Marina Gorbis's Blog, page 1530

Aggressive Talent Wars Are Good for Cities

California is often ranked among the world’s most inventive regions. But most observers miss one of the major reasons why: the absence of non-compete agreements.

Barring non-competes is one of California longstanding strong talent mobility safeguards. Unlike most other states in the United States, but more like innovative Western European countries like Germany, the Netherlands, and Sweden, California has rules about allowing job mobility within markets. The California Business Code voids all non-competes agreements between businesses and their employees, while the California Labor Code restricts the ability of corporations to require their employees to pre-assign all inventions, even if unrelated to the job, during the course of employment.

California courts have been so adamant about enforcing the state’s prohibition of non-competes, they’ve held that companies who do not hire or promote talented employees who refuse to sign a non-compete (which would be void anyway if taken to court) are liable in tort and should be subject to punitive damages. They’ve even refused to enforce non-competes that were signed in other states, announcing them contrary to state policy.

Conversely, Boston’s Route 128 tech beltway has not flourished the way Silicon Valley has, in part because of restrictive non-compete agreements. Non-competes have contributed to the more rigid, vertically integrated, and prone to insourcing ethos of Boston’s high tech region.

California’s lack of non-compete agreements is the reason Marissa Mayer could assume the position of CEO at Yahoo! immediately upon leaving its direct competitor, Google. And, as it turns out, it’s the reason California’s cities are some of the most innovative in the world – and provides a model for fueling innovation and economic growth elsewhere.

Job-hopping at all ranks is part of the California knowledge economy, but the policy spills over to the industrial culture too, creating a culture of openness, movement, and networking, where companies know that the talent wars are a repeat game. Even though Californian companies face a higher risk that their best talent will leave, they also recognize the long-term benefits of talent mobility. And industry leaders learn to view the departure of employees not only as a loss (because of course there is a loss) but also as potential gain, in which former employees may eventually return, bringing new skills back with them.

Although most companies are keen to reduce turnover, a stunning number of new studies demonstrate how high employee turnover actually contributes to economic growth. Research by Matt Marx (Sloan) and Lee Fleming (Berkeley) finds that after Michigan began to allow non-compete agreements, the state experienced a brain drain of its best talent. Many decamped for California, especially those inventors with the most-cited patents.  In another recent study on VC investment and non-competes, Yale SOM professors Samila and Sorenson conclude that mobility restrictions not only impede entrepreneurship and start-up ventures, they slow the overall economic growth of a region. Studying a decade’s worth of data on over 300 metropolitan areas in the United States, including patent filings, levels of VC investment, and level of entrepreneurships, the study finds that relative to states that enforce noncompetes, an increase in venture capital in states that either void or restrict non-competes has significantly stronger positive effects on regional patenting rates, start-up rates, and job growth. In response to an identical influx of local VC, states that do not enforce non-competes experience twice the increase in patents, double the birth of new companies compared to states that enforce them, and three times the employment growth of non-compete enforcing states, benefiting not only the start-up segment of a region but also incumbents.

There is also a motivational aspect in allowing people to leave and encouraging them to stay using positive, rather than negative, incentives. In recent behavioral studies, my collaborator On Amir (Rady UCSD) and I find that participants bound by non-compete agreements and other post-employment restrictions did not perform as well and were less motivated to stay on task than those unbound. Participants in our experiments were more likely to quit the task and to make errors when they were asked to sign non-competes. Garmaise (Anderson UCLA) finds that non-compete enforcement strongly reduces executive mobility and shifts compensation from bonuses and performance-based pay to a heavy reliance on a fixed salary.

In other words, performance carrots work better than restrictive sticks. Think about it: human capital is not a static resource in the way real estate or building materials serve a construction company.  Human capital is both a resource and a living subject who makes constant judgments, decisions, and choices about the quantity and quality of outputs.

If you can’t legally restrict your talent from leaving, you’d find better more motivating approaches to retain it.

Capturing the Innovation Mindset at Bally Technologies

Bally Technologies, a leading provider of gaming systems for casinos, has earned more than 60 awards for innovation in just the last four years. It increased R&D spending from 7-8% of revenue before 2009 to 11-12% of revenue starting in 2010, and maximized the return on that increased investment. The result: Its return on assets tripled, from an industry-lagging position below 4% to an industry-leading position above 12%. How did Bally Technologies do it? Through an innovation excellence framework.

This framework is not new; we introduced a similar mind-set in an earlier post with 3M. But while the foundational elements are the same, Bally Technologies uses them in a distinct way. It has a more rigorous organization structure that divides responsibilities between the innovation team and development team, and strengthens management around the opportunity pipeline. The company combines this with an intense focus on execution and weekly course correction — but also uses innovation as a means to get the employees energized.

Bally Technologies has achieved great success, but only after making this framework its own. Using the five tenants we introduced before, here’s a breakdown of how the company does just that.

Innovative companies find the right opportunities by providing forums for customer voices and for researchers to proactively look for new technologies to benefit customers.

Bally Technologies uses customer panels to understand the voices of its customers and to shape new opportunities. Focus groups are also used to understand how engaging the games are, whether they need to be redesigned or fine-tuned, and whether the opportunity needs to be shaped before it becomes practical. This is done in specially designed rooms, where customer behavior can be observed without the customers becoming distracted.

