological systems arise, when the economy is recast and society remade, and when the places where we live and work change to suit new needs."

Unlike most books about the current crises, which often sound as though the world was invented last Tuesday, Florida takes a longer term historical perspective and points out that we have been here before.

In the 1870s, we had the Long Depression: a massive financial crisis that led to great hardship but eventually generated a vast amount of business innovation that led to greater wealth and prosperity. In the process, the US  shifted from a largely rural population to a country of big cities.

Again, in the 1930s, we had the Great Depression in which a massive financial crash was followed by a decade of unprecedented innovation and creativity. (That surprised me a little, as I hadn't realized that the 1930s were particularly creative.)  This was also accompanied by a geographical shift: the US went from being a country of big densely-populated cities, to a country of cities surrounded by suburbs, based on home-ownership and cars.

Now once again, we face a great reset—a period of transformative upheaval, with large scale economic, social and geographic implications.

 

The Great Reset is retrospective: we have been here before, in the 1870s and the 1930s; it is sobering: a "great reset" may take decades and involve basic change; but it is also forward looking and optimistic. In the earlier depressions, we eventually came out of it healthier and wealthier than before.

Florida accepts that no one can predict the future, but argues that there are a number of shifts or "fixes" that will drive the great reset forward.

* A "financial fix": The book argues that we will need to to stop merely treating the symptoms of the recent financial crisis and trying to get back the banks back to where they were able to lend large amounts of money for housing, automobiles and other consumer products. Instead we need to start dealing with the deeper malady, namely that the US was living beyond its means. The population continued to borrow for houses and cars beyond what could be afforded. The financial sector, prodded on by the government, continued to lend for housing and became bloated. This was not merely a problem for the banks: it also caused productivity problems, as resources were diverted from the real economy. The banks also became involved in speculative trading, and when the reckless gambling failed, they successfully called on the government to bail them out. The whole scheme was a kind of “housing-auto complex” (not dissimilar to Eisenhower’s military-industrial complex), in which government, financial institutions, unions and big business all collaborated to enable large numbers of people to live in the suburbs in their own homes and driving their own cars with a life-style they couldn’t afford. While much energy is now mistakenly being spent in a futile effort to restore this world, Florida argues powerfully that this world is gone forever. A new and different world needs to open up, a world that is full of good, well-paying jobs.

* A "management fix": We need a new kind of management that creates more new good jobs that are innovative and more productive and higher paying. This is not just about good jobs for the “creative class” about whom he wrote so eloquently in The Rise of the Creative Class. It means creating better service jobs at the low end of the economic scale, using models like Toyota’s continuous improvement, where there is no such thing as unskilled labor: there are only jobs to which intelligence has yet to be applied. “We are going,” he says, “to create 7 million new jobs in high-tech and professional work: we are growing those jobs like crazy and we need to do more to support them. We are going to lose some manufacturing work which is being off-shored and routinized.  But we are going to create 7-8 million new jobs in low-wage service jobs—health care, food preparation, dry-cleaning, hair salons: we need an agenda to make those jobs good jobs. That’s the role of government: to make sure that the 60 million existing jobs in low-wage service industries, along with the 7-8 million new jobs there, are good, well-paying jobs. This means applying what we learned in manufacturing in the course of the 1980s. We focus on quality and continuous improvement and get service workers to work in teams and become innovative.”

* A "consumption fix": We have to stop valuing the acquisition of more and more, and bigger and bigger houses, cars, property, gadgets and so on. Florida suggests that the younger generation is beginning to recognize the spiritual emptiness of these attitudes and values.

* A "spatial fix": a “great resettle” is under way into more densely populated urban areas, with more walking and biking and public transport and less driving. We need living spaces that "big, fast and green". He sees the main economic unit of the world economy becoming the “mega-region”, like the Boston-NY-Washington area.

* An "education fix" with an education system that is in sync with the new creative economy, a system that encourages innovation, and learning, and entrepreneurship. How will that happen?

* A "social compact fix" with general health care and a safety net for all. How will that happen?

This is a hefty agenda. The Great Reset recognizes that most of the change is going to be driven by the private sector. But what about government? What’s their role? I talked with Richard this week and asked him what he would say if the G8 were to call him up and asked for advice. He replied:

 

“Number one:  Stop propping up the housing market. Take those foreclosures and those empty condos—what a tragedy!—turn them into affordable rental housing for people who need it, around the world. Help the people who have “under-water mortgages” by taking the houses off their hands and let them rent them back or move to a new opportunity.

“Number two: We need a massive agenda to upgrade jobs now. We need a global summit on how to turn service jobs into good jobs for the future, and make those $20,000-30,000 a year jobs into family-supporting jobs. We need to make sure that those out-of-work factory workers have some form of wage insurance or wage supplement, so that they are willing to take a job in a service company. That’s going to get them more engaged in working and so back into a better psychology and a better attitude towards work.

 

“Number three: For the long haul, we have to reinvent our education system. We need a system that no longer squelches the creativity of our kids, and turns out docile workers who were right for the farm or the assembly line. We need a system that turns out entrepreneurs. Every single school should be entrepreneur-creating  incubator.

“And number four: We need a physical infrastructure for a knowledge economy. We have to get away from our addiction to roads and energy. We have to encourage people to live closer to where they work.  We need to connect our cities, especially our declining and dying rust-belt cities, with high speed rail.”

 

The choice, says Florida, is between trying to re-build the past and constructing a new and more productive and resilient future.

 

The great merit of his book is that it sketches the big-picture elements that need to go into that better future. Without trying to predict the future or saying exactly how things are going to turn out, The Big Reset articulates the issues that have to be faced and the most likely and productive way to address them.

 

If we do that, we are likely to come out stronger and more resilient and more prosperous. We have done it twice already. The Big Reset gives us the road map to do it one more time.

