Marina Gorbis's Blog, page 1531

Good News, Bad News: An HBR Management Puzzle on Innovation Execution

It shouldn’t happen, but it does: You realize much too late that your innovation project is in deep trouble.

How did someone with your knowledge and training miss the signs of impending disaster? Were you misled by the data? By your own assumptions?

In a recent analysis of a massive, expensive innovation failure, Kim van Oorschot of BI Norwegian Business School, Henk Akkermans of the University of Tilburg in the Netherlands, and Kishore Sengupta and Luk N. van Wassenhove, both of Insead in France, found that the complexity of high-tech innovation efforts can blur teams’ perceptions.

The following highly condensed fictional case study draws on their paper “Anatomy of a Decision Trap in Complex New Product Development Projects” in Academy of Management Journal. While the details of the project they studied have been changed in this story, the essential findings of their research remain. Commentaries by project manager Roger Thomas and researcher Kim van Oorschot provide frameworks for understanding the team’s decisions.

See if you can determine where the team went wrong:

Ana is the experienced, 39-year-old project manager of a global semiconductor company’s strategically important effort to create an innovative driver-interface system for the 2017 model of a European automaker’s most popular passenger car. The customer needs the project completed by mid-2015.

Ana’s company has given her a 161-week schedule that includes 18 weeks of slack time to accommodate unforeseen delays. The plan is for the team to include about 100 full-time equivalents, or FTEs, once it’s up to full strength.

Week 9: As the team works to define the project, Ana notices that job applicants are few, and many lack the needed experience. Ana writes in her journal: “The good news is we’re only 15% below our optimal staffing level of 70 FTEs. The bad news is that the job market is really tight, and it’s preventing us from hiring the conceptual designers we need.” An independent steering committee’s first “gate” review of the project, at the end of the conceptual-design stage, had been scheduled for Week 15; she postpones it to Week 33.

Week 24: Ana writes: “The good news is that because we’ve extended the conceptual-design period, we’ve limited our need to increase staff. Assimilating some of the new people has taken longer than expected, and coordinating the designers’ efforts has been a challenge, but at least the team has 100% of the 90 FTEs it needs at this point to complete the conceptual design.

The only bad news is that the steering committee turned down my request of €2 million in additional funds for the 2013 budget. This would have been primarily a reallocation of some of the 2012 funds we didn’t use because of reduced staffing levels. Compared to our original plan, a larger part of the development phase will now be executed in 2013. Because of the delays, we’ll need to do more development work in 2013, though the budget remains unchanged. So I’ve been cutting costs like crazy, mostly by reducing the time scheduled for future tasks.” She reschedules the first gate for Week 42.

Week 35: “The good news is that because of our difficulties meeting our budget, we’ve managed to restructure the project to reduce the number of sites involved, reuse designs from earlier projects, and drop a number of minor customer requirements from the plan. As a result, the burn rate is a lot lower. Progress is only a little behind plan. The bad news: As we move into the detailed design phase, we’ll have to increase staff. That won’t be easy, given the job market.”

Week 42: “The great news is that the project passed the first gate with the steering committee’s full approval! The bad news is that we’re 27 weeks behind the best-case scenario. But as my father always said, there’s no problem that can’t be solved by hard work!”

Week 62: “The good news is that the company just decided to postpone the project for one year, which will give us all the time we need to catch up, and we have plenty of designers now on staff. To compensate the customer for the delay, the company has offered to increase the scope of the project and accommodate a lot of the exciting requirements that were dropped in Week 35!

“There are a couple of bits of bad news: There’s no increase in our budget, we have to reconceive the project and go through first-gate approval again, and the designers we now have on staff are detail designers. We can’t lay them off and hire conceptual designers, because the delay in our project is creating cash-flow problems for the company, and there’s a hiring freeze. We’ll have to reassign the existing designers to conceptual work, which isn’t their area of expertise. It’s nose-to-the-grindstone time!” She schedules the new first-gate review for Week 79.

Week 79: The team misses this deadline.

Week 85: Despite a cumulative investment of more than €20 million, the company cancels the project.

What went wrong?

The Experts Weigh In:

Roger Thomas is a project manager at Setpoint, an Ogden, Utah–based company that develops major amusement ride equipment for theme parks around the world.

One of the most important things a project manager can do is instill a sense of urgency in all those involved with the initiative from the very beginning. Ana didn’t do that. She allowed the team to indulge its natural tendency to feel relaxed about its upcoming deadlines, which seemed very far away, and she ignored critical issues that were piling up around her.

Complacency can have a severely negative impact on decision making and execution during a project’s critical early stages. I’ve seen that over and over in my 20-plus years as a project manager in various industries.

Without realizing it, Ana made decisions that allowed her team to slip further and further behind. Missing the first deadline at 18 weeks should have put the team into recovery mode and triggered emergency measures to rectify the schedule slip. Yet she was easily able to convince herself that things were fine. Once a team has fallen significantly behind, it’s often too late to remedy the problem without seriously affecting the schedule and budget.

A good way to instill a sense of urgency from the get-go is to break down large, unmanageable “blob” tasks into smaller subtasks of up to one to two weeks’ duration. The subtasks are closely monitored for timely completion and their progress is reported regularly to the entire team. If you miss one or two of the subtasks’ target dates, you quickly put the project on a remedial track, bringing in additional resources to make the time back.