Moreover, researchers regularly attend trade shows and seminars that showcase next-generation technology. This helps them come up with breakthrough ideas to explore.

Innovative companies create an environment that fosters the right balance between current and future with “and thinking.”

Bally Technologies has several mechanisms to sustain “and thinking.” Its Innovation Lab focuses on ideas and technologies two to five years out, not all of which come to fruition. Once a technology prototype has been focus-group tested and a viable business model is established, it is handed over to a new product development team in the mainline business units. These teams have disciplined processes to get the technology to market, generally with a one- to two-year product horizon.

This multilevel structure ensures that the day-to-day operations of quarterly and annual performance are not disturbed until the opportunity has matured, with predictability and repeatability that can be managed by the operations team. At the same time, Bally Technologies has a portfolio of ideas and patents that ensure the organization will stay relevant in the future.

Innovative companies create systems, structures, and work environments to encourage resourcefulness and initiative.

Bally Technologies actively emphasizes innovation. “We bring to market a steady stream of innovative products and solutions. This is possible because our employees are resourceful and have an innovative mindset, and we create the right climate for them by continuing our commitment to R&D across games products, systems, and interactive technology,” Bally Technologies’ President and Chief Executive Officer Ramesh Srinivasan told us.

Bally Technologies has created a rich set of structures, systems, and rewards to encourage resourcefulness and innovation, including cash awards like the Patent Disclosure of the Quarter ($5,000) and the Patent Disclosure of the Year ($25,000). There are also “challenges” to which any employee or group of employees can respond — an organization-wide crowdsourcing approach. For example, one specific challenge was, “What is the next wave of ideas that can be used to take advantage of location-aware mobile technology for our casino customers?” Responses are vetted for viability and patentability, and the winners are submitted to the annual Best in Bally Leaders in Innovation Award.

Finally, it has Kaizen events where both salaried and hourly employees gather together for a week, mapping processes in order to solve problems and streamline operations. The Kaizen events create not only fresh ideas but also a spirit of learning and cooperation through the company. Team presentations at the end of the week have become a powerful and proud part of Bally Technologies’ culture.

Innovative companies focus on the right set of outcomes. They tailor what is measured, monitored, and controlled to suit their focus, and strike the right balance between performance and innovation.

Bally Technologies prides itself on being practical and focused on outcomes. Every senior executive submits a weekly report that answers three questions:

What are three things in your world that are going well?
What are three things in your world that are not going well?
Are there any exceptional employee behaviors that need to be recognized?

A summary report is then sent to all executives; this creates an openness to share weaknesses, aligns priorities, and helps keep the focus on things that matter most. Take, for example, a plane heading from Boston to Phoenix. If that flight’s trajectory were just a degree off, it would end up in the Grand Canyon. But the fact is that planes are more than a degree off 95% of the time, and most planes land where they are supposed to. How do they do it? One key reason is dynamic course correction. The weekly report and the actions taken to respond serve the same purpose for Bally Technologies. It helps the company to take actions in time to make a difference.

Innovative companies have strong mechanisms to ensure a continuing focus on expanding the pie, by effectively converting nonconsumers into consumers, and providing richer solutions to current consumers.

Instead of focusing only on individual games and machines, Bally Technologies expands the pie by creating systems that connect the entire gaming floor. This provides the casino operators an enterprise-wide view of what works, what doesn’t, and what actions to take to improve performance. It then builds on that foundation to deliver the same great game experiences on mobile devices as on the casino floor and extend a casino’s ability to market, engage, and monetize their customers on these new distribution channels with its iGaming Platform.

The innovation mind-set is a game-changing asset for companies as well as individuals. Innovative companies like Bally Technologies create the structure, systems, and culture to enable their people to think and do things differently in order to achieve extraordinary success.

Executing on Innovation

An HBR Insight Center




Good News, Bad News: An HBR Management Puzzle on Innovation Execution
Why Conformists Are a Key to Successful Innovation
Implementing Innovation: Segment Your Non-Customers
Can Internal Crowdfunding Help Companies Surface Their Best Ideas?

Customers Care More About a Line’s Length than How Fast It Moves

A word of caution to companies that pool their customers into one queue with multiple servers: In deciding whether to join a line, customers care a lot more about line length than number of servers. Even if it’s moving quickly, a long line can put customers off, according to a team led by Yina Lu of Columbia University. The team’s study of supermarket customers showed that a line of 10 people can have a large impact on purchases, and increasing the queue length from 10 to 15 customers would lead to a 10% drop in sales.

Just Make a Decision Already

Strategic decisiveness is one of the most vital success attributes for leaders in every position and every industry, but few leaders understand where it comes from or how to find more of it. It is not surprising that picking one strategic direction and then decisively pursuing that direction are hallmarks of good leadership, if not boilerplate management skills. The big mystery is why these obviously important skills are still rare enough to distinguish excellent leaders from average managers.

In researching Why Quitters Win, I came to recognize the three primary sources of decisiveness — nature, training, and incentive — and also how you can manipulate them to claim an advantage for yourself and your organization.

