A recent addition: An index!

Alphabetized organizing filing system, close-up. Shot in studio with Phase One.

So it’s been a little over two years since I started this blog and I’ve now published well over 100 posts. So many that I forget what I’ve actually written about!

If I’m looking for something particular in my, ahem, ‘back catalogue’ (which is often the case), then how do I go about finding it?

Well, by a few routes:

  • I have tried to add links in each new post to relevant past posts…but this has become harder to achieve;

and if you scroll down the right hand side of the blog you will find:

  • a search box…but you kind of need to know the name of what you are looking for (easier for me…but ‘mind games’ for you);
  • the ‘tag cloud’…but, whilst this is good, it doesn’t show everything; and
  • an archive list (by month published)…but this is to play a game of chronological ‘pot luck’.

You can see then that there’s a few ways to attempt to find things…but none of them are very good, let alone complete!

Therefore, in the spirit of improvement, I have added an index, structured around two key models:

  • Study: “how the work works” (Seddon’s Check model); and
  • Intervention: “how to change it” (Deming’s Theory of Profound Knowledge).

Each of these models is then broken down into categories within.

If you are interested in exploring around the complete set of posts published to date (whether in general, or for something in particular) then I hope you find it of use 🙂

Example: If you want to focus on, say ‘measurement’ then you can go to the set of posts that deal with this area

I’ve even tried to be clever and (through the help of WordPress help forums1 🙂 ) created model diagrams with selectable (i.e. ‘clickable’) regions within – as a self confessed technophobe I’ve surprised myself!…but of course it might not work for you!(?)

You will find the index in the top right of the blog:

index

…have an explore, ‘click around’ and see what you make of it.

So…going forward:

Every time I publish a post I will add it to the relevant region of the index.

Feedback on how this index works out for you will be much appreciated…and any other suggestions for improvements are most welcome.

Bonus…

Oh yes…and just in case you hadn’t noticed, I’ve recently added two very worthy giants to my list: Jay Forrester and Donella Meadows.

Merry Christmas/ Happy New Year/ Good wishes whatever your particular (non)‘theist’ or ‘calendar’ variety is.

Footnote

1. I used the following site to create the code for mapping regions of each model (as suggested to me by Timethief ):      http://www.isdntek.com/tagbot/imap.htm

 

 

Why I dislike…

maturity-model…(so called) ‘maturity models’.

You know the ones I mean:

They are drawn up with an answer already in mind…and there’s seemingly one ‘out there’ for every ‘silver bullet.’

They are broken into:

  • a supposed linear 1 to 5 scale; and
  • neat horizontal swim lanes of supposedly important sub-categories.

The wording to articulate each point on the scale is contrived to work for the author’s intent. They start off as ‘black’ on the left (obviously undesirable), finish as ‘white’ on the right (i.e. heavenly) and go through a torturous swamp of grey in-between.

The people involved in designing and then scoring ‘our position on’ the scale are ‘in management’ (often assisted by some external consultants)…with little or no (meaningful) inclusion of the front line or customers i.e. those that would actually know about reality.

Scoring is performed based on opinions (perhaps in workshops, or via surveys), not the facts at the gemba.

Each team employing such a maturity scale is miraculously1 led to self-score themselves somewhere between a 1 and 2 at the start.

Management then use this ‘shocking’ score to justify the investment in a transformation programme (often given a name that is dripping in propaganda). Such a programme contains a wondrous set of initiatives to move2 the organisation from a ‘1.5’ score, up to a target3 score of ‘5′.

…and finally, each organisation stops once they reach a (self declared) ‘4’, saying that this is how far they need to go – a 5 now being seen as somehow no longer important. They stop because everyone’s got bored of it and/or they’ve used up their budget…and want to move onto another shiny new thing.

BUT…and this is the biggie…before, during and after this maturity exercise, they retain, and promote, management’s current faulty logic on ‘implementing change’.

An observation: A fundamental fault with the ‘maturity model movement’ is that each model has an end point (the supposed end of the journey). If this were so then the likes of Toyota would presumably have stopped improving decades ago.

A reflection:  I was asked by a comrade as to whether I believed that ‘maturity models’ could be of use4.

So, er, yes…there could most definitely be some positives BUT I’d suggest that these will be limited in scope, scale and duration….so not really transformational.

Now, if you think that you’ve got a maturity framework that would change management’s fundamental beliefs and behaviours…then you are very welcome to share this with me and anyone else reading this blog.

 A closing ‘cover my arse’ comment: I ‘get’ that many of you reading this will have ‘successfully’ used maturity models in your careers to date. This post is just me jotting down my thoughts on why I have a problem with them. It’s merely therapy for me 🙂

Footnotes

1. Not so miraculous when you consider that the people wanting the organisation to implement ‘the change’ wrote (or copied) the scale and its associated wording. It would be no good if you were already a 4 or 5.

2. When I say ‘move’ I actually mean ‘look for any evidence’ that could justify arguing that you are now a rather wonderful 4!

3. regarding ‘target’ – management will likely have baked some success criteria into their existing (and hugely flawed) cascaded objectives and incentives framework…meaning that they are somewhat biased in looking for favourable outcomes.

4. A few of those around me are always trying to get me to ‘see the positives’ in things 🙂

 

“You keep saying that…but what does it mean?!”

what-does-it-meanSo I recently had a most excellent conversation with a comrade.

I’d written some guff in the usual way and he wanted to push back on it…great! I need to be challenged on my thinking, particularly the more I verbalise (and therefore risk believing) it.

His push back:

I’d used the ‘absorb variety’ [in customer demand] phrase yet again…and he (quite rightly) said “but what does it mean?”

He went on to say that, whilst he understands and agrees with a great deal of what I write about, he doesn’t fully agree with this bit. He has reservations.

So we got into a discussion about his critique, which goes something like this:

“I agree that we should be customer focused, but…‘absorb their variety’???

You can’t do anything for everybody….they’d start asking for the world…you’d go out of business! There have to be rules as to what we will or won’t do.”

He gave an example:

“If a customer asked you to fax them their documents [e.g. invoice, contract, policy…], surely you’d say no because this is such old technology and it doesn’t make sense for people to use it anymore.”

Yep, a very fair view point to hold…and an example to play with.

So, in discussing his critique, I expanded on what I mean when using the ‘absorb variety’ phrase. Here’s the gist of that conversation:

First, be clear as to what business you are in

Taking the “you can’t do anything for everybody” concern: I agree…which is why any business (and value stream within) should be clear up-front on its (true) purpose.

However, such a purpose should be written in terms of the customer and their need. This is important – it liberates the system from the ‘how’, rather than dictating method. It allows flexibility and experimentation.

Clarification: ‘liberating’ doesn’t mean allowing anything – it means a clear and unconstrained focus on the purpose (the ‘why’ for the system in question). If you don’t have a clear aim then you don’t have a system!

Understanding the customer: who they are, what they need.

fredOkay, so the purpose is set, but each customer that comes before us is different (whether we like this or not). The generic purpose may be the same, but what works best for each unique customer and their specific situation will have nuances.