For example, in the project’s first few weeks, when staffing shortages were becoming a problem, Ana should have taken emergency steps such as outsourcing tasks.

One of the most striking elements of Ana’s story is that she wasn’t alarmed at having depleted her pool of slack time at an early stage. On a big, complex project, every single schedule day is a precious commodity. A successful project manager will execute the plan with that in mind from Day One.

  Kim van Oorschot is an associate professor in the d epartment of Leadership and Organizational Behavior at BI Norwegian Business School.

Like so many new-product-development teams, Ana’s group received a nearly continuous stream of mixed signals during much of the project’s life. Research shows that mixed signals pose a serious interpretation problem in complex, dynamic situations: If bad news is quickly followed by good news, managers tend not to perceive it as strongly indicative that something is wrong. Instead, they interpret instances of bad news as anomalies – as acceptable deviations. That puts them in a dangerous position, because they don’t see the urgency of solving small problems as they arise.

Another way of putting it is that managers tend to focus too much on fighting symptoms instead of solving root causes. The root cause of the problems Ana faced was consistent understaffing. Instead of focusing on the negative events that resulted from understaffing, Ana and her team celebrated positive events that were caused by solving symptoms, like the reduced schedule pressure and the reduced need to increase staffing levels because of postponing the gate, and the successful restructuring of the project to reduce the budget. Ana and her team allowed these positive events to cancel out the negative events, which gave her team an illusion of control. But in the meantime, the understaffing issue was unresolved and kept causing new problems.

Unraveling positive and negative events can be difficult. Our brains just aren’t wired that way. When these events occur at the same time, we tend to average them out and conclude that the situation is not so bad and still under control. To make up for this shortcoming, teams should assign one person in each big project to keep track of just the negative events, such as understaffing, performance gaps, and schedule slippage. This person should record the information on a scorecard, which should be monitored by all of the team leaders.

Good record-keeping would have allowed Ana to monitor her project’s progress, or lack thereof, more accurately. It would have helped her see, for example, that she needed to deal decisively with understaffing during the project’s early weeks. It was too easy to blame the problem on the “job market.” She should have fought for a budget increase so that she could have ramped up her search and speeded the hiring process. If the company had refused, record-keeping would have helped her see that the only remaining option, short of halting the project, would have been to significantly reduce the project’s scope.

There are suggestions in her diary that Ana also seems to have made the mistaken assumption that no matter how far her team fell behind, it could always catch up. Because she wasn’t keeping track of the negative and positive events separately, but blended these into a high-level evaluation of the entire project, she didn’t see that the positive events were caused by fighting symptoms and that the “solutions” worked only in the short term.

Again and again, I’ve seen managers like Ana minimize the importance of negative indicators while failing to notice their steady accumulation. That’s how small problems become big enough to kill an entire project.

Executing on Innovation

An HBR Insight Center




Why Conformists Are a Key to Successful Innovation
Implementing Innovation: Segment Your Non-Customers
Can Internal Crowdfunding Help Companies Surface Their Best Ideas?
Why Large Companies Struggle With Business Model Innovation

Entrepreneurial-Minded Americans Cluster in the Western States

American states with the highest percentages of people with entrepreneurial personalities are clustered in the West; the top nine are Colorado, Utah, South Dakota, Nevada, Alaska, Arizona, New Mexico, Nebraska, and Montana, according to data collected by Martin Obschonka of Friedrich Schiller University in Germany and a team of researchers from hundreds of thousands of people who filled out questionnaires online. And, indeed, much of the country’s entrepreneurial activity, as defined by the rate of nonbusiness owners who start new nonagricultural businesses, occurs in the West. The bold pioneers who settled the American West may have left their genetic imprint on today’s inhabitants, the researchers suggest.

Too Big to Manage: JP Morgan and the Mega Banks

Every casual reader of business news knows that JP Morgan Chase & Co. is in a world of legal hurt.  But, it is not alone.  Many other major  financial institutions — Bank of America,  Citigroup, HSBC, Barclay’s, Wells Fargo, UBS, etc. — have their share of big dollar controversies with regulators and private claimants.  The immediate news coverage is focused on the size of financial penalties for the institutions,  on the potential civil or criminal culpability of  bank officials and on the reputational harm to both the bank and its senior officers.

But the profound  underlying question is whether these major financial institutions could have prevented the welter of business and related legal/accounting issues in the past and, more importantly, whether they can prevent such problems in the future. Of course, these institutions are always challenging aspects of regulatory regimes and engaging in disputes about future laws. But, at the end of the day, it is bank leaders and employees who must take the right business, legal and ethical actions under existing law. Are these huge major financial institutions not just too big to fail, their leaders  “too big to jail” (as some critics charge), but also “too  big to manage”?

The range of problems in the financial sector is striking: Bad trades with unforeseen and poorly understood billion dollar losses.  Poor controls over risk and valuations. Deceptive communication within the company and to the board. Flawed mortgage origination, loan modification and debt collection practices. Manipulation of energy markets. LIBOR rate rigging.  Participation in money  laundering that helps drug smugglers or terrorists. Questionable hiring of sons and daughters of Chinese officials. Some of these problems occurred before the 2008 crisis and some since then.  But they are not the regulatory esoterica that critics of Dodd-Frank worry about — if proven, these are core issues of wrong doing.