1. Decisive By Nature. In a 2010 study, Psychologist Georges Potworowski at the University of Michigan found that certain personality traits (e.g., emotional stability, self-efficacy, social boldness, and locus of control) predict why some people are naturally more decisive than others.

When faced with two equally attractive strategic options, timid, less emotionally stable leaders who fear upsetting anyone will let the debate drag on for weeks or months before selecting a compromised Frankenstein solution that both sides can merely tolerate. At the end of the year, the team is moderately satisfied with their moderate impact on a smattering of moderately important objectives. The team successfully achieves mediocrity, which is then reflected in the leader’s mediocre performance ratings.

More decisively gifted mangers make it clear from the beginning that they will carefully consider both sides of the argument, but will ultimately choose what they judge to be best for their team. They make the decision early on, and move quickly to enlist both sides in executing her decision. Some members of the team are not thrilled with the choice but are quietly pleased to finally have some clarity of direction. The team makes significant progress in the chosen strategic direction, which is reflected in their high performance ratings.

2. Decisive By Training. In the mid-1990s, researchers Shelley Taylor of UCLA and Peter Gollwitzer at NYU discovered that when contemplating a decision we have not yet made, virtually everyone will temporarily exhibit the same personality traits — neuroticism, low sense of control, pessimism — that the Michigan study linked to indecisiveness. As soon as we make the decision and begin charting the steps for executing it, our brains automatically switch gears. All of the sudden, we feel confident, capable, and in control — the perfect mindset for behaving more decisively.

In other words, all of us have the potential to be decisive or indecisive. In a given day, most of us slip in and out of a decisive mindset. The excellent leaders in Kevin Wilde’s study have simply learned how to make “decisive” their default setting. That initial decisiveness puts them in a more decisive mindset which begets even more decisiveness and so on.

Paradoxically, it seems the best way to slip into a decisive mindset is to make a decision. But in my experience, simply training people to apply a simple process with a clearly defined start and end point gives them the emotional permission they need to get the ball rolling with that first decision.

3. Decisive By Incentive. In 2006 Agilent Technologies CEO, Bill Sullivan decided that his managers’ decisions were not keeping pace with the rapid industry changes. Within just 3 years, the company’s mangers leaped from the 50th percentile in decisiveness (relative to industry peers) up to the 82nd percentile. How?

Together with his head of Global Talent, Kirk Froggatt, Sullivan created a simple “speed to opportunity” metric in which they periodically asked every employee to rate their manger on decisiveness. The simple metric made Agilent’s managers constantly aware that timely decisions are both valued and rewarded in their organization.

Neither the training mentioned above, nor incentives like Agilent’s decisiveness metric invalidate data-gathering, collaboration, and critical thinking skills. These skills should be baked into the decision process itself. The point is to clarify for managers that all of these skills are merely means to the true end goal of making a decision. If the end result is not a timely decision, then it doesn’t matter how much collaboration or critical thinking took place.

How Goldman Sachs Drifted

Steven G. Mandis of Columbia Business School discusses his book, What Happened to Goldman Sachs: An Insider’s Story of Organizational Drift and Its Unintended Consequences.

Download this podcast

How to Design a Bundled Payment Around Value

The traditional fee-for-service reimbursement model is widely acknowledged to be a major driver of escalating health care costs. Because it rewards the volume of treatments, not the medical outcomes produced, it offers no way for the industry to reward its best providers and for patients to seek them out. It also penalizes cost reduction since eliminating unnecessary procedures leads to lower reimbursements.

For this reason, many health care practitioners and policymakers advocate a new bundled-payments model that reimburses providers with a fixed fee for delivering all the services required to deliver a complete cycle of patient care for a specific clinical condition. Bundled payments (BP) have the potential to reward providers that deliver more value to their patients — better outcomes at lower costs.

In practice, however, bundled payments have struggled to gain traction. One reason is many bundled-payment contracts use artificially short time horizons, not a complete cycle of care, which cause the contract to be similar to a traditional fee-for-service model. Another reason is these new contracts are negotiated at the payer-administrator level in a zero-sum cost-shifting process. Insurers strive to lower the prices they pay while the hospital’s contract administrators attempt to preserve top-line revenues. Physicians, left on the sideline while these new contracts are being forged, are further distanced from the new payment model because they often lack experience in measuring patient outcomes and have little confidence in their costs.

To understand how to address these concerns, an academic team from Harvard Business School brought together a group of orthopedic surgeons from the Boston Shoulder Institute and Harvard Pilgrim Health Care, a Boston-based insurer, to create a new BP model focused on patient value. While the final price for the contract has yet to be negotiated, we believe that the structure and development process used to create this bundle can inform other providers and insurers about how to create bundled-payment contracts that benefit all the stakeholders: providers, insurers, and, most importantly, patients.

The Motives of the Pilot’s Members

The Harvard researchers believed that their expertise in value-based health care delivery could help the physicians and the insurer construct a superior BP contract in which the insurer paid a lower price, providers preserved their financial margins, and patients enjoyed superior outcomes. Rather than a zero-sum negotiation, such a new contract would be a win-win for insurers, providers, and patients.

