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Streamline Training & Documentation
Streamline Training & Documentation
Saturday, February 27, 2010
Alfred Sloan's Memoir X: Summing Up
In Chapter 23 of My Years with General Motors, Alfred Sloan summarizes one of his central convictions concerning management of a multi-division corporation: It has been a thesis of this book that good management rests on a reconciliation of centralization and decentralization, or "decentralization with co-ordinated control."
Eash of the conflicting elements brought together in this concept has its unique results in the operation of a business. From decentralization we get initiative, responsibility, development of personnel, decisions close to the facts, flexibility — in short, all the qualities necessary for an organization to adapt to new conditions. From co-ordination we get efficiencies and economies. It must be apparent that co-ordinated decentralization is not an easy concept to apply. There is no hard and fast rule for sorting out the various responsibilities and the best way to assign them. The balance which is struck between corporate and divisional responsibility varies according to what is being decided, the circumstances of the time, past experience, and the temperaments and skills of the executives involved.
The concept of co-ordinated decentralization evolved gradually at General Motors as we responded to tangible problems of management. As I have shown, at the time its development began, some four decades ago, it was clearly advisable to give each division a strong management which would be primarily responsible for the conduct of its business. But our experience in 1920-21 also demonstrated the need for a greater measure of control over the divisions than we had attained. Without adequate control from the central office, the divisions got out of hand and failed to follow the policies set by corporation management, to the great detriment of the corporation. Meanwhile, the corporation management was in no position to set the best policies, since it was without appropriate and timely data from the divisions. A steady flow of operating data, for which procedures were later set up, finally made real co-ordination possible.
[. . .]
Much of my life in General Motors was devoted to the development, organization, and periodic reorganization of these governing groups [governing committees and policy groups] in central management. This was required because of the paramount importance, in an organization like General Motors, of providing the right framework for decisions. There is a natural tendency to erode that framework unless it is consciously maintained. Group decisions do not always come easily. There is a strong temptation for the leading officers to make decisions themselves without the sometimes onerous process of discussion, which involves selling your ideas to others. The group will not always make a better decision than any particular member would make; there is even the possibility of some averaging down. But in General Motors I think the record shows that we have averaged up. Essentially this means that, through our form of organizatipon, we have been able to adapt to the great changes that have taken place in the automobile market in each of the decades since 1920.
Alfred Sloan's Memoir III: Management of Cash Flow
Until Alfred Sloan and his senior management colleagues stepped into the breach, handling of cash flow at GM was a shambles. For instance, in Chapter 8 of My Years with General Motors, Sloan reports: The way cash was handled at that time [1920] is almost unbelievable. Each division controlled its own cash, depositing all receipts in its own accounts and paying all bills from those same acounts. Since only the divisions sold products, none of these cash receipts flowed directly to the corporation itself. We had no effective procedure for getting cash from the points where we happened to have some to the points where we happened to need some. When the corporation, as an operating company, had to pay dividends and taxes, and such items as rent, salaries and other expenses of the general staff, the usual procedure was for the treasurer to request cash from the divisions. That was not so simple as it sounds, however, for the divisions, operating independently, tried to keep their cash balances high enough to satisfy their own peak requirements. Therefore, when they had more cash than they needed at the moment, they were not eager to turn it over to the corporation.
I remember that Buick, for example, at that time was very loath to give up its cash. This profitable division was, of course, the most prolific source of cash for the corporation, and long experience had made Buick's financial staff highly adept at delaying its report of the cash they had on hand. Buick made a practice of maintaining large cash balances in its factory sales branches. The amounts of these balances were not ascertainable at headquarters until Buick had submitted its monthly financial statement for the division as a whole — and this was usually a month or two after the fact. When the corporation needed cash, the treasurer, Meyer Prentis, would try to guess how much Buick actually had and how much of it he could probably get from them. Then he would go to Flint, discuss whatever other questions might be outstanding between Buick and headquarters, and at last casually bring up the subject of cash. Buick's financial people would invariably express surprise at the size of Mr. Prentis' request and occasionally would try to resist the transfer of such a large amount. Naturally, this cat-and-mouse game did not result in the most efficient utilization of funds, especially when some divisions had more operating cash than they needed, at the same time that other divisions were short of operating cash.
In 1922 we changed all this by setting up a consolidated cash-control system. This was a new concept for a large corporation. Depository accounts were established in some one hundred banks in the United States, and all incoming receipts were deposited in these accounts to the credit of General Motors Corporation. All withdrawals from them were administered by the central Financial Staff; the divisions had no control over cash transfers from these deposit accounts.
Generating Business Value from IT III: A Case Study
As a way of bringing together the concepts discussed in my two previousposts on generating business value from IT, I'd suggest reading a December 2007 case study (pdf) by Jeanne Ross, director of the MIT Sloan School's Center for Information Systems Research and Cynthia Beath, a professor emerita at the McCombs School of Business of the University of Texas at Austin.
The case abstract gives this overview of the case:
Pacific Life is a diversified financial services company with a history of autonomous business units. Pacific Life had five independent divisions, including Life Insurance, Annuities and Mutual Funds, and Investments. These divisions served different customers and responded to different regulatory and market requirements. Pacific Life executives embrace decentralization as the best structure for capturing excellence in the individual businesses, so they are willing to sacrifice some potential efficiencies. But while they are usually willing to forego the benefits of a more centralized organization structure, they are not willing to assume any unnecessary risks. This case describes how the company governs shared IT services and enterprise risk management to limit its risk exposure while reaping the benefits of decentralization.
Cameron Cosgrove, the vice president for IT in the Life Insurance Division, explains how Pacific Life decides which IT services will be centralized and which will be located in the business divisions:
Where the divisions have IT requirements that are unique to their core business and they need flexibility to have that independence to just GO, we've put those services into the divisions. Where the need is common and can be shared and the consensus is it's a commodity, and competitive advantage isn't really going to be derived from there, then the focus becomes running that service like a utility with low cost and reliability being the drivers — that's what ITS [the group providing IT shared services] is supposed to do for the divisions.