What I love about the book is that it takes this deep and broad look at what’s going on. It takes a deep historical perspective and shows how we have coped with this before; it also shows how long it took and how difficult it was.  It joins the dots and shows how the pieces fit together.

The Great Reset is sobering because it looks not just the surface problems or symptoms what is amiss. It looks at the deeper forces which are driving society. And it is forward looking and optimistic: we are likelier to come out of this economically and socially healthier and wealthier than before.

The real question is how long it is going to take. In the past, it happened by trial and error. We stumbled onto solutions. But that approach took decades to get results. Now that The Great Reset has shown us what needs to be done, we may be able to get there much faster.

HBR: Rushing to the 20th Century

Want to kill your firm quickly? Then study the current issue of Harvard Business Review. Imbibe its philosophy, its attitudes and its values. Implement everything it says. In so doing, you will be well on the way to turning your organization into a fully-fledged 20^th Century organization, with a life expectancy of around 5-10 years.

The current issue of HBR (July-August 2010) is supposedly about “the effective organization”. Unfortunately it’s about “the effective organization of 1965.”

To start with, you will never discover, for instance, as The Power of Pull[i] by John Hagel, John Seely Brown and Lang Davison shows, that the rate of return on assets of US firms has fallen by 75 percent since 1965. You will never guess that the life expectancy of firms in the Fortune 500 has declined to around 15 years, and is heading fast towards 5 years, unless something changes. You will never get a hint that executive turnover is accelerating. You would be hard-pressed to realize that with global competition and the shift in power from sellers to buyers, most of the productivity gains have been captured by consumers and creative talent. You would have to go elsewhere to discover that the  “winners” in today’s economy are barely maintaining their previous ROA levels, while the losers are experiencing bigger and bigger losses. You would never imagine that the companies that out-perform their peers do so for ever-shorter periods of time: the “topple rate” is accelerating. You would never realize that net job creation over the last 25 years by firms older than 5 years is close to zero.[ii]

Instead, you would learn that the way most established organizations are managed is pretty much okay. Sure, we need a tweak here, a patch over there, a little bit more effort in some areas, but there is nothing basically wrong with the way most firms are managed. You would never know that management is not just broken: it is badly broken.

Take the headlined article of the current issue: Stop the Innovation Wars by Vijay Govindarajan and Chris Trimble (page 83). Like Roger Martin’s book, The Design of Business[iii] (2010), it urges a better partnership between the firm’s “performance engine” (producing consistent, predictable outcomes) and the “innovation team” (creating new value for customers). It argues that today’s organization should achieve a better partnership between the supply chain that operates in a rigidly predictable fashion and the part that operates with the creativity of a design shop, with more emphasis on the latter.

The article notes that these partnerships result usually in “war in the boardroom,” as Al and Laura Ries show in their book of the same name, War in the Boardroom[iv]. The article argues that if the partnerships are managed more nimbly, things will work out. Unfortunately, the entrenched left-brain thinking of the supply chain, supported by traditional management theory, business school teaching and Wall Street assumptions, tends to crush the creativity of right-brain thinking about new ways to add value.

It’s not enough for the “innovation team” to be in touch with ideas that can excite the newly elusive customer, and to be dragging a rigid and unresponsive supply chain behind it. Today, the entire organization has to become involved in the effort to generate customer delight and be able to deliver on the fly. This means not just adding a new fix to management, but re-thinking management from top to bottom.

In the end, the article is about innovation “initiatives”, i.e. time-limited efforts to solve specific problems patched on to the bureaucracy. Once the innovation "initiative" is over, the organization can heave a sigh of relief and go back to its non-innovative business-as-usual mode of operating. It embodies the fundamental assumption of the 20^th Century management that the default mode of managing is scalable bureaucracy. It’s not about the 21^st Century organization which involves changing the DNA of the organization so that the whole organization embraces innovation.

The article fails to grasp that traditional management is so badly broken that creating an institutional capability to generate continuous innovation and organizational learning takes more than adding something on to the existing management system or creating new “partnerships” with the bureaucracy. Rather it involves a radical re-think of the very fundamentals of how an organization is organized and managed. We need radically different management.

The silliest of the articles in the current issue is Stop Trying to Delight Your Customers by Matthew Dixon, Karen Freeman and Nicholas Toman (pages 116-122). The authors claim to have done a study showing that trying to delight your customer is counter-productive. What the study actually shows is that if you have a bunch of traditionally-managed bureaucratic command-and-control firms and "tell" the customer reps to “delight the customer,” you get rather poor results. It sheds no light at all on what happens when the whole organization devotes all its energies from the top to the bottom of the organization to delighting its clients and inspires its staff to embrace the goal and communicates with them, not by telling them what to do, but by conducting conversations and practicing deep listening.

The article is talking about a quick fix to a traditional command-and-control culture. Guess what? It doesn’t work. The idea that a command-and-control bureaucratic culture is fundamentally incompatible with an organization dedicated to delighting its clients never occurs to the article’s authors. The possibility of an organization in which delighting customers is part of the DNA of the entire firm is not even dreamed of.

And on it goes. Article after article starts from the assumption that things are pretty much okay if we go on managing as we did in the 20^th Century. A minor tweak here or a patch there will fix the few minor irritants on our dashboard. The tragedy is that organizations that follow its advice will sink into the mud and they will never know why.

To learn how to manage in a way that fits the 21^st Century, go here:

http://www.stevedenning.com/Books/radical-management.aspx

 

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[i] The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion by John Hagel III, John Seely Brown, and Lang Davison (Perseus, 2010). See also Deloitte Center for the Edge. Measuring the Forces of Long-Term Change: The 2009 Shift Index. 2009. http://www.edgeperspectives.com/shiftindex.pdf . 

