Debunking the ‘CEO Effect’

Recent research by Texas A&M researcher Markus Fitza debunks the glib conventional notion of the CEO as the prime mover of a company’s fortunes. In a paper, The use of variance decomposition in the investigation of CEO effects: How large must the CEO effect be to rule out chance?, he investigated the impact of two factors: the CEOs’ abilities versus the occurrence of chance events. Put another way, the difference between pluck and luck.
Fitza said, in an interview with Science News,

“I wanted to know how big the effect of chance on CEO performance might be.” Chance can have negative or positive effects on a firm’s performance, he notes. “For example, a scandal at a major competitor can help a firm, while an accident at an important supplier can have negative consequences. Over a long enough time period such effects tend to cancel out (a phenomenon called ‘regression to the mean’), thus it is unlikely that a firm is consistently high performing just because of chance events.”

You’d think that would be a strong argument in favor of CEOs’ abilities rather than chance, but Fitza offers a coda: since CEOs’ tenure has dropped to four years, chance might not regress to the mean in such a short period. And in that case, a major hiccup in the market or a company scandal could obliterate the impact of a CEO on operational results.
Fitza’s research suggests that as much as 70% of the ‘CEO Effect’ touted in other, more CEO-favorable studies could be attributed to outright chance, not connections, skill, charisma, or mojo.Fitza applied statistical techniques, in particular variance decomposition, to determine the influence of difference factors on a central variable, such as company performance. Fitza’s research suggests that as much as 70% of the ‘CEO Effect’ touted in other, more CEO-favorable studies could be attributed to outright chance, not connections, skill, charisma, or mojo.
This belies the short-term obsession with performance — like firing a CEO after a single bad year — and it makes me wonder if companies would be better run if CEOs were appointed for longer terms — like 7 year contracts — during which they could only be fired for cause or willful negligence.
Winterkorn was not undone by luck, but by his misdeeds.Consider a CEO that is headline news these days. Martin Winterkorn was rapidly pushed out at Volkswagen immediately following the ‘Dieselgate’ scandal, which might have been considered just a bit of bad luck. He, in fact, asserted that he knew nothing of the company’s efforts to circumvent emissions testing on certain of the company’s various lines of diesel automobiles and trucks using so-called ‘defeat devices’. However, since the cheating on nitrogen oxide emissions appears to have been going on since at least 2009, this is not on par with a quarter or two of bad financial results, and it is so far-ranging and so integral to VW’s efforts to grow the adoption of diesel vehicles in the US that is is difficult to imagine how Winterkorn could not have known. Winterkorn was not undone by luck, but by his misdeeds.
There is no doubt that at least that the truly top performers — Steve Jobs, Bill Gates, Elon Musk — are worth the astronomical value that their boards, shareholders and the markets are willing to pay. But once you slide down the exponential peak of ability Fitza’s research says that we are overpaying CEOs. And more importantly, we may be allowing CEOs to try to rig the game to cover up for their inadequacies, and to create power cliques that support them in this.
Recent revelations about Winterkorn seem to show him concealing information about Dieselgate from his board of directors even as they were approving a new contract for him. As reported by Jack Ewing and Jad Mouawad,

[…] Several members expressed displeasure with Mr. Winterkorn’s failure to keep them in the loop. Mr. Weil, the prime minister of Lower Saxony, complained about it in a speech last week to the state Parliament.
Volkswagen is the largest company by far in the state and employs about 110,000 people there. The state government [Lower Saxony] owns a 20 percent stake in Volkswagen, and by law has veto power over major decisions.
Under German law, at least half of the seats on a company supervisory board are held by labor representatives. A spokesman for members of Volkswagen’s workers’ council, which is separate from the union and also has seats on the board, said he did not know how they learned of the emissions scandal and could not comment.
At Volkswagen, four of the 20 board seats are held by descendants of Ferdinand Porsche, designer of the original Beetle. The family owns a majority of Volkswagen shares through a holding company. A spokesman for the holding company declined to comment.
Volkswagen executives had a duty to inform the supervisory board of the emissions problem, said Ulrich Hocker, a Düsseldorf lawyer who is president of a shareholder advocacy group known by its German initials, D.S.W. But he said only the supervisory board would have legal standing to seek damages from Mr. Winterkorn, who has kept a low profile since leaving.
Some shareholders have complained that Volkswagen did not follow German laws requiring it to publicize information that could affect the stock price.
Mr. Hocker said shareholders are angry and want changes. “The whole company was run from Wolfsburg,” he said. “They have to get away from this centralized management.”

The reality is that truly great CEOs can have an exponential upside impact, but even an average CEO can damage a company exponentially.That last statement is telling, and suggests we have to look beyond CEOs’ generalized abilities, and specifically dig into the many factors in strategic management that CEOs get credited for, like inheriting or engendering the right kind of culture. And in Winterkorn’s case, it looks like he had created a closed, centralized, and debased work culture, and the workers, investors, and customers of Volkswagen have been immensely harmed by that.
The reality is that truly great CEOs can have an exponential upside impact, but even an average CEO can damage a company exponentially. That shouldn’t be translated into huge salaries for CEOs across the board, however, as if this will translate into making all CEOs great. Winterkorn’s case — like so many others — makes that abundantly clear.

Google on collaboration

Our customers often tell us that encouraging and enabling collaboration has dramatically improved their business. We decided to dig a little deeper by conducting some original cross-industry research that measures the power of workplace collaboration in concrete terms.

This is how Google introduces the findings of its recent survey of senior staff and C-suite executives at 258 North American companies across a wide range of business sectors and sizes. (PDF of full report.) The primary conclusion is presented up front:

… collaboration has a significant impact on business innovation, performance, culture and even the bottom line.

This is quite right and quite wrong. Collaboration is at once driven and the driver; it is both a cause and an effect. As is culture come to that. Effectively, Google must grapple with two distinct appreciations of business among its customers and prospects.