A key part of the decision-making structure is a set of nine Enterprise Architecture Groups (EAGs), whose role, as spelled out in a Pacific Life internal document, is to "create economies of scale, reduce support, maintenance and training needs, improve quality while reducing complexity, and optimize reusability throughout the company." Ross and Beath explain that "EAGs prioritized and scheduled initiatives to improve, upgrade or harmonize ITS's technology assets or services ... [and] secured funding for ITS-related initiatives."
Providing overall guidance is Pacific Life's Information Technology Council (ITC), which approves "the operating budget for ITS, prioritizing any projects that ITS proposed to improve its services, along with other enterprise-wide initiatives that required ITS to make infrastructure investments or process changes." A key responsibility for the ITC is implementation of "policy decisions flowing from Information Security, BCP [Business Continuity Planning], Compliance and Audit and their respective steering committees that had implications for ITS. These policies often drove the need for strategic ITS initiatives."
In sum, "Together the ITC and EAGs generated some of the benefits of IT centralization without centralizing all of Pacific Life's IT assets."
Generating Business Value from IT II: Risk Management
Yesterday's post discussed one aspect of optimizing a company's IT investment, namely, choosing a preferred operating model, which in turn determines IT integration and standardization requirements and, therefore, critical IT and business process capabilities.
MIT's Center for Information Systems Research (CISR), the source of the research on matching IT to a company's operating model, also pushes for careful attention to IT risk management.
Access — providing information to the right people, and keeping it out of the hands of people who shouldn't have it
Accuracy — ensuring information is accurate, timely, and complete
Agility — making needed business changes with acceptable cost and speed
Disciplines for managing risk
Establishing a sound foundation — The foundation is a base of infrastructure, applications and supporting personnel, which is well-structured well-managed and, most important of all, no more complex than absolutely necessary.
Establishing a sound risk governance process — I.e., procedures and policies that provide an enterprise-level view of all IT risks.
Establishing a risk-aware culture — I.e., making sure that everyone has appropriate knowledge of risk, and that non-threatenting discussions about risk are the norm.
Westerman and Hunter provide a list of questions to help managers assess their company's current risk profile. The questions are divided into executive-level and operational-level items. For executives the questions help "convert technical issues into business issues, and IT impacts into business impacts." For operational managers, the questions help in analyzing details of the dimensions and costs of particular risks. Answering the questions ensures that managers at all levels understand "the meaning, potential consequences and relative importance of IT risks."
The questions are organized aaccording to the four categories of IT risk:
Availability
Executive-level questions
Which of our business processes are most dependent on IT?
What consequences are likely if the systems are unavailable?
Operational-level questions
What is the cost of a particular process being down for an hour? A day?
What are our procedures to recover from interruption?
Access
Executive-level questions
What categories of information would be most damaging if released? For example, what is the likely impact of loss or theft of customer data? Product data?
What categories of information are most important for our firm's daily success or failure?
Operational-level questions
How do we control, protect and monitor access to these types of information?
How can we ensure that the right people get access to this information as needed (and then lose access when done)?
Accuracy
Executive-level questions
Which processes and categories of information carry the highest consequences for inaccuracy (e.g., inventory information, financial information, etc.)? What would the firm lose if it could not maintain Sarbanes-Oxley certification, for example?
What constraints has inaccurate or incomplete information placed upon the organization?
What could the firm do if it had better information in some area? For example, how much would the company save if it had better information on global customers?
Operational-level questions
How can we improve the way that we gather or manage these types of information?
How can we create or obtain valuable new types of information?
Agility
Executive-level questions
How well does IT currently deliver on new projects, and what does that mean for what the firm is able to do in the future?
What major strategic changes (new product launches, new geographies, mergers and acquisitions, global cost-cutting, etc.) are foreseeable?
What opportunity costs are entailed in missing a product launch (or other strategic move) by a month due to IT issues?
Operational-level questions
How can managers in IT and business units improve project definition and delivery?
What processes, skills and supporting systems are needed to support those changes?
How should the IT foundation change to improve agility?
Once the current risk profile has been identified, using questions such as those above, managers can proceed to implementing the three core disciplines of effective risk management, taking steps that are in line with agreed priorities and previously analyzed tradeoffs.
John Shook, an industrial anthropologist who worked with the NUMMI joint venture of Toyota and General Motors from its inception, has written an illuminating article about cultural change at the NUMMI factory in Fremont CA. The article appears in the Winter 2010 issue of the MIT Sloan Management Review.
Shook's model of cultural change is a close cousin of that put forward by Edgar Schein, an emeritus Sloan professor who specializes in organizational development. The Shook and Schein models are diagrammed in the graphic below.
The arrows in the graphic represent old and new thinking concerning the process of cultural change.
The traditional view, represented by the upward arrows, is that you start by getting people to change their thinking about how it's proper to behave, and they then proceed to make the desired behavioral changes. The Schein/Shook view, represented by the downward arrows, is that you start by getting people to change their behavior and, in due course they adjust their thinking about what sort of behavior is appropriate.
In Schein's model, the initial step is to change "cultural artifacts" — "the observable data of an organization, which include what people do and how they behave." This leads to a change in people's values and attitudes and, ultimately, to a change in the "pattern of shared basic assumptions ... that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to [solving] problems."1
In Shook's very similar model, managers initiate the process of cultural change by defining the actions and behaviors they desire, providing training, and designing the work processes that are necessary to reinforce those behaviors. This leads to a change in people's values and attitudes and, ultimately, to a change in organizational culture.
Shook describes how NUMMI's adoption of Toyota's system of requiring workers to immediately address any problem, even if that means stopping the production line until the problem is fixed, quickly produced a new culture of employee concern for quality. Previously, the factory had been plagued by worker-management friction and high absenteeism, and quality had been notoriously poor.
In Shook's view,
What changed the culture at NUMMI wasn’t an abstract notion of “employee involvement” or “a learning organization” or even “culture” at all. What changed the culture was giving employees the means by which they could successfully do their jobs. It was communicating clearly to employees what their jobs were and providing the training and tools to enable them to perform those jobs successfully.