JP Morgan is the biggest of them all with $2.3 trillion in assets ,$1.1 trillion in deposits and approximately 260,000 employees, followed closely by Bank of America (also beset by myriad legal problems). CEO Jamie Dimon consistently espouses the virtues of size and diversity.  But, although profitable, JP Morgan has either settled, is settling, is being investigated for, or is in litigation about virtually all the issues noted immediately above and more, with consequences in the billions of dollars.  Moreover,  JP Morgan’s legal expenses since 2008 have totaled more than $18 billion dollars (which does not include the enormous internal resources expended on these matters or the cost of settlements).  Yes, JP Morgan is profitable, but it would be a stronger institution without these issues and all their complexities.  The expenditure of time, alone, has been enormous.

Partly to calm the waters as it tries to navigate through its regulatory perfect storm, JP Morgan now states that it has no more important task than addressing its current legal issues and preventing them in the future.  In his letter to shareholders in this year’s Annual Report, Dimon said that “we are now making our control agenda priority #1.” And, just days before the recent “London Whale” settlement with four different regulatory agencies was announced, Dimon wrote an anticipatory letter to employees reiterating the primacy of the control agenda and also announcing that the bank would add 5,000 employees in control functions (for a total of 15,000)  and spend an additional $4 billion (1.5B on actual outlays and $2.5B in additional reserves). These letters followed a company task force report in January that sharply criticized many functions at many levels of the company for the “Whale” fiasco.

What, you may ask, is a control agenda? Its purpose is to prevent undue business risk,  prevent violations of the spirit and letter of formal rules (financial and legal) and to prevent transgressions of  global standards (ethics) which an organization imposes upon itself to enhance sound performance or to promote integrity. A control agenda seeks an irreducible minimum in harmful mistakes, gross negligence and bad intentional acts. It has three broad activities: to prevent, to detect and to respond. It must be led not by staff, but by business leaders who devote appropriate resources, hire outstanding people and embed the prevent, detect and respond activities deeply in business operations. These business leaders must, however, be aided by highly competent legal, financial, risk, compliance, audit and technology staff.

In a complex organization like JP Morgan, with many separate entities and lines of business, an effective “control agenda” is a huge undertaking. It means “process mapping” the myriad business functions; assessing business, legal and ethical risks at various points; mitigating that risk through education, checks and balances; and ensuring that problems are discovered early and handled promptly. It is a vexing, complicated task which requires both outstanding leadership and management. It also requires a significant investment of time and resources which, while sizeable, amounts to far less than the huge resource drain which scandal can cause. Ultimately, it means having an open, transparent performance-with-integrity culture that encourages but bounds business risk and that does not cut legal or ethical corners to make the numbers.

In his letters to shareholders and to employees, Dimon effectively admits that the bank had not properly addressed the broad set of control issues in the past, but he states clearly the effort required when the control agenda is a first priority:

“Adjusting to the new regulatory environment will require an enormous amount of time, effort and resources… We have reprioritized our major projects and initiatives, deployed massive new resources and refocused critical management time on this effort. We are ensuring that our systems, practices, controls, technology and, above all, culture meet the highest standards…Eventually most of these new processes will be embedded permanently in how we conduct our business.”

One would expect a daily buffeting from regulators (and  the media) to concentrate the mind, and so Dimon’s words are hardly a surprise. Given the enormous management effort already devoted to the myriad issues, he and the board have clearly concluded that they cannot fight but must settle, if at all possible, and repair credibility and relationships with the regulators. And Dimon’s strong words will no doubt be followed by detailed, complex actions — voluntarily adopted or required by government consent decrees — in a variety of areas: board oversight; risk management; internal audit of control processes;  internal financial reporting and review; compliance with formal rules; education and training, etc.

But will JP Morgan’s attempt to correct past, systemic control issues actually reduce mistakes to the irreducible minimum, the best one can hope for in so vast an institution? And will the intensity and focus of top management remain in 12 or 18 months when the current crisis has passed? Of even greater importance, will the JP Morgan example send a signal  to other institutions regarding the necessary step function increase in resources, effort and leadership for an effective control agenda – and will that signal be received ?

One of the hardest corporate decisions is figuring out what level of resources to  invest in prevention:  the return is “avoidance” of catastrophic scandals (which can devour far more resources than the investment) and improved reputation with various constituencies.  But these avoidance and reputational benefits are hard to quantify when set against real outlays for people, systems and processes.  And that can stop needed control reform.

Ultimately, the issue of prevention is not about regulation. To be sure,  a core set of regulations in an industry like finance is necessary and will always exist: to impose important internal processes, to set substantive standards, to require disclosure to the marketplace and to deter bad conduct both through the rules themselves and through enforcement.  But all the rules in the world don’t matter without strong CEO commitment, backed by the board, a culture of performance with integrity that is real and permeates the company, and the resources, people and processes to do the right kind of work — based on business reality not just rules — in all corners of  the company.

 The perils of JP Morgan, once esteemed as the best manager of risk among the elephants, reflects a bank that, in retrospect and by its own admission, does indeed appear to have been too big too manage.  Whether the changes it is trying – or being forced — to make will more effectively prevent these kinds of business, legal and ethical problems in the future is, of course, uncertain.  Whether its example will have preventative impact on other mega-banks is, of course, also unknown.