Simply complex

If there’s one thing that differentiates organization this century from the last it’s that we may now acknowledge complexity and do something about it. We increasingly have the technologies to help navigate complexity. Choosing to do so offers competitive advantage for the time being; there will soon come a time when failing to do so renders an organization unresponsive, fragile and, consequently, bust. (Note that complexity and complication are different things.)
As we are in the midst of this transition, Google’s report walks a line to make sense to those for whom the penny is yet to drop. On the one hand it recognizes that (too) many business leaders still regard digital transformation as not much more than the digitalization of the pre-digital. Absent an understanding of complexity and systems thinking, deliberate strategy formulation and mechanistic organizational alignment remain unchallenged dogma within an organization’s four walls. This then is a world in which one might consider a strategic investment (in technology for example) a potential cure-all. Or ‘cure-lots’ at least. The report’s conclusion is, in this context, spot on.
And yet, on the other hand, the Google For Work team appreciates that work is collaboration. As Esko Kilpi puts it:

The basic unit of work is not an individual, but individuals in interaction.

Laszlo Bock, Google’s SVP People Operations, asserts:

If you give people freedom, they will amaze you. All you need to do is give them a little infrastructure and a lot of room.

Bock notes that because constant innovation is increasingly a group endeavor, people who succeed in the company “tend to be those with a lot of soft skills: leadership, humility, collaboration, adaptability, and loving to learn and re-learn.”
In groping then for a more emergent rather than deliberate understanding and approach you might say:

Organisational objectives are best met not by the optimisation of the technical system and the adaptation of a social system to it, but by the joint optimisation of the technical and social aspects, thus exploiting the adaptability and innovativeness of people in attaining goals instead of over-determining technically the manner in which these goals should be attained.

And in fact Albert Cherns did say this, in 1976! The report’s conclusion may then be considered misleading when the context does not encompass what I like to refer to as the fabric.

Fabric

… when asked to name the realistic measure that would have the biggest business impact on knowledge-sharing and collaboration, investment in relevant technology came out on top. It was named most frequently as the #1 measure for business impact, and also appeared in respondents’ lists of top three factors more than any other option.

Respondents to Google’s survey identified the technical as #1 for business impact, yet that might be because it’s relatively new and shiny and looks like no more than a purchase order away. Adjusting behavioral norms and hierarchy may only be ranked as less important on the other hand (#’s 3, 4 and 5) because we’ve all seen how difficult transformation of these can be, and indeed the survey’s respondents identified the difficulty in changing working habits as the foremost challenge to creating a more collaborative culture.
Organization requires an organizational fabric for it to act coherently with due speed. It is the sociotechnical substrate that supports and nurtures a healthy living system. In transitioning from deliberate to the more emergent, from the Newtonian to the complex, from the 20th to 21st Century, we must lean on one last heuristic to ready ourselves for competing in rude chaos – beat your competitors in getting the sociotechnical working for you. So not the social or the tech, and not the social and the tech as if they’re separate components that just need to be introduced to each other, but the sociotechnical as one – the qualities that combine holistically to deliver such easy-to-say-hard-to-achieve aspirations as a great culture and productive collaboration.
The ingredients in such combination rarely adhere to some qualitative ranking.

Process is dead, long live process

The report identifies four categories of organizational culture in decreasing technological maturity for want of a better turn of phrase, labelled pioneers (18%), believers (34%), agnostics (27%) and traditionalists (21%).
Google collaboration report 2015
I was attracted by the report authors’ observation that:

‘Believers’ … put less emphasis on systems and processes, which could suggest that they consider these to be regressive and inhibitive.

I have had conversations of late that support this interpretation. It appears that an aspiration for adaptability may tempt a disregard for process given its historical association with repeatability and efficiency at the expense of responsiveness, and yet such conclusion increases business risk and injures adaptability. Consider that adaptability works on two levels, agility (adaptable strategy) and flexibility (adaptable tactical execution). Maintaining relevant strategy – identifying where to play and how to win – is a disciplinary process, and equally the corresponding tactics and execution require constant improvement (kaizen in lean speak).
In short, the power of process is no longer in the fixed process but in fixing attention on its derivative so that change becomes routine. And this then neatly returns to my main thrust here. Change of any one or two things is unlikely to effect the desired improvement. It’s complex. An organization doesn’t so much exist as transmute, and many dials need to be twiddled and many things need to be sensed constantly by everyone involved to ensure that transmutation lives up to all stakeholders’ expectations.

Simple, but not for much longer

And as complexity has it, this works at many levels. This year’s Global Drucker Forum focuses on this topic at the organizational and societal levels and I’ve had the opportunity to contribute a pre-event post: The human web and sustainability. This is the mother of all “management” challenges, so one can appreciate why Google’s report defers to the simple.
To paraphrase its conclusion then and reading between the lines – if you haven’t already, work out how you want to work and procure some modern collaboration technology to support you working that way. And then it gets interesting.

Culture-management tool VoloMetrix raises $12M in Series B

A great deal of my work revolves around organizational culture: the values, practices, and behaviors that people manifest in the workplace and in their interactions with one another and their external contacts. It has been said that a company’s culture determines the success of the business. As a result, more managers are taking an active stance around culture instead of treating it like a byproduct of other, more tangible management practices.

One of my forthcoming Gigaom Research notes focuses on culture management — a term I use for tools that help determine employee engagement and morale — and surfaces issues that could negatively impact the business as soon as possible so that preventative actions can be taken.

One culture management tool I discovered recently is VoloMetrix (via Larry Hawes), which analyzes company email and calendars to determine interactions between employees and how often those interactions happen. This information is presented to individuals so they can track their engagement goals or those used by managers to assess what’s going on at the individual level, in groups, or across the entire company.

VoloMetrix recently raised $12 million in a Series B round led by Split Rock Partners and with existing investor Shasta Ventures participating.