The key take-away Shook offers at the conclusion of his article is that the "tools of the Toyota Production System are all designed around making it easy to learn from mistakes. Making it easy to learn from mistakes means changing our attitude toward them," i.e. skipping the finger-pointing and instead nurturing a culture of alert problem solving by empowered amployees.
__________ 1 Edgar Schein, "Organizational Culture and Leadership" (1993) in Classics of Organization Theory, Jay Shafritz and J. Steven Ott (eds.) (Harcourt College Publishers, 2001), pp. 373-374.
Productivity is in the news these days as people take note that it is rising impressively in the US even as unemployment remains high. What lies behind the ability of companies to maintain needed output levels with fewer employees?
One known source of productivity gains is investment in information technology. But some companies do markedly better in realizing productivity gains from IT than others. Why?
Erik Brynjolfsson, a professor at MIT's Sloan School of Management and Director of the MIT Center for Digital Business, and Adam Saunders, a lecturer at UPenn's Wharton School, have been investigating this question. The answer they offer in a recently published book is that
companies with the highest level of returns to their technology investment are doing more than just buying technology; they are inventing new forms of organizational capital to become digital organizations. These innovations include a cluster of organizational and business-process changes, including broader sharing of information, decentralized decision-making, linking pay and promotions to performance, pruning of non-core products and processes, and greater investments in training and education.
You can access the introduction and first chapter of Brynjolfsson and Saunders' book here.
[Earlier reference to the points Brynjolfsson and Saunders make in their book can be found in a post from July of last year. Brynjolfsson's views (along with those of co-auther Andrew McAfee) concerning measurement of economic activity that improves on the standard GDP measure are discussed in a post from last month.]
Back in June I wrote a post about David Kennedy's approach to deterring criminal offenders, who had not yet perpetrated violent crimes, from continuing their illegal activities. Now, thanks to a book review, also dating from June, I've become aware of an approach to reducing recidivism among jailed offenders that seems to be attracting increasing attention in the US after being used successfully in San Francisco since 1997.1
Schwartz is a program administrator in the San Francisco Sheriff's Department who co-founded the department's Resolve to Stop the Violence Project (RSVP), along with Assistant Sheriff Michael Marcum and Captain Rebecca Benoit.
Participants in the RSVP Expressive Arts program learn about replacing the macho image of superiority that contributed to their violent behavior, with a more humane view of the male role in society. The theater program also helps participants learn ways of expressing their feelings and needs in a nonviolent manner. (sunnyschwartz.com)
RSVP is a version of what has come to be known as restorative justice, which is most simply defined as:
all approaches to crime that attempt to do justice by repairing the harm crime causes.2
RSVP's founders made a point of designing the program based on input from an advisory committee made up of representatives of a broad cross-section of law enforcement and community stakeholders, including crime victims. The program was the 2004 recipient of the Innovations in American Government Award, presented by the Ash Institute for Democratic Governance and Innovation of Harvard's Kennedy School of Government.
You can get a quick overview of RSVP in the 3:08 video below.
A longer account of the program is offered in the 28:23 video below, which ran on PBS in 2005 as part of the Visionaries series hosted by Sam Waterston.
Among those interviewed are Sunny Schwartz; Michael Hennessey, Sheriff of San Francisco; Ronald Rosado, a Deputy Sheriff working in the dormitory where the RSVP program is based; George Jurand, RSVP Program Coordinator and Manager; Sheryl Corke, Principal of Five Keys Charter School (see below); Teresa Camajani, a history teacher at Five Keys; Delia Ginorio, Survivor Restoration Coordinator; and Jean O'Hara, a former Victim Impact Coordinator, who lost her daughter, son-in-law, and grandson to murder.
There is also footage of unnamed inmates participating in RSVP discussions, including a victim impact presentation by Jean O'Hara.
Using data from a two-year period beginning nine months prior to the inception of RSVP, and continuing for fifteen months after its launch, James Gilligan, then a visiting professor of psychiatry, criminology, and public policy and practice at the University of Pennsylvania, and Bandy Lee. a clinical professor of law and psychiatry at Yale, evaluated the program's effects on inmate behavior. Their hypothesis:
... the dormitory in which violence-prevention skills are taught through RSVP would create a cultural environment that would generate fewer violent incidents than the dormitory without such a programme, [which] turned out to be the case.3
The effect on the frequency with which ex-offenders were re-arrested for violent crimes was also positive: Among jail inmates who took part for a full sixteen weeks, the reduction was over 80% for the first year after release, compared to a control group of non-participants.4
Gilligan and Lee argue that
The seeds of a change in [the in-jail] culture can be seen in some of the principles that characterized the in-house version of RSVP: (1) redefining the male-role image of superiority; (2) holding oneself accountable rather than minimizing or blaming; (3) offering peer-directed guidance and having avenues for promotion; (4) verbalizing rather than acting out: (5) expressing emotions as needs; and (6) offering intimacy rather than offence. ... Finding violence to be not only an ineffectual but counterproductive means of gaining respect in [the] new culture, the inmates would quickly search for other means, which facilitated their compliance and adaptation.
I was particularly interested in the nature of the integrated pre- and post-release services provided to inmates to assist in their transition back into the community, services which bear a not surprising resemblance to those offered in various programs around the country directed at populations with employability barriers.5
The services include:
Core RSVP curriculum designed to change attitudes, beliefs and behaviors — includes male role re-education (using the Manalive curriculum), victim impact presentations, drug and alcohol recovery, theater, and release planning (further details below).6
A propos of the victim impact presentations, Gilligan and Lee comment that "we have been astonished by ... how little awareness most of these men had had as to how much power they had to hurt others, until they listened to ... victims describe their own reactions to being victimized by others." 7
Community meetings — held weekly in the RSVP dormitory to allow participants to discuss day-to-day issues they are coping with.
Loss of Innocence class — participants can explore and address trauma and victimization they experienced in childhood.
Fatherhood curriculum — a twelve-week program in which participants "discuss the father's role in a child's life, the importance of providing children with a consistent and supportive environment, and issues children face as they grow up in a single parent's home."