[ii] Friedman, T. “Start-Ups, Not Bailouts” New York Times, April 3, 2010
http://www.nytimes.com/2010/04/04/opinion/04friedman.html?hp

[iii] The Design of Business: Why Design Thinking is the Next Competitive Advantage by Roger L. Martin (HBSP, 2009)

[iv] War in the Boardroom: Why Left-Brain Management and Right-Brain Marketing Don't See Eye-to-Eye--and What to Do About It, by Al and Laura Ries (HarperBusiness 2009)

 

From Push to Pull: An Exciting New Book by John Hagel, John Seely Brown & Lang Davison

The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion by John Hagel III, John Seely Brown, and Lang Davison (Perseus, 2010)

Why can’t big organizations innovate?

Why can’t large established organizations become as good at game-changing innovation as they have been at disciplined execution?

Instead of innovation and organizational learning being the responsibility of a few courageous individuals or departments, why doesn’t innovation become an organization-wide capability, a part of the firm’s DNA?

An exciting new book, The Power of Pull, gives us the answers.

The World of Push

Established organizations, by and large, live in the world of traditional management—the world of push. The world of push is a world of telling people what to do and assuming that they will respond. Management forecasts demand and tells employees what to produce. Then based on those forecasts, management organizes the resources to make sure the firm’s people and resources are in the right place at the right time to meet the demand in the most efficient fashion. Management then communicates to the mass market of customers with messages that induce them to buy the firm’s products.

This way of managing is even supported by the orthodox economic theory of the firm. The rationale of firm is that the firm exists in order to reduce transaction costs of different parts of the firm. The object of traditional management thus becomes further reduction in costs.

The problem? As The Power of Pull, shows, this way of managing doesn’t work any more. It’s not just broken. It’s badly broken.

Traditional management is broken

The evidence? The Power of Pull summarizes the startling results of a study of some 20,000 US firms:

·        The economy-wide return on assets (ROA) in the US has—remarkably—fallen to nearly one-quarter of 1965 levels, even as asset intensity has dropped by 40 percent.

·        Labor productivity has steadily improved, but with global competition and the shift in power from sellers to buyers, the gains from productivity gains have been mainly captured by consumers and creative talent.

·        The “winners” in this economy are barely maintaining their previous ROA levels, while the losers are experiencing bigger and bigger losses.

·        Companies that out-perform their peers do so for ever-shorter periods of time: the “topple rate” is accelerating.

·        Only one in five workers is fully engaged in their work.

·        The life expectancy of a Fortune 500 company has fallen to around 15 years, and appears to be declining further.

Thus talk in board rooms about the Red Queen effect of managers having to run faster and faster just to stay in the same place understates the gravity of the situation. In reality, traditional management is running faster and faster to avoid falling even further behind.

Why is traditional management failing?

For one thing, telling employees what to do doesn’t bring out the best in them on a daily basis, and without that, high-quality innovation won’t happen. Without continuous innovation, the firm gradually declines and dies.

Today’s customers demand not merely average products based on static knowledge stocks. Instead they want rather something new that will interest, excite and even delight them. Whereas in the 20^th Century customers had few choices and little access to information, now thanks to global competition, they have many choices. Also, thanks to the Internet, they have instant access to accurate information about what the choices really are. If customers are not delighted, they will go elsewhere.

In this new world, the traditional supply chain isn’t agile enough: by the time production is adjusted to generate a different output, the customer has moved on and wants something else again.

Moreover pushing products and messages to consumers who now have good information and many choices is no longer working. The financial yield of this approach is declining.

Half-way measures don’t work

Books like Roger Martin’s The Design of Business1/ urge a better compromise between the reliability of the supply chain (producing consistent, predictable outcomes) and the innovativeness of the design function (creating new value for customers). Martin argues that today’s organization should achieve a better balance between the supply chain that operates in a rigidly predictable fashion and the part that operates with the creativity of a design shop, with more emphasis on the latter.

The result of even a better-balanced compromise however is usually “war in the boardroom,” as Al and Laura Ries argue in their book of the same name, War in the Boardroom: Why Left-Brain Management and Right-Brain Marketing Don't See Eye-to-Eye--and What to Do About It. (HarperBusiness 2009). The left-brain thinking of the supply chain, supported by traditional management theory, business school teaching and Wall Street assumptions tends to crush the creativity of right-brain thinking about new ways to add value.

It’s not enough for the design department to be in touch with ideas that can excite the newly elusive customer, and to be dragging a rigid and unresponsive supply chain behind it. Now the entire organization has to become involved in the effort to generate customer delight and be able to deliver on the fly. This means not just adding a new fix to management, but re-thinking management from top to bottom.

Traditional management is so badly broken that creating an institutional capability to generate continuous innovation and organizational learning is not a matter of adding something on top of the existing management system. Rather it involves a radical re-think of the very fundamentals of how an organization is organized and managed. We need radically different management.

From Push to Pull: Scalable Collaboration

An uneasy compromise between reliability and innovativeness is not enough to avoid obsolescence and irrelevance. In a world of ever-accelerating change and global competition, in which the balance of power has shifted to the customer, continuous innovation and learning by the entire organization is required for survival.

The Power of Pull argues that whereas the 20^th Century was about scalable efficiency, the new economy is about scalable collaboration. This is not just about innovation within an individual firm like Toyota, although lean manufacturing could be seen as an early implementation of the power of pull. But lean manufacturing only worked in a narrow set of business partners who are tightly aligned.

The Power of Pull is about scalable pull, embracing tens of thousands and eventually hundreds of thousands of participants in pull platforms. A prime example of a firm that has prospered in operating like this is Li & Fung, the largest company you have probably never heard of.

Li & Fung

Li & Fung is a $15 billion company. It is headquartered in China and orchestrates 14,000 factories in China and around the world. It has over 14,000 employees, and operates a sourcing network of over 80 offices covering over 40 economies across North America, Europe and Asia. It has no manufacturing facilities. But somewhere between 40% and 50% of the clothes in any US shopping mall come from factories in Li & Fung’s network.