Here’s a screenshot showing what an individual user might see for personal metrics:

performance-dashboard

Note the topmost metric, Time with my Manager, which strongly correlates with employee engagement. In the benchmarks the user can see how he or she compares with others in time spent in email, meetings, and other tasks.  A manager uses these metrics as a way to ensure that meetings aren’t consuming too much of an employee’s time, and to determine how much time direct reports are spending collaborating with others.

VoloMetrix offers some fascinating visualizations, like the one below, which represents the interactions between a given company’s executives and other stakeholders over a 30-day period. Again, note that this information is ferreted out from company email and calendar data.

Metrics_Explorer

This sort of visualization is extremely helpful as it provides management insight into the tempo and shape of business activities across company social networks. For example, the CEO might have a strategic goal of creating closer interactions between sales and channel partners. This representation — especially when compared to previous periods — might be a great means of getting the gestalt snapshot of that initiative’s progress.

I plan to include VoloMetrix in my culture-management report, so stay tuned.

IBM survey reveals most businesses are not ready for a digital work environment, and lack the focus and skills to make that change

IBM recently published a report — Making change work …while the work keeps changing — that raises nearly as many questions as it purportedly answers. Let me preface this by saying that the problems raised by the report are cultural in nature, not technological, but nonetheless, suggest some serious issues in the enterprise regarding change.

74% of respondents said that ‘individuals in their organization are not fully prepared to adapt to an increasingly digital work environment, either offline or online.The report was published by the IBM Institute for Business Value, and the results are derived from 1,400 individuals responsible for ‘designing, creating or implementing change across their respective organizations’. The context: more that two of five CEOs now expect their competitive pressures to come from outside their industries, and are not just another company wresting away customers: these forces are disrupting entire markets. But 74% of respondents said that ‘individuals in their organization are not fully prepared to adapt to an increasingly digital work environment, either offline or online’. Also, here are perhaps the most arresting stats in the report:

  • 87% that said ‘not enough focus is currently placed on change management in critical projects’
  • 5% or less of total project budgets are allocated to change management on key projects
  • Only 40% said they ‘have the right skills in place to successfully manage change projects in the future.

The focus of this study was to determine what was different in the approach taken by the ‘Change Architects’ — those companies that had relatively high success rates in complex technological and cultural work transformation. The authors determined that approximately 20% of the companies surveyed had met the objective in 75% or more of the major initiatives of that sort, while moderately successful companies had from 48% to 75% success (35% of the sample) and below average companies had less than 48% success (45%).

I spoke with Jonathan Ferrar, VP of IBM’s Smarter Workforce about these results, and I asked about the disconnect between the C-level desire for change and the apparent lack of skills to deal with it. Jonathan suggested a few key areas that need C-level attention. He suggested that business leaders aren’t communicating the core problems, and what is communicated in most companies isn’t working. The central issue, he stated, is making leaders accountable for measurable change goals.

The authors of the report agree with Ferrar: to make change happen, the company must lead at all levels, especially at top management sponsorship. Last in the list of soft factors is change agents.

Screenshot 2014-08-07 14.01.15

The authors of the study derived the behaviors of the successful ‘change architect’ companies, and suggest that other companies can become more adept at change if they follow those other companies lead. But what I have learned in recent years is — at least in part — at odds with the findings in this report, or at least the weighting of the success factors.

Specifically, my sense is there is no change without change agents, because any new technology, practice, or behavior needs to be adopted by individuals, and in general what helps the majority of people make that change is the example of a peer or trusted colleague who has already started making the change in question. This is particularly true when the new behavior is potentially risky in some way, like social media use.

The so-called ‘positive deviants’ concept is to find those people in the population that are already showing the new behaviors desired, and getting them involved in mobilizing others for change. These are ‘deviants’ not in any negative way: they are just earlier adopters (see How ‘positive deviants’ help a culture change itself, and Cultural change is really complex contagion).

These and other research suggests that ‘ownership of change by middle management’ might not be the point of greatest leverage, unless of course their aim is to seek out and support change agents (positive deviants) among the rank and file.

Jonathan agreed that the reality is that most companies lack people at all levels with the skills to take on major change initiatives large enough to transform the business. This is clearly one of the areas where companies will be poaching talent in the years to come, as well as creating development programs to get leaders up to speed on what is needed to make change happen and stick.

IBM is not simply informing us about this mismatch of objectives and capabilities: they are launching a new dedicated Talent and Change consulting practice, to help customers over these sorts of hurdles. There are four key areas the practice is focused on: Organizational Change, Talent Analytics, Employee Engagement and HR Cloud. And the company is rolling out three new cloud-based offerings to help, which I haven’t had a chance to demo. These are IBM Kenexa Predictive Hiring (workforce analytics and behavioral assessments to understand individual, job, team and organizational traits that define top performers), IBM Kenexa Workforce Readiness (assess current workforce readiness to address existing and emerging business demands), IBM Kenexa Predictive Retention (identify risk factors, identify employees likely to leave and build new programs to reduce the risk of attrition).

I hope to get a demo in the upcoming weeks, and I will update then.

Can the GM recall crisis teach us about corporate cultural change?

GM is struggling to contain the damage to both it’s finances and reputation arising from faulty ignition switches, that it appears were known in the engineering organization as long as ten years ago. Mary Barra, the new CEO, has said that she and other top executives were unaware of the issue until last December, and she has vowed to get to the bottom of the problem, on three fronts:

  • recalling the cars with defective ignition switches as soon as they can be manufactured, and installing them,
  • determining who knew what when, and sharing that information in a transparent fashion, and
  • changing the culture at GM so that customer safety becomes the central principle of the firm.

We are going to be able to watch the story unfold over the weeks and months ahead. Only a few days ago, GM returned to bankruptcy court, seeking to have Judge Robert E. Gerber of the Federal Bankruptcy Court, who presided of the company’s Chapter 11 reorganization, enforce the provision of the bankruptcy that shields it from lawsuits for injuries that occurred prior to the bankruptcy date.