The surgeons (all physicians from Brigham and Women’s Hospital and Massachusetts General Hospital) participated because they wanted a reimbursement model that rewarded providers for delivering better medical outcomes for their patients at a lower cost. They were already measuring their patient outcomes and were in the process of introducing a costing approach that would enable them to participate in a new payments model.

Harvard Pilgrim agreed to join the effort because it recognized that traditional payment models were unlikely to help control rising health care costs. With regulators increasingly prone to challenge rate increases and employers unwilling to accept premium increases, the insurer felt that a BP model, co-created with clinicians, represented an attractive path for offering lower prices to its customers while preserving their access to the best providers.

The team has been meeting every two weeks over the past four months to design a BP model for a pilot project. The key elements of the project are the following:

Defining the Bundle

The working team selected damage to rotator-cuff tendons as the clinical condition to be bundled. Rotator-cuff repair (RCR) is a high-volume procedure with a definable cycle of care for which there is substantial variability in outcomes across physicians. Therefore, the team believed that RCR surgery offered an opportunity to improve outcomes and standardize treatment around best processes.

The team members wanted to define a cycle of care that corresponded to the medical condition of the patient. They selected a care cycle that starts with the initial pre-op appointment and concludes one year after the day of surgery. They agreed that this period would allow short-term surgical complications to emerge and be addressed within the bundle and that the recovery time would be sufficient to meaningfully measure patient outcomes.

The procedures and resources in the bundle would include pre-op appointment and testing, use of the operating room and facility services on day of surgery, surgeon, anesthesiologist and support staff, clinic visits, in-hospital drug and laboratory tests, and post-surgical physical therapy.

Two issues had to be addressed. First, although the bundle is tied to achieving measurable outcomes during the year, no business organization in any industry will wait that long for payment. Harvard Pilgrim agreed, therefore, to pay most of the bundled price 30 to 60 days after the surgical event; the remainder would be held back until the guaranteed outcome could be assessed at the 365-day mark.

The second issue was Harvard Pilgrim’s existing IT system, which had been designed to support the fee-for-service model. The insurer agreed to bypass the system and use manual procedures in the pilot study to track and bill patients and pay providers.

Selecting the Patient Population

The team’s goal was to be as inclusive as possible in specifying the patient population while incorporating the appropriate risk adjustments. The team identified a core group that would capture at least 80% of the potential RCR population. It also created risk-adjusted tranches to include patients who, based on medical evidence, had a higher intrinsic risk of failure due to medical comorbidities, age, body-mass index, and other factors and adjusted expected outcomes and a pricing differential for patients in each tranche.

Specifying Outcomes and Guarantees

The surgeons reviewed the clinical literature and their own research to select, with the insurer, the outcomes that matter most to patients. These included a mix of objectively measurable outcomes, such as rotator-cuff strength and the rates of complications that occur during operations, and subjective patient-reported outcomes such as pain, the ability to perform activities of daily living, and satisfaction with their outcomes.

The bundle incorporated the metrics in two ways. First, payments would be made to physicians and the hospital only if patients achieved specified minimal performance in each area. Second, if outcomes exceeded a more ambitious performance level, the insurer would make incremental bonus payments.

Such outcome-based guarantees and incentives are rare in traditional top-down bundled-payment contracts created without the input of frontline physicians. These contracts typically involve compliance with certain procedures (such as timely administration of pre-operative antibiotics) that may be easy to agree on and implement but may be peripheral to the ultimate patient outcome. The Boston Shoulder Institute surgeons and Harvard Pilgrim agreed that their set of metrics could provide patients better experiences and could be used to attract more patients to high-value providers.

To enhance transparency, the insurer intended to clearly communicate to patients, ahead of time, a price for the complete treatment cycle and the outcomes that could be expected. The physicians agreed to provide outcomes data to the insurer throughout the care cycle.

Ensuring Patient Engagement

Everyone recognized that the engagement of both patients and external professionals involved in the RCR cycle of care was critical for the project’s success. Toward that end, the Boston Shoulder Institute agreed to identify downstream physical therapists and to train, certify, and compensate them. The physicians also planned to conduct extensive patient pre-op education on narcotics, discharge, and physical therapy as well as provide 24-hour turnaround for all telephone calls, same-day office visits for urgent care, and a phone call from the physician’s office on the first day after surgery.

Harvard Pilgrim agreed to design new, innovative plans whose features included waiving such liabilities as co-payments if a member chose a high-value RCR provider for the surgery. The insurer expected to publicize the BP pilots through media and employer channels to attempt to drive increased volume to these high-value providers.

Estimating Costs

The Boston Shoulder Institute wanted to enter the negotiation with an in-depth understanding of all its costs over a typical RCR-care cycle, something that it could not learn from its existing costing systems. The Harvard Business School team helped the institute’s physicians and staff apply time-driven activity-based costing to measure the costs across the full cycle of care. They began by taking a careful inventory of resource needs and usage for each process in the cycle.

The figure “Initial Surgical Consultation” shows the detailed map for the first process. At each step in this process, the team identified the personnel and equipment required and measured the time consumed by each resource in performing that process step.