Whether these huge financial institutions are, in fact, too big too manage on this fundamental set of integrity issues will be one of the most important and intriguing business stories to follow in the years to come.

Three Tips For Overcoming Your Blind Spots

Ernst Cramer, the late, great editor-in-chief of the German daily Die Welt, once recounted how as a college student in America in the midwest, just after World War II, he questioned in a math class whether the textbook was not mistaken in a particular instance. The lecturer reflexively, and rather sternly, dismissed the possibility. Several months later, Cramer was working on a farm during summer vacation when he looked up to see his professor jogging across the field from a parked car in the distance. “Cramer,” a repentant voice yelled, “you were right – the book was wrong and they’ve changed that section!”

Cramer related the tale as an endearing anecdote from his early experience in America. We’re similarly charmed by the graciousness and integrity of Cramer’s math professor. But we’re re-telling the story here because the professor’s first response reveals two failings all too common in managers. One is the reflex always to bestow uncritical faith in authorities (including one’s own superiors) and handed-down rules; the other, the quick dismissal of seemingly irreverent assertions.

We all have such blind spots, and they are weaknesses we should combat. Even that idea is unfashionable in an era when we are urged to focus on polishing strengths. In the world of professional music, it’s often the opposite. Most conductors, for instance, begin rehearsals by directing the orchestra immediately to the most difficult passages in a given piece, and spend most time on them, because they are areas of weakness.

But how do managers work actively to fight weaknesses of which, by definition, they are insufficiently aware? We’ll offer a few tactics we have used deliberately to counter the effects of three infamous cognitive biases.

To fight confirmation bias, have a devil’s advocate.

Confirmation bias refers to our tendency, when receiving new information, to process it in a way that it fits our pre-existing narrative about a situation or problem. Simply put, if you’re already inclined to believe that the French are rude, you will find the examples on your trip to Paris to validate your thesis. Disconfirming evidence – the friendly waiter, the helpful bellman – gets pushed aside. They’re just “the exception.” Warren Buffett says, “What the human being is best at doing, is interpreting all new information so that their prior conclusions remain intact.” He knows he is prone to it himself.

Attorneys, debaters, and politicians engage in a kind of confirmation bias when, in order to make a case, they select certain data while deliberately neglecting or deemphasizing other data. But confirmation bias can cause disaster in business and policy when it leads a decision-maker to jump to conclusions, fall prey to misguided analogies, or simply exclude information that inconveniently disturbs a desired plan of action.

What to do? The only remedy is to make sure you have a full and accurate picture available when making important decisions. When you have a theory about someone or something, test it. When you smell a contradiction – a thorny issue, an inconsistency or problem – go after it. Like the orchestral conductor, isolate it, drill deeper. When someone says – or you yourself intuit – “that’s just an exception,” be sure it’s just that. Thoroughly examine the claim.

Dealing with confirmation bias is about reining in your impulses and challenging your own assumptions. It’s difficult to stick to it day in and out. That’s why it’s important to have in your circle of advisers a brainy, tough-as-nails devil’s advocate who – perhaps annoyingly, but valuably – checks you constantly.

To cure hindsight bias, keep a diary.

As we move through life, we all keep a running record, at least at some level in our memory banks, of what worked, what didn’t, and why. The trouble is, most of us tend to have selective memories. Hindsight bias is confirmation bias’s equally problematic sibling. Again, we’re cherry-picking from a body of data, in this instance to confirm a theory about why something that has already happened (the 2008 financial crash, the re-election of Barack Obama, the decision to hire a senior executive or implement a business strategy) played out as it did.

There’s nothing wrong with having theories, mental models, and frameworks of analysis. On the contrary. The problem begins when critical, independent thinking ends and we fail to keep testing our templates. Hindsight bias impairs our ability to draw the right conclusions, as we imagine after the fact that a situation in the past was avoidable, or a decision simpler than it actually was at the time. This is a point made compellingly by the Swiss businessman and novelist Rolf Dobelli in his new book The Art of Thinking Clearly – a fascinating examination of 99 cognitive inclinations that most of us carry around, generally unaware.

Here’s one way to check hindsight bias: Keep a diary. And record minutes from important meetings. We have a friend who just for fun asks dinner guests in his Capitol Hill home in Washington – he entertains some pretty heady gatherings – to scribble on a piece of paper their predictions about politics, business, and world events. He tucks the scraps in a drawer, let’s them settle for a year or so, and then pulls them out for a reading over coffee and dessert. It’s pretty funny stuff. What becomes painfully clear is that we failed to predict much of anything – claims after the fact notwithstanding.

To overcome “groupthink” start with hiring.

In his 2008 book “Outliers: the Story of Success,” Malcolm Gladwell shares a cultural theory of plane crashes. He notes that Korean Air had more crashes than virtually any other airline in the world for a period at the end of the 1990s. Why? It seems likely that Korean traditions of hierarchy created the tendency – including in the cockpit when something seemed out of place or not quite right – to defer to superiors.

Companies like developing their own culture. It’s important. Yet a culture that binds too tightly suffocates, chokes off independent thought, and can create a Stepford-like environment. If you find yourself feeling exhilarated because everyone around you is thinking just like you, you should consider that a huge red flag. It may well be that people are self-censoring for fear of exclusion or retribution. There’s also ample research – psychologist Irving Janis is the pioneer in this area – that when groups become too close-knit they fall prey to illusions of invincibility.

