Monthly Archives: April 2010
Rivals in a Slow-Growth Economy Executives Should Adopt a New Managerial Mindset, Say David Rhodes and
Daniel Stelter in Accelerating out of the Great Recession: How to Win
in a Slow-Growth Economy, a New Book Offering a Blueprint for Success
After the Great Recession NEW YORK, NY–(Marketwire – April 21, 2010) – Business leaders need to
rethink the way they run their companies in order to capitalize on a
series of “new realities” affecting business life in the wake of the
Great Recession, according to David Rhodes and Daniel Stelter in
Accelerating Out of the Great Recession: How to Win in a Slow-Growth
Economy (McGraw-Hill, 2010). The authors, senior partners at The Boston Consulting Group (BCG),
warn that business leaders face troubles ahead as the global economy
emerges from a sluggish recovery. But they also outline a way forward,
offering a blueprint for success in the aftermath of the Great
Recession. The emergence of a series of “new realities” of business life —
including the rise of government involvement in corporate affairs, the
changing nature of globalization, and the decline of shareholder power
— means that business leaders need to reassess their approach to
running the company. The BCG authors are available to discuss what they believe it will
take to accelerate forward during the long and difficult recovery
period ahead. It All Begins with a New Managerial Mindset For many companies, the climb out of the prolonged period of slow
growth will be even more painful than the initial shock of the Great
Recession. Margins remain razor thin — and to survive and win,
business leaders need a new mindset, which includes: Developing a new style of personal leadership. In times of
uncertainty, people are even hungrier for information. Managers need
to be honest and visible while calling for clear ownership and
deadlines for projects and tasks.
Rethinking what globalization may mean. Managers need to consider how
the changes in the global economy will affect their businesses.
Globalization will play out differently from the way most people
thought it would just a couple of years ago.
Honing political skills. Government intervention is likely to rise,
and workers, like politicians, are likely to regain some of the power
lost in the past decades.
Challenging the existing shareholder-value mantra. As companies move
away from quarter-to-quarter earnings and toward a longer-term
approach, they will need a greater focus on other stakeholders,
including their workforce and customers.
Reassessing compensation systems. Compensation systems will have to
emphasize the long term, reward relative and not absolute performance,
track measures that executives can influence, and move away from basic
P&L metrics. Managers will also have more “skin in the game” as their
share in downside risk increases.
Always being ready to mobilize for growth. Uncertain times lead to a
more risk-averse culture. However, executives will need to push
against this sentiment in order to prevent it from taking hold.
Recognizing and even celebrating not only successes but also heroic
failures will help prevent retreat. The authors also say that business leaders need to take significant
steps to protect their business fundamentals and to make smart, bold
investments in the future. In making these recommendations, they draw
on the experiences of companies that survived and thrived during the
Great Depression, the stagflation in the United States in the 1970s,
and Japan’s so-called Lost Decade. The Best Defense Is a Good…Defense As part of the new mindset, managers must work hard to protect the
company’s financial and business fundamentals. Renegotiate with suppliers. Locking in better terms can help ensure
survival in difficult times. For example, during the Great Depression,
F.W. Woolworth was able to shorten its contract periods with suppliers
from six months to 60 days to take advantage of falling prices.
Protect the company’s cash position. Lending standards have tightened
significantly despite government intervention.
Refocus inventory management practices. Inventories need to be aligned
with economic forecasts and the external environment in order to
mitigate the risk of inflation and exchange rate fluctuations.
Reduce debt levels. Financing and refinancing will continue to be more
difficult, so companies should reduce debt levels. Nonetheless, there
is an opportunity to take advantage of low interest rates, as
McDonald’s did in the early 1970s when it pushed past Burger King.
Drive down costs — particularly over the long term. Reducing
complexity, improving efficiency, and diversifying the supplier base
are the key ways to control costs.
Employ strategic pricing. Managers should consider simplifying or
unbundling products as a means of adjusting prices. Another option is
to lock in customers and push for additional, higher-margin add-ons
and services. A Good Defense Isn’t Enough: A Great Offense Is Critical, Too Few battles are won simply by standing your ground. Companies still
need to remain innovative and aggressive to move out of the economic
doldrums. Stay or become laser-focused on innovation. R&D dollars, while always
important, pay an even greater dividend in downturn periods.
Capitalize on consumer changes. During slow-growth periods and
recessions, customers are more likely to change their spending
patterns. Managers must not neglect marketing research or its twin —
targeted advertising and communications. These are usually the first
places companies look for cost-cutting measures.
Secure a deeper understanding of government intervention programs.
Companies need to know and, to the extent possible, influence where
government money will be spent and when the government will end or
reduce its stimulus spending.
Take the fight to competitors. Flexible companies can change the
competitive environment by attacking competitors and coming out on
Invest in the future–and divest from the past. Gaining key low-cost
assets can change the competitive landscape and eliminate smaller
competitors though acquisitions. Less strategic and profitable pieces
can also be jettisoned, freeing up capital to spend on any new
opportunities. To learn more about Accelerating Out of the Great Recession or arrange
an interview with David Rhodes or Daniel Stelter, please contact
Katarina Wenk-Bodenmiller at + 1 212 255 8386 or at
email@example.com. About the Authors David Rhodes is a senior partner at The Boston Consulting Group and
the global leader of the firm’s Financial Institutions practice. Since
joining BCG in 1985, he has worked primarily on projects involving
major strategy and organizational change in large financial
institutions, working with clients in Europe, Asia-Pacific, the Middle
East, and the United States. Daniel Stelter is a senior partner at The Boston Consulting Group and
the global leader of the firm’s Corporate Development practice. He is
also a member of BCG’s Executive Committee. During his 19 years with
BCG, he has participated in and directed many projects throughout
Europe with a focus on corporate finance (including M&A, IPOs, due
diligence, strategic alliances, and joint ventures) and strategy
(including portfolio strategy and value management). About The Boston Consulting Group The Boston Consulting Group (BCG) is a global management consulting
firm and the world’s leading advisor on business strategy. We partner
with clients in all sectors and regions to identify their
highest-value opportunities, address their most critical challenges,
and transform their businesses. Our customized approach combines deep
insight into the dynamics of companies and markets with close
collaboration at all levels of the client organization. This ensures
that our clients achieve sustainable competitive advantage, build more
capable organizations, and secure lasting results. Founded in 1963,
BCG is a private company with 69 offices in 40 countries. For more
information, please visit www.bcg.com.