Garments make up a large part of the Li & Fung business which also covers fashion accessories, furnishings, gifts, handicrafts, home products, promotional merchandise, toys, sporting goods and travel goods.

Although the apparel industry is a very low margin game, Li & Fung has been growing at a double digit rate annually over the past twenty-five years. It is highly profitable with a double digit return on equity—an impressive accomplishment.

Li & Fung owns practically nothing. Its role is to figure out a way to orchestrate factories, so that by coming together, they can achieve performance that they could never achieve individually. Each factory is allowed to engage in increasing specialization, so that they can create more and more value. The network is set up so that the participating companies are learning not only from their own eco-system. They also learn from partners up and down the value chain.

But all are working on extreme specialization. For example, for a particular garment, Li & Fung might source the yarn from Korea, dye it in Thailand, weave in Taiwan, cut it in Bangladesh, assemble it in Mexico, and bringing zippers in from Japan and come up with something that is better than anyone else in the world can do.

The network uses performance metrics throughout the whole chain, not only so that Li & Fung knows what is going on in the network, but more importantly to enable the member companies to understand how well they are doing, relative to other companies in the ecosystem and in the networks at large, and how they might do better. Information dashboards are focused on enabling the member companies to learn.

The network is a modular, relational network. In one sense, the activities are short-term in the sense of being about particular product at a particular time, but relational in the sense that the network itself is long lived. Member firms tend to stay in the network for years.

The network works in a counter-intuitive way, with a “30:30 rule”. When a firm joins the network, Li & Fung says, “We will guarantee to take at least 30% of your output from your factory every year. But we will never take more than 70%.”

Why? For one thing, Li & Fung needs to accelerate trust building, because the network works on trust. Li & Fung wants the member companies to have a certain amount of independence. For another, they want the factories to learn from competitors. They want to be working with partners who are looking at the world slightly differently from themselves.

The network uses protocols for rent distribution and dispute adjudication. The goal is to foster long-term trust-based relationships at multiple levels that lead to higher performance by everyone in the network. As individuals and firms improve in terms of their own performance, they get the opportunity to do new kinds of work, so that the whole network around the globe also increases its performance. This requires careful balancing of the interests of the individual firms and the network.

The power of the Li & Fung platform is not in technology. Until recently the company relied on only the most basic technology—telephone and fax. Its strength lies rather in a deep understanding of how to orchestrate complex supply networks.

What Li & Fung represents is scalable collaboration. It generates a creation space that gets more and more power as more and more participants join.

The 21^st Century Firm Generates Increasing Value for Customers

The Power of Pull sees the key to the future in having those doing the work continuously adding value for customers. The successful organization of the 21st Century will be one in which management unleashes the creativity of its entire workforce and enables the people doing the work to delight customers.

The Power of Pull presents a new economic model of organizations and focuses mainly on what is happening at “the edge” of organizations, particularly the interactions between networks of organizations.

To succeed in this new world, a firm needs employees who are giving their very best on a daily basis in order to continuously add new value to customers. Everyone in the organization needs to have a clear line of sight as to what the customers want and how they are responding to existing products and services. They need to be constantly improving their performance to generate more value for the customer sooner.

The Power of Pull explains the new economic order through the lens of a 3 by 3 by 3 matrix—27 dimensions of doing things differently. In this new world, they see success coming by:

·        Accessing resources and people with know-how, whether those resources and people are outside the firm or within.

·        Attracting people and resources to come to you and collaborate in generating more value.

·        Accomplishing results based on these knowledge flows, by facilitating partnerships based on collaboration and reliable production.

The new way of acting is occurring:

·        At the level of the individual

·        At the level of the organization and

·        At the level of the network of organizations

When in this mode, participants get involved in journey that re-shapes the world around them:

·        A shaping view: which sets the direction or trajectory of the individual, the firm or the network.

·        A shaping platform, which creates increasing value for the individuals, firms or networks involved.

·        Shaping acts and assets, which accelerate the conviction needed to speed investments and innovation on the part of participants, enabling the shaper and the ecosystem as a whole to make more rapid progress in realizing the shaping view.

Flipping the Experience Curve

Traditional management has had to deal with the experience curve and the phenomenon of declining returns. In traditional management, as the firm grows, it achieves economies of scale and so its performance in terms of the cost of production improves over time. But the returns steadily decline. The more experience the firm has, the longer it takes for the next performance increment of improvement, which is discouraging. The phenomenon has been observed in most industries, from toilet paper to beer or semi-conductors. The Power of Pull argues that the network effects of scalable collaboration can flip the experience curve and create what was unthinkable in traditional 20^th Century management: an increasing performance improvement curve.

Thus the more participants involved, the more rapidly everybody learns. Part of this flows from network effects. For example: fax machines. One fax machine is worth nothing. The more machines there are, the more valuable the fax machine becomes. But the value of the fax machine is limited by the fact that it is static. But suppose each fax machine was itself aggressively improving? Then you would have a case of “increasing return squared”! That is the potential of the new network-based organization.

Traditional Management: Failing but Hard to Change

None of this is easy. Traditional management comprises a relatively simple linear task of delivering products and services. The new world of pull involves the complex challenge of delivering steadily increasing value to customers. The shift from linearity to complexity isn’t just a shift in degree. It is a radically different kind of task. It requires a radically different kind of management.

Yet even as traditional management is failing, it is hard to change. The very source of economic value of the 20^th Century corporation is that organizations prosper by the efficient management of knowledge stocks. The pattern is familiar. The firm develops proprietary knowledge. It aggressively protects that knowledge to make sure no one else gets access to it, and it extracts the value from that knowledge as efficiently as possible and for as long as it can. The rationale of the firm is to minimize transaction costs in deploying these stocks of knowledge efficiently. That way of thinking and acting created huge and seemingly successful companies in the 20^th Century.