On ‘unique’: A service organisation (or value stream within) may serve many customers, but a customer only buys one service – their need. We need to see the world through their eyes.

“The customer comes in customer-shaped” (John Seddon)

Let’s take the scenario of an insurer handling a house burglary, with some contents stolen and property damage from the break-in.

The customer purpose of ‘help me recover from my loss’ is generic yet focused…it clearly narrows down what the value stream is about.

But, at the risk of stereotyping, here’s some potential customer nuances:

  • Fred1 is an old person that lives at home alone. He’s very upset and concerned about his security going forward;
  • Hilary is a really busy person and just wants the repair work done to a high quality, with little involvement required from her;
  • Manuel2 doesn’t speak English very well;
  • Theresa is currently away from the country (a neighbour notified the police);
  • ….and the variety goes on and on and on3

Each of these customers needs to recover from their loss…but the specifics of what matters differ and these can be VERY important to them.

If we (are ‘allowed’ by our management system4 to) make the effort up-front to (genuinely) understand the customer and their specific unit of demand, and then work out how best to meet their needs then they are going to be very happy…and so are we…AND we will handle their need efficiently.

If we don’t understand them and, instead, try to force them into a transaction orientated strait-jacket, we can expect:

…adding significant and un-necessary costs and damaging our reputation.  Not a great place to work either!

Do what is ‘reasonable’ for them

Right, so you may agree that we should understand a customer and their reality…but I still hear the critique that we can’t do anything and everything for them, even if it could be argued as fitting within the purpose of the value stream in question.

So let’s consider the ‘what’s reasonable?’ question. ‘Reasonable’ is judged by society, NOT by your current constraints. Just because your current system conditions5 mean that you can’t do it doesn’t make it unreasonable!

computer-says-noA test: if you (were allowed to actually) listen to the customer, understand the sense in their situation and the reasonableness of their need…but respond with “computer says no” (or such like) then your value stream isn’t designed to absorb variety.

And so we get to what it means to design a system that can absorb variety.

It doesn’t mean that we design a hugely complicated system that tries to predict every eventuality and respond to it. This would be impossible and a huge waste.

It means to design a system that is flexible and focuses on flow, not scale. This will be achieved by putting the power in the hands of the front-line worker, whilst providing them with, and allowing them to pull, what they need to satisfy each customer and their nominal value. This is the opposite of front-line ‘order takers’ coupled to back-office specialised transaction-oriented sweat shops.

How does that ‘fax request’ example sit with the above? Well, on its own, I don’t know…and that’s the point! I’d like to know why the customer wants it by fax.

  • perhaps they aren’t in their normal environment (e.g. they are on holiday in the middle of nowhere) and the only thing available to them is some old fax machine;
  • perhaps they didn’t know that we can now email them something;
  • perhaps they don’t (currently) trust other forms of communication…and we’d do well to understand why this is so;
  • perhaps, perhaps perhaps…

Each scenario is worthy of us understanding them, and trying to be reasonably flexible.

Forget all that!

take-a-lookOf course the above means virtually nothing.

You’d need to see the variety in your system for yourself to believe, and understand, it…and the way to do that would be to listen and see how your current system DOESN’T absorb variety.

How would you do that? Well, from listening to the customer:

  • in every unit of failure demand;
  • within each formal complaint made to you;
  • …and from every informal criticism made ‘about you’ (such as on social media)

I’ve got absolutely no idea what you would find! But do you?

 The funny thing is…

…if we allow front-line/ value-creating workers to truly care about, and serve each customer – as individuals – in the absence of ‘management controls’ that constrain this intent (e.g. activity targets) then:

  • the ‘work’ becomes truly inspiring for the workers, ‘we’ (the workers) gain a clear purpose with which we can personally agree with and passionately get behind;
  • we become engaged in wanting to work together to improve how we satisfy demand, for the good of current and future customers; and
  • the ‘management controls’ aren’t needed!

If I asked you, as a human being:

  • do you primarily care about, say, a ‘7 day turn-around target’? (other than to please management/ get a bonus)

vs.

  • do you really want to help Fred (or Hilary, Manuel, Theresa…) resolve their specific needs and get back on with their lives?

…how would you answer?

We need to move away from what makes sense to the attempted industrial production of service delivery to what makes sense in the real worlds of the likes of Fred.

Footnotes

1. Fred: The picture of Fred comes from a most excellent blog post written by Think Purpose some time ago. This post really nicely explains about the importance of understanding customer variety in a health care setting.

2. Manuel: A tribute to the late Andrew Sach (a.k.a Manuel from Fawlty Towers) who died recently. He wasn’t very good at English…

que

3. Variety in service demand: I’ve previously written about Professor Frances Frei’s classification of five types of variety in service demand and, taken together, they highlight the lottery within the units of demand that a service agent is asked to handle.

4. Allowed to: This is not a criticism of front-line workers. Most (if not all) start by wanting to truly help their customers. It is the design of the system that they work within that frustrates (and even prevents) them from doing so.

You show me a bunch of employees and I’ll show you the same bunch that could do awesome things. Whether they do so depends!

5. System Conditions may include structures, policies, procedures, measures, technology, competencies…

6. Bespoke vs. Commoditisation: It has been put to me that there are two types of service offerings. Implied within this is that there are two distinct customer segments: One that wants little or no involvement for a low cost and another that wants, and is willing and able to pay for, a bespoke service.

This is, for me, far too simplistic and misunderstands customer variety. Staying with the world of insurance…

A single customer might want low involvement when managing their risk (taking out a policy and paying for it, say, ‘online’) but to deal with a human if they need help recovering from a loss (i.e. at claim time).

That same customer may switch between wanting low involvement and the human touch even within a value stream – e.g. happy with low involvement car insurance but wants a human when it comes to their house insurance.

…and even within a given unit of demand, a customer may be happy with low involvement (say registering a claim)…but want the option of a human conversation if certain (unpredictable) scenarios develop.

The point is that we shouldn’t attempt to pigeon-hole customers. We should aim to provide what they need, when they need it…and they will love us for it!

7. Automation: On reading the above, some of you may retort with “Nice ideas…but you’re behind the times ‘Granddad’ – the world has moved to Artificial Intelligence and Robotics”. I wrote about that a bit back: Dilbert says… lets automate everything!

It’s complicated!…or is it?

mandelbrot-setI’ll  start with a question: What’s the difference between the two words ‘Complex’ and ‘Complicated’?

Have a think about that for a minute…and see what you arrive at.

I did a bit of fumbling around and can report back that:

  • If you look these two words up in the Oxford English Dictionary (OED), then you’d think they mean the same thing; however
  • If you search Google for ‘complex vs. complicated’, then you’ll find oodles of articles explaining that they differ, and (in each author’s opinion) why; and yet
  • …. if you were to read a cluster of those articles you’d find totally contradictory explanations!

Mmmm, that’s complicated…or is that complex?

This post aims to clarify, and in so doing, make some incredibly important points! It’s probably one of my most ‘technical’ efforts…but if you grapple with it then (I believe that) there is gold within.