Why do some social media and online groups succeed when so many others fail? How do different collections of online media and populations of authors and users differ from one another? How do network patterns of contribution vary? How do these differences illustrate the roles people play within their communities? How can I visualize and optimize my networks to assure success with social media?
Please accept this invitation and discount registration to the next Bay Area Network (formerly the KM Cluster) leadership retreat and action/research workshop –
Social Media Network Analysis:
Next Practices in Social Network Analysis, Tools and Media
Friday 30 April 2010, 8:30am – 5:00pm
Fort Mason Center, San Francisco, California USA
Social media, communities and collaboration are defined by dynamic network structure. The success of social media is determined by underlying social networks. Success is not determined by technology, applications or social networking sites. Social networks are the complex, omnipresent foundation of all social media, communities and collaboration. Comprehension is critical.
Social media network analysis visualizes, interprets and optimizes the complex network patterns and flows of social media, online communities and enterprise collaboration. Comprehension and mastery of social media network analysis fundamentally advances the success of applied social media and achieves the most favorable outcomes.
Network patterns of contribution and connection determines social media success. Visualizing these network patterns aids implementation, adoption, security and effectiveness of social media. In the workshop, a range of pervasive Internet social media including Facebook, discussion groups, Twitter, enterprise collaboration, communities-of-practice, blogs and email are presented, analyzed and visualized. Comprehensive network patterns are explored to illustrate the scope of variation among applications and between types of contributors. These patterns reveal steps to achieve continuous success with social media, communities of practice and enterprise collaboration.
Like the spreadsheet in the 1980s, the process diagram of the 1990s, social graphs and network analyses are the critical tools of 21st Century organizations, economies, the environment and civil society. Mastery of social media network analysis is critical to comprehension, performance and prosperity in all the new economies.
The Social Media Network Analysis (SMNA) workshop is practical, hands-on, low-cost and high-value. SMNA is highly germane to commercial concerns, the enterprise, non-profit organizations, small/medium sized companies, startups, investors, consultants and entrepreneurs. Your SNMA workshop is a small-group, close-in configuration of authentic conversation, hands-on experience, skill development and participant collaboration. It is designed for all levels. All are welcome.
The Future of Networks is the action/research successor to the Knowledge Management Clusters (KM Clusters.) It took a long time, but now, finally, KM is about connection not collection. The Future of Networks continues the long KM Cluster tradition of future-focused practice excellence, aka, Next Practices©.
Besides your Bay Area Network, new action/research networks are sprouting up everywhere. Please see your popular Texas Network for "Next Practices in KM, Social Networks and Web 2.0" on 23 April 2010.
Secure, discount check-in for the Social Media Network Analysis workshop is open and filling up fast. Registration includes meals, parking, refreshments, materials, Wi-Fi access, reception, group workspace and discounts.
Continuous skill development and relationships are critical to success. They are even more important under tough economic conditions. Low-cost Action/research clusters equip you with tools, methods and key relationships to achieve far greater competitiveness under all economic conditions. Besides, it is important to put the social back in social media and networks!
The Future of Networks
San Francisco, California USA
Secondly, another reason we have to think about reinventing management -first is the fact that there’s a whole in the soul of business today. The second is that we are wasting prodigious quantities of human capability. Historically, what we hope to get out of our employees is their obedience, and their diligence, and their intellect, their skills, and their expertise. Now, in this new, creative economy, we also need their initiative, and their creativity, and their passion. And those are things that are literally gifts.
You can’t command somebody to be creative or passionate, or show initiative. And so, given that they’re gifts, we have to say, well are people engaged? Are they willing to give us those things, or are they holding back? And again, the data here is not very comforting. Let me show a little bit of data. I showed a version of this last year, but I want you to look at it again, and then I’m going to give you some new data. I want to unpack this.
The data is really a study that is done every couple of years by Kowers Watson. They look at employee engagement around the world and they ask questions like, do you understand your company’s mission? Do your ideas matter here? Does your boss listen to you? And when you ask people those kinds of questions, they discover [and this was 90,000 people they surveyed around the world] that in no country are more than 20 percent of employees highly engaged in their work. And in most countries, it’s less than that. You can see here, the orange bar on the right, those are the people who are completely disengaged. The yellow bar, kind of engaged, show up, get the paycheck, and the blue bar, the ones who are really truly engaged. And so, if you’re a manager, I would argue, this data is almost scandalous. And yet, you go back 50 years, this data has hardly changed. Year after year, however we measure it, we get the same result. And part of that is because we invented management a long time ago, and we really invented it to turn human beings into semi-programmable robots. That’s what in 100 years we set out to do, and we succeeded at it. And yet, if you want a creative enterprise, you can’t live with this. And other professions wouldn’t live with this.
If you’re a physician and somebody told you that you are killing 80 percent of your patients, you’d do something about it. Or if you were a schoolteacher and they told you at the end of year that 80 percent of the kids were as dumb when they started back in September, we’d do something about it. And I think we’re going to have to do something about this.