The economic rot that is sucking the life out of these organizations hasn’t yet been widely recognized, even though the symptoms of decay are everywhere apparent. Traditional management is still by and large what is taught in business schools, described in management textbooks and admired on Wall Street. So it is hard to challenge or change.

Nevertheless the economic situation of the 21^st Century dictates a radically different kind of management, with different ways of thinking, speaking and acting, different attitudes and different values. The change will either happen voluntarily as managers learn to manage in the new way, or involuntarily as economic forces put these traditionally managed firms out of business.

The life expectancy of firms in the Fortune 500 has already fallen to less than fifteen years—down from 50-60 years, half a century ago. If current trends continue, with no change in management, Hagel and Brown predict that the life expectancy will fall to five years. At a certain point, the economic rot of the traditional organization will be so obvious that even traditional managers will be forced to change, whether they want to or not.

The 21^st Century Firm: Radical Management

How will this happen? What does the new management look like in practice? How is work managed inside the factories orchestrated by Li & Fung? The Power of Pull suggests that the new style of management will involve:

“setting things up in short, consecutive waves of effort, iterations that foster deep, trust based relationships among the participants. Once these relationships are established, individuals will begin to feel more comfortable with constructive conflict and productive friction—the hallmarks of healthy group effort. Knowledge begins to flow and the team begins to learn, innovate and perform better and faster. Having some significant problem or challenge to tackle causes these individuals to work together closely as they learn how to build on each other’s diverse experiences, perspectives and skill sets, discovering new practices that boos everybody’s performance.”

Will managers steeped in traditional management culture or people trained by business schools in the techniques of command-and-control, the supply chain and the experience curve, know how to manage in this radically different fashion?

The Power of Pull gives us the economic theory for radical management. But more is needed. To make radical management happen in reality, the next step will be to spell out in detail exactly how to go about managing workspaces that are sustainably creative, collaborative, efficient and scalable.

To learn more about radical management, go here:

http://www.stevedenning.com/Books/radical-management.aspxv

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[1] The Design of Business: Why Design Thinking is the Next Competitive Advantage, by Roger L. Martin (Harvard Business School Press, 2009)

Can public sector organizations delight their clients?

Further to my blog on crafting a compelling goal aimed at delight clients, Johanna Kroon from Amsterdam asks: "What I would like to know is how these principles apply to public organisations such as the police, child protection services, government agencies etc. How can people who work in such organisations ever delight their customers?"

Good question!

In 1973, Peter Drucker was careful to limit his articulation of an organization’s purpose to businesses in the private sector, which were driven by marketing: “Marketing is the distinguishing, unique function of the business. A business is set apart from all other human organizations by the fact that it markets a product or a service. Neither church, nor army, nor school, nor state does that. Any organization that fulfills itself through marketing a product or a service is a business. Any organization in which marketing is either absent or incidental is not a business and should never be managed as if it were one."

True, public sector organizations face certain constraints that make it more difficult for them to generate delight.

First, these organizations tend to have stakeholders rather than paying customers. It can be more difficult to identify the stakeholders whom the organization should focus on delighting, particularly if there are multiple groups of stakeholders with differing interests.

Second, private sector firms have more latitude in choosing their clients. Often the key to delighting clients in the private sector is to focus on one set of clients over another. But the stakeholders of public sector organizations are often determined by law. Thus, an organization charged by law with collecting garbage in a city must pick up everyone’s garbage, not just the garbage in certain neighborhoods.

Third, some public sector organizations are deliberately designed to be neutral among different stakeholders. For instance, by definition, the system of justice not only cannot choose who seeks its services, it must also be even-handed among parties, not favoring one group over another.

Nevertheless, public organizations that provide services to the public can usefully address the question of whom their stakeholders are, whether and to what extent priorities can be established among their needs, and whether and to what extent the organization is meeting those needs. The underlying principle is the same: the purpose of public sector organizations is to delight their principal stakeholders, although the constraints under which they operate sometimes make it more difficult for them to achieve that goal.

The Merchant of Venice factor

Even justice systems are subject to the human factor. Although Justice is traditionally pictured as a blind woman, the blind and mechanistic application of legal principles may result in a travesty of true justice.

Thus in Shakespeare’s The Merchant of Venice, “mercy seasons justice.” Instead of the blind application of legal principle, Portia comes up with a solution that respond to the human elements in the situation.

In the play, Shylock makes a loan of 3,000 ducats to Antonio, on condition that if he fails to repay, he will give Shylock a pound of flesh. The climax of the play comes in the court of the Duke of Venice. Shylock, a moneylender, refuses Bassanio's offer of 6,000 ducats, twice the amount of the loan he has made to Antonio. Shylock demands his pound of flesh from Antonio. The Duke, wishing to save Antonio but unwilling to set a dangerous legal precedent of nullifying a contract, refers the case to a visitor who introduces himself as Balthazar, a young male "doctor of the law", bearing a letter of recommendation to the Duke from the learned lawyer Bellario. The "doctor" is actually Portia in disguise, and the "law clerk" who accompanies her is actually Nerissa, also in disguise. Portia, as "Balthazar", asks Shylock to show mercy in a famous speech (“The quality of mercy is not strained,” arguing for debt relief), but Shylock refuses.

Thus if the court were to follow blind application of legal principle, it must allow Shylock to extract the pound of flesh. Shylock tells Antonio to "prepare". At that very moment, Portia points out a flaw in the contract: the bond only allows Shylock to remove the flesh, not the "blood", of Antonio. Thus, if Shylock were to shed any drop of Antonio's blood, his "lands and goods" would be forfeited under Venetian laws.