Starting with definitions:

Here are the OED definitions:

Complex: consisting of many different and connected parts.

  • Not easy to analyse or understand; complicated or intricate”

Complicated: consisting of many interconnecting parts or elements; intricate.

  • Involving many different and confusing aspects
  • In Medicine: Involving complications.”

So, virtually the same – in fact one refers to the other! – but I think we can agree that neither are simple 🙂 . They are both about parts and their interconnections.

Turning to the ‘science’ of systems:

scienceWhilst the OED uses the ‘complex’ and ‘complicated’ words interchangeably, Systems Thinkers have chosen to adopt distinctly different meanings. They do this to usefully categorise different system types.

Reading around systemsy literature2, I repeatedly see the following categorisation usage:

Simple systems: Contain only a few parts interacting, where these are obvious to those that look; Extremely predictable and repeatable

Example: your seat on an aeroplane

Complicated systems: Many parts, they operate in patterned (predictable) ways but ‘how it works’ is not easily seen…except perhaps by an expert

Example: flying a commercial aeroplane…where, of note, its predictability makes it very safe

Complex systems: unpredictable because the interactions between the parts are continually changing and the outcomes emerge – and yet look ‘obvious’ with the benefit of hindsight.

Example: Air Traffic Control, constantly changing in reaction to weather, aircraft downtime…etc.

“…and the relevance of this is?”

There is a right way, and many a wrong way, to intervene in systems, depending on their type! Therefore, correct categorisation is key.

A (the?) major mistake that ‘leaders’ of organisations make is they presume that they are dealing with a complicated system…when in fact it is complex4. If you initially find this slightly confusing (it is!) then just re-read, and ponder, the definitions above.

Management presume that they are operating within a complicated (or even simple) system whenever they suppose that they can:

– administer a simple course of ‘best practise’ or external expert advice…and all will be well;

– plan in detail what something will turn out like, how long it will take and at what cost…when they’ve never done it before!;

– implement stuff as if it can simply be ‘rolled back’ to an earlier state if it doesn’t work out…not understanding that, once acted upon, the people affected have been irrevocably changed (and regularly suffer from what I refer to as ‘change fatigue’5);

– isolate and alter parts of the system to deliver a predicted (and overly simplistic) outcome…by which I am referring to the slapstick ‘benefits case’ and it’s dastardly offspring the ‘benefits realisation plan’…

…Management can, of course, invoke the Narrative Fallacy to convince themselves that all that was promised has been achieved (and will be sustained)…whilst ignoring any inconvenient ‘side effects’;

– strip out (and throw away) fundamental parts of a system whilst invoking their constant simplification battle cry…because they can’t (currently) see, let alone understand, why these parts are necessary;

…and I’m sure you can carry on the list.

The distinction between ‘complicated’ and ‘complex’ fits quite nicely with Russell Ackoff’s distinction between deterministic (mechanistic) and organic systems; and  John Seddon’s distinction between manufacturing and service organisations (and the complexity of variety in customer demand).

Put simply 🙂 , in complex systems, it’s the relationships between the parts (e.g. people) that dominate.

So what?

jack-deeWell, if Management understand that they are dealing with a complex organisation then they will (hopefully) see the importance of designing their system to take advantage of (rather than butcher) this fact.

Such a design might include:

  • aligning individual and organisational purpose, by sharing success (and removing management instruments that cause component-optimising behaviours)
  • putting capability measures into the hands of front line/ value creating workers, where such measures:
  • allowing and supporting the front line/ value creating workers to:
    • absorb the customer variety that presents itself to them; and
    • imagine, and experiment with, ways of improving the service for their customers
  • …and much much more systemsy thinking

This would mean creating a system that is designed to continuously adjust as its components change in relation to one another. That would be the opposite of ‘command and control’.

Huge clarification: Many a command-and-control manager may respond that, yes, they already continually adjust their system…I know you do!!!  It’s not you that should be doing the adjusting…and so to self-organisation:

From simple to complex…and back again6

answersThe giant systems thinker Donella Meadows wrote that highly functional systems (i.e. the ones that work really well) likely contain three characteristics – resilience7, self-organisation and hierarchy8.

I’ll limit myself here to writing about self-organisation:

“The most marvellous characteristic of some complex systems is their ability to learn, diversify, complexify, evolve…This capacity of a system to make its own structure more complex is called self-organisation(Meadows)

Wow, ‘complexify’ – a new word?!…and it can be a very good thing…and goes 1800 against the corporate simplification mantra:

“We would do better at encouraging, rather than destroying, the self-organising capacities of the systems of which we are a part….which are often sacrificed for purposes of short-term productivity and stabiliy7(Meadows)

It turns out that complexity isn’t of itself a bad thing…in fact quite the opposite – a system can achieve amazing things as it becomes more complex. Just consider that, through the process of evolution, ‘we’ have ‘complexified’ (can you see what I did there) from amoeba to human beings!

…but what’s REALLY interesting is that this complexity is enabled by simplicity!

“System theorists used to think that self-organisation was such a complex property of systems that it could never be understood…new discoveries, however, suggest that just a few simple organising principles can lead to wildly diverse self-organising structures.” (Meadows)

Meadows went on to note that:

“All of life, from viruses to redwood trees, from amoebas to elephants, is based on the basic organising rules encapsulated in the chemistry of DNA, RNA, and protein molecules.”

In short: Simple rules can allow complex systems to blossom, self-learn and grow.

I believe that a wonderful, and complex, organisation can be created and sustained from living a simple philosophy.

“Simple, clear purpose and principles give rise to complex and intelligent behaviour.

Complex rules and procedures give rise to simple and stupid behaviour.” (Dee Hock)

….so what might such a simple philosophy be? Well, Deming was ‘all over’ this with his ‘Theory of Profound knowledge’* and ’14 points for Management’.

* Deming explained simply that we should:

  • Observe, and handle, the world around us as systems (which, by definition, require a purpose that is obvious to all);
  • Expose, and understand, variation;
  • Gain knowledge through studying and experimenting;
  • Understand psychology and truly respect each and every human being ; and
  • Lead through our actions and abilities.

…and a final warning against that oversimplification thing:

“Collapse is simply the last remaining method of simplification.”  (Clay Shirky)

The short ‘simple’ version at the end of the long ‘complicated’ one 🙂

‘Complexity’ is not the inherently bad ogre as persistently painted by contemporary management. Rather, it can be a defining property of our organisational system that we would do well to understand and embrace.

Let’s feast at the ’complex but right’ bookcase of knowledge, design appropriate and evolving responses based on simple scientific wisdom and climb the mountain…rather than automatically follow the crowd over the ‘simple but wrong’ cliff!

Footnotes

1. Opening Image: This image is a part of the Mandelbrot Set – an amazingly complicated (or is that complex?) image that is derived from the application of a simple mathematical formula. It sits within the fractal school of Mathematics (repeating patterns) alongside others such as the Koch snowflake.

Image Source : CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=322029

2. Systems Thinking Literature: This systems thinking is taken, in part, from a 2011 HBR article Learning to Live with Complexity.