The team then accessed data from hospital and physician departmental budgets, the human resources system, and the equipment and facilities databases to estimate the “capacity cost rate,” the cost per minute of each person and piece of equipment used in the care cycle. It also calculated the cost of space used by each resource or clinical and administrative process. The team combined the time and cost estimates to obtain the total cost for surgical treatment of rotator-cuff tears.

Setting the Price

Going into the price negotiation, the Boston Shoulder Institute’s aim is to achieve better patient outcomes and thereby earn a margin over the actual costs incurred. This will come in several ways: the bonus payments for consistently producing superior outcomes; more business driven to them by the insurer because of the better outcomes; and, with a higher volume of patients, more cost-efficient processes. Harvard Pilgrim’s objective is to achieve a bundled price that represents a discount from its fee-for-service payments to facilities, clinicians, and therapists for the RCR care cycle (along, of course, with the superior outcomes). Looking down the road, it believes that if it can extend the new BP model to other conditions, it will be able to reduce its premiums and differentiate itself by offering superior, guaranteed outcomes.

Boston Shoulder Institute physicians and Harvard Pilgrim are now waiting for senior management at Partners HealthCare, the parent of Brigham and Women’s Hospital and Massachusetts General Hospital,  to review the proposed bundle and to negotiate the price for a trial period. The trial would allow the physicians, hospitals, and therapists to learn how to work together under the new arrangement and set the foundation for a long-term contractual relationship.

***

Throughout the project, the Harvard researchers have kept the discussions focused on the prize: aligning provider and insurer incentives to deliver more patient value. The interactions have given the providers confidence that the costs assigned to the clinical treatments were accurate and have assured the insurer that the provider’s costs will be be based on clinical best practices and high capacity utilization. Over time, as more provider organizations agree to outcome-based bundles, Harvard Pilgrim believes an informed market will introduce competitive pressures to sustain a fair sharing of value between providers and insurers.

All participants have been impressed by the collaborative ethos of the working group. Conversations are open and frank. Rather than a traditional negotiation about who bears which costs, the face-to-face interactions have built trust that is enabling the insurer and physicians to arrive at a win-win value-based solution.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and the New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
Health Insurance Exchanges Fulfill Both Liberal and Conservative Goals
Reimagining Primary Care: When Small Is Beautiful
Getting Big Results from a Small Business Unit

Scaling: The Problem of More

Start talking about the challenge of “scaling” with people, and you’ll find the term gets used to mean a lot of different things. For example, when entrepreneurs talk about it, they are usually struggling with matters of organization. Take Citrus Lane CEO Mauria Finley, whose company was experiencing some growing pains, appropriately enough; the startup sends monthly packages of great baby products to moms. After raising $5.1 million in capital in 2012, it grew from 6 to 20 employees.

Back in 2011, in Citrus Lane’s first six months, its small founding team worked in a house and ate lunch together every day around a big table. Any problem or opportunity that arose was dealt with right then and there, lest misunderstandings fester or business prospects slip away. Growing to 20 people working in a more traditional office setting did not strike anyone as extreme change, yet the team found it had to work a lot harder to unearth problems and opportunities. Even more tricky, they had to learn to articulate something that had been tacit: a shared understanding of goals, culture, and what it takes to succeed at Citrus Lane. Today, they constantly remind each other to spend time with newcomers and, as Finley emphasized, not just tell them these things when they are hired or remind them a few times. The scaled-up organization needs to hear about what matters most at Citrus Lane over and over, to live these beliefs every day, and to observe her and other leaders living them, as well. Deliberate effort is required because “it isn’t something that just happens naturally at lunch every day any longer. We are too big now.”

A growing employee base represents one type of scaling challenge. Since my Stanford colleague Huggy Rao and I decided several years ago to study scaling (it’s the topic of our forthcoming book Scaling Up Excellence), we have heard about many others – so many that we thought, early on, that we might need to put a finer point on which form we hoped to shed light on.

For example, when leaders of much larger organizations talk about scaling, they’re often talking about something more akin to replication. In a 2001 interview with HBR, UPS’s then CEO Jim Kelly described the growth of the company: “For decades, we’ve been able to grow tremendously simply by expanding our core business geographically. Really, UPS’s first 75 years was spent expanding across the United States: first to 13 states, then to nine additional states, and so forth. We just took our core delivery business and applied for rights in different states.” Today that kind of marketplace scaling often means a more complicated process of global expansion– such as IKEA’s opening stores in China, or Home Depot’s failed efforts to do so.

And then there are the organizational leaders who use the term scaling to describe their desire to find pockets of excellence in behaviors and beliefs in the organization and spread them further – a different challenge than adding new people and locations. We studied how Wyeth, the large Pharmaceutical firm (now part of Pfizer) made dramatic improvements in cost and quality across its manufacturing operation. It first created pockets of excellence in a few small teams in each of eight plants (calling them “mini-transformations”) and then relied on mentoring and coaching to spread the superior practices throughout each plant, from one team to the next.