‘Cause the truth of the matter is, the way we manage our human resources undermines human resourcefulness. You can just see that in this data. Now, you could argue that basically what we’re looking at here is the fact that a lot of jobs are boring. And indeed, many companies I think have made the mistake of assuming that commodity jobs are filled with commodity people.
Well, you know, a lot of work is not that intellectually engaging. It’s just inevitable that people are not going to be that excited. I just came from backstage and saw how hard those people are working back there in that kitchen, who are bringing out your coffee and your food and so on. You could just say that’s just a tough job to do. And yet, that’s really not the story here. When you get underneath this data, you discover something else. In this survey, 86 percent of employees said they actually enjoyed their job. That’s kind of amazing! But as they dug further, they discovered some other things not so good. Again, let me share the data. So, they asked questions like this. Do you believe as an employee that senior management’s actions are consistent with its values, that they try to be visible and accessible, that they communicate the reasons for their decisions, that they communicate open and honestly, and they have your best interest at heart?
And when you ask employees that question, let me show you the data, look at those two on the bottom. Only 38 percent say they’re communicating openly and honestly. Only 38 there, interested in my well-being; that’s what I talked about earlier, this divergence of interest.
It’s not just an integrity issue and ethics issue, it’s the fact that we don’t think these companies anymore have our best interests at heart. And, one more piece of data – they also asked in their survey, who those folks would most like to spend time with. I’ll let you look at that for a moment. Who would you most like to spend time with?
All right. I don’t know if you’ve thought about this, but the people who work for you would rather suffer the heartbreaking loneliness of life on a desert island than have a drink with you. No, not I – probably not. I’m kidding. I’m a little worried here that most of us would rather spend time with friends and other relatives than our spouses. Clearly, no one had to put their name on this survey.
We have to fix this. Because if employees are emotionally disengaged, I think they’re disengaged because they believe their managers are disengaged from them. I was writing about this a few weeks ago in a piece for the Wall Street Journal. I write a blog there, and they’re pretty conservative at the Wall Street Journal, so they often edit out my more colorful language, ’cause I had kind of written about this survey and I edited it. And as it turns out, it’s not that work sucks, it’s that management blows. But they took that right out. I don’t know why. Anyway, so that’s a second reason.
I think a third reason – we are now up against some unprecedented challenges that lie outside the scope of our legacy management practices. We simply cannot meet the challenges that lie ahead, using these 100-year-old management practices. And they said it’s useful to go back and remind ourselves what problem was management invented to solve. And, you know, these are the problems – reutilizing, standardizing work, maximizing discipline, diligence, doing things at a scale by coordinating and organizing complex activities. Unfortunately, those are not the high value added or urgent problems that organizations are facing today.
So, we have to go beyond that and face up to what really is out there. In a world that is all punctuation and no equilibrium, a world of accelerating change, every company is going to have to become adaptable and resilient as much so as they’re focused and efficient. And there’s kind of a management 1.0 roadblock here, and that is that there’s so much in our management processes that reflexively favor the status quo.
You’re looking at who we bring together, for example, for a conversation about strategy. Tends to be all the old goats, with their mental models in the past, and a lot of emotional legacy in the past. So, accelerating change is one of those realities. We also live in a world of enormous competition, hyper competition if you like. Today, companies have to compete with everyone on everything from everywhere. And that means the only antidote to this kind of margin crushing competition is constant innovation.
But again, you know, we have a management 1.0 roadblock here. Where management systems today tend to overvalue conformance and alignment and undervalue creativity and experimentation. We also are in a world where even knowledge itself is rapidly commoditized. It’s harder and harder to create real differentiation. That means we need the capacity to have every single employee, every day bringing their creativity, their ideas to work. To those gifts that I talked about earlier. And again, we have a roadblock. So many things in our management processes tend to focus on compliance, but don’t do a lot to encourage extraordinary contribution. And then, also, we live in an age where the once-hidden cost of industrialization is becoming apparent. Thank goodness we’re at a carbon-neutral conference here, but where those conference costs are becoming more apparent, more inescapable. And so, society is holding us accountable in new kinds of ways. And they really have a right to do that. So, all of these challenges are going to require a root and branch overhaul of the way we lead, manage, plan, allocate higher, and so on.
Now, the good news in all of this is we actually have some of the tools that we need to drive this transformation. And they’re coming from the social revolution that’s going on right now on the web. Let me just talk about that for a moment. ‘Cause one of the things I find interesting is, I would argue companies have to become more adaptable, more innovative, more inspiring, and yet, the web is already all of those things.
The web is the most adaptable thing human beings have ever created. It’s a platform for extraordinary innovation. It is endlessly engaging. We spend more time there now than we do on watching television. So, how does the web have all these qualities when our organizations mostly don’t? Let me get you to do a little bit of compare and contrast, if I can.
Pretend you’re back in college. You have to write a little essay here. And on one side, we have the social technology of management, right? As I said, one of human kind’s most important inventions. This is the technology of human accomplishment. It’s what we use to bring people together to solve complex problems, critical technology. And then, on the other side, let’s look for a moment at the new social technologies of the web. Probably the most important human invention in the 21st century is these new social technologies – Web 2.0, 3.0.
And so, if you had to compare and contrast these, how would you do that? What would you say about each of these as you looked at them? ‘Cause they’re both important. And maybe it would occur to you as it’s occurred to me that the one on the left is often stultifying, the one on the right is often liberating. The one on the left is fast becoming a drag on economic progress, having been a spur for economic progress. The one on the right, you know, is this amazing new global platform for rule-breaking innovation.