3. Dave Snowden’s Cynefin framework is built (partly) around the difference between complicated and complex….and the importance of correctly identifying your system type before intervening. Snowden’s framework also adds the idea of chaotic systems, where there is some emergency that requires urgent action (without the time to experiment)…where the action chosen may determine how the chaos is halted…which may or may not be in your favour!

4. The inclusion of people in a system likely makes it complex.

5. Change Fatigue: This is my phrase for those people who have worked for an organisation for many years and had the annual ‘silver bullet’ change programme rolled out on them…and got bored of the same lecture and the same outcomes. It is very hard to energise (i.e. excite) someone with ‘change fatigue’.

6. Cartoon: I LOVE this cartoon! It is sooo apt. The vast majority are on the simple road, following the crowd over an (unseen) cliff…or at least not seen until it is too late. A few turn right at the ‘bookcase of knowledge’ – they take a book or two and then travel a circuitous and uphill road to an interesting destination.

7. Resilience vs. stability clarification: “Resilience is not the same thing as being…constant over time. Resilient systems can be very dynamic….conversely, systems that are constant over time can be unresilient.” (Donella Meadows)

8. Hierarchy: I’m aware that some organisations have experimented without a formal hierarchy (e.g. Holacracy). However, even they create a set of rules to assist them co-ordinate their component parts.

It’s worth noting that “Hierarchies evolve from the lowest level up…the original purpose of a hierarchy is always to help its originating subsystems do their jobs better…[however] many systems are not meeting our goals because of malfunctioning hierarchies…

 To be a highly functional system, hierarchy must balance the welfare, freedoms and responsibilities of the subsystems and total system – there must be enough central control to achieve co-ordination towards the large-system goal, and enough autonomy to keep all subsystems flourishing, functioning, and self-organising.” (Meadows)

 

A journey through five words

words-quoteIf you are a systems thinking ‘Deming disciple’ working in Command-and-Control land then your constant expressing of (what many of your ‘leaders’ think of as) unconventional thinking may get you a bad name!

…and those choosing to see you in this negative light may use all sorts of words aimed ‘at’ you.

Perhaps the first word used is that you are ‘cynical’.

Owch!

I had a rather wonderful comedy discussion with a fellow, ahem, ‘cynic’ on this and we found ourselves going on a journey through five words.

So, for all you fellow people ‘getting a bad name for yourselves’1 out there…here’s the journey, featuring useful definitions from the wonderful Oxford English Dictionary (OED).

Start here: The ‘cynical’ label

cynicOkay, you cynic….but are you?

1. “Cynical:  believing that people are motivated purely by self-interest; distrustful of human sincerity or integrity.

This definition easily shows that its usage ‘aimed at’ us is so wide of the mark that it’s easily debunked.

THE point of nearly everything that people like ‘us’ put forward  is that it ISN’T about heroes or bad people, it’s about the bad system that people are forced to operate within. In fact, in quite the opposite direction, our thinking is often accused of being too sympathetic of people. But we’re okay with that (and so was McGregor).

Further, the use of the cynical label is rather hypocritical when used by Command-and-Controllers2.

If we successfully get the “we aren’t actually cynics” point across then a revision is thrown at us:

“Okay, ‘cynic’ is perhaps not fair…but you are ‘sceptical’!”

scepticErm, I’ll have to think about that one…

2. “Sceptical: Not easily convinced; having doubts or reservations.

Yes, I can live with being sceptical (as should every scientist)…but it’s not complete.

Most organisations should actually see scepticism (as properly defined) as a highly desirable quality, and not load the word with the usual negative connotations. We should be experimenting, not blithely implementing something we are copying from elsewhere. And those experiments should be robust, with new learning arising (whether as predicted or not).

In contrast, bucket loads of money are wasted by ‘believers’ rushing around shoving in the next fad or fashion, as directed by the current ‘in vogue’ management gurus. A bit more (healthy) scepticism could do wonders for meaningful progress!

Why isn’t the ‘sceptical’ label complete? Well, being sceptical might suggest being deliberately awkward – perhaps sitting around with a teacher’s ‘red pen’ to tear things apart – and thereby requiring everyone around ‘us’ to do all the creative thinking.

Just being sceptical doesn’t require much work…and this narrow label isn’t acceptable as a descriptor of my reality – I do a hell of a lot of thinking! (and if you are a reader of this blog then I expect you do too).

“Righto – I ‘get’ your scepticism. How about ‘critical’? Surely you’d agree with that!”

criticLet me critique that label for a moment…

3. “Critical: Expressing or involving an analysis of the merits and faults of a work.”

Yep, getting much warmer!

People like ‘us’ are very critical. We (aim to) look:

  • for data, for evidence…to work with facts rather than opinions;
  • from multiple angles…to identify a range of world views, and (importantly) why these are held;
  • at the wider picture…to see the bigger system that the problematic situation sits within
  • at the dynamics of the situation…to see what has happened (including the variation within), and may happen over time.
  • …and on and on.

To which a Command-and-Control manager might respond:

“Blimey! Why would you work so hard…it must send you crazy! Why can’t you just accept what you are being told and run with it – you’d find it soooo much easier.”

And this nicely turns to…

The actual word that could best label us:

 passionate4. “Passionate: Having, showing, or caused by strong feelings or beliefs”

Yep, we are seriously passionate about making our organisation:

  • A great place for everyone to work; and
  • A fantastic experience for our customers;

…which will create and sustain a highly successful organisation.

What’s not to like!

Just as a sense check, the opposite (antonym) of passionate is:

Apathetic: showing or feeling no interest, enthusiasm, or concern.”

I’m not sure that apathy is going to work out well for any organisation….I suppose that passion will trounce it every time.

But you said a journey of five words…and that’s only four!

delusionalOh yes, once my colleague and I thought we had finished our ‘labelling’ journey, we realised that nothing had actually changed. And so we turn to:

5. “Delusional: Holding idiosyncratic beliefs or impressions that are contradicted by reality”

If our passion fails to change ANYTHING but we continue on in the same way, then we can probably be labelled as delusional. 😦

So, if we want to avoid this label being accurately applied to us, we need to be clear as to:

five-words

I know that I am passionate about what I do…but I’d like to avoid being delusional.

Footnotes:

1. Getting a ‘bad name’: I have been provided with some ‘quiet career advice’ on this in the past (i.e. “stop pushing your crazy ideas – it’s rocking the boat!”)…and, oh, it made me laugh 🙂

2. Cynical: We can say that any management system using carrots and sticks ‘on’ their people (i.e. by incentivising their employees to behave in a certain way, to comply with their wishes) fits the cynical word rather too well:

“Behind incentive programs lies management’s patronising and cynical set of assumptions about workers….Managers imply that their workers are withholding a certain amount of effort, waiting for it to be bribed out of them.” (Scholtes)

“Why is your proposed change so profound?”

knot-systemMy recent serialised post titled “Your Money or your Life!” proposed that every ‘large corporate’* should make a meaningful change…that would be for the good of all.

Wow, that would be great!