Fighting groupthink should start at the hiring stage. Look for people who share your basic values and purpose, but who are also tough, independent, and able to tell you what they think. Moreover: check that decisions at all levels in the company are being made on the basis of rationality, not merely flowing from authority or a tendency (however subconscious) to conform.

Which brings us back to editor Ernst Cramer, who also liked to tell the story of how he was first hired by legendary German publisher Axel Springer. The two men had a meeting at Springer’s Berlin office that, in Cramer’s view, did not go very well at all. It seems there was a serious bone of contention, a rather vehement disagreement on a political issue that went back and forth between the two for some time. Neither was willing to relent.

Later that day, Cramer received a call asking him to return to meet with Springer again. The publisher greeted the young editor with the announcement, “Cramer, you’re hired.” The somewhat stunned Cramer reminded Springer that the two had spent half their time that morning in very spirited debate, to which Springer replied: “Exactly – that’s why I need you on the team!”

That’s self-awareness. That’s taking the blinders off for full vision. And exactly these things lie at the core of growth and great leadership.

Stop Trying to Engineer Success

Every organization that aspires to greatness has something to learn from relevant success stories of the past. But how should managers go about unlocking the lessons of those efforts? Many of their consultants advocate an engineering approach:

Find multiple examples of organizations that have coped with equivalent challenges successfully.
Reverse-engineer the reasons for their success, looking for features that they share in common.
Present these shared “success factors” as precepts, rules, and principles that should be implemented by all those who wish to achieve similar levels of success.

This approach sounds great, and the growth of the consultancies pushing it cannot be gainsaid. But it simply doesn’t work. The engineering approach can be described but not practiced.

Start by considering an extreme and high-visibility case. At the outset of the Iraq War, President George W. Bush expressed the hope that Iraq would become a federal democracy and a beacon to all the totalitarian states in the Middle East. The Americans then set about creating facsimiles of various institutions – the critical success factors of its own democracy. But if these were necessary conditions then clearly they were not sufficient. Iraq is far from a viable democratic system.

Similarly, in the management world, we constantly see the engineering approach being urged and falling short. As just one example, academics W. Chan Kim and Renée Mauborgne examined the emergence of outrageously successful companies like Cirque du Soleil, and claim to have discovered the keys. While never claiming that their case organizations, with their idiosyncratic histories and unique contexts, had consciously implemented their “blue ocean” principles, Kim and Maubourgne argued that it was “as if” they had. How else could they have moved their businesses into positions that so thoroughly defied competition?

Unfortunately this approach has done no more for corporate strategic success than it has for nation states. Managers are presented with inspiring stories from the past that they quickly discover cannot be replicated, and with abstract principles that sound incontrovertible yet cannot be implemented. They might, at best, produce facsimiles of certain features of great organizations, or get learn to say all the right words about what it will take to succeed. But while they can talk the talk, their organizations can’t walk the walk.

The fundamental problem with the engineering approach is that simple mechanics do not drive outcomes in complex systems. Where causes and effects are constantly subject to dynamic adaptation, as they are in ecosystems, societies, and organizations, conditions cannot be reproduced.

Moreover, we have yet to see an organization succeed by deliberately hewing to some equation for sure success. An example from baseball (or cricket) helps us understand why. Professional fielders in these sports catch most fly balls successfully. From the perspective of a physicist it is “as if” they can calculate the velocity of the ball off the bat, predict its trajectory and run to the spot where it will land. We know that they don’t actually do this; instead they maintain a constant angle of gaze between their eyes and the ball. If the ball rises in their field of view they run away from it; if it’s dropping they run toward it. A constant process of adjustment allows them to be at the right place by the time the ball becomes catchable. They gain this skill through practice and feedback, built upon a platform of native capability powered by high motivation. They improve their performance through deliberate practice and expert coaching. Teaching them physics and how to calculate the trajectories of ballistic objects is not only unnecessary. It can only distract them from the efforts that will truly help them catch more baseballs.

It’s the same with successful companies (and nations); while they all seem to arrive at the right place strategically, they don’t get there by “implementing” any abstract engineering principles. They get there by high levels of motivation (and at the corporate level no one gets up early to maximize shareholder value), a guided process of trial of error, practice and feedback. Trying to teach them abstract principles derived from other successful companies or nations is not helpful in this effort.

What is needed is an ecological approach to learning from the past, which is rather different from the engineering one:

Study successful organizations to appreciate the rich contexts and processes involved – their histories – but not to distill generic precepts and principles from them.
Focus intensively on the organization at hand to understand the opportunities and challenges – the potential – inherent in the current situation.
Resolve to control the controllable, preempt the undesirable, and exploit the inevitable to produce outcomes that none could have anticipated.

Unfortunately, there are no short cuts to excellence. We should always try to learn what drove the success of other organizations, but never believe our own success can be as simple as borrowing the keys. We must pay attention to the innovation bubbling up in our own organizations, and work to spread it further – not try to transplant what has grown up elsewhere, in very different contexts. Our focus should be on fostering communities of trust and practice, disciplined yet free, from which brilliant strategies can emerge organically through doing and learning. In short, we need to recognize the inherent complexity of organizations and work to cultivate excellence within them, not try to engineer it from without.