However, what I want to touch on is the third point: cultural change. Lou Gerstner said about his time at IBM’s CEO,

I came to see in my time at IBM that culture isn’t just one aspect of the game – it is the game. In the end an organization is nothing more than the collective capacity of its people to create value.

Cultures change slowly. In fact, culture resists change at a fundamental level, and directs members of the culture to continue to behave in established and accepted ways.

Stephen Billings once wrote,

If culture is a phenomenon that emerges from myriad interactions amongst organisational members, then it cannot be managed from outside as a whole. Instead, the top managers can only influence culture from within their own participation in interactions with others. Senior managers cannot design the culture that they want, nor can they engage other specialists to design the desired culture. They can only influence culture through their interactions with others.

And Jon Katzenbach wrote a piece for the Harvard Business Review called There’s No Such Thing as a Culture Turnaround, in which he makes that case that most efforts to quickly change culture fail. The companies either declare victory too soon, before deep cultural change has occurred, or they abandon the effort in frustration.

I’ve taken Katzenbach’s recommendations, and respun them into the context for GM:

  1. Find a theme — Mary Barra has had her theme forced upon her: putting customer safety first, and opening up the silos and dark places in the company so that all information related to safety is accessible. She has started to tell that story, although her congressional testimony didn’t go over well. She has fired the executive who was supposed to run interference there, Selim Bingol, G.M.’s senior vice president for global communications and public policy. Also gone is Melissa Howell, senior vice president for global human resources, who was allegedly slow to make HR policy more in line with Barra’s new goals. She’ll need coherence in her messaging, and a new team to tell that story.
  2. Don’t claim victory too soon — My bet is this turnaround could take five years or more, and might involve hundreds of departures of senior and mid-level executives at the company. She’ll have to leverage company pride, and other core beliefs that are still relevant, but work slowly to make whistle-blowing acceptable, so that anyone can say ‘we can’t do X because it will increase risk for the customer’.
  3. Enlist the help of informal leaders — Barra has to find the ‘positive deviants’ in the organization — those that are already displaying the behaviors that should be dominant in the company but aren’t yet — and she needs to enlist their help in turning the company around (see How ‘positive deviants’ help a culture change itself, and Cultural change is really complex contagion). One option is to try to leverage technology at all levels and locations, so that these people can a/ be found, and b/ connect to each other. Many reports from former GMers say that the company doesn’t communicate well internally.
  4. Remember that cultural forces don’t go away — Focusing on the behaviors that you want won’t eliminate the one you don’t. What you need to do is get people to adopt the new behaviors so that the new values are put into place, the right questions and being asked, and the right decisions get made.
  5. Start now — Barra cannot let other pressing issues take priority over her efforts to change the culture at GM. A series of lawsuits are going to be very costly and time-consuming: she should delegate the blocking and tackling there to a COO or SVP. But she can’t afford to delegate the cultural change that is needed for GM. And she seems to be doing that. Jeff Bennett reported in Amid Recall Crisis, GM’s Barra Quickens Pace:

Last month, she gave a pep talk at an internal meeting for about 1,000 GM employees at its Warren, Mich., technical center. To back up her message that GM must do a better job of serving its customers, Ms. Barra has sat with employees at the company’s call centers.

Getting up close and personal with a wide and diverse group of GMers, and reaching out to informal leaders (‘positive deviants’) to join her new movement within the company should be Barra’s highest priority. She just announced an internal whistle blower program called Speak Up for Safety, writing on the GM Fastlane blog

Last week, I announced a new Speak Up for Safety program to recognize employees for submitting ideas aimed at making GM vehicles safer, and for speaking up when they see something that could impact customer safety. I am excited to take this step to push safety even further to the forefront of our employee culture.

We are, at heart, the sum of our employees – their creativity, their dedication, and their commitment to excellence. GM employees have always been encouraged to raise safety concerns, whether openly or anonymously, and are empowered to be persistent. With the creation of the Speak Up for Safety program, we will have the opportunity to publicly thank and recognize them for their courage and openness. And importantly, we also promise accountability from our senior leadership back to these employees that we will take action or close each issue in a timely fashion.

This program is an important step toward embedding the customer- and safety-centered culture in every aspect of our business. It underpins much of what all GM employees committed to in 2013 when we adopted our new vision and values. These core values – Our customers are our compass, Relationships matter, and Individual excellence is crucial – are more than just words on paper.

We are building an organization that lives these words, day in and day out – not only because it’s what our employees want, but because it’s what our customers deserve. We will learn from our recent experience, and it will make us better.

Mary

So, I’ll be watching GM’s efforts in the weeks and months ahead to see if they stay the course, and keep the momentum necessary for the long haul, because it’s going to take years. I will also try to swim upstream into the company to find what sorts of technologies they are using or acquiring to increase internal communications.

The New Visionaries: James Dellow

I encountered James Dellow because of a twitter comment he made on a recent discussion I had with Lee Bryant, a friend who founded Headshift years ago, and then merged with Dachis Group. Lee left Dachis last year, and it turns out that James was involved in the company’s Australian wing. James has also left Dachis, and joined Ripple Effect Group.

About James Dellow

jamesdellowskynews050912_scruberthumbnail_1
This is James’ bio from the Ripple Effect website:

James is an experienced consultant with a deep understanding of both the organisational and technical aspects of social software.
James applies design thinking and a broad knowledge of social media and Web 2.0 technologies to his work. He is also an experienced workshop facilitator, specialising in participatory design and visual thinking.
James has been sought out for comment by the Australian Financial Review and the Fairfax newspapers, on the radio, and appears regularly on Sky News Australia. He has written numerous articles that have appeared in books, journals and publications such as CMS Wire, Image & Data Manager magazine and the International Association for Human Resource Information Management.
He was awarded a Master of Business & Technology (UNSW) in 2005. He is also a past president of the Illawarra ICT cluster association board and a committee member (and former chair) of the NSW KM Forum.
James has worked with a range of blue chip and government companies including AMP, Ausgrid, the Australian Taxation Office, BHP Biliton, Blue Scope Steel, the Department of Immigration and Citizenship, the Government 2.0 Taskforce, ING Australia, Queensland Rail, Rio Tinto, Sydney Water, Telstra and Zurich Financial Services.