* Where ‘large corporate’ is short form for ‘controlled by free-floating short-term thinking shareholders’.

I got thinking (as is often the case after pressing the ‘publish’ button) about readers thinking:

“Erm, okay – interesting perspective –  but why is the suggested change supposedly so profound?”

…and this caused me to question whether I had got the ‘this is a potential game changer!’ point across.

Note: What follows is relevant when considering ANY proposed change, not just the contents of my last post!

And so to a ‘systems thinking’ explanation:

First, a definition:

“A system is an interconnected set of elements that is coherently organised in a way that achieves something.

If you look at that definition closely for a minute, you can see that a system must consist of three kinds of things: elements, interconnections, and a function or purpose1.” (Donella Meadows)

Going back to an organisation (yours, mine,…wherever) as a system to ponder:

  • The Elements are pretty obvious – they include the people, the products and services offered, the physical buildings and resources, lots of intangible pieces (distinct departments, teams within) and so on…;

  • The Interconnections are the “the relationships that hold the elements together” e. g. the physical flows of work, the business policies and guidelines, external laws and regulations, the communications (including the gossip!), and flows of information (signals that go to decision or action points…which may or may not trigger reactions);

  • The Purpose of a system, whilst essential, is often hard to see (even if you think you know what it is!):

 “The best way to deduce the system’s purpose is to watch for a while to see how the system behaves…Purposes are deduced from behaviour, not from rhetoric or stated goals.”

 What you see may be very different to what you are told.

…and so, if you want to change an organisational system, presumably through a desire to improve (and even transform) it, then you have three “kinds of things” to play with.

Taking each ‘kind of thing’ in turn:

Elements

 “Changing elements usually has the least effect on the system.”

Using rugby and the All Blacks to illustrate the point: The coaches can change one or two players but, if they keep everything else the same, then not too much will change.

Now, sure, some elements may be very important (perhaps the introduction of a brilliant goal kicker) but, even then, the worth of such a change is hugely constrained by the rest of the system.

You might change ALL the elements (e.g. players) but if you keep the interconnections (such as the game plan, methods of communication, information sharing, the environment of trust and respect…) and purpose the same, then very little change may occur.

dan-and-richieA positive example of this phenomenon: The All Blacks won the rugby World Cup in 2011 and 2015, making them the first team ever to achieve ‘back-to-back’ rugby World Cups.  They did this with a core of extremely influential world-class players3who then promptly retired!

The world rugby media wondered how the All Blacks would rebuild, given the apparently gaping holes these players would leave. Many a pundit envisioned dark days ahead.

And yet a few weeks ago (on 22nd Oct 2016), despite introducing many new players, the All Blacks broke the world record for the number of consecutive international games won against ‘Tier one’ rugby nations (18 games). In short, rather than going backwards, they have ‘kicked on’ to even higher levels.

Their purpose and interconnections have clearly been shown to be stronger than the elements (e.g. players).

To the world of work: and organisational ‘restructures’. If you re-jig your hierarchical structure, changing the departments and faces within, but keep the methods of interconnection (the management system) and the underlying purpose the same (whether profit or political ideology), then not much has really changed.

“A system generally goes on being itself, changing only slowly if at all, even with complete substitution of its elements – as long as its interconnections and purposes remain intact.”

Further, you may have convinced yourself that your problems were ‘because of’ individuals…but consider that you may have ‘cut out’ the symptom and not the cause. If you don’t learn from this then you can expect another (costly) restructure in maybe 12 months time…and again…and again.

Interconnections

 “Changing interconnections in a system can change it dramatically.”

chris-robshawSo, staying with rugby, let’s move to the English national team.  In contrast to the All Blacks, they have had two terrible World Cups.

In 2011: they travelled to New Zealand and were awful (I know – I watched them!) They were heavily criticised for their attitude, and off field behaviour – they acted as if they were on an all expenses paid holiday…and, in the end, they were! The coach (Martin Johnson) resigned.

In 2015: they had home advantage – hopes were high. The whole of England was supporting them…but they exited the competition at the pool stages – the first time in their history. The coach (Stuart Lancaster) resigned.

So how has 2016 gone? Well, they’ve played 9, won 9…which includes:

  • achieving the Grand Slam (which they haven’t done for 13 years);
  • a 3-0 tour whitewash of Australia (a rare achievement); and
  • rising to be ranked 2nd in the World (from 8th)…just behind those mighty All Blacks.

So what’s changed? Well, England appointed a new manager (Eddie Jones)…but he has stuck with the core of previous players (those elements).

Instead of wholesale changing of the elements, he’s changed the interconnections – how they work together – resulting in players that had become labelled as ‘bad boys’, ‘past their best’ and ‘donkeys’4 being reborn, putting in controlled, consistent and herculean performances.

We don’t yet know whether the change will be long lasting…but it has most definitely been profound.

Back to the world of work: Perhaps the best known modern(ish) example of keeping the elements but changing the interconnections has to be NUMMI:

General Motor’s Fremont car plant was one of the worst performing plants in the whole industry, with high costs, low quality and terrible worker relations. GM closed the plant in 1982.

Toyota, wanting to start production in America, struck a joint-venture agreement with GM and the Fremont plant reopened as NUMMI in 1985. They rehired 85% of the original workforce (who still belonged to the Union – considered by GM as a serious problem). After taking 100s of the workers over to Japan to experience totally different thinking (involving a high degree of meaningful worker interacting), these learning’s were put into practise and the factory went on to produce the lowest cost, highest quality cars within its first year!

“Toyota took a bunch of [apparent] F Players, retrained them, put them into a great system, and magically they became superstars.” (Pfeffer and Sutton)

In short: Changing from a command-and-control management system to one that better understands systems and people will be dramatic.

Purpose

“A change in purpose changes a system profoundly, even if every element and interconnection remains the same.”

So, to switch from rugby to football: There’s an annual knockout competition in English Football, known as ‘The FA cup’. First played in 1871, it is the oldest football competition in the world. There is something rather magical about it because, given that it is open to any eligible club down to level 10 of the English football league system, it allows amateur minnows to mix it with the millionaire mega-stars…and, every now and then, create an upset – a minnow becomes a giant killer!

I searched for a game between a low-league minnow and a 1st division giant…and came up with Wrexham vs. Arsenal back in 19925. Both appeared to have had the same purpose – to win the game – but I suggest that their true purposes were rather different (and not so obviously stated).

Arsenal’s stars were probably trying to keep themselves injury free, to focus on other important matters – win their league (the 1st division) and perhaps get into their respective national sides (it was European Cup year)….and maybe avoid the embarrassment of defeat.

wrexham

In contrast, every man in the Wrexham team was aiming to become a legend!

Wrexham won 2 – 1. The crowd went nuts!

But here’s an interesting point: Wrexham, the giant killing minnow, went back to their low-league competition the following weekend and drew 0 – 0 at home with Maidstone United. Maidstone who? Exactly! The same players and staff, same coaching system, same methods of communications…different purpose!

This example, I hope, serves to illustrate the point that a (true) change in purpose will be profound, even whilst retaining the same elements and interconnections.