 

This post is part of   a series   of perspectives leading up to the fifth annual Global Drucker Forum in November 2013 in Vienna, Austria. For more on the theme of the event, Managing Complexity, and information on how to attend, see the   Forum’s website.

How “Micro-Moves” Can Drive Major Health-Care Change

The complexity of today’s healthcare organizations makes it hard to change the way they do things. Conventional wisdom holds that real transformation requires bringing in consultants, undertaking large-scale and highly visible action, and jolting the organization into change.

But there’s another, far less disruptive approach: what I call “micro-moves.” These are small and often barely visible actions and interactions that my research and that of others has found to generate real and consequential change, rather than derailing it as sweeping organizational makeovers often do. By inviting collaboration in the change process from people across the organization, micro-moves tap collective energy and build enthusiasm that is essential for driving change.

One such collection of micro-moves is “discovery.”  These actions encourage people to notice their taken-for-granted assumptions regarding how things are done, reconsider them, and create alternatives.  For example, a team of managers and clinical leaders at a medium-size health system, Thedacare, in Appleton Wisconsin, gained invaluable insights about their own care delivery process simply by walking the “care path” with patients.

Early in her tenure, Kathryn Correia, an executive in this health system at the time, brought together managers and clinical leaders to figure out how they might change inpatient care delivery to improve quality and safety.  As they talked they soon realized that they had very little understanding of how patients moved through the system.  Although all participants knew how patients navigated within their own areas of treatment and their units, they had little idea of how patients travelled between admission and discharge, or what patients experienced on the journey. So, the group decided to walk the actual care path themselves, first as if they were patients, and then alongside the patients through real-time care delivery.

In a second session, the group explored how they could best learn about patients’ subjective experience as they navigated the system. They generated open-ended questions to ask patients when they accompanied them that would illuminate their experiences – questions such as, “Would you share with me what being a patient here is like?”  “What was it like just now when (describe situation concretely) happened?” “Could you describe some other experiences you have had here as a patient?” And they decided to leave behind their medical frocks and suit jackets in order to slip out of their “expert” roles. These gestures – leaving their “uniforms” behind, walking the care path, engaging patients with open-ended questions – are examples of micro-moves for discovery.

As they walked  with patients, the team was surprised to discover how difficult the route was for many patients and how truly arduous it was for the elderly and the very ill. This insight led the team to other discoveries about the burdens large and small patients face, such as having to return at a later time to complete diagnostic tests or having to repeatedly answer the same question as different providers come into the room.  Understanding these hardships and sources of anxiety prompted the organization to redesign the care delivery model around the patients and their experience rather than around provider convenience.

This new model is organized as a series of care phases occurring between patients’ admission and discharge that is similar for all patients.  The first phase involved a coordinated care team of a nurse, physician, pharmacist and discharge planner meeting in the patient’s room to conduct an admitting assessment and create a single plan of care.  Stopping points marking the end of each care phase are built into the plan to assess how the care is progressing. If all is going well, the nurse advances the patient to the next phase; if not, the nurse determines the reason and has the authority to resolve the matter, by, for instance, calling clinicians back to the bedside or following up with ancillary services to avoid delay and needless trips for patients.

Although walking the patients’ path is just one example of micro-moves for discovery, it powerfully conveys how groups can gain insight into previously invisible problems and foster momentum for change.  In this case, the team’s experience led to three positive individual and organizational outcomes:

It moved leaders and clinicians out of their familiar roles, allowing them to better understand the patients’ perspective and the need for change.
It allowed insiders to design and execute needed change that both aligned and stretched the organizational culture through infusion of new ideas. This allowed the organization to transform organically rather than being jolted into change by outside consultants.
It cultivated insiders’ beliefs that their efforts can make a real difference in improving care. This in turn generated momentum and spurred dedicated effort to implement the change.

The insights gained led to the development of an innovative care model that has received widespread attention for its positive outcomes. Health Affairs highlighted the model in a series of profiles of key innovations in healthcare, reporting that in units where the model had been implemented, both cost and average length of stay had declined, nurse productivity had increased, and the percentage of patients satisfied with their care increased. The model was also detailed in a recent post by Leonard L. Berry and Jamie Dunham on HBR.org.  As word has spread about the success of this new care model, people have come from far and wide to visit ThedaCare to learn more about the model and the unique change management program that enabled it.

Engaging insiders in micro-moves may lack the dramatic flair of bringing in a S.W.A.T. team of consultants, but small moves, when many are taken together, can add up to big and lasting change that benefits patients, energizes staff and improves the healthcare system.

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

Why Conformists Are a Key to Successful Innovation

When my colleagues and I were interviewing a corporate executive about innovation practices, we heard something very interesting that says a lot about the risk of involving too high a proportion of creative people in a radical-innovation group.

The company had set up an “innovation forum” where employees could meet every two weeks to talk about new ideas. Managers expected wonderful things to come out of it. The forum attracted some of the smartest people in the organization, and after two years, a lot of excellent and radical ideas had been discussed.

But not one of the ideas was implemented.

The company realized that the execution problem had to do with the composition of the group. The forum was mainly attracting creative people.

Taking that insight as a cue, my colleagues Miriam Erez and Eitan Naveh of Technion-Israel Institute of Technology and I began looking at what makes an optimum innovation team – obviously you need creatives, but what other cognitive styles might be necessary?