Young Adult class — inmates twenty-eight and under address their violence, drug dependency, and recidivism problems.
Creative writing — participants contribute to the dormitory's newsletter, with the aim of strengthening writing skills and exercising creativity.
Transfer planning — produces an exit plan spelling out the steps and tools the inmate will continue to employ in order to maintain a life free of violence and substance abuse.
The transfer planning includes plans for restoration of victims and the community. For details of RSVP's services for crime victims and survivors, see here. For services to communities, see here.
Post-release programs — designed to assist ex-offenders in maintaining behavior changes learned in the in-jail program. Include the Post-Release Education Program (PREP), which continues, at least for the first year, participation in Manalive discussion groups and weekly facilitated support groups. PREP also includes a Life Skills program with three components, the first dealing with job readiness, exploration of career opportunities, and apprenticeship programs; the second involving resume preparation and practice employment interviews; and the third covering tracking of ex-offenders' progress and ongoing support with work-related issues. Participants get counseling and support in such areass as substance abuse avoidance and parenting.
Internship Program — for select participants, a four- to six-month training program that prepares them for employment as peer counselors in the jail or at human services agencies.
Community advocacy programs — ex-offenders can give back to the community in such ways as leading Manalive groups, performing in theater programs for the public, counseling youth groups, and engaging in victim restitution programs.
I'll wrap up with a summary comment from Sunny Schwartz, et al. that indicates why emulation of RSVP elsewhere is important:
As an affirmative crime prevention tool that actively engages inmates, RSVP has been successful in giving participants, collaborators, and the community a greater understanding of the nature and dynamics of violence, including the spectrum of abusive behavior, the importance of gender-role training, the significance of learned behavior, the methods for unlearning violence, and the criminal implications and consequences of violence.8
__________ 1 Helen Epstein, "America's Prisons: Is There Hope?" The New York Review of Books, Vol. 56, No. 10 (June 11, 2009).
As an example of the spread of the RSVP program, see this report by Kate Stone Lombardi in the July 6, 2008 edition of the New York Times, which describes the introduction of the RSVP approach to Westchester County.
2Restorative Juvenile Justice: Repairing the Harm of Youth Crime, Bazemore and Walgrave (eds.) (Criminal Justice Press, 1999).
3 James Gilligan and Bandy Lee, "The Resolve to Stop the Violence Project: Transforming an In-house Culture of Violence through a Jail-Based Programme," Journal of Public Health Vol. 27, No. 2 (June 2005b), pp. 149-155.
4 James Gilligan and Bandy Lee, "The Resolve to Stop the Violence Project: Reducing Violence in the Community through a Jail-Based Initiative," Journal of Public Health, Vol 27, No. 2 (June 2005a), pp. 143-148.
5 Some of these programs have been the subject of previous posts. See here, here, here, and here.
6Sunny Schwartz, Michael Hennessey, and Leslie Levitas, "Designing: Not Business as Usual," American Jails, Jan-Feb 2005, pp. 10.
As a follow-on to my recent post dealing with Nobel laureate Oliver Williamson's work on the boundaries of the firm, I'd mention that you can get a good idea of the state-of-the-art in the study of organizational economics by looking through the reading list for a course on that subject offered jointly by MIT and Harvard.
Uses of organizational economics within firms, between firms, and beyond firms (Robert Gibbons)
The reading list includes both foundational material, e.g., Ronald Coase's classic paper on "The Nature of the Firm" from 1937; and contemporary material, e.g, chapters from Baker and Gibbons' forthcoming compilation, The Handbook of Organizational Economics.
From Part III, Chapter III, of Adam Smith's Theory of Moral Sentiments. . . The animosity of hostile factions, whether civil or ecclesiastical, is often still more furious than that of hostile nations; and their conduct towards one another is often still more atrocious. What may be called the laws of faction have often been laid down by grave authors with still less regard to the rules of justice than what are called the laws of nations. The most ferocious patriot never stated it as a serious question, Whether faith ought to be kept with public enemies? — Whether faith ought to be kept with rebels? Whether faith ought to be kept with heretics? are questions which have been often furiously agitated by celebrated doctors both civil and ecclesiastical. It is needless to observe, I presume, that both rebels and heretics are those unlucky persons, who, when things have come to a certain degree of violence, have the misfortune to be of the weaker party. In a nation distracted by faction, there are, no doubt, always a few, though commonly but a very few, who preserve their judgment untainted by the general contagion. They seldom amount to more than, here and there, a solitary individual, without any influence, excluded, by his own candour, from the confidence of either party, and who, though he may be one of the wisest, is necessarily, upon that very account, one of the most insignificant men in the society. All such people are held in contempt and derision, frequently in detestation, by the furious zealots of both parties. A true party-man hates and despises candour; and, in reality, there is no vice which could so effectually disqualify him for the trade of a party-man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties. To them, it may be said, that such a spectator scarce exists any where in the universe. Even to the great Judge of the universe, they impute all their own prejudices, and often view that Divine Being as animated by all their own vindictive and implacable passions. Of all the corrupters of moral sentiments, therefore, faction and fanaticism have always been by far the greatest.
C.K. Prahalad on Managing in a Volatile Market Environment
You can get an overview of the thinking of C.K. Prahalad (Ross School of Business at the University of Michigan) concerning how firms should gird themselves to deal with a volatile market environment by reading the one-page column he wrote for the September 21 issue of BusinessWeek.
Prahalad's central point is that in today's environment firms must structure themselves so they are able to operate with agility — and they must do so in a way that, however paradoxical it may sound, is compatible with maintaining a consistent strategy.
When you read the column, you will see the steps Prahalad would have firms take to protect themselves from the risks associated with volatility, such as conserving cash, converting fixed costs to variable costs, and focusing on core competencies. I would call particular attention to his comments on the type of human resource management that is required in order to have a flexible workforce:
To better handle the constant project turnover, employees are cross-trained in many different skills. This requires an arsenal of training programs. Employees are regularly tested, and the hallmark of the best of them is the ability to learn quickly.