To the world of work: Even better than a transient change in purpose (like Wrexham’s), would be a permanent one!

…and so we finally come to that ‘profound point’ from my recent serialised post: long-term profit sharing. Bringing ‘Live Money’ into an organisation permanently changes its purpose, for the good of all…which would lead to experimentation with new interconnections…which would reinvigorate the elements (or at least naturally sort through those that fit vs. those that wish to pursue something else).

All in all – a profound change to the system. It would be…well…‘Transformed’.

To close: So, what if your ‘leader‘ changes?

Let’s say your organisation hires a new CEO – an element, but a central one. Everyone’s chattering about this ‘big change’…but will it change much?

The answer is “it depends”.

It will depend upon whether the leader understands systems and people (through education and experience, or perhaps instinctively)…because:

  • if the new leader goes on to change interconnections and, even better, the (actual) purpose then transformational change will likely occur; but
  • if that leaders attempts change merely through changing the elements (new people, new departments, a new IT system, some new products and brands….) then not much will actually change.

Changing the interconnections relates to the management system.

Changing the purpose relates to why the organisation exists, and for whom.

…and I hope I don’t need to say that a fancy new ‘purpose statement’ doesn’t, of itself, change a thing!

Footnote:

1. The word ‘Function’ is generally used for non-human systems and ‘Purpose’ for human systems.

2. Quote source: All quotes (unless otherwise stated) are taken from the excellent book ‘Thinking in Systems’ written by the late Donella Meadows (a giant to add at some point).

3. All Black players that retired after 2015 rugby World Cup:

  • Richie McCaw (148 caps): Regarded by many as the greatest ever rugby player, Most capped rugby player of all time, 3x World Rugby Player of the Year….and his accolades go on and on;
  • Dan Carter (112 caps): Regarded by many as the greatest ever no. 10 (fly half) player, Highest international test points scorer of all time (1,598), 3x World Rugby Player of the Year…and on and on;
  • Ma’a Nonu (103 caps) and Conrad Smith (94 caps). Most successful mid-field pairing;
  • …and other great players: Kevin Mealamu (132 caps), Tony Woodcock (118 caps)

4. England players: If you are a rugby fan then I’m referring to the likes of Dylan Hartley (‘bad boy’), Chris Robshaw (‘has been’) and James Haskell (‘donkey’). Sorry chaps…but this is what you had seemingly become!

5. FA Cup Giant Killing Context: Wrexham came last in League 4 the year before (i.e. came 92nd out of all the 92 league 1 – 4 clubs). At the complete opposite end of the spectrum, Arsenal won League 1 (i.e. came 1st out of these 92 clubs).

6. Explaining the main post Image: The system is made up of ropes (elements), knots (interconnections) and purpose (what it is intended to achieve)….which may be to look pretty or to hold a heavy load.

7. Clarification: This post is NOT saying that purpose is the only lever you should focus on. It is merely explaining the likely impact of working on each type of lever. We should be working on improving all three ‘kinds of things’ and, being a system, they are all related!

Chapter 5: Avoiding Armageddon!

Yep, it’s the last chapter! Phew, I hope you are still with me after Chapter 4…hello, is there anyone out there???

I said that I would end with “…and we all lived happily ever after” but there’s a few people who stand in the way of this.

Let’s get personal – Hot Potato time

hot-potatoSo everything I’ve written so far may resonate with you…and yet you will likely reply that nothing will change because those in control have no interest in doing so…and so I need to write a couple of personal messages:

  • to existing free-floating shareholders; and
  • to ‘large corporate’ CEOs;

I totally accept that there will be no real change unless both of these parties understand, need and want it.

A personal message to all you existing free-floating shareholders out there:

Okay, so cast your mind back to the opening of Chapter 1.

I held out Henry Ford as someone with something important to say…but I also noted that he had a huge amount of luck – he was on the right side of a technological disruption.

This is the time to inform (or remind) you that there are loads of technological (and related business model) disruptions happening right now:

  • In transportation: autonomous vehicles that will disrupt taxis, haulage, public transport…
  • In power: electrical generation (such as solar) and storage (such as batteries) that will disrupt the incumbent fossil fuel industry and its distribution networks…
  • In finance: I’m only just feeling around the crypto-currency stuff (I confess to being a bit of a laggard!)…but I can see that the effect will likely be huge;
  • In production: such that people can 3D print their own products to their own specifications as and when they want;
  • ….and all the financial service knock-on effects of the above:
    • On banking (e.g. less cars on the road = less car loans)
    • On insurance (e.g. drastically less accidents = no need for car insurance)
    • On currencies and share trading
  • …and probably loads more game changers that I don’t know about and/ or don’t understand (I haven’t even mentioned the rather trendy ‘internet of things’!);
  • …and yet more that none of us yet know about but could be around the corner.

Now, for a nimble start-up with a true purpose, the above is exciting. Indeed, they are the ones driving it.

But for a traditional, large, shareholder-owned incumbent, this is the stuff of nightmares!!!!

Such an organisation finds it almost impossible to change even though (and this is the interesting bit) it can and does see it coming – it’s as if its feet are stuck in cement blocks at the start of a 100 metre race. Worse, they waste loads of time and money flailing around trying to move (perhaps via ‘innovation’ programmes1)…but don’t really get anywhere.

In short: If you are a shareholder in such a company, you’d better wake up soon…’cos Henry Ford’s modern day equivalents are coming at ya! Your horse doesn’t stand a chance.

If you think “nah, none of the disruptions affect my investments in companies” then remember that many periphery industries were also devastated when the horse carked it.

“Hang on – aren’t many of these technological disruptions coming from large corporations?!”

steve-jobsYes, they are…but what form do these typically take? And did they start off from such a ‘large corporate’ state?

Well, they are usually led by a seriously driven founder (and likely lead investor), who toiled for years, because their personal purpose was clear from the start…and it wasn’t to make millions – this was the result from their success.

We can name:

  • Steve Jobs2 at Apple (and previously NeXT and Pixar)
  • Jeff Bezo at Amazon
  • Larry Page at Google
  • Elon Musk at Tesla, SpaceX, SolarCity (and previously Zip2 and PayPal)
  • and, of course, Richard Branson3 and his Virgin Group
  • …and there are no doubt loads more ‘seriously driven founders’ you could put forward.

(Please note that I’m not holding any of them out as great leaders – that’s a totally different matter.)

“Quick – grab a seriously driven founder!”

Every traditional ‘large corporate’ would just LOVE to employ a seriously driven founder…but it doesn’t work like that – they are doing their own thing…and perhaps sold their company to you!

You can’t fake being a seriously driven founder – you either are or you aren’t.

But wait, the large corporates that you invest in employ thousands of really capable people who, whilst they may not have the desire to ‘go it alone’, would be really happy to give of their all for a really great company that they co-own with you, through sharing in its success.

This is to match the right model to the system type.

