Marina Gorbis's Blog, page 1539

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.”

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




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Reimagining Primary Care: When Small Is Beautiful
Getting Big Results from a Small Business Unit