Having this much flexibility in a staff, and within each staffer, forces these companies to equip their managers with instant access to data on what each employee can do and where they are — physically and in terms of the finish date of their current assignment. All employees know they will be moved from one assignment to another, and in many cases across the world. It becomes the cultural expectation.
There is a clear affinity between what Prahalad is saying here, and the nature of needed employee capabilities and qualities in a "post-Fordist" organization discussed in last Tuesday's post.
An earlier post discussed the work of Nobelist Daniel Kahneman, one of the fathers of behavioral economics, a burgeoning area of research.
Behavioral economics departs from certain fundamental assumptions of neoclassical economics, notably the assumptions that
People invariably make rational decisions.
Markets are self-regulating.
In an article in the July-August 2009 issue of the Harvard Business Review, Dan Ariely, a professor of behavioral economics at Duke University, highlights findings from his research of particular significance for business managers.1
In his article, Ariely is looking to help managers "defend against foolishness and waste" that result from irrational behavior. He focuses on two behavior patterns that he has studied experimentally:
Cheating — People on teams tend to engage in mutually reinforced departures from ethical behavior. Managers need to counter this tendency by reminding teams of the organization's ethical requirements, a practice that has been shown to significantly reduce cheating.
Revenge — "If someone who works for you upsets a customer — even in ways unrelated to the job — you will very likely pay the price. Even the smallest transgression on the part of an employee can ignite the instinct for strong revenge against the employer, regardless of who is at fault."
Experiments show that apologizing can significantly dampen the impulse to wreak revenge (assuming the transgression is not repeated to such a degree that the customer decides the apology is insincere). Companies can also monitor sites like Twitter to pick up complaints and respond to them promptly.
Ariely recommends that organizations invest in behavioral experimentation because doing so "can radically improve decision making and lessen risk." He offers several examples, such as running a pricing test for a new product.
Ariely explains that "the goal [of such a test] is not simply to find out the optimal price but also discover how people arrive at a decision to buy at that price." He goes on to caution that a company should "consider also how the introductory price could influence the perception of value for a long time." Think iPhone pricing, which started at $600 and has since come down dramatically. __________ 1 For an extended treatment of Ariely's work, you can see his 2008 book, Predictably Irrational: The Hidden Forces that Shape Our Decisions.
Continuing my periodic citation of work by Jeffrey Pfeffer (most recently here), one of my favorite business academics, let me recommend reading the two-page piece he has in the July-August issue of the Harvard Business Review.
"Shareholders First? Not So Fast ..." deals with today's renewed appreciation of the value of considering all stakeholders in business planning and decision-making. Pfeffer argues:
In the 1950s and 1960s, the stakeholder was king. CEOs saw their role as one of balancing the interests of the various groups that touched their companies — customers, employees, suppliers, shareholders, and the community at large. This reflected the executives' sophisticated understanding not only of their role as stewards of the valuable resources entrusted to them but also of their own enlightened self-interest: Each of these groups was essential for organizational success. What was true then is even more so today, in an age of knowledge work, outsourcing, global supply chains, and activist interest groups.
Pfeffer goes on to say that
opinions on deregulation, finance, time horizons, and the wisdom of corporate leaders are all shifting, and the logic for putting the creation of shareholder wealth ahead of the creation of stakeholder-value is rightfully under fire.
To build profitability and productivity, enlightened managers are
implementing high-commitment work practices. These include investing in training, decentralizing decision making, and having pay be contingent on organizational, not just individual, performance. Other sources [of research] show the benefits companies reap from customer loyalty and high levels of customer satisfaction.
Pfeffer points to the increased prominence of balanced scorecards and other assessment tools as evidence that companies using such tools recognize the suboptimality of focusing exclusively on financial metrics.
Of particular interest to people in the training field, are Pfeffer's repeated references the the importance of employee training in implementing strategies that embody a balancing of stakeholders' interests.
A friend of mine, Bruce Fleming, who teaches English at the Naval Academy in Annapolis, recently posted an article at SoldiersForTheTruth.org that tries to prepare incoming plebes and cadets for what their years at one of the US military academies will actually be like.
Based on twenty-two years of direct observation at Annapolis, Fleming argues that the approach to education adopted by the military academies drains students of the idealism with which they enter. Students are subjected to a high degree of counterproductive frustration that could and should be substantially reduced, to be replaced by methods that build enthusiasm and motivation for performing well ...
... and professionally.
I benefited from reading the entire article, but here I'll just cite one passage that struck me because it alludes to one of my pet ideas, namely that people often lack a clear understanding of what "professional" behavior actually amounts to.
In discussing the start of a plebe's first academic year (which follows Plebe Summer), Fleming, addressing incoming plebes directly, says:
Simply by keeping your eyes open, you realize that many of the first-class [seniors] you were prepared to idolize are goof-offs, looking for ways to get out of doing things rather than being fired up with The Spirit. Some may be downright unprofessional. Their sloppiness may be in their uniforms, their rooms, their attitude, or their people skills. Yet so long as they pass their inspection and don’t get caught doing whatever it is they’re doing, they seem to think it’s okay. They get away with it. And it doesn’t seem to bother them. You’ll realize that people here aren’t interested so much in being good as in looking good. This will be a huge blow to your idealism, which has all the intensity of an 18-year-old eager to take on the world. How can they lecture you on not being “professional” when they’re so lax themselves?
Clearly, a goodly contingent of the soon-to-graduate first-class students have yet to internalize the notion that a professional, among other things, is a person who has the discipline to practice what he/she preaches. Instead, in Fleming's view, all too often the impact of the Naval Academy culture is creation of passive aggressive behavior that is anything but professional.
In the "Bottom line" section of his article, Fleming sums up:
Mostly you’ll learn to put your chin down and survive. If you just hang on, it’ll all be over. Midshipmen are constantly counting down to something: the next vacation, the end of the semester, Herndon, graduation. Because you get zapped for everything you do, after a while you’ll cease looking for ways to be pro-active. It’s rare to hear midshipmen enthusiastic about an academic or military challenge — unless they make it themselves.