The Interview

Stowe Boyd: I read your recent piece — City as workplace — with great interest. You wrote,

We tend to think of the organisation as the fundamental unit of organising people

and characterize that viewpoint as an aspect of the industrial mindset we’ve inherited from the past. You then suggest that mobility — smart devices and distributed artifacts (like file sync-and-share tools) — may be changing our relationship with ‘organization’. Is that shift of perspective inevitable? And what replaces the old notion of ‘organization’ as so tightly linked to the ‘office’?


Technology is empowering elements of the professional workforce to be increasingly self-directed, mobile and flexible. Some people are taking advantage of this by deliberating opting out of the traditional work relationship. – James Dellow


James Dellow: There is no doubt that a shift of perspective is inevitable, because digital technologies are disintermediating the relationship between workplace and employment. Up until recently, the physical workplace has been a key tool in the modern management paradigm for organising people and granting access to the resources they need to do their jobs. Now in some professions, this era of wireless Internet access, cloud computing and BYOD means that the only resource the workplace might control is access to people, although social networks are somewhat challenging that notion.
What is perhaps not inevitable is how this shift of perspective will play out. On one hand, technology is empowering elements of the professional workforce to be increasingly self-directed, mobile and flexible. Some people are taking advantage of this by deliberating opting out of the traditional work relationship. However, these same technologies are also creating the opportunity for employers (or customers) to track and direct activity at a micro-level.
Personally I’m not convinced that everyone wants to either go it alone or be a micro-task slave. There is still a role for organising people, even if a traditional physical workplace is no longer necessary as the anchor for the employee-employer relationship. But rather than replacing the office – because we still need and want places to work from – I think we are simply emphasising non-tangible elements that already exist – legal obligations, financial structures and most critically, people relationships.
SB: The people relationships are where the action is. If people never collide in an office, is it possible to have serendipitous interactions online? I have great and productive relationships with people I’ve met that way. Certainly if can happen in a business, even very large ones.
JD: It definitely can and I have been arguing that developing the capacity of staff to maintain effective online interactions is a critical factor in an agile workspace design. I think what we need to realise is that as soon as a company is big enough to span floors in a building, you may as well have staff sitting in a completely different building in another part of the city. So the reality is that these people are working in a hybrid fashion anyway, if not fully virtual – the opportunity for combining technology with the city as workplace is to focus on getting people together at the right time, rather than worrying about getting them into a single place all of the time.
SB: I recently wrote about Square’s office redesign, which is explicitly inpsired by city design (see Another take on offices: something other than open or closed). Is that along the lines of what you are suggesting, or are you thinking about the complementary idea: that people can take their work out into the city, rather than adopting the city as a model for how office buildings should be designed?
JD: I am actually talking about both concepts. The idea is that we are letting the city into our workplace and taking the workplace into the city at the same time.


The opportunity for combining technology with the city as workplace is to focus on getting people together at the right time, rather than worrying about getting them into a single place all of the time. – James Dellow


This means we need to design the physical elements of the workplace we have direct control over to be an integrated part of that ecosystem, rather than simply trying to replicate the city model inside the building as a separate system. I think the benefits for a mobile workforce come from giving them access to the city as the workplace, rather than creating a city inside the workplace. An airport lounge could actually be treated as a reasonable working example of a semi-public space where this already happens.
This is also apparent in a limited way in some of the leading examples of activity based working I have seen, such as NAB’s Docklands building in Melbourne and Commonwealth Bank in Sydney. The public spaces inside and around those buildings are as important as the spaces behind the security barriers.
There is also another important dimension to this. One of the benefits of agile or activity-based working is that it creates space efficiencies by optimising the different types of work spaces around the types of work to be supported. But those efficiencies are really based on predicting future work patterns and are constrained to the space inside the building. By treating the city as the workplace, it might be possible to create greater flexibility and efficiencies. Ultimately this should also promote greater sustainability in our cities.
Incidentally, if we are going to design offices like or as part of cities, then we really should be thinking in terms of adaptable building design, so that these structures really can change and respond over time to new work patterns. Ultimately, the goal should be to support wholly user generated workspaces.
SB: User-generated workplaces? Meaning that individuals reconfigure the spaces, personally, or that workspaces are reconfigured automatically based on some algorithmic analysis of what people are doing or trying to do?
JD: The automatic reconfiguration is an interesting idea. There is a great deal of work and innovation happening around smart buildings right now, but so much of it is focused on bottom line efficiencies around utilities and space utilisation. However, my thinking on this is very much influenced by my experiences with social software. So while I think we could certainly do more to make smart building help people collaborate and work together, I also believe that what will be ultimately more empowering is to allow people to reconfigure space. Small places, loosely connected perhaps?


One of the benefits of agile or activity-based working is that it creates space efficiencies by optimising the different types of work spaces around the types of work to be supported. But those efficiencies are really based on predicting future work patterns and are constrained to the space inside the building. By treating the city as the workplace, it might be possible to create greater flexibility and efficiencies.


SB: I love that. James, thanks for your time and observations.
JD: No worries. Thanks for the great questions about the city as workplace idea. If anyone is interested to explore this concept a little further, they can find slides and notes with links to further reading from a recent presentation here.