At the moment, Management may be:

  • giving lectures on “you need to be innovative or else we’ll die”; and
  • putting huge effort into attempts to kick-start this (such as by setting up worker clubs)

…but change the paradigm and they may be hugely surprised4 at who starts talking to who…about what…who then informally club together to take it further…who enlist the help of others to do a little experiment…and uncover/ solve/ create something no-one else had…and, wow, that result could just be amazing!

To close this shareholder message: Your Dead money is useful, important and appreciated but, for your own good, it needs suitably diluting with Live money. This is in your interest – do you want your investments to be worthless or priceless?

And to all you Investment Fund Managers out there: You spend your days passing around shares in such ‘large corporates’. If the above is even slightly close to what is happening out there in your world, then I present you with the following analogy:

You are essentially playing Russian roulette, passing the gun around with your fellow fund managers until it goes off in the hands of whoever happens to be holding it.

How about swapping to play games with companies that have a lot better odds!

A personal message to CEOs out there:

fat-catIf the common man might label you as a ‘fat-cat CEO’ and you are responsible for a floating shareholder-owned company then I’d like to ‘speak to you’ about your situation:

  • You’ve done well for yourself; you’ve risen to the top. You are financially secure, in fact ‘set up for life’;
  • You probably spend much of your time telling your employees about the importance of purpose, and about matching their personal purpose with the stated purpose of your organisation;
  • So, what about your personal purpose?5 Are you here on earth ‘just for the money’?
  • Or would you like to be known (and remembered) for creating and sustaining a truly awesome organisation, for the good of society?

If it’s no longer ‘for the money’ (because, frankly, you’ve got that box ticked) then I’d ask that you ponder this post, perhaps share it with your board, and have a discussion about how you could change (I mean ‘improve’) the ownership structure of your company for the good of all…and that includes your current shareholders.

Personally, I love what Handelsbanken has done. But I recognise that there are many ways to ‘skin a cat’ (there’s that cat again!)

I hear what you say but…

If you ‘get’ what’s written in this post but don’t want to change your world, then at least know that employees of floating shareholder-owned organisations distinguish that it is really about the profit…and many (most?) of them see the constant blowing of your ‘purpose trumpet’ as convenient propaganda i.e. not the rallying cry that you might imagine. Sad, but true.

A ‘half arsed’ attempt:

Now, it’s possible that you’ve taken this all in, can see some industry or societal ‘movement’ towards profit sharing, and feel pressure building to be seen to be doing something.

So to a warning: Don’t play profit sharing ‘dress up’ (i.e. pretending that you are doing it but then hiding behind complex scheme rules and playing accounting games). Your people will see right through it and you will be the same as, and likely worse off than, before (minus the costs of your failed propaganda exercise).

Only do it if you actually WANT to share the success of the organisation with the people who make it possible…and this will only be because you’ve truly understood the situation, the opportunity, and the immense and sustainable potential.

A thought to finish:

henry-ford-quote

…so, don’t think about the profit! Focus on the service…but change something with regards to your ownership structure so that you (and everyone else) can!

…and with that:

  • We all lived happily ever after (that’s nice 🙂 ); or
  • Armagedon!!! (bugger)

If you’ve got to the end…yes, this is it! – nice one, top banana, brilliant. Thanks for staying with me!

I don’t pretend that I’ve solved ANYTHING…but I’ve definitely ‘got a lot off my chest’ 🙂 . I also hope that I’ve helped you in some way. Perhaps not yet…but with what might come.

Normal ‘single issue’ blog posts will resume from next week….and now to go and lie down.

Footnotes:

1. On efforts to ‘get your people innovative’: You should know that incentives and innovation don’t go well together! Alfie Kohn writes eloquently to explain why research repeatedly shows that “Rewards discourage risk taking”:

“the risks we want people to take – being willing to explore new possibilities… – are minimised by the presence of rewards. An extrinsic orientation, for example, makes people less likely to challenge themselves. Instead, they are apt to choose the easiest possible tasks to do, since this maximises the chance of getting the reward and getting it quickly.”

And, just in case you think incentives and profit sharing are the same thing, here’s an earlier post that explains why they are polar opposites.

2. Steve Jobs:

“I was worth over a million dollars when I was 23. And over ten million dollars when I was 24, and over a hundred million dollars when I was 25. And you know, it wasn’t that important, because I never did it for the money. I think money is a wonderful thing, because it enables you to do things. It enables you to invest in ideas that don’t have a short-term payback. At that time in my life, it was not the most important thing. The most important thing was the company, the people, the products we were making. And what we were going to enable people to do with these products. So I didn’t think about the money a great deal. I never sold any stock [shares]. I just believed that the company would do very well over the long term.”

3. Richard Branson:

“My interest in life comes from setting myself huge, apparently unachievable challenges and trying to rise above them … from the perspective of wanting to live life to the full, I felt that I had to attempt it.”

4. Doing something about it: I find it really interesting that the talk around me in my workplace is all about the disruptions out there (i.e. people know about, and are interested in them)…but there’s little real passion to do something about it (i.e. actions rather than merely talking about it) because we’re all placed in our hierarchy with our cascaded objectives and incentive/merit mechanisms.

Take those crypto-currencies. I’m sure that there’s something really important within…but I’m not leaping about to DO SOMETHING. I’ve got ‘concrete feet’ just like many (most? all?) those around me.

Is this me being lazy? Is this me being some sort of organisational traitor? No, these are the behaviours that the current system creates.

5. Your personal purpose: Looking at Maslow’s hierarchy of needs (see nice piccie below), I’d ask you to reflect that you (as a highly paid executive) are in the wonderful position to choose whether you move up the scale – to esteem and, ultimately, self-actualisation.

More Money won’t get you there!

maslows-hierarchy-of-needs

Money is necessary for the bottom two levels of the scale (also referred to by Frederick Herzberg as ‘hygiene factors’), and might assist with the middle (though can you really buy friends?)…but, once these levels are in place, money has little (if anything) to do with the top.

Conversely, continuing to adopt a (potentially subconscious) position, and take actions, towards more ‘money’ will prevent you getting there…which can lead to unhappiness and (at the end) a sense of huge disappointment through wasted opportunities.

Reflect on how many seriously driven founders, not knowing what to do with their wealth and often becoming very unhappy, turn to philanthropy.

You can create an amazing organisation (and gain colossal satisfaction) by creating the necessary environment for all the people who work there…and this will require you to be courageous and think totally differently.

 

Chapter 4: What possible ‘defences’ exist against the harm of ‘Money Power’?

So I’ve:

  • set out Ford’s explanation of Dead vs. Live money (Chapter 1);
  • ‘shot at’ organisations that claim they get this –as in “see, here’s my purpose!” (Chapter 2);
  • explained why shareholders are probably the last people you’d want as guardians for an organisation’s successful longevity; and
  • put forward a logic as to why executives behave as they do (including the recent Mylan example to consider) (Chapter 3).

light-bulb…and at this point you may reasonably ask “so what can be done about this situation?”

Thankfully not everywhere is the same…and we can look around for ideas.

Ha-Joon Chang writes that “most rich countries outside the Anglo-American world have tried to reduce the influence of free-floating shareholders and maintain (or even create) a group of long-term stakeholders (including some shareholders) through various formal or informal means.”