The one on the left is a futilistic system where often you have to suck up to get ahead. The one on the right is this kind of swarm of ideas, and opinions, and facts, and near facts, in which ingenuity is the only currency that matters. And as you think about those, our management architecture was a center to end architecture, right? That clear pyramid.
The web is an end to an architecture. All periphery. Very little center. And as such, it’s a direct affront to the organizational model we’ve used since the Pyramids were built. And everything about it tends to enhance the opportunities for human contribution. So, let me unpack this one level deeper. Why would we even think about the web the critical thing that will bring this about?
Well, I think to understand that, I– I want to take management down to its simplest possible roots, and unpack a couple of things. You know, if you think about it as– as leaders, as managers, we’re really only trying to do two really simple things. First of all, we’re trying to create the climate, and you heard a lot about it this morning. We’re trying to create the climate that will help to amplify human capabilities. So– so they’re bringing those higher order capabilities to work every day. Their passion, their creativity.
So, the kind of work setting we have, the tools that we give them, the way that we manage them, the freedom we give them, all of those designed to extend those human capabilities, to amplify them in the same way that if you’re a photographer, you know, digital photography, Photoshop allows you to amazingly amplify those capabilities.
But the second thing we have to do as leaders is we have to aggregate those capabilities together. It’s not just individuals being creative and so on. We got to aggregate them together so we can deliver complex services, complex products, and do it in an efficient way. So, those two tasks are fundamentally the essence of management. Aggregating and amplifying human capabilities. And to understand the power of the web here, you have to appreciate that historically, as human beings, we only have two choices on how to do this.
Two kind of architectural choices in terms of how to mobilize human beings. One of those choices was the market. So, the market is very, very good at unleashing what Kane’s called the animal spirits. If you’ve been on a Wall Street trading floor, if you’ve seen the haggling in an Arab Souk, or watched the bidding on eBay, we are passionate about buying and selling and so on. But markets are not very good at complex coordination. They can’t aggregate, optimize big complex systems. A market will never build the Boeing Dreamliner. So, for that, we had a different choice, and that was bureaucracy. And that’s the kind of management 1.0 operating model that we have in all of our organizations. And bureaucracy is really good at getting all the noses pointed in the same direction. Really good at coordination.
But as we all know, as the data says, it squanders a lot of human capability. But those are our choices. And it was a kind of a not-very-attractive tradeoff until now. Now, there’s a third option, the kind of highly networked but dispersed organization, what Daniel Weinberger called small pieces loosely connected. We used to simply call it a community, now it’s a community on steroids, but for the first time since the Pyramids were built, we may have a new alternative here.
And I think that companies that win over the next few years are those that are going to see the web not as a way of improving their operating efficiency, not about supply chain logistics, customer support, not as the tool to create a revolution in their business model, happening in music, publishing, and retailing. Those are all good things, but they’re going first of all to see the web driving a revolution in how they manage. In a way that hopefully will start to allow us to overcome some of those traditional tradeoffs we had to suffer with. So, how do I get scale without becoming sclerotic? Or how do I have enormous efficiency without treating human beings like machines? How do I get coordination without building a top-heavy superstructure of supervisors and managers and so on?
I think it’s an extraordinary, wonderful time to be alive, because we’re going to have the chance to do this. Now, you can be ahead of this curve or behind this curve, but make no mistake, this is going to have to happen, if for no other reason than the next generation of employees – if we are still using that word. I hope we’re not. But that next generation is going to demand no less. If you’re under 30 years old, the web is not a tool. The web is simply the operating system of your life. It’s oxygen. Us older guys, we still look at it as a tool, it’s a way we get things done, but it’s not completely infused our lives. And if you’ve grown up with that reality, if you’ve grown up in the ethos of the web – meritocratic, flat, open, and transparent – you have a set of beliefs that you will never surrender the rest of your life; a set of beliefs about where power comes from, the right to contribute and how decisions get made.
I’m not going to unpack many of these – we can talk maybe for a moment about a few. You certainly believe if you’ve grown up on the web that every idea should get a hearing. Ideas should compete on a level playing field. But what matters is your contribution, not your credentials. When you upload something to YouTube, when you write a blog, no one asked did you go to film school? Did you go to journalism school?
You should have the right to choose what you’re going to work on there online. Leaders’ powers on the web comes from the web, not down from the top. And so, I have a sense, I’m pretty sure about this, that over the next few years, as this generation goes into the workforce, the best and the brightest of them are going to want to work in organizations where the internal social reality mirrors the social reality of the web. And if that’s not true in your company, you’re simply not going to be getting the best people.
So, that for me, it’s the imperative, it’s inescapable. We can choose whether we want to be old guard or vanguard, but it’s going to have to happen. So, what now are some of the essential characteristics of these new organizations? And it’s kind of hard to see all these yet. ‘Cause this new model, the old model we’ve had for 100 years, it’s in our language system; it’s embedded in our processes, our thinking like the blue cheese. And here we sit today. We hear from HCL and there are other stories. I’ll tell you some others.
Companies are struggling with this, but there’s not a clear model here yet. By the way, that’s a challenge. ‘Cause you’re going to have to move here before all the questions have been answered. Like HCL, you’re going to have to go out and try a few things without a best practice manual. But for me, the essential characteristics are these. First of all, we are going to more and more try to break down our large organizations into smaller pieces. You know, monolithic things are not adaptable. And often, the only way today to ensure that an organization grows on the outside is to divide it into smaller pieces on the inside. And there’s both a strategic kind of a human logic for thinking about this process of cellular division. Big things tend not to be very adaptable. The biggest things that ever lived, the dinosaurs, disappeared 60 million years ago. The smallest things, bacteria, are still with us. Five million, trillion, trillion of them… and my hunch is they’ll be here long after we’re gone, if that happens.