Shaping companies to get closer to customers

Introduction

It’s an central maxim of our time that companies need to engage with customers, to support open dialogue about products, services, and problems, and to listen closely to get the real story. How does that translate to the shape of an organization? In this update, I look back 20 years to some thoughts from a Nobel laureate about company shape, and I juxtapose that with a recent report on best practices in listening to your marketplace for ‘weak signals’.

Exposition

Arno Penzias, the Nobel laureate in physics for his co-discovery of cosmic microwave background radiation that helped to establish the Bing Bang theory, worked for much of his career as a researcher at AT&T’s Bell Labs. In the ’90s, after the break-up of the Bell System, a much smaller AT&T was going through a radical restructuring, one that would eventually lead to spinning off most of its equipments manufacturing business — along with Bell Labs — into Lucent Technologies.

Prior to that, however,  the changing forces within and outside the company led Penzias to reflect on the fundamentals of organizations relative to their purpose: helping customers. And his insight was that the very thing that makes large companies stable acts as a impediment to hearing and connecting with customers. He used his recent experience with the changes at AT&T and Bell Labs to establish a baseline of how the famed research organization was run as a pure research institution without regard to the business interests of AT&T. However, that began to shift toward a business orientation:

Arno Penzias (adapted in Fortune from Harmony, 1995)

Not unlike departments of other compartmentalized organizations, each research group worked to exploit opportunities as its people saw them, with little attention paid to others. One area of technology might receive attention from multiple groups, while another might receive none at all. The situation called for change. No matter how well the past work styles had served us, they no longer sufficed. But that didn’t mean trashing our organizational structure. Instead, we concentrated on giving each part of the organization a needed outward-looking focus. Among other things, each research manager had to take on an additional assignment. Instead of just striving to make sure that each scientist and engineer in a given department worked at the highest level of accomplishment, managers took responsibility for fulfilling AT&T’s technology needs in areas assigned to them.

In retrospect, it’s easy to see this transition at Bell Labs as a mistake, in that a great research institution that had yielded seven Nobel prizes, the transitor, Unix, the C and C++ programming languages, and numerous other breakthroughs, fell in prominence in the Lucent Technology years, and AT&T became just another phone company.

But I am deeply interested in Penzias, the Nobel laureate, musing on the shape of business relative to its purpose, and specifically that being large is not the advantage that it might once have been:

What matters is not so much size but the distance between individual employees and their customers. As a result, each corporate organization needs to prune its “insides” so as to enhance its surface area. Unlike the organization man who pursued his career safely ensconced in a corporation’s inner workings, tomorrow’s job seekers would do better to go where the action is–just as organizations will perform best when coupled to their environments as efficiently as possible.

Today, 20 years later, we have shifted to thinking about businesses as being based around social networks rather than hierarchies, in general. But the size and shape of the company is still an important factor in understanding the fitness of a company to its economic and societal environment.

Once again. we have to move past the generalities of undifferentiated ‘social networks’ and focus on different scales. Each person in a business has their own social network: the set of people that they know and work with. The collection of marketers in a company, for example, form a social scene, which can be viewed as the combination of all the marketer’s individual sets of contacts into a larger conglomerate. A person can be a member of many scenes, and this is generally how information moves around, carried by a person from one scene to another, like a new concept in design that gets carried into the company by a single designer, into the design scene, and from that to the marketer scene by a second vector, a marketer who hangs around with some designers. And then, that idea catches on, and soon, the company has a new ‘flat’ website design aesthetic in all marketing materials. At the highest abstraction, the company can be thought of as a world composed of all the social scenes within it.1

Allied with Penzias insight, this can be translated to this observation: the best companies are not necessarily the largest; but at whatever size, the best companies are likely to be those whose social networks reach outside of the organization, to better connect with the outside world: the marketplace, the ecosystem of partners and suppliers, and out to the customer.

Returning to the sets, scenes, and world model of social culture (see Sets, scenes, and worlds: understanding social scale in the organization), this translates into connection at all scales. But the most important point is that ultimately that connection from the company to the customer has to take place at the foundational scale: individuals in the company must directly connect with customers, partners, and others in the marketplace. Just as with any organizational change, ultimately individuals have to change their personal behavior for change to occur.

I read a recent report by McKinsey that support Penzias’ observation of 1995 in the behavior of companies today. In a report called The strength of weak signals2, Martin Harrysson, Estelle Métayer, and Hugo Sarrazin wrote about companies reconfiguring themselves to better hear the weak signals coming from the market. Here’s an example from TomTom, the navigation products company:

As part of normal operations, TomTom monitored social media closely, mining conversations to feed into performance metrics for marketing and customer-service executives. The normal process changed after an attentive company analyst noted that users posting on a UK forum were focused on connectivity problems. Rather than let the tenuous comments get lost in the company’s performance statistics, he channeled them to product-development teams. To resolve the issue, the teams worked directly—and in real time—with customers. That helped short-circuit an otherwise costly process, which would have required drivers using TomTom’s offerings to check out connectivity issues in a number of locales. The broader payoff came in the form of new R&D and product-development processes: TomTom now taps directly into its driving community for ideas on design and product features, as well as to troubleshoot new offerings quickly.

Conclusion

The example of TomTom reorienting its attention around weak signals coming through social channels is perhaps the canonical story of the power of social media to force organizational change. Using Penzias’ topological insight, the company should seek to create maximum surface area to touch as much of the outside world as possible. In the case of TomTom that translated into the company analyst — a careful listener — suggesting that product teams could talk directly with customers. As individual product staff made direct connections to customer — adding those customers to their social sets — the surface met the outside.

And the McKinsey authors made the closing argument, with I agree with totally:

Regardless of where companies observe weak signals, the authority to act on them should reside as close to the front lines as possible.

Each of us should be able to decide, on our own, who we will connect with.