Still another variation on scaling is when better practices are transferred across networks of organizations. Between 2004 and 2006, for example, a Boston-based nonprofit called the Institute for Health Improvement led an effort called the “100,000 Lives Campaign” to raise awareness in U.S. hospitals of the importance of some simple practices (e.g., more frequent and thorough hand-washing) in reducing infection rates. Ultimately, some 3200 hospitals comprising over 70% of U.S. beds participated in the Campaign. There is compelling evidence (including analysis done by members of a Stanford doctoral seminar that Huggy Rao ran about five years ago) that the number of preventable deaths in U.S dropped by about 120,000 during this period. (Other factors probably contributed to that decrease, but the Campaign clearly played a large role.)

In each of these situations, “scaling” refers to something different. But as we dug deeper into these and other cases, academic studies, and stories, we realized what they shared. Scaling challenges nearly always come down to the same problem: the difficulty of spreading something good from those who have it to those that don’t – or at least don’t yet. It is always, in other words, the problem of more.

Finley and her team face the problem of more – and the success of her growing organization depends on solving it. The need for more of what was working well also challenged Wyeth, IKEA, and the Institute for Health Improvement. Have their successful efforts come from the same mold in terms of what they are spreading and by what method? No – and yet, we are finding a great deal of commonality in the obstacles that arise and the decisions that must be made. We’ve discovered guiding principles that turn out to apply as other leaders and teams go about building and uncovering pockets of exemplary performance, and spreading those splendid deeds.

Sometimes the way to learn more about a subject is to focus in more tightly and become more precise in one’s use of language. But sometimes the challenge itself is big enough – like the basic problem of spreading something good to more people and places without screwing up – that it doesn’t help to narrow its definition. Sometimes, even with the use of a word, it’s better to scale it up.

Keep Your Name Off That Layoff List

A very important meeting is held, and you’re not invited. At this meeting, a senior leader announces that since targets were not reached, 150 managers will be laid off, and the purpose of this meeting is to create a list identifying exactly who those people will be. The key question for you is, “How do you keep your name off that list?”

In the 1960s Melvin J. Lerner described a psychological phenomenon called the “just world hypothesis”: People want to believe that bad things happen to bad people. After downsizings, for instance, it’s common for the survivors to believe that only the poor performers were fired.

But is that so?

To begin to answer that question, we gathered a substantial amount of data from one U.S.-based Fortune 100 company after it had gone through an organizational downsizing to see if we could identify factors that might predict which people were most likely to be let go.

One factor that wasn’t very predictive, it turned out, was a history of good performance reviews. Only 23% of those who were laid off had been given a negative review the previous year. The implication is that the other 77% who were asked to leave had no clue this was coming.

But when we examined the 360-degree assessments for the previous two years of all those who’d been let go and surveyed their managers to ask why, we found a very consistent array of problems, all of which were apparent in advance. Specifically, we were able to identify six factors that should have raised red flags. Everyone who’d been laid off shared at least two of the following:

They were not viewed as strategic. Many of the unfortunate 150 had not been working in roles that provided them with opportunities to create new strategies, and as a result colleagues rated them very poorly on their strategic ability in the 360 assessments. As a group, those who were downsized rated, on average, only in the 32nd percentile on their strategic ability – that is, worse than two-thirds of their colleagues. This is a factor that they might have rectified before it was too late, since they all had received feedback about their strategic ability in the previous two years. What stopped them? The picture that emerges is of leaders who worked hard but were too heads-down and narrowly focused on immediate operational, technical, or functional issues. Many of these were people with valuable technical or functional expertise. But the sad fact is that when times are tough, what most organizations need most are leaders who can create a winning strategy that will ensure competitive advantage.
They failed to consistently deliver results. Here, too, 360 feedback predicted problems: Those who were terminated were rated, on average, in the 37th percentile on delivering results. These were the people who over that previous two years had had missed deadlines, had committed to projects they hadn’t delivered, or had set the bar too low for others. While they perceived themselves to be working very hard, they looked to everyone else in their 360 evaluations like they were running out of energy and losing effectiveness over time. Some had reputations for not working hard; the older ones in this group appeared to their colleagues to have started their retirements early.
Their ethics or integrity had been called into question. This was not a common problem, but whenever it existed people were let go. These ethical lapses covered a wide range, from failure to comply with company policies, to inappropriate comments to or relationships with co-workers, to financial improprieties like moving excess funds from one budget year to another by generating fictitious invoices. These were indications, for the most part not of outright dishonesty but of poor judgment.
They had (very) poor interpersonal skills. Many people with weak interpersonal skills had been promoted based on their technical ability and then were not able to improve their social skills enough to succeed in their new roles. As a group, those laid off averaged  in only the 37th percentile in the 360 evaluations of their relationship-building and people skills. Many were viewed as weak leaders who were unable to influence others and foster necessary change. Some were difficult to deal with — or even hostile, volatile, angry, combative, and unable to manage their impulsive behavior. Some were described as creating a psychically toxic work environment. Why had the company waited for a downsizing to get rid of these obvious candidates? Keep in mind that many of these people were also described as brilliant.
They were resistant to change, both  personally and organizationally. In our global database of 360 feedback from 35,000 leaders, we’ve found a strong correlation between managers’ willingness to ask for and respond to feedback and their overall leadership effectiveness. What’s more, we’ve found that the willingness to ask for advice and respond to feedback declines over time (that is, older workers in our database tend to score lower than younger ones). In general, the worst leaders assume that they’re promoted because of their brilliance and all they need to do is keep on doing what they did in the past. But the best leaders continue to look for feedback and to find ways to improve. So it did not surprise us that many of the managers who were let go at this company were described as resistant to change and inflexible to new approaches in their 360 reviews.
They had lost sponsors or support. Over half the managers who were downsized indicated that they had recently lost the support of their sponsor. So in that fateful meeting where was no one to speak up for them. The lesson here is clear. Not only do you need to ask “Who will be your strong advocate?” but it’s important to have more than one.