Defeated, Shylock concedes to accepting Bassanio's offer of money for the defaulted bond, but Portia prevents him from taking the money on the ground that he has already refused it. She then cites a law under which Shylock, as a Jew and therefore an "alien", having attempted to take the life of a citizen, has forfeited his property, half to the government and half to Antonio, leaving his life at the mercy of the Duke. The Duke immediately pardons Shylock's life. Antonio asks for his share "in use" (that is, reserving the principal amount while taking only the income) until Shylock's death, when the principal will be given to his daughter, Jessica and her fiancé.

In this instance, justice is even-handed but not blind. Portia engineers a solution that would delight the angels.  In a well-functioning legal system, justice is coupled with mercy and takes account of the human beings involved.

Coming soon: can--or should--an education system delights its clients?

For more on radical management, go to:
http://www.stevedenning.com/Books/radical-management.aspx

Valuing Employees (Really!)

Book reviewed:  

Employees First, Customers Second: Turning Conventional Management Upside Down by Vineet Nayar

How often have you heard a CEO declare, “Our employees are our most important asset.” The first clue that something is wrong is that the CEO is already referring to the employees as a thing, rather than as people. The second clue is that you notice that the organization has a “human resource department”, which makes clear that the employees are something to be mined and exploited. The final proof that something is wrong is that you look around the organization and notice that the firm is a living example of a Dilbert cartoon, with a rash of downsizings, outsourcings and reorganizations, where no one’s job is safe (including the CEO’s).

So what would it be like to work in an organization where the employees really were valued? One answer is described in a new book by Vineet Nayar entitled Employees First, Customers Second (Harvard Business Press, 2010).

In 2004, Nayar became CEO of HCLT, an IT service provider with some 30,000 employees headquartered in India. The book is a narrative account of his experience there, and how he went about putting employees first (really!).

Prior to joining HCLT, Nayar had founded a smaller firm that was driven by product and service innovation, where the staff believed that if they did not innovate every eighteen months or so, with a new product or service to the market, they would not remain competitive and would lose their position as a market leader. In this firm, most people were looking forward.

By contrast, HCLT was an older business that had grown rapidly in its early years, but as it grew bigger, it had gradually slowed down. Change was more difficult and took longer to implement. Bright ideas often got left on the table. In this organization, people were looking backwards, frustrated and suffocated by the constraints of the past.

Three experiences marked Nayar’s initial interactions with HCLT. The first was when he began having conversations with employees, and telling them that HCLT had lost its competitive edge, that the only way to avert disaster was to transform the corporation. He found that even the staff most interested in change—the “transformers”—were angry and found his promises of change unconvincing. He saw that trust in management, including himself, was low.

The second experience was when he met with the CIO of a customer who had had a highly successful experience with HCLT. Nayar came to the meeting expecting to be thanked. Instead, the CIO thanked the team that had done the work and told Nayar how lucky he was have such wonderful people.

The third experience was when he met with customer who had had a disastrous experience with HCLT. Nayar walked into the room, ready to explain how he was going correct the problems. But before he could say a word, the client said, “Your people did everything they could but your organization didn’t support them properly.” The client was angry at Nayar, not at the team.

These and other experiences led Nayar to see that the people doing the work were the ones who created value for the customers. Taken together they created the value zone within the organization. Without them, the firm was nothing but a shell, layers and layers of management and aggregators who had nothing to offer to the customers. The management did not live in the value zone or anywhere near it. Often, management got in the way of creating value. Overall, management was not helping the people doing the work. Instead, it was often wasting their precious time and energy by requiring them to make endless presentations about irrelevant things and write reports about what they had or had not done.

Nayar saw that management had to stop wasting the employees’ time and start supporting them and enabling them to create more value for customers. He had to find a way to put the value zone at the center of the organization.

For HCLT, the value zone was not so much in what the firm delivered—the products and technology offered by competitors were similar. Instead the value zone lay in how the technologies and products were brought together and implemented.

The existing organization exalted those with hierarchical power rather than those who created customer value.

So Nayar set out to invert the traditional pyramid and made the management accountable to value zone and people in it, rather than have the people in the value zone accountable to the management. To enable employees to create value for customers, Nayar had to establish a new level of trust and transparency within the firm. In the process of the role of management changed from being a controller to an enabler.

Nayar believed that by putting employees first—doing everything they could to enable those people who bring real value to customers—the employees would serve customers better than ever before. The goal was to unleash the power of the bright minds in the firm so that they could align themselves with the customers’ challenges and become the customers enablers and facilitators. The goal was to develop partnerships based on transparency and trust that would create value for the customers.

Rather than merely saying that people were the firm’s most important asset, and mouthing the slogan of “Employees First”, Nayar set out to make it a reality. The book is a narrative account of the concrete steps he took to make it happen.

• He began by engaging in conversations. Rather than telling people what to do, he engaged in dialogues all across the organization. He didn’t come empty handed to discussions—he came with ideas, but then he stepped back and did his best to inspire conversation, and listen to what people were thinking and feeling, so that the managers and staff could understand and eventually own the idea.
• Realizing the need to enhance trust, he set out to make HCLT a radically more transparent organization. One of his first steps was to make the firm’s financial and performance data freely available to everyone in the organization. His idea was to show that the firm had nothing to hide and was willing to share both the good and bad, so that everyone could see what was going on. By and large, the change was successful: as people used the information to compare their own performance with that of others, and often worked harder to improve their own performance. True, some information leaked out and caused embarrassment, and some staff were demotivated by the information they saw. But on balance, change was massively positive.
• Another step was to establish an online forum where any employee could post any question and Nayar or one of his leadership team would answer. The questions and the answers were made available to everyone in the organization. The comments and questions came pouring in. The leadership team did not claim to know the answers when it didn’t, or say that it could fix something if it couldn’t. The result was fewer rumors flying around the firm. For a period, Nayar was concerned about the overwhelmingly negative tone of the incoming questions. But in time, he learned that the forum led to many face-to-face discussions among the employees, and inspired others in the organization to start trying to fix problems of which they had been unaware. By being open about what was wrong, the conversation gradually shifted to what could be done about it.
• Another step was to give employees a direct line of sight to what the customers were feeling. For instance, Nayar convened a meeting of their 300 most important customers, and had a conversation about the changes under way in HCLT and broadcast that conversation live to HCLT staff.
• A fourth step was a shift from a focus on delivering products and services to a focus on enabling the customers to improve their business results. In particular, there was a focus on having teams help customers compete in terms of time:

o   Order to cash: reducing the time from the moment of accepting an order to the receipt of payment.

o   Desire to hire: reducing the time from defining an open job to filling it.

o   Concept to manufacture: reducing the time from prototype to finished production unit.