We found that conformists, of all people, are the key to balancing the creatives. If you have the right proportion of conformists on an innovation team, they can dramatically increase its output of radical innovations – not just ideas, but workable products.

Creative people’s tendency to generate conflict and their dislike of rules may hinder team performance. Conformists, by contrast, diminish conflict, follow the rules, and contribute to their group’s confidence and cohesion.

Roughly speaking, on the most innovative teams we studied, creatives constituted 20% to 30% of members, and conformists were 10% to 20%. People who scored high on “attention to detail” accounted for up to 10%. The rest represented a mix of thinking styles – people who don’t score high any of the three cognitive styles.

So let’s say you’re building a radical-innovation team. How can you know who’s a conformist? There are psychological tests you can use, but we’ve found that managers who truly know their people tend to be able to pick out the conformists, just as they can pick out the creatives.

Conformists tend to be the people who know how to get along with others. They know how the system works and they adhere to the rules. They have an eye for which ideas will be accepted by others.

As you build your team, be careful not to overdo it on detail people, who tend to be risk-averse and uncomfortable with ambiguity. They can squelch nascent ideas. You don’t want the detail people forming a bloc.

You might get lucky and find creative people who are also conformists. Those people do exist. In our study of 468 people, we found that 7% scored high on two of the three cognitive styles. You might even find creative people who are conformists and detail-oriented. But don’t hold your breath: Just 3% of the people we studied scored high on all three styles.

And don’t overlook the importance of the people who are “none of the above.” I believe that people who don’t score high on any of the three styles tend to be the ones who form bridges among the creatives, the conformists, and the detail-oriented people. They foster understanding among the different types.

Creative people can be disruptive. Managers sometimes use negatives in describing them: hasty, absent-minded, argumentative, easily distracted, antisocial, even “strange.” But they’re critically important to innovation. Their uniqueness helps them see beyond the commonplace. The trick is building an innovation team that will nurture and constructively filter their ideas, putting their special talents to work for the benefit of the organization.

Executing on Innovation

An HBR Insight Center




Implementing Innovation: Segment Your Non-Customers
Can Internal Crowdfunding Help Companies Surface Their Best Ideas?
Why Large Companies Struggle With Business Model Innovation
Innovation Isn’t Just About New Products

Men’s Self-Esteem Drops When Their Female Partners Succeed

Men who were told their romantic partners had scored in the bottom 12% on a test felt better about themselves, unconsciously, than those whose partners were said to have scored in the top 12% (0.47 versus 0.25 on a zero-to-0.7 “implicit self-esteem” scale), according to Kate A. Ratliff of the University of Florida and Shigehiro Oishi of the University of Virginia. The female participants in the researchers’ series of experiments showed no such decline in implicit self-esteem when their partners failed. Because men are generally more competitive than women, they may be more likely to interpret a partner’ success as indicating that they are somehow deficient, the researchers suggest.

To Improve African Education, Focus on Technology

Africa is a hopeful continent with an exuberance driven by minerals, hydrocarbon, and commodities. These present drivers of its economy, however, are under threat from technology. Nigeria’s earning from crude oil is dropping because of America’s shale gas renaissance. The long-view trajectory of electric vehicles suggests a future where electrons will power more cars than carbon compounds. Without the ability to create knowledge through quality education, the sustainability of Africa’s new-found optimism remains questionable. Of the 400 top global universities, only three are in Africa.

Nine years ago, I enrolled in the Johns Hopkins University doctoral program. My first semester was transformative; I experienced top-rate academic quality. I used the knowledge to start a company, pioneering the embedded electronics sector in my native Nigeria, with partnerships from U.S. publicly traded companies. All through, Africa was on my mind as I benchmarked my new environment to what I left behind. I founded the nonprofit African Institution of Technology to help universities in the region develop capabilities in emerging areas like microelectronics, biotech, and nanotechnology. Over the years, I have visited more than 82 African universities and held professorships in three.

In quality and quantity, tertiary education in Africa needs to be fixed. Despite secondary-school enrollment increasing by 48% from 2000 to 2008, access to university education remains severely limited. Even at three times the U.S. population, Africa has fewer than 5 million students (PDF) (versus the U.S.’s 21 million) in its four-year tertiary education system. More than 10 million African students take the college entrance exams, but fewer than 1.5 million are admitted annually. An estimated 50 million working adults who want to improve their skills through further education have access challenges.

Africa is attracting top companies to drive the era of tech consumerism, but without good universities, no strong capability will emerge for running creative high-tech processes. Great universities will spur firms to design and manufacture products locally. Today’s model is using African diasporas where companies hire native Africans living abroad and then send them to the continent to expand their operations. While IBM can do that, I will prefer readily available local talents for cost and locally supported organic succession.

Education drives technology. Any nation that cannot create new ideas, devoid of intellectual property, will never lead; today, technology is wealth. With Facebook’s $115 billion market cap on its IPO day, Mark Zuckerberg created wealth nearly equivalent to half of Nigeria’s GDP in 2012. The value created by Facebook and a few other tech IPOs exceeds the GDP of most African regions. The continent will better accelerate development and human welfare by listing companies in NASDAQ than by finding more oil wells to lease.