That last factor is clearly political, and its pervasiveness suggests that everyone should be a little bit paranoid when layoffs are in the offing. But generally speaking, our research with this company offers up some strong evidence for the just world hypothesis, since none of the unfortunate 150 were laid off for that reason only. Everyone was let go for at least one, and generally more than one, justifiable reason.

What these results also suggest is that positive reviews, and even promotions, can bring a false sense of security. The disparities between the positive performance reviews and the negative comments on the 360s reinforce our longtime findings that it is your strengths that get you promoted – but also suggest that in uncertain times you should take a second look at your flaws, which may leave you vulnerable to being laid off.

If your organization were facing a cutback today, would be you prepared and certain your name wouldn’t appear on “the list”? We welcome your thoughts.

If You Want Innovation, You Have to Invest in People

As the convergence of digital technologies drives unprecedented levels of change in global marketplaces, it is very much a reality that a company must, as Bill Gates put it, “innovate or die!” In the race for relevance to future customers, the greater a company’s innovation capacity, the greater its chance of success.

So how does a firm build its power and agility in innovation? The answer is simple and, to my mind, obvious – yet, it is not the direction in which most innovation-seeking firms seem to be channeling their efforts. Having designed and managed innovation programs in a variety of settings, I know that a company’s innovation capacity comes down to its talent pool, and its commitment to building knowledge and competencies one individual at a time.

I can see how this foundational requirement — good education and ongoing training of people – has been obscured. Innovation is emerging as an industry of its own; an ever increasing number of suppliers provide a wide range of products and services to help companies be more creative, collaborative, and inventive.  I’ve contributed to the development of this industry myself with NineSigma, which is responsible for a large part of how open innovation is practiced today. Indeed, the whole point of open innovation is to encourage and enable companies to look beyond their internal resources and capabilities and engage with external sources of ideas and solutions.

But I am afraid that some company managers have missed the essential point of these products and services – that they are designed to work with a group’s basic strengths in innovation. For the most part, such tools assume that a firm has an existing talent pool with the intellectual capacity to generate ideas and turn them into value.  Even open innovation requires maintaining a strong internal competency to understand, qualify, and integrate the externally sourced solutions.

Before counting on any innovation offering from a vendor to change their fortunes, managers should therefore invest in two kinds of education. First, they need to ensure that the professionals they employ are current in their fields. Every discipline is experiencing accelerated development, and the rapid knowledge obsolescence that goes with it. Cushing Anderson of IDC puts it well:  “Knowledge leak is the degradation of skills over time, and it … can kill organizational performance in as little as a couple of years.” While it might have seemed reasonable in an era of slower change to put the onus on the individual to maintain his or her currency, firms today must make it their business to counter this leakage.

Second, organizations should give their people specific training in innovation. Hatching potentially valuable ideas and taking them to fruition is its own competency. It is not, moreover, an innate ability, but quite trainable. As in any subject, developing innovation skills requires learning some fundamentals and mastering them through repetition.  But fundamentals of innovation are not usually taught as part of science and technology training. It befalls organizations to train their talent pool accordingly.

Unfortunately, employee education and training can be hard to sustain, because it is an investment in an intangible.  In a survey by HCM Advisory Group, close to half of executives (mostly responding from the U.S.) did not characterize their company’s learning function as a strategic enabler.  About a third of those surveyed viewed that function as a necessary but costly contributor. Worst of all, executives at 1 out of 7 companies viewed learning expenditures as nothing but sunk cost! It’s no wonder that learning functions in organizations are not funded at a level commensurate with their importance to innovation.  Investments that correlate more directly and instantly with bottom-line results usually win the day.

Some mistaken beliefs on management’s part make it even harder to fuel innovation with education.  It is a known human tendency that to overestimate our depth of knowledge and the strength of our abilities. I’ve often thought that this was why, in the first three years of pitching NineSigma to a wide range of companies (from 2000 to 2003), only one management team, Procter & Gamble’s, quickly grasped its value proposition and integrated it into its innovation strategy (which it called Connect & Develop).

Sometimes, this overconfidence results because managers know they have hired smart people from the start. They are discounting the danger of knowledge leak. Sheer IQ is not sufficient for innovation, or even as important as current knowledge. In my own case, for example, I know there are many with higher IQs. My ability to innovate in sensor design comes from years of schooling in sensor design fundamentals and a commitment to continuous learning, both independent and collaborative, to keep my skills up to date.

Managers also commonly believe that there is much higher capacity for innovation than there is in the organization, and that it can be tapped through various strategies for quick results.  Witness the growing number of organizations that are creating workspaces with techie “Silicon Valley” looks and feels. The underlying assumption is that the innovative ideas are all there, simply needing to pulled out of the woodwork. (More generally, these organizations commit the basic error of mistaking correlation for causation.)  Let me say for the record that workplace design, beyond the provision of nice, functional space, has never in my long career of running creativity and innovation projects proved to be instrumental.