• In order to implement his idea of “reverse accountability” in which managers were accountable to employees, the organization introduced the Smart Service Desk, in which employees could create a ticket whenever an issue arose. The ticket was assigned to the appropriate department and would be given a deadline for resolution. The system tracked its progress as it worked its way to solution. If the relevant executive did not resolve the issue within the specified time, the ticket was automatically setn to the executive’s manager, and so on up the line. The system is transparent since the employee could check the status of the issue at any time. The system was widely used, with over 30,000 tickets per month, in a firm of 30,000 employees. Once the system was running, the management was able to sort out the recurring problems and work on root causes with the goal of achieving a zero-ticket week.
• The next step was to reinforce the shift in management’s focus from establishing zones of control to establishing zones of influence by radically expanding 360-degree feedback. In addition to managers getting feedback from staff who reported to them, they also received it from anyone in the organization who had a view about their work. Any employee could choose to do a 360-degree evaluation of any manager they believed had an influence—positive or negative—on their ability to do their job, regardless of how long they had been with the firm or what their reporting relationship was with their manager. The process helped reinforce managers’ results-based influence rather than traditional structure-based zones of control.
• To widen responsibility for tackling firm-wide problems, Nayar established a CEO-discussion section on the intranet called My Problems, which dealt with the problems or questions that Nayar as CEO felt that he could not answer or resolve, such as how to improve the firm’s image with the IT rating agencies. Nayar was deluged with advice and he engaged in back-and-forth with contributors to arrive at solutions.
• To engage employees around their passions and beliefs and ethics, Nayar saw that he had to go beyond employee satisfaction. So the firm established an Employee Passion Indicative Count to identify the core values that are of most importance to people and that drive their potential to act passionately, personally and professionally, and therefafter established communities of passion, called Employee First Councils, organized around specific areas of passion. Soon enough, the business-focused communities were generating all kinds of ideas for HCLT’s business.
• Then Nayar decided to recast the role of the CEO by transferring some of the responsibility for setting strategy to the employees.  Instead of a pyramidal process directed from and approved by the top, instead three hundred managers prepared and recorded their strategic plans on an internal web portal and submitted them for review by another 8000 managers, both above them and below them in the hierarchy. Exposure to a wide audience resulted in higher quality plans, with greater depth, frankness and specificity. Discussion of the plans resulted in a massive expansion of organization-wide learning.

Nayar sees three reasons for transferring a good deal of the responsibility for managing the company to employees:

• Understanding: The CEO is too far away from the value zone to really understand it.
• Speed: The speed of thought and change and implementation gets suffocated in hierarchy.
• Complexity: The complexity of the knowledge and service economies is so great that no individual or company unit can understand it; instead the CEO’s role is one of enabling the people who do have the do what they are good at.

The CEO’s role shifts from being a crafter of strategy, a person who motivates by giving speeches, or being the one with the brightest ideas to being someone who enables people to excel, helping them discover their own wisdom, engaging fully in their work, and accepting responsibility for making change.

One problem with the book is of course its title, Employees First, Customers Second, which is misleading and unfortunate. Nayar’s actions did aim to reverse the idea of a traditional bureaucratic firm where employees are there for the good of the management and respond to their orders. He took steps to invert the pyramid so that the managers are focused on enabling the employees to serve customers better. That's not really putting customers second. If customers ever come second, then the firm is doomed. Despite the nutty title, the book is a valuable contribution to our understanding of the 21^st Century corporation.

 

 

How do you craft a compelling goal?

Management writers are unanimous that a key management function is to articulate a compelling purpose. Jim Collins calls it “big, hairy, audacious goal.” John Kotter says that the goal should be “desirable, feasible, focused, flexible and communicable.”

A firm needs a compelling purpose because, as Gary Hamel notes, “initiative, creativity and passion are gifts. They are benefactions the employees choose, day by day, and moment by moment, to give or withhold. They can’t be commanded.” Exhortations to work harder or ordering workers to love their customers or kill their competitors won’t induce people to give their very best. Managers need to articulate a purpose that is inherently self-motivating.

To see how to do that, let’s put ourselves in the shoes of an organizational strategist and examine the possible options for crafting a compelling purpose for an organization. One obvious wrong turning would be to propose, as Frederick Taylor implied, that the purpose of a firm, a project, or even work itself is to produce goods and services. As a goal, producing goods and services doesn’t get anyone’s juices flowing. It’s about mundane things and therefore deadening as a goal.

Another angle of attack would be to articulate the goal in terms of bigger things. Some firms have done this in the hope that if the thing is big enough, it will inspire enthusiasm. Thus, Google may offer to give people a chance to “change the world,” and GM may say that it is “reinventing the automobile.” The problem with this approach is that it may be difficult for people doing the work to see how such grandiose goals relate to what they do on a day-to-day basis.

Yet another approach would be to draw on the language of sports and aim to be “a winner.” Jack Welch did this famously in his goal to make GE number one or two in every sector it was involved in. However, when every firm is trying to be a winner, the ability of such a goal to inspire people on a long-term basis is questionable.