That’s what you have to “get” about Annapolis: it has lots of opportunities, but despite our rhetoric of “ship, shipmate, self,” the opportunities aren’t collective, they’re individual. Take advantage of everything offered, accept every new challenge — vow to become a leader. On your own, I mean, because in my view that’s the only way anybody ever became a leader. Namely, because s/he decided to become one.
Paul Levy, the President and CEO of Beth Israel Deaconess Medical Center in Boston, maintains a blog he calls "Running a Hospital." One of today's posts reproduces a write-up by two employees describing how overdosing a patient was avoided, and further, how the root cause of the near overdose was identified and corrected.
As you can see from reading the post, Beth Israel extracted two main lessons from the near-miss:
Even though an automated medication dispensing machine reduces the risk of mistakes in administering meds, it is still necessary for a human being at the bedside to doublecheck that the medication picked by the machine is correct.
When a near-miss occurs, all interested parties must be notified so that unwitting repetition of the problem is forestalled. Beth Israel has a safety reporting system into which personnel are expected to enter the details of all adverse incidents. Those monitoring the incidents can then see any trends that suggest a systematic weakness that needs to be fixed.
Since hospitals, like the military, are literally dealing with issues of life-and-death, they have strong incentives to consciously and consistently implement effective operating practices. Thus, the best hospitals serve as good models for any organization looking for specific ways to strengthen its own culture of excellence.
PS. You can watch a video to hear Levy talking at a 2007 conference in the Netherlands about how to run a hospital, how to use new media, and reasons for an executive to blog.
For a straightforward approach to allowing employees scope for exercising their intelligence and creative talents, while controlling risks associated with empowerment, you can look to the "levers of control" framework put forward by Robert Simons, a professor at Harvard Business School.
Simons recommends adopting four types of control system so that employees can "initiate process improvements and new ways of responding to customers' needs — but in a controlled way." The four types of control system are:
Diagnostic control systems — The traditional approach of checking performance against plan by monitoring critical performance outcomes, such as sales and profits.
Belief systems — Communication of your company's core values and its mission in a way that inspires employees' commitment and motivates them to "search for new ways of creating value." Simons notes, "In the absence of clearly articulated core values, [employees] are often forced to make assumptions about what constitutes acceptable behavior in the many different, unpredictable circumstances they encounter."
Boundary systems — Ground rules for operations, and limits on the types of opportunities that employees are allowed to pursue. Simons argues that empowerment only works if you refrain from making lots of rules about what employees must do, and instead specify what they may not do. For instance, departures from ethical behavior should be clearly verboten. A company will probably also want to specify types of business it does not want to get involved in (perhaps because of lack of needed competencies), and/or types of customers it does not care to serve. Simons argues, "Boundary systems are especially critical in those businesses in which a reputation built on trust is a key competitive asset."
Interactive control systems — The "formal information systems that managers use to involve themselves regularly and personally in the decisions of subordinates." In practice, this means regular face-to-face discussion between senior managers and subordinates to assess emerging information and new ideas that may or may not indicate a need to revamp the company's strategy and action plans. Managers are looking to "identify specific vulnerabilities, opportunities, and the source of any problems that require proactive responses." The sorts of questions to explore are What has changed since our last forecast? Why? What are we going to do about it?
Note that the combination of belief systems and boundary systems effectively define the domain within which employees are encouraged to actively seek profitable innovations.
Xavier de Souza Briggs on "Getting Things Implemented"
If you want a compact, rich introduction to the issues organizations must manage in order to devise and implement strategies that produce valuable outcomes, you will be well-served by working through the materials Xavier de Souza Briggs put together for a week-long course he delivered this January, just before taking a two-year leave from his MIT faculty appointment in urban studies and planning, to become Associate Director for General Government Programs at the US Office of Management and Budget.
Creating public value, and The craft of political management (negotiation and coalition building)
Basic questions that need to be addressed: "What is worth implementing [What produces value?] and why? How does one go from concept to capacity and then 'production'? ... How to get things done responsibly and ethically when decisions cannot simply be imposed, downward and in a straightforward way, in a hierarchy?" Briggs emphasizes, "We want to be able to distinguish strong ideas, weakly implemented from bad ideas. These distinctions are often not easy to make — but are hugely important for the support we can build for good ideas."
Developing and changing organizational strategy
Here Briggs is talking about devising the means for accomplishing the organization's agreed mission. "The overall [strategic] challenge (and opportunity) is a powerful alignment: Lining up the value-creating idea with what the environment will support and what the organization (or team or alliance) is actually capable of producing." A key lesson: "There's no substitute for organized capacity, beyond any charismatic, smart, or otherwise talented individual."
Strategic collaboration (partnerships and alliances), and Performance management
Some key lessons about collaboration: "Effective collaboration often demands that implementers play a wide variety of roles well (strategic, operational, mobilization-focused, etc.)." "Collaboratives evolve through stages, navigated jointly: agreeing on a problem, developing strategy, implementing ('co-producing' change)." "Collaboratives can have wider ripple effects (political participation, policy reform, etc.)."
The key lesson about performance management: "Systems of performance measures and rules and incentives coupled with them ('management') should align with broader strategies."
Core elements of operating capacity: organizational structure (e.g., by function, by customer segment), operational processes (mapped so as to highlight, e.g., bottlenecks), human resources
Key lessons: Organizational restructuring "invites resistance, requires political capital, proof of concept, supportive coalitions, etc." "Strategic human resource management addresses flows ([employee] entry, development, exit) and targets (motivation, reward, performance)."
Thinking like an implementer, and Leadership (especially, leading change)
A key lesson: An effective implementer recognizes implementation issues (e.g., lack of funding, lack of operating capacity, opportunities for delivering more value, etc.) and develops skill in generating strategic options for addressing the issues.
Some core leadership concepts: exercising leadership vs. exercising authority; technical challenges (well-defined problems with known solutions) vs. adaptive challenges (fuzzy problems, unknown solutions); leadership styles; the need for a repertoire of various elements of emotional intelligence. Exercising leadership "is particularly important for motivating adaptation and risk taking, and thus deep change, in how implementation systems work."