What has proved to matter is, again, the building of knowledge and innovation skills, which are much harder and take longer to get in place and maintain.  Leading-edge competency in one’s area of practice is indispensable; practice at turning ideas into reality is a must. And by the way, on some level, your people know this. Data from employee surveys consistently shows that a focus on talent development is a key factor in whether a firm ranks as a “best employer.”  Talent recognizes that, while learning is hard work, and the value is not quantifiable, it is the only way to remain valuable in an economy that thrives on innovation.  The more you invest in your people’s knowledge, the more innovation you can expect to reap. IBM’s Founder Thomas J. Watson, Sr. captured it well: “There is no saturation point in education.”

How to Juggle Multiple Roles

To juggle—to fit in, manage, organize, and cope with. Sometimes I almost feel like I can’t breathe given the number of roles that I have:  author, public speaker, leader, consultant, board member, boss, subordinate, peer, mom, wife, daughter, sister, friend, and my own person.

These days, we all take on multiple roles.  With each role, come different responsibilities. All too often, we try to play each role perfectly, yet the many responsibilities—whether related to work, child care, or service—mean we will inevitably disappoint someone. In spite of potential drawbacks, researchers have found that playing multiple roles can not only be gratifying but can also enhance our performance as we develops broader skill sets and social support networks.

Yet at the same time managing multiple roles can lead to role conflict and time pressures that add to daily stress and strain.  Multiple roles compete for our attention, with time spent on one role often coming at the expense of time spent on another– sometimes creating a win-loss situation for the various roles. Additionally, research indicates that role conflict and spillover can lead to stress, exhaustion, burn-out and lower life satisfaction – for not only those of us experiencing the conflict but for others in our lives as well. In short, our exhaustion and conflict can spill over to others.

Certainly, organizations should provide better policies and more flexibility to reduce the negative efforts of work and non-work conflicts, but we should also adopt strategies to managing role conflicts ourselves.  Research suggests several tactics for proactively managing our roles.

Prioritize roles. As we adopt various roles in our lives, we need to think about what we want to achieve in each.  Trade-offs are inevitable, and we should make them consciously.  We can start by listing and prioritizing our roles.  This list can help us decide which ones are most important to us and how we will manage them.  Work-life researchers commonly refer to this process as determining the centrality and importance of each of our roles within the scheme of our lives. Some people elevate one role over another (e.g., family over work); others elevate multiple roles to equal importance in their lives (e.g., family and work). By understanding our own values around our roles, we can make these choices deliberately. Baltes and Heydens-Gahir found that setting goals and priorities in both work and non-work roles helps alleviate stress and conflict.  By doing so, we can identify where spill over exists and find ways to manage it.
Think about the integration and separation of roles. Recent research has revealed that people differ in the extent to which they integrate or separate work and non-work roles. For example, some people prefer to leave work at the office and concentrate completely on non-work issues outside of the office and vice versa. Others allow for work and non-work activities to interact. Recent research has shown in fact that today’s millennials (born between 1982-1993) prefer to integrate their work and personal lives. Many are turning to work as a source of friendship.  Thus, finding a work place where they can also socialize is of utmost importance. There is no one right strategy between using integration or separation of roles. The decision to integrate or separate roles hinges on personal preference, but research indicates that the ability to manage our roles and boundaries based on our preference of integration or separation is the key to minimizing conflict and stress.
Determine important activities for each role. To manage our roles, we need to think deeply about each of them and identify their important behaviors. I can say that “I am an author.”  It means that I write articles and books. But, it is more significant to think about what I need to do to be an author.  A simple phrase change captures the difference:  I am an author versus I am being an author.  When I envision myself as “being an author,” I start to think about what behaviors I engage in. To be successful as an author, I should be researching a subject, reading other material, laying out the concept for an article, taking time each day to write, and working with editors and reviewers.  By laying out the behaviors associated with each role (e.g., I am being a mom, wife, friend…), we can determine if we are focusing on the right activities.  When I am being a mom, I am giving my attention to the kids – not responding to emails or thinking about work issues.  Sometimes, success means staying in the moment for our roles and focusing on the behaviors that we must do for that particular role.  Research also suggests that we may need to shift our own stereotypes and expectations regarding appropriate role behavior. Greenhaus and Beutell found that employed women who held traditional gender role attitudes experienced considerable conflict when they tried to fit the super-parent stereotype. They just couldn’t do it all the way they originally envisioned.

Overall, we need to manage each of our roles based on our personal motivation, energy, resources, and expectations. Even when we proactively manage our roles, conflict is inevitable. We can prepare ourselves for such cases by building a set of coping mechanisms, such as resetting our expectations, relying on others for support, and not engaging in negative self-talk, as we strive to be more effective in our personal and work roles.  Periodically, we need to take stock of how things are going and assess what changes we need to make to be more effective, particularly in our top roles.

As someone once said, “The trick to juggling is determining which balls are made of rubber and which ones are made of glass.”