There’s a lesson in this, and it’s not simply to wash your hands. The lesson is that when you have large units, people glommed together, it tends to drive out the intellectual diversity. You get a group thing. People are working on one business model, kind of one boss that thinking dominates.
There’s also human logic to this disaggregation. It’s hard to feel a sense of personal responsibility, accountability, ownership, when you are subsumed in a very big unit. It’s why at Google, the average size of the team is five to seven people. It’s why at W. L. Gore’s, it’s been ranked as the world’s most innovative company. When a Gore business gets to 200 people, they divide it up, ’cause social science tells us that’s about the limit at which you can feel any connection to a community. Once it gets bigger than that, you don’t feel responsible anymore.
So, the question for you in your organization over the last few years – have you been consolidating things or disaggregating things? Because today, I think it’s possible to get the benefits of consolidation with actually outputting things to get things in big organizational units.
A second core principle is going to be radical decentralization. Big things aren’t very adaptable, and neither are centralized things very adaptable. One of the reasons I think companies stumble and miss the future is that in most organizations, we have centralized the responsibility for creating strategy and direction. And what that means is we give a small number of people at the top the right to hold the organization’s ability to change, to hold its adaptability hostage to their own personal willingness to adapt and change.
When you find– an underperforming company, and company that’s going sideways, and I’ll be polite today, I won’t name names, but there are dozens, hundreds of them out there right now, you invariably will find a company where a few people at the top had way too much sway over the key strategic decisions in that company.
And that’s why so often deep change, strategic change tends to come in belated, infrequent and convulsive spasms. It’s not something that’s just happening all of the time. So, the only way to increase the capacity for adaptation is to start pushing the responsibility for business decisions down. Folks at the front lines, what Vineet calls the value zone, where they’re interacting with customers, those people should have control over the key decision variables that drive the business on both the revenue and the cost side. And essentially, the goal is that every employer, certainly every small team has a PNL. And they feel like they’re a business owner.
Is this hard to do? Yes. Let me give you an example. Whole Foods – interesting retailer, very successful. They have pushed authority down deeper in that organization than any retailer I’ve ever come across. A typical Whole Foods store is organized into small teams, ten or 12 people on a team. Packaged goods, fresh foods, meat, and so on. And those teams have a responsibility for all the important business decisions. What goes on the shelf, merchandise selection, pricing, hiring, staffing. Things that in most retailers would be handled at store manager or even more, regional or national level. Those are team decisions right on the front lines. In fact, to hire somebody, the store manager may go through a hiring pool, find somebody that they think will fit, but that candidate has to work for a couple of weeks with a Whole Foods team, and it takes a 70 percent vote of that team to bring that person onboard. So, every single employee there can say I am working with the people I hired, or they hired me. So, this is possible. Another example, Ubisoft, the French company; game development company, they do Assassins, Creed, and a bunch of other videogames. They divided themselves into small project teams, each one responsible for a game. That team has full budgeting authority. If they wanted to lay a game by three months, add another $100,000 in the budget, they don’t have to ask anybody. It is their decision. Now, they are rewarded on the game’s profitability. So, if they delay it, they’re only going to do it for a very good reason, ’cause they only get their bonuses once the game has paid back its core investment.
But again, this is the critical challenge we’re trying to get. How do you push enough data, enough information down so that the critical tradeoffs in your business are long term, short term, efficiency, innovation? Those tradeoffs are not being made globally at the top. They’re being made in real-time, every day, by people down there who have the information to do it.
A third critical thing – natural hierarchies. I think hierarchy is always going to be with it, because it has some kind of useful properties. But the question is how do those hierarchies get built? And when they get built top down, when big leaders appoint little leaders, there’s all kinds of pathologies. They tend to appoint people in their own image, and that reduces genetic diversity. If I put somebody in a job, I’m kind of now vested in them, and they’re going to have to screw up for quite a while before I’m going to admit that I made a mistake and pull them out. So, people tend to stay in their jobs when they’re underperforming for too long.
When authority comes top down, people spend a lot of their time managing up, and decisions are over-influenced by the views of one person, your boss. So, on the web, you also see hierarchies. But they’re built in a very different way. Let me give you an example. These are the top reviewers by ranking right now on Amazon. I don’t know who Mark is, but if you’re a publisher today, you will send a book to Mark at the same time that you send it to the New York Times. And so, you can see the number of reviews, what percentage voted helpful, and so on. Now, do you think it was Jeff? Did Jeff Bezos appoint Mark? Did he say, “Mark, I’ve been tracking your career for some time here. You’ve been doing a fine job, bigger and bigger responsibilities. I don’t think so. Mark got there because of his service to the community. That’s the same with Linus Tolvard at Linux. It’s the same with Jimmy Wales behind Wikipedia and so on. That on the web, a leader is always someone others are willing to follow.
Again, can you bring this into the real world? Yeah, at W. L. Gore, every team chooses their own leaders. There’s no hierarchy there. You’ll never hear of vice president, executive vice president, senior vice president, department head. No titles whatsoever. You are chosen by your team to lead the team, and if you don’t do a good job, they’ll choose someone else. But I asked somebody there once, I said, “How would you even know if you were leadership material there?” And they said, “Well, if you call a meeting and people show up, that would be a good sign.” ‘Cause nobody has to go to meetings and what they’re after at Gore is they want every leader to be someone others are willing to follow. What I would call natural leaders.