1. It’s worth noting, relative to the comments I made last week in Why I’m adopting a new approach at Gigaom Research, that viewing a company this way runs counter to the integration perspective on organization culture, or more specifically, may run counter to the efforts of entrepreneurial management regimes to treat a company as a homogenous society rather than a collection of quite independent social scenes with differing and possibly incompatible cultures. The fragmentation perspective of organization culture is based on the premise that ambiguity may be more pervasive than clarity in the makeup of companies, and that dissent is potential at every scale in a company, up to and including the individual that is of two minds about important issues.
2. A nod to Mark Granovetter’s The strength of weak ties paper, a landmark in social network theory.

Adam Bryant interviews Satya Nadella on his new role as Microsoft CEO

Adam Bryant interviews Satya Nadella, who says — and convincingly — that Microsoft needs to change, which in today’s business world means harnessing an entrepreneurial mindset in which change is always about ‘building a better culture’. Note however that this phrase is a code word for 1/ management’s role in setting strategy is legitimized by company performance, not ownership or longevity, and/or 2/ changing the conditions for employees to theoretically increase productivity, often by speeding up the assembly line. Nadella seems to be saying both.

Adam Bryant: Your company has acknowledged that it needs to create much more of a unified “one Microsoft” culture. How are you going to do that?
Satya Nadella: One thing we’ve talked a lot about, even in the first leadership meeting, was, what’s the purpose of our leadership team? The framework we came up with is the notion that our purpose is to bring clarity, alignment and intensity. What is it that we want to get done? Are we aligned in order to be able to get it done? And are we pursuing that with intensity? That’s really the job.
Culturally, I think we have operated as if we had the formula figured out, and it was all about optimizing, in its various constituent parts, the formula. Now it is about discovering the new formula. So the question is: How do we take the intellectual capital of 130,000 people and innovate where none of the category definitions of the past will matter? Any organizational structure you have today is irrelevant because no competition or innovation is going to respect those boundaries. Everything now is going to have to be much more compressed in terms of both cycle times and response times.
So how do you create that self-organizing capability to drive innovation and be focused? And the high-tech business is perhaps one of the toughest ones, because something can be a real failure until it’s not. It’s just an absolute dud until it’s a hit. So you have to be able to sense those early indicators of success, and the leadership has to really lean in and not let things die on the vine. When you have a $70 billion business, something that’s $1 million can feel irrelevant. But that $1 million business might be the most relevant thing we are doing.
To me, that is perhaps the big culture change — recognizing innovation and fostering its growth. It’s not going to come because of an org chart or the organizational boundaries. Most people have a very strong sense of organizational ownership, but I think what people have to own is an innovation agenda, and everything is shared in terms of the implementation.

First, Nadella explicitly starts by asking the purpose of management. And, true to the entrepreneurial mindset, the purpose of management is to clarify a strategy for the business, and to get everyone to align with it’s implications in their own area of responsibility. And he suggests that the company needs to up the intensity. Note: ultimately all cultural change comes down to people changing their behavior, and perhaps the values that underlie them. So, he is saying he wants people to up their personal intensity, and presumably, the ones that won’t will be ushered out.
This is the contemporary norm for established high tech business. Including the emphasis on innovation, and the implication that the role of management also includes acting as a funding source of innovative ideas to be tested within the company, in a marketplace of ideas.
Nadella’s recapitulation of the entrepreneurial baseline comes as no surprise: how else could he have gotten the job? And for a 39 year-old company that has only been run by two CEOs, one of which is the iconic Bill Gates, to try to become a mainstream entrepreneurial company instead of the original top-down, command and control machine that Microsoft was in the 90’s, well, maybe that’s a good start.
HIs statement about ‘a strong sense of organizational ownership’ is a reflection of the neofeudal management style of Microsoft’s first 30 years.
It may fall the the next CEO to make the more difficult adjustment, or Nadella a few years hence, if he survives. The next challenge is to move past the leadership-centric entrepreneurial model — flattened hierarchy with a small elite controlling strategy, an aligned workforce marching in step toward the official future, and where ‘strong culture’ is shorthand for lack of diversity, enforced consensus, and heteronomy  — and to transition to a much more agile, decentralized, and faster organization filled with highly autonomous workers: leanership.
The key to getting out to the edge of rapidly changing markets in a time of great uncertainty and change is not trying to build an organization where the elite makes the right bet and the rest carry the chips, but to allow many people to make their own bets, most of which may be in conflict. The only rational approach in a time of great uncertainty is to accept a higher degree of risk.
So when Nadella says clarity, alignment, and intensity I don’t expect to see the company becoming looser, more people-centric, more agile, or more innovative. On the contrary. At least not right away.
Once again, Nadella might have to start by breaking down the fiefdoms left over from the Gates/Ballmer neofeudalism that reigned for 30 some years, and this constitutional monarchy that he is proposing might turn out to be a necessary waypoint on the road to a more democratic and modern Microsoft. But it might be difficult to transition from being a Monarch to a Prime Minister.

Leanership trumps leadership

Two university professors interested in entrepreneurship wanted to test the assumption that entrepreneurs are motivated by the potential upside of starting a gazillion dollar business. Hongwei Xu and Martin Reuf polled 60,000 people — entrepreneurs and normals — and what they found disproved the assumption:

Alvin Lee, The entrepreneur’s motivation

The study […] looked at two groups of people: those who have just started their own businesses versus the general population. To gauge their risk tolerance, these two groups were given three options for venture investments: “a profit of US$5 million with a 20 percent chance of success” (option 1); “a profit of US$2 million with a 50 percent chance of success” (option 2); and “a profit of US$1.25 million with an 80 percent chance of success” (option 3).

General perception of the risk-seeking, nothing-ventured-nothing-gained entrepreneur would dictate that most business owners would plump for option 1. But the study proved otherwise. More nascent entrepreneurs opted for option 3 – a higher chance of profit, but less of it – than the general population, while a higher proportion of the general population actually opted for option 1 instead of the business owners.