Please note that the above outline greatly condenses and simplifies what Briggs teaches. To get a fuller account of the principles he espouses, you can download pdf files of his lecture notes and study questions here. Briggs's materials are a model of accessibility and practical expertise, structured in a way that requires students to think about the assigned readings (including a number of case studies) in critical fashion.
Each section of the course (generally, two sections per session) ends with a summary of take-away lessons. For example the first lesson from the first session is that "having a goal is not the same as having a clear, actionable value proposition." A related lesson is that "Effective implementers must often help to define ends (value propositions), not just political or operational means."
The course concluded with a take-home exam which, in keeping with the rest of Briggs's materials, places the emphasis squarely on critical thinking and intelligent application of the concepts covered in the class ("value creation, political management, organizational strategy, collaboration, performance management, organizational design and process redesign, human resource management"). Briggs emphasizes quality, not quantity, in students' responses to the seven "word problems" he sets, as you can see by reading through his instructions for the exam and the sample solutions he provides (pdf files).
I read "Business Secrets of the Trappists," a four-part essay Forbes.com published April 14-17, with the idea that it might really reveal some valuable insights of a novel sort.
No such luck. The author, August Turak, "an entrepreneur, consultant, writer and speaker who divides his time between New York City and his farm in North Carolina," cites these seven gems of wisdom gleaned from time spent at Mepkin Abbey, a Trappist monastery in South Carolina:
Have a worthy mission, and help employees make the connection between day-to-day decisions and mission accomplishment.
Focus selflessly on the mission, i.e., cultivate an organizational culture in which employees are motivated to pursue mission accomplishment, as opposed to giving priority to individual interests and engaging in turf battles.
Commit to excellence.
Maintain the high ethical standards.
Have faith that following your principles will result in a successful business through good times and bad — because your approach to doing business is such that all parties (your organization, your clients, your suppliers) benefit.
Build relations of trust with others. By consistently putting the organizational mission and the interests of others ahead of your own, you make yourself more persuasive in internal discussions and external negotiations.
Have a specified method (e.g., the Rule of St. Benedict) for putting your principles consistently into practice. Give focused attention to ensuring employees embrace the values and attitudes necessary for long-term success in accomplishing the organizational mission.
It is unfortunate that Turak, like all too many business writers, places great weight on platitudes and on analogies that beg the question of how exactly to apply the principles being canonized. (As just one example of the problem with Turak's analogizing of secular business to that of Mepkin Abbey, I'd mention that the monks follow a rule of silence, something quite at odds with the way a secular business operates.)
Please understand that I am in no way quarreling with the monks' style of living and working, nor with their manner of bearing witness to the values Turak describes. My concern is that Turak hasn't accomplished much by endorsing widely accepted values. What's needed is to do the additional work of investigating how to effectively put these values into practice in particular secular situations.
This is where the case method, combined with complementary quantitative research, actually contributes to knowledge of effective management practice. In particular, I would argue that the "Have faith" principle (#5) is one that requires detailed elucidation in order to be useful to a business firm faced with the need to turn an adequate profit in order to remain viable.
I've been following Tony Hsieh, CEO of Zappos, for some time (though I don't yet haunt anyone on Twitter, including Hsieh), most recently here.
I've now had the chance to watch the two-part YouTube video of the talk Hsieh gave on March 14 at the SXSW Interactive Festival in Austin and it's another keeper. As one commenter at YouTube puts it,
"Culture drives the brand". "Chase the vision". What an excellent way to run a company! We can all learn a lot from the Zappos example.
Part I . . .
Part II . . .
Hsieh's slides are available here. An audio podcast is here.
Universia-Knowledge@Wharton, the Spanish-Portuguese segment of Knowledge@Wharton, published an article today that seems overwrought in cautioning organizations about the pitfalls associated with making goal-setting central to performance management.
In pursuit of such mandates, employees will ignore sound business practices, risk the company's reputation and violate ethical standards.
I believe such unacceptable consequences of goal-setting are generally due to a falure to qualify goals by defining criteria that specify what successful achievement of each goal requires. Employees need to understand that how goals are achieved will be taken into account in assessing whether the goal achievement is truly successful. For instance, in the article's opening example, the story of the ill-designed Ford Pinto, whose fuel tank was vulnerable to catching fire in a rear-end collision, it seems that Ford neglected to require engineers to include proper attention to safety in the design criteria.
The Universia-Knowledge@Wharton article summarizes a paper (pdf) by Maurice Schweitzer (Wharton), Lisa D. Ordóñez (Eller College of Management at the University of Arizona), Adam D. Galinsky (Kellogg School of Management at Northwestern University), and Max H. Bazerman (Harvard Business School) (SOGB).1
In fairness, I must note that SOGB point to the need to monitor performance as employees pursue assigned goals, and that they base their reasoning in part on the fact that such monitoring is frequently quite difficult. Nonetheless, I would argue that SOGB overstate the degree of unmanageable risk in setting specific goals for employees to meet.
As summarized in the Universia-Knowledge@Wharton article, there are four problems SOGB emphasize as likely to accompany goal-setting:
"Goals that are too specific often lead employees to develop such a narrow focus that they fail to recognize obvious problems unrelated to the target." I say that there is no reason for management to let employees overlook problems related to other desiderata.
SOGB also discuss the problem of setting too many goals, so that employees pick and choose in a manner that does not match organizational priorities. The counterpoint here is that managers need to clarify priorities and coach employees on gauging their efforts to match priorities.
Time horizons for goals that are (1) too short, meaning long-term considerations are largely ignored, or (2) too long, meaning employees slack off if they manage to meet a goal in advance of the deadline they've been given. I say (1) success criteria should include optimizing the combination of short-term and long-term considerations, and (2) there is no reason not to plan for special rewards and recognition — and a revised goal/timeframe — to ensure employee productivity is maintained when the initial deadline for a goal proves longer than necessary. (I'd also note that the example of New York cab drivers electing to knock off early on rainy days — because they can meet their own, self-set goals for the daily total of fares earlier than on clear days — is not actually relevant to an analysis of employee response to goals set by management.2)
"Workers with highly specific and ambitious targets will engage in risky practices in order to meet them." Again, it seems evident that success criteria should include requirements for appropriate risk management.