And I think now with technology, you can find the natural leaders in your own organization. You can do things – here’s a little idea. What if at the end of every e-mail, when you send an internal e-mail, somebody responds, at the end of that response, you get to evaluate the helpfulness of that e-mail – was it timely and was it useful. Every single e-mail that comes back in a request, I start to rank that person. So, I start understanding who is really responsive in this organization. I can track through e-mail who’s willing to respond to e-mails that are outside their direct chain. Who are the silo busters here? I can see who’s getting mentioned on external blogs and out there in the world. Who are our opinion leaders? I can track them through Google alerts, whatever it may be. Now I can start to find who the natural leaders really are.
I see a world where every employee is going to have a leadership score that’s completely independent from where they sit in the hierarchy. And it’s those people who are deeply connected, the kind of fat nodes in the organization, those are the folks that are going to be in the key decision meetings, and ultimately, I think, it influences pay. I think another critical principle that we’re going to need to apply in every organization is that of internal markets.
Now, I said markets have some limits, and they do. They’re not very good at coordinating but they’re good at doing something else. They’re really good at allocating resources in the right way. Markets are exceptional at getting the right resources behind the right things at the right time. Think of this example: As we sit here this morning, New York City has more than 8 million people in it, and they have a three-day food supply. Should that worry us? Should Mayor Bloomberg appoint a food czar to make sure they don’t run out of food? We don’t worry about it ’cause it’s the extraordinarily effective market system that gets the food to the wholesalers, the retailers, the restaurants, the households, without a whole lot of central direction. And when you look over time, markets like the New York Stock Exchange tend to outperform hierarchies. Because in hierarchies, that resource allocation process is politicized; have a lot of lags in it. Almost always, companies over invest in what is, at the expense of what could be – because existing programs and initiatives have powerful constituents who are very good at bargaining for more resources, and new things don’t. So, maybe we have to say how do we bring market logic inside of organizations?
Small company I know, a software company, about 200 employees, they now use this to drive all their investments and their strategy. They’ve created some internal markets. One’s called the Bow Jones, one is the SPAZDEK. Savings Bond Market. And an employee with an idea can launch an IPO on any one of those markets. If you have an idea for something that’s new, really, really new, you do it on the SPAZDEK. Extending the core of business, you launch it in the Bow Jones. Efficiency? Savings Bond Market. And when you launch that, you just need one other person in the company to sponsor it; cosponsor. Doesn’t have to be your boss. Every employee has $10,000 of mutual fun, F-U-N money, to invest in this market. And when you take your IPO and you launch it, you have to produce a budg-it. They spell that budg-it. It doesn’t have any numbers in it. It’s a list of small tasks that need to be done to push the idea forward. Every task can take no more than one-half-day of someone’s time. And then, they have people tracking these things. So, if you made some progress on a budget item, you put that up on the web. If you’ve had a great conversation with a customer, that goes up on the web. Money flows as people think ideas are doing better. And every week, someone comes in and revalues the stock price. Every employee has a ticker at the bottom of their computer screen, with the news and the stock prices from all these ideas.
The first year they did this, 200 employees did 40 IPOs. The most successful one came from an administrative assistant, with an idea on how this defense software company could have a play in children’s games. Not an idea that would’ve come from somebody who spent 20 years in defense software. And when you talk to the owners, they’ll tell you this is the only way we make strategy now. And when an idea gets in the top 20 by valuation, they give it a real budget, a real staff, and off it goes.
Looking forward, another kind of core principle is about really energizing and building communities of passion. Ask yourself, in this new management model, how does change happen? How does it get started? And I would argue it gets started in the same way it gets started in democracies. It gets started by small bands of passionate souls who believe something should be different. And the question is, how do we enable this in our organizations? Again, let me give you a small anecdote.
This comes from a 500-year-old institution. You may think you have some tradition; these guys are 500 years old. It’s the Anglican Church in the U.K. and I can tell you, they’re in a little bit of trouble. It’s a moribund organization – church membership and attendance in the U.K. is in single digits. And yet, a young pastor I happened to meet, Drew Williams is his name, a few years ago, took over a struggling little Anglican parish in Chorleywood outside of London. A couple of months in, as the assistant vicar, he was asked to present in front of the whole congregation, his strategy for how they’re going to revitalize. They had 500 members. In the U.K., that’s a big church. They could afford to do really professional programs, and so on, all looked very slick. But he had to stand up and say, how he was going to reach out and make a difference. So, he stood there in front of the congregation, and he said, “You know what; I don’t really have an idea how to do this. But what I really want to find out is how do I unleash the passions you have? How do we support you? What kind of difference do you want to make in the world?”
That’s kind of really turning things around, because traditionally, in that church setting, like every other organization, the leaders would put together the programs, and so on. Then they look for people to help out, staff, volunteers, and fund them. He just turned that around. He said, “I want my goal here to be how do I help you follow your passion?”
And so, that was a kind of a weird message – all of these people listening, they’re trying to figure out what he was asking for, and he ended by saying, “In a month’s time, I want 12 people. I’m hoping for 12 volunteers to come tell me you’re ready to be a leader of something important.” And at least in the Christian faith, 12 is a kind of a pretty good number to start things with. So, sure enough, a month later – and by the way, vicars, they pray a lot about this stuff too; so, a month later, sure enough, on a cold blustery evening, 12 people happened to show up from the congregation, and they said, “We have some passions. I am passionate about taking care of kids after school whose parents aren’t home. I am passionate about helping people who are caring for elderly parents or others with dementia or Alzheimer’s. Or I’m passionate about young people who are stumbling out of pubs at 4:00 in the morning, kind of plastered out of their mind.” And over the next few years, that little church would create 50 of what they called mission-shaped communities. Things totally driven with bottom-up leadership, and had to do their own funding. But these things just had an enormous impact on the community around them. I’ll give you one example. This is an old double-decker bus they took, re-outfitted it as a coffee bar, went into some of the most disadvantaged parts of their city, and they’re letting people have a cappuccino, something that’s out of reach of probably a lot of folks. And over the few years they did this, and it continues, that church grew from 500 to 1,600 people. And there’s a radically different kind of organizational model behind this. I’ve seen it happening at IDEO and I’ve seen it in other organizations.