So if money alone isn’t enough to make someone start their own business, what would? “Creating a business is very risky, it’s very uncertain,” Xu told INSEAD Knowledge. “Non-pecuniary motivations are more important than monetary motivations for people to start a new business. One is autonomy: People want to be their own boss. The other is identity fulfillment, which is more about people having a vision about a product or a service. But their employers do not give them the freedom to develop within the company structure. That is a key driver.”

Intrigued, Xu corroborated that desire for autonomy and the self-identity that comes from being your own boss, heading your own way. He got lots of positive feedback from entrepreneurs.

Morra Aarons-Mele suggests that those who don’t know — the normals in the study above — are often intoxicated by the concept of entrepreneurship, or ‘entrepreneurship porn’. But the motivations of many of those drawn to entrepreneurial start-ups are in fact what Xu and Reuf discovered: they are seeking autonomy and are actively repelled by the idea of a soul-sucking job following someone else’s vision for a company.

Her stats are frightening, and stand as a condemnation of work culture today:

I’ve come to suspect that the rise of “entrepreneurship porn” is at least as much about escaping a company as starting one. Most Americans don’t like their work. Data on Americans’ dissatisfaction regarding their work – in corporate environments, in particular, show:

  • 2 million Americans voluntarily leave their jobs every month (Bureau of Labor Statistics)
  • 74% of people would today consider finding a new job
  • 32% of employees are looking for a new job
  • Only 47.3 percent of currently employed Americans are satisfied with their position (Conference Board)
  • The majority of American employees are disengaged from their work (Gallup)
  • Entrepreneurs are more likely to have an optimistic view about their futures than other employees (Gallup).

My hope is that we can attack this the other way. Instead of 75% of workers quitting their jobs, how about a revolution in work? What if companies adopt common sense, but radically innovative ways to get people reinvested in their own work, and through that to crack the code of socially-scaled engaged work across the company.


The deeper form of entrepreneurship is to put aside the mythic know-it-all genius founder archetype and adopt the new way of leadership: leanership. To adopt lean principles across the board, in the core tenets of work culture, and not just about the product cycle.

What is largely missing is an acceptance by today’s leadership to embrace a new open work culture: one that is deeper and broader than the inauthentic and propagandized closed organizational culture of most businesses. This new deep culture is based on the core principle that the people doing the work of the business are as important as the work being done, and whose wellbeing is as critical as the imperatives of the business. And, among other outcomes that means far greater autonomy, more opportunities to develop mastery in new skills, and a social climate in which people can earn and benefit from the respect of their peers.

I have a second concern about ‘entrepreneurial porn’, which often takes a dark turn once companies grow past the three-guys-and-a-dog-in-a-garage stage. The sense of being on an endless sprint — a demanding but noble mission — can lead to a stress factory, where people work ridiculous hours, and everyone is supposed to subordinate everything in their lives to the company’s vision. And by ‘company vision’ I mean the vision of a small management elite. In the evil twin version of inspired entrepreneurial culture, people that don’t ‘fit’ get fired. And culling all the misfits can be simply restated as closing off dissent and disenfranchising employees that want to have a greater say in the work they do and what it is supposed to be about.

I often characterize today’s standard organizational model as the entrepreneurial company. The hierarchy has been flattened, but there are at least two ranks: those at the bottom and those at the top. The vision for the company comes from a handful of people, and others are there to execute against that vision. Preaching about great culture in such companies is often a form of indoctrination, and ‘consensus building’ is actually intended to crush dissent, and organize everyone around the gamble the company’s leaders want to make with the companies capital and people’s labor.


This new deep culture is based on the core principle that the people doing the work of the business are as important as the work being done, and whose wellbeing is as critical as the imperatives of the business.

Taking a step back: the entrepreneurial marketplace is something like the way that fish and reptiles produce offspring. They create a lot of eggs and spend very little investment in them. This is how Silicon Valley and today’s start-up marketplace works these days: thousands of entrepreneurial companies are created, and 99% go out of business in short order. Which is fine at a macroeconomic level, but is hard on the people involved.

But mammals — especially the primates and other social mammals — work the opposite way. We have few children and we invest a great deal of time and energy to raise them to adulthood. So, if you are starting a company — to build software, wash people’s cars, or sell tickets to the Moon — you might want to run it — at least in part — like a start-up, using lean notions like experimentation instead of opinions, and testing markets by conversations and working with prospective clients instead of creating a five year business plan. But if you are as committed to people as you are to following your own Pole Star, the deeper form of entrepreneurship is to put aside the mythic know-it-all genius founder archetype and adopt the new way of leadership: leanership. To adopt lean principles across the board, in the core tenets of work culture, and not just about the product cycle. This may well be what Tony Hsieh is doing as he steers Zappo’s toward the adoption of Holacracy, which is a highly formalized approach to leanership, and which has also be adopted by Ev Williams at Medium.

We have a great deal to learn from lean thinking, and if applied to the the greatest extent, it undoes the conventional notions of a leader-centric business, where collective behavior is demanded and imposed through top-down consensus building (or squashing dissent). As I recently wrote in Today’s business organization is an oligarchy, and that needs to change, we need to move to much more democratic organizations, and soon:

There is still room for visionaries, as much as before. There will still be founders, and leaders, and owners. But in order to be fast-and-loose the notion of direct supervision — and the strong ties involved — must be diffused. Increasingly high performing staff will demand greater autonomy, and not for selfish reasons, but to get things done quickly. Companies will create, find, and retain top performers, and create the context for high performance. As before, the narrative will be legitimacy of the organizational structure by efficiency, but a much greater degree of democracy will be involved since all work participants will voluntarily select the work to be done, and who to work with, rather than being told.

So, in the final analysis, if we want to fix what’s broken in business — where 74% are disengaged at work — we can’t just start fungineering, or buy yet another new social tool. We need to rethink the foundations of work, and get people reengaged. Entrepreneurial zeal is both a help and a hindrance in this case, so we need to be clear on its two-edged nature.