"Unethical behavior is one of the more obvious pitfalls of overly ambitious goal setting ..." Success criteria requiring adherence to ethical standards, with compliance monitored, are a sine qua non in any respectable organization.
The last two items are aspects of the general issue of perverse incentives. Mitigating perverse incentives involves not only setting appropriate success criteria, but also directly adjusting the structure of incentives to reward desired behavior and not reward behavior that undercuts organizational values.
Where SOGB are on firm ground is their caution concerning undercutting employees' intrinsic motivation by overemphasizing financial rewards. Also well-taken are SOGB's observations that employees will "lose their focus on learning new skills in favor of using tried-and-true methods to meet their quotas," and that "[setting] targets for individual workers can create a culture of competition in which workers tend to shun teamwork in problem solving." But even here I'd say that astute definition of both the goals and the success criteria can mitigate the danger of perverse employee behavior.
In their paper, SOGB discuss two other problems they associate with overuse of goal-setting to motivate employees.
There is the issue of "goal-induced reductions in self-efficacy" that can occur when employees achieve a good result that nonetheless falls short of a stretch goal they were aiming for. This "can be highly dettrimental because perceptions of self-efficacy are a key predictor of task engagement, commitment, and effort." I say that effective leaders will take action in such a situation to acknowledge that employees have done a good job that has moved the organization forward; the stretch goal was overly ambitious, so no one is in trouble for falling short.
Another problem is the difficulty of tailoring goals to match individuals' particular strengths without creating perceptions of unfairness. Managing this issue is a matter of managerial judgment — that takes employee input into consideration — allied with persuasive communication. If an employee is still disgruntled after a manager has heard him/her out, responded with any goal adjustments that may be appropriate, and explained the rationale for the final determination of more or less disparate individual goals, it is fair to point out that the employee may need to find a position that better matches his/her job preferences.
For me the bottom line is that, while SOGB have done well in articulating the issues associated with making goal-setting a central element in performance management, especially in a complex setting, I believe, based on my own observation of companies intelligently implementing performance management systems, that attaching success criteria to all goal statements, providing constructive coaching, and exercising appropriate managerial oversight makes establishing goals for individual employees a crucial part of maximizing odds of mission accomplishment.
__________ 1 The link takes you to the working paper version of the Schweitzer et al. article. The published version is in Academy of Management Perspectives, Vol. 23, No. 1 (February 2009).
2 SOGB adopt the view, "If NYC taxi drivers used a longer time horizon (perhaps weekly or monthly), kept track of indicators of increased demand (e.g., rain or special events), and ignored their typical daily goal, they could increase their overall wages, decrease the overall time they spend working, and improve the welfare of drenched New Yorkers." True, and perhaps cab drivers should be reminded of this fact regularly to make sure it hasn't slipped their minds. All the same, we're talking about utility here so, ultimately, it's up to the cabbies themselves to decide how they want to spend their time.
A couple of previousposts have discussed how Tony Hsieh, CEO of Zappos, views exceptional customer service as the linchpin of his company's strategy for continuing success.
Hsieh is convinced that the key to exceptional service is hiring people with the right attitude and a willingness to embrace the culture at Zappos, a culture that is encapsulated in ten core values:
Deliver WOW through service
Embrace and drive change
Create fun and a little weirdness
Be adventurous, creative, and open-minded
Pursue growth and learning
Build open and honest relationships with communication
Build a positive team and family spirit
Do more with less
Be passionate and determined
Be humble
Hsieh's commitment to these values comes through in a blog post he wrote back in January dealing with his happy experience as a Twitter user. Since I'm stillresisting spending time with Twitter, and worrying that I need to get on the bandwagon, naturally this post caught my eye.
As a company, Hsieh explains, Zappos "[uses] Twitter to build more personal connections with people." But that's not all, as far as he's concerned. He goes on to say that "Twitter has contributed to my own personal growth and made me a better person."
Hsieh mentions four aspects of this personal impact of Twitter:
"Transparency & Values: Twitter constantly reminds me of who I want to be, and what I want Zappos to stand for."
This is where Hsieh cites Zappos' core values as a constant guide not just for his company but also for his own life. He explains, "Whether I tweet about something personal or something related to Zappos, if I'm living my life through these 10 core values, it all goes towards building the Zappos brand while shaping me personally as well." He also mentions that "Because I knew that I was going to be tweeting regularly about whatever I was doing or thinking, I was more conscious of and made more of an effort to live up to our 10 core values."
"Reframing Reality: Twitter encourages me to search for ways to view reality in a funnier and/or more positive way."
Hsieh explains that "now anytime something that used to get me upset or frustrated happens, I try to find the humor in the situation and think about how the situation can be reframed. I've found that almost every 'bad' situation is actually an opportunity that can be entertaining to my followers on Twitter, which also forces myself to see things in a different light." You definitely want to read the example he cites of how he used Twitter when he managed to lock himself out on his hotel balcony while on a trip to Mexico.
"Helping Others: Twitter makes me think about how to make a positive impact on other people's lives."
Hsieh reports that nowadays most of his tweets "do at least one of the following: Cause my followers to smile with something funny. Inspire my followers (for example, with an inspirational quote). Enrich my followers' perspectives (such as with a link to an interesting article)." This certainly matches my own idea of what would interest me enough to become someone's follower on Twitter.
"Gratitude: Twitter helps me notice and appreciate the little things in life."
Hsieh says, "For me, because I try to tweet every day, I've found that I'm always looking for opportunities to have something to tweet about. So I end up noticing and appreciating things that I would normally not even give a second thought to." Again, the sample tweets he mentions are charming.
Since I'm already following Hsieh, in the sense that I always read anything I happen upon that quotes his thoughts about running a business, the day may just come when I add myself to his Twitter followers list.