Nor would aiming to maximize shareholder value be likely to get people jumping out of bed in the morning with a spring in their step. Once the goal becomes making money for the company, then people start thinking about making money for themselves, and collaboration and creativity tend to fall by the wayside.¹

Or we could go in the opposite direction and formulate the organizational goal in terms of lofty, big-hearted ideals like beauty, truth, or love. These moral imperatives have aroused human beings to extraordinary accomplishments throughout the millennia. The problem with articulating a business goal in terms of such moral imperatives is that they usually have little to do with what the business is about. Cynicism sets in when the organization’s real goals turn out to be very different from the stated ideals.

Still yet another approach would be to point to the firm’s activities as a good corporate citizen (“Yes, the principal function of our firm is to make money, but we also care for the environment, make charitable contributions, and undertake other worthwhile social activities”). The difficulty with this approach is that as long as the primary goal is to make money, these acts of corporate citizenship are likely to be seen both internally and externally as window dressing. And window dressing is unlikely to bring out the very best in people.

Strategists faced with these issues may despair of ever being able to articulate a goal that is simultaneously compelling, realistic, and unlikely to breed cynicism. Yet the problem is not as insoluble as it looks. In fact, the answer is so obvious that it is actually staring us in the face. Once we began to think of articulating the organizational goals in terms of customers and stakeholders, the solution is simple.

In 1973, Peter Drucker provided a clue as to where to look: “There is only one valid definition of business purpose: to create a customer. . . . It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or for a service converts economic resources into wealth, things into goods. . . . The customer is the foundation of a business and keeps it in existence.”¹⁶

The shift in focus from things to people is a first step, but by itself, it’s not enough to constitute a compelling goal today. In 1973, it might have been enough for an organization to have a customer—someone who is willing to pay for the good or service. In today’s more intensively competitive world, merely having a customer who is willing to pay for the good or service is a precarious existence for any firm. The key to an enduring future is to have a customer who is willing to buy goods and services both today and tomorrow. It’s not about a transaction; it’s about forging a relationship. For this to happen, it isn’t enough that the customer be passively satisfied. The customer must be delighted.

Delighting customers is not only a requirement of business survival; it also offers a solution to the dilemma of how to articulate a morally worthwhile and inspiring goal that is closely related to what the organization does. That’s because delighting other people is inherently motivating. It leads to an understanding of the meaning of work, which relates to people, not things.

The meaning of work isn’t in the bread that we’re baking: it’s in the enjoyment the customers get from eating the bread.

The meaning of work isn’t in the words the actor is reciting; it’s in the response of the audience to those words.

The meaning of work isn’t in the toy that we’re putting together; it’s in the smile on the face of the child.

The meaning of work isn’t in the bricks and mortar of the house we’re building; it’s in the happiness we generate in a family with a house that precisely meets their needs.

The meaning of work isn’t in the words or the musical notes of the song that we’re writing; it’s in the feeling of yearning we generate in the heart of the listener.

The meaning of work isn’t in the paper and print of the insurance policy we’ve issued; it’s in the security that we’re providing to the spouse and the children.

The meaning of the boutique hotel that we’re running isn’t in the rooms and the physical facilities; it’s in the feeling of being at home away from home that we generate in people who stay there.

The meaning of the software we’re coding doesn’t lie in bits and bytes; it’s in the cool things that users can do with the software.

The meaning that we see in work resides in the responses of the people for whom we are doing the work.

A key reason that traditional management is so dispiriting and often devoid of meaning is its focus on things and systems ahead of people. In such a world, workers find it difficult to see the point of what they are doing. By contrast, once the focus is on providing a clear line of sight—and continuously updated information—as to whether and to what extent clients are being delighted by what is being done, the meaning of work becomes obvious.

Articulating the goal of an organization as one of delighting customers changes the relationship from one of commercial manipulation to human interaction. It means a shift from thinking about how to manipulate customers into spending money on the organization’s goods and services toward considering how we could do something that these people would genuinely enjoy, as a result of which, incidentally, money might change hands. The adjustment is subtle but fundamental. Customers appreciate their needs being attended to.

Even better, delighting clients as a goal also makes dramatic inroads on the problem of worker disgruntlement: delighting clients is an inherently inspirational goal for people doing the work, because delighting other people intrinsically appeals to our hearts. Thinking about and helping other people is central to ethics.

To top it off, delighting clients also makes hard-headed business sense. By focusing activity on what delights clients and jettisoning anything that is irrelevant to that goal, work is tightly linked to accelerating innovation and attaining higher productivity.

To learn more about radical management, go here:

http://www.stevedenning.com/Books/radical-management.aspx

A New Way To Communicate (Truly)

You’ve probably seen those artists at conferences, who work at the back of the room and put together a fascinating set of sketches of what was being discussed during the conference. After the session is over, you go over and have a look at it and you can see the threads of the conversation often amusingly depicted on a large board. But there’s a lack of connection between the experience of listening to the talk and then later viewing the drawing. Well, what if the artist was at the front of the room? And what if the sketches were being done in real time, perfectly in sync with what the speaker was saying? You would have a new way to communicate.

That’s what the Royal Society of Arts in London has done with a series of talks. What’s interesting is that they have taken a fairly slow moving fifty minute talk, and turned it into a fast-paced mesmerizing ten minute barn-burner. Astonishing!

Watch the slow-moving 51 minute version of Jeremy Rifkin talking about the empathic civilization here.

Watch the riveting 10 minute version here.

A colleague wrote to me about this and commented: “Nothing new here—been doing it for years.” Now, I've seen people illustrating meetings live, many times. But I haven't seen it done in a video where it is so tightly linked to exactly what is being said. This is obviously only possible to achieve by doing the drawings separately and then integrating them into a single tightly edited video. The tight editing is another key part of it, reducing a wandering 50 minute talk into 10 minutes of tight argument. What is new to me is putting all these elements together. If there are any earlier examples of this on the web, I would be interested in seeing them.