Through my experience, I’ve seen how a university could improve its community. But in Africa, most universities are decoupled from the societies and markets, as they do not invest in research which drives innovative solutions. An engineering school can exist for decades in a community without drinking water, yet offer no effort to fix it. Most want to be global without a local creed. They want to build automobiles when handicapped citizens that need mobility beg for bread in their gates daily.

We need to encourage technological advancement and education in Africa to ensure the continent’s future. One way to do this is by supporting Africa’s universities internationally. The First Atlantic University, for example, a new university I am helping to establish, leans on the help of Silicon Valley, even being nicknamed “Silicon Valley’s African university.” The university will be located in Nigeria with an in-campus technology park to be managed by one of Tokyo’s best firms in the field. It will incorporate some evolving training paradigms like MOOCs and online programs. The campus will be linked via video to global innovation hubs like Boston, Tokyo, and Silicon Valley. Its graduates will position Africa competitively through entrepreneurial innovation, technical excellence, and world-class management capabilities, all in the hopes to give local talent more opportunities and Africa a fighting chance.

Africa has the potential to make a place for itself, but it doesn’t have to do it alone. With international support, African universities can seed a new economic layer, a layer that offers a redesigned continent that is driven by the brain power of its citizens. Though diasporas have become change agents in the continent, local talents are indispensable. Africa has many latent talents; quality education can unlock them.

Providing High-Quality Health Care to Americans Should Trump Politics

The shutdown today of large parts of the federal government is the harsh consequence of a dysfunctional Congress that’s unable to find enough common ground to secure the health and well-being of the country’s citizens.

The bitter partisan dispute, which caused  the furlough of more than 800,000 “nonessential” workers and brought many government programs to a halt, centered on health care. Americans’ frustration with lawmakers is reflected in a new CNN/ORC International poll. It found that the American public’s approval rating of Congress stands at 10%, an all-time low for the poll.

With funding for the federal government due to expire on October 1, a continuing resolution from Congress was needed to avert a government shutdown. In its initial vote on the continuing resolution, the Republican-controlled House of Representatives attached an amendment that would have defunded the President’s seminal legislative achievement, the Affordable Care Act (ACA). The Democratic-controlled Senate quickly defeated the bill on a party-line vote.

The House then passed a second continuing resolution that included a requirement that the implementation of critical parts of the ACA be delayed for one year, that the employer mandate for coverage of contraceptive services include an opt-out, and that the controversial medical-device tax be revoked.

We believe that the medical-device tax is an appropriate part of the law’s funding mechanism. Because the ACA’s expansion of health care coverage to millions of Americans was expected to increase profits for the medical-device industry, lawmakers included a payback in the law in the form of a 2.3% tax on the industry, which would amount to $30 billion over 10 years. New taxes were also mandated on other stakeholders in the health care sector, including the pharmaceutical industry, insurance companies, and hospitals. These taxes are critical to the fiscal stability of the ACA programs.

Since its inclusion in the ACA, the medical-device tax has been fought vigorously by the device industry and its powerful lobby, the Advanced Medical Technology Association (AdvaMed), which has aggressively argued that the tax serves only to stymie innovation, kill jobs, and ultimately harm patients. There is little or no evidence that these claims are true. Still, among lawmakers, there has been bipartisan support for eliminating the tax from senators and congressmen whose states (including Minnesota, North Carolina, and Massachusetts) are home to key device manufacturers. Thus, Republican House members, attempting to dismantle Obamacare, seized upon the device tax as one focal point of their attack.

But like the first continuing resolution passed by the House, the second was declared dead on arrival in the Senate, resulting in today’s closure of large parts of the federal government. Senate majority leader Harry Reid (D-NV) might have achieved consensus around a compromise bill that removed the one-year delay on implementation of the ACA but retained the provision eliminating the medical-device tax, but he rightfully played hardball and rejected all compromise.

The House was still not finished. Another measure passed by the Republican Congress would have kept the government open in exchange for delaying implementation of the ACA’s individual mandate and eliminating federal health care contributions for lawmakers and Capitol Hill aides. The measure would have been especially unfair to aides, who rely on government support for their health care. We applaud the Senate for ignoring these demands as well.

In every legislative measure, House Republicans used blackmail to pressure Democrats to reverse or delay parts of Obamacare or face the threat of a government shutdown.

In an ironic twist, on the same day that the federal government shut down because of partisan differences over the ACA, the new insurance exchanges established by the law to offer health insurance to millions of uninsured Americans went live. In another piece posted today, Henry J. Aaron of the Brookings Institution and Kevin Lucia of Georgetown University provide a more detailed post on the exchanges. We agree with Aaron and Lucia that without them expanded coverage of uninsured Americans will not be possible and that there are strong reasons that both conservatives and liberals should want them to succeed.

Although the federal government has been shut down 17 times before, this is the first instance in which the government has been shuttered over a health care dispute. It is a telling statement about just how bitterly divisive the health care issue has become.

Where we go from here depends on who blinks first, President Obama or House Republicans, and thus far there is no evidence that either will do so. Never before have we witnessed such a standoff — provoked by a bitter disagreement over a law whose principal noble aim is to provide high-quality health care to Americans.

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
Reimagining Primary Care: When Small Is Beautiful
Getting Big Results from a Small Business Unit
How We Revolutionized Our Emergency Department