Historically, this is how we thought. The institution hires people to deliver products and profits. But I think if you’re going to get the best out of people, we have to turn that upside down. We have to ask instead that individuals join communities to accomplish things, to gain a sense of fulfillment, and as leaders, how do we help that happen?
In the first model, the human being is the instrument. In the second model, the organization is the instrument. And I think this is the idea that’s right at the heart of employees first, if you’ve been following. It’s just that complete mind shift around employees first.
Another critical principle, going forward, is self-determination. How many of you, if you reflect back on your own life, how often were you excited by something that was assigned to you rather than something you chose to do? And you’re no different than anyone else. One of our challenges, I think, is to slowly expand the scope of autonomy – the choice of choice for human beings. This is what lies behind Google’s policy of giving every engineer 20 percent of their time to work on anything they like. It’s behind W. L. Gore’s principle that every employee is free to make their own commitments. That no one – no boss, nobody else can tell you what to do. You always have the freedom to say yes or no. Because after all, commitment is always voluntary. Compliance can be involuntary, commitment is voluntary.
Let me give you again an organization that’s thinking about this. Rabo Bank, a very conservative Dutch bank – completely solvent, so far as I know, and they’ve been running a little interesting experiment. In their headquarters, which has about 4,000 employees, they’re taking out all the offices. You’re free to work whenever you want, wherever you want, you can sit wherever you want. They’re improving their public spaces, the lounges, and the cafeteria and so on, and they’re giving every employee the choice of what laptop they use, what mobile phone they use. You choose whatever tools you think are going to be most effective.
And this really was challenging for traditional managers. ‘Cause now you don’t even see your team on a day-to-day basis. You don’t know when they come in to work. And so, it forced managers to renegotiate with employees and worry less about inputs and outputs. What value are you going to create over what timeframe? Okay, get on with it. I’m not going to micromanage you. So, we want to ask ourselves, where are we giving employees more control over their work lives?
I think that’s kind of a core principle here for building a high-performing organization. Permeable boundaries. The dividing line between employees and non-employees, insiders and outsiders is already blurring. It’s going to have to blur more. There’s an ad agency in London that’s already taking all of its most creative work, and bidding it out in the form of competitions, getting creative talent all over the world. And I think this is more and more the goal. Think about the people who’ve worked to create 185,000 applications for iPhone – they don’t work for Apple, but of course, they work for Apple. And so, the challenge today is not how do I grow my company, it’s how do I grow my ecosystem? How do I grow my platform? I’ll give you one example. You’ve probably heard of Top Coder. They do a lot of software development but with a very, very unusual model. They have about 200,000 registered coders all around the world, and if you give them a software project, they break it down into small pieces and they run competitions around those. The best code wins, and you as a customer, only pay for that code. It’s just a very different philosophy. Just to give you a little data there – in the last six months, they’ve had 11,000 different people writing software for them; ran more than 10,000 contests since the company started. If you write some code, and it gets used, you get a royalty stream whenever that code gets reused, and literally their top coder last year was paid $700,000, which is probably more than most software development people make! I haven’t checked, but it seems like a pretty big number to me.
Or you look at what Cisco’s done over the last couple years. This is a page from their iPrize. John Chambers put his photo right up there on the homepage at Cisco. We need another billion-dollar business; I don’t know where it’s going to come from. Kind of hard to admit that level of ignorance about something that’s so core to your strategy growth; and they got thousands of submissions the first time they did this. The winning team was paid $250,000 for their idea.
Transparency – another critical attribute of management 2.0. If trust is the bedrock of competitive advantage, and I think it is, then transparency is the foundation for building trust. Remember, only 38 percent of employees think their managers communicate openly and honestly. We have to change that. And I kind of like the metaphor of a glass house here. I wouldn’t want to live in one. I don’t look that good in the shower. But I’d like to work in one. I’d like to work in a company that feels that open.
I like Vineet’s habit of asking employees to send him their toughest, nastiest questions, and then responding to that, online. Or having employees rate their managers, putting all that data up. I like Google’s policy of not taking a decision unless all the people who have a stake in that decision are in the room. I like the fact that Whole Foods makes every manager’s and employee’s salary information completely transparent. ‘Cause we can’t have trust without that degree of transparency.
And I think we need to go further. What if we made every single internal e-mail searchable and open? You’d have to mark something private if you didn’t want it to be seen. What if we had every meeting that goes on in the company, we have a webcam, and we tag it by the participants, and the subject matter, and anybody who wants can go and kind of see that meeting after the fact, see what happens, and so on. So, we’re going to have to compete on transparency again. I think that’s what employees are going to demand. And you can ask yourself today, do managers in your company have better and more comprehensive information than frontline employees? If so, we need to change that.
Two more critical principles here: Peer review. In this kind of an organization, it’s more cellular, more decentralized. It’s tough for anybody at the top to really be in control, and so, more and more, we are going to have to rely on peers to do this. At Google, the span of control is one manager, 60 engineers. How do you control them in any usual way? You simply cannot.
And so, we’re going to have to learn something from academia here. Here’s a Radcliffe camera at Oxford. In academia, we’ve done pretty well for a long time using peer review. I can tell you and so can my friend Jeff, anybody who’s in that world, we don’t report to the Dean. We don’t report to anybody – except our peers, because when we publish something, they get to decide whether it was rubbish or whether it was kind of good. Again, can you apply that in business?
There’s a Japanese optician chain, with optician shops all across Japan, where the store managers have unbelievable freedom. You have freedom to invest, expand your shop, and change the format – anything you want to do there. The only thing head office asks is that before you do it, whatever thing you’re going to do, you have to talk about it with your peers. You put it up online; you expose it to all of that horizontal criticism. And if the consensus is yeah, this is probably good; you go ahead and do it.
So, is your company really exploiting this power? I came across a Brazilian company led by a friend of mine. They recently did away with all of their travel expense controls. I don’t know if you can even imagine such an environment. You don’t have to ask anybody for permission to travel. They don’t care what hotel you stay in, which airline you fly, how much you spend every day on food… Bring your receipts back, they’ll write you a check. Sounds completely crazy… If you told that to an average CFO, they’d start fibrillating. So why does it work here? The company’s organized into small teams. Remember, small teams. Number two, they are paid on the basis of profitability. Half their compensation depends on profitability, business owners. And when somebody comes back from a trip, they just take their expenses and they post them all online so you can see how much they spent. Really simple. If you came back with a $5 billion order, and you had a bottle of Dom Perignon champagne, the only question was, why are you drinking that rubbish? Next time have Crystal! Or if you come back with nothing, they’re going to ask you, why did you spend $20 on wine? Next time, water.
Finally, and I think I want to now end where we started with, on values. I don’t think you can build a high-performing company if it is not driven by a noble sense of purpose. I’d like you to think for a moment. A little experiment you can do. I’d like you to think about the words that get used in the typical CEO speech, or the letter in the annual report, or at a presentation to employees… just think about the language that we use when we talk about business; and it tends to be words like these.
I ask you, when have words like these ever driven extraordinary accomplishment? When I look at what Mahatma Gandhi did in leading independence in India, when I think about Michelangelo painting the Sistine Chapel, I don’t think they were driven by words like service and focus and superiority and so on. I think they were driven by a whole different set of human values. And every CEO I talk to tells me, ‘Gary, we’re trying to build a high-performance organization, but I don’t think we can do that if the core values of the company are venal rather than venerable’. You know, John Mackey, the founder of Whole Foods, when he started the company, said, “I want to build a company based on love instead of fear.” Sounds perfectly sensible to me. Makes complete sense.
But here’s the challenge for you. The next time you’re back in your corporate setting, in a meeting, there’s a lull in the conversation, I dare you, I double-dare you to say, “What we really need around here is more love.” ‘Cause I want to ask you, why are we so willing to embrace those principles in theory but we’re unwilling to be advocates for those in our own organizations. Why does it seem so completely foreign? Because these are the values that matter to human beings most. How is it that we have arrived at a place where the things that matter to us most, we can hardly even talk about for eight or ten hours of the day. You know, Apple is in the beauty business. It’s the only way you really reinvent four industries, and do it amazingly. They just care. You watch Jobs standing up there with the new iPad and he says, “It’s just so lovely to hold.” You know, no offense, but I really can’t picture Mark Hurd at HP going, “It’s just so lovely to hold”. I think for years, Disney was in the joy business. How do you put a smile on a kid’s face? The Grameen Bank is in the compassion business. So, what do we do about all this? Where do we go forward from here?
Hamel’s been talking about reinventing Management.. maybe it’s time to reinvent the whole economic model too?
Firstly, social sector has traditionally attracted sincere individuals whose personal values and ideologies motivated them to “do something” for the marginalized segment of the society. It is this commitment, which sustains their efforts, even in the face of failure and adversity.
Easy availability of large funds (which the donor has already committed to spend though not-for-profit organisations), on the other hand, also has the potential of converting the social sector into a “money-spinner” for those who are merely looking for a secure source of employment and income. The phenomenal growth of the number of organizations registered under the Foreign Contribution Regulation Act (FCRA) during last decade or so, is an indication that this may already be happening.
Dr. Madhukar Shukla posts his views – a must read!
Brands have rushed to Facebook to build fan bases, with some amassing millions of connections. The nagging question has been: What is the monetary value of these fans?
Social media specialist Vitrue, which aids brands in building their customer bases on social networks, tried to put a media value on such communities.
The firm has determined that, on average, a fan base of 1 million translates into at least $3.6 million in equivalent media over a year.
The company’s findings are based on impressions generated in the Facebook news feed, the stream of recent updates from users’ networks.
Vitrue analyzed Facebook data from its clients — with a combined 41 million fans — and found that most fans yielded an extra impression. That means a marketer posting twice a day can expect about 60 million impressions per month through the news feed.
“It’s important to understand that once you build that fan base, you want to make sure you’re leveraging it,” said Michael Strutton, chief product officer at Vitrue.
Not all brands are created equal. Vitrue found wildly divergent impression-to-fan ratios. Some marketers generated just .44 impressions per fan, while another saw 3.6 impressions. Strutton chalked that up to sexier brands having more engaged connections, giving them access to the news feed more often. The impressions are not unique.
Vitrue arrived at its $3.6 million figure by working off a $5 CPM, meaning a brand’s 1 million fans generate about $300,000 in media value each month. Using Vitrue’s calculation, Starbucks’ 6.5 million fan base — acquired in part with several big ad buys — is worth $23.4 million in media annually.
“It helps [marketers] justify the spend they’re making, especially in acquiring a fan base and engaging that fan base,” Strutton said.
Of course, the figures don’t include perhaps the most powerful incentive for brands building fan bases: social customer-relationship management. Marketers often use their Facebook hubs to inform fans of new products, services and promotions.
“When you start to [add] engagement value, it goes higher,” said Strutton. “We were trying to get an easy-to-understand valuation terminology.”
Interesting numbers on social media marketing 🙂