These include:

  • government ownership (either direct or indirect) of a sizeable share to act as stable shareholders (examples in France, Germany, Korea);
  • differential voting rights for different classes of shares e.g. for founders and their families to retain significant control (Sweden);
  • formal representation by the workers on the company supervisory board (Germany);
  • minimising influence of floating shareholders through cross-shareholdings amongst friendly companies (Japan)

“Being heavily influenced, if not totally controlled, by longer-term stakeholders, companies in these countries do not as easily sack workers, squeeze suppliers, neglect investment and use profits for dividends and share buybacks…all this means that in the long run they may be more viable…

Running companies in the interests of floating shareholders is not only inequitable but also inefficient, not just for the national economy but also for the company itself.”

(Of course, I should reflect that there are lots of other ownership models ‘out there’, such as State Owned Enterprises, Mutuals and Co-operatives…and I have read many a good-news story about what can be achieved with the latter.

If you already have one of these ownership models, please stay as you are! What follows is aimed squarely at the Dead Money corporations).

Exploring the employee option:

proft-sharing-quoteI’m a big fan of the ‘employees as long-term owners’ method.

Now, many a ‘large corporate’ would respond that their people can buy shares in their company and, further, that they encourage this by administering some form of ‘employee share buying scheme’.

So how’s this different to share ownership through profit sharing (as in the Oktogonen Foundation)?

Well, if we consider a typical ‘employee share buying scheme’:

  • You are asking employees to put up their own money as risk, rather than rewarding them for their ‘blood, sweat and tears’;
  • Only a limited number of employees will buy shares (for a variety of reasons – the most obvious being their level of affluence and their attitude to risk);
  • The minority that do buy a small ‘side salad’ of shares have simply been added to the vast pool of floating shareholders…worried about short-term profits and dividends.

In contrast:

The power in ‘share ownership through profit sharing’ is that EVERYBODY in the organisation becomes an owner, and thereby connected with the same aim.

The power in setting up a foundation specifically for this purpose is that the employees as a GROUP obtain a significant voice, creating representation on the board.

The power in defining a long-term method of payment (say, at pensionable age) is that employees (past and present) care deeply about the LONG TERM success of the organisation…which will produce a genuine focus on the CUSTOMER (and society).

Now these words might cause the following reaction from existing shareholders and executives: “Whoa…I don’t like the sound of ‘worker power’ – this is Trade Unionism by the back door…and look at where that always ends up!”

Here’s why it is the exact opposite:

The birth, and historic basis, of the Trade Union movement was to protect the workers from the power of the owners. In response to Trade Union power, the owners would regularly claim that the employees were ‘biting the hand that feeds them’…and thus a hugely adversarial battle became the norm1 (usually with the customer, and consequently the organisation, suffering in the cross fire).

But, rather than employee ownership through profit sharing stoking the ‘worker – owner’ flames, it actually dissolves the problem! Everyone is pointing in the same direction.

Even better, a foundational base is set to enable the business to become so much more efficient and effective because all those commanding and controlling ‘management instruments of torture’ can be torn down – that would be incentives and Performance Management2 for a start!

….just think how easy it would become to engage with the workers – or should we call them ‘long term guardians’ now?

“Just close your eyes and imagine…”

imagineI have often found myself in company presentations with management eulogising about the next ‘cost cutting’ initiative. A usual candidate is the travel and expenses budget (and the associated rules to be complied with)…and they always use the same logic:

“Imagine it as your own money!”

Ponder upon this for a minute: management ‘get’ that it isn’t our money, and that this will alter how we think about it…but they want us to play a game of ‘pretend’. Hmmm – they’re missing something there.

But what if THEY (management) altered their thinking such that it IS the employees’ money. They can dispense with those silly games, and potentially all those wasteful cost cutting initiatives. Imagine that!

“But it’s not their money!!”

Now, there may be a backlash of comments from shareholders with a view that the company would be giving away their money.

Some thoughts on this:

  • The organisation doesn’t need to raise capital to do this! It just needs to STOP the offering, and paying, of contingent rewards. There’s plenty of money right there;
  • For those shareholders that don’t realise this…there is loads of cost spent in administering the performance management/ incentives lark…and a great deal of harm caused that is unmeasurable! This is no longer required;
  • But, fundamentally, a long term ownership interest (Live Money) will change the way that employees think…for the good of the customer and therefore the organisation…and, as a result, to the benefit of those that invest.

A start to the journey

silver-bullet‘Necessary but not sufficient’: I’d like to be clear that, whilst profit sharing could be game changing, it’s not a silver bullet….but it is a hugely sound foundation from which the right type of business can be successfully built and sustained.

It can act as a catalyst for all those things that you’ve been saying, but not been able to do. Why? Well, because it fundamentally changes the employee – company relationship.

It brings Live Money onto the scene and, if done well, brings Service Power back to the fore.

(Note: I’ve written this whole serialised post because – after many years of pondering – I came to the conclusion that you can understand and passionately want to change your ‘culture’ BUT you won’t (meaningfully or sustainable) achieve this if you don’t address your ownership structure…and this relates to Money Power).

To close: A comment on the current ‘side show’

The current ‘large corporates’ hymn is all about diversity….and that this will ensure the future of an organisation – all those different people, with all those different perspectives and ideas! What’s not to like?!

Now, I’m all for diversity. I believe in respect, equality and fairness for all.

However, you can be as diverse as you like, but if you don’t change the system (of management and ownership) then you’ll simply get more of the same.

To repeat my regular John Seddon quote (I have it ringing in my head most days!):

“People’s behaviour is a product of their system. It is only by changing [the system] that we can expect a change in behaviour.”

Or, to a Deming pearl of wisdom: “A bad system will beat a good person every time”

Stop trying to change people and, instead, perform a paradigm3 shift so that they change for themselves.

I should add that the diversity thing will be so much easier to achieve when all employees want to collaborate together (profit sharing) rather than competing with each other for ratings, rankings and contingent rewards. i.e. If you really want diversity, and what it can offer, then change the system first.


Okay, so I’ve argued that employee ownership through long-term profit sharing is a bloody good way to go…but there’s a few people that I really need to convince first. That would be a) the existing shareholders and b) the CEO. And that is the subject of my next, and final, chapter 🙂

Update: Link forwards to Chapter 5

Footnotes:

1. Owners vs. Unions: As usual, Henry had something useful to say on the matter:

“Business does not exist to earn money for the capitalist or for the wage-earner. The narrow capitalist and the narrow trades unionist have exactly the same view of business – they differ only on who is to have the loot.” (Ford)

2. On the merit system (i.e the rating and rewarding of people’s performance): Here’s a nice Deming exchange in a Q & A part of one of his famous lectures:

Question from the audience: “What do you propose to replace the merit system with?”

Deming: “Replace it? What, you want something to destroy people better than that does?!

Replacement means another method to do the same thing. [Do] you know of anything more effective in the destruction of people?

Question rephrased: “But is there any way to change the merit system?”

Deming: “Change it? Abolish it! Look at what it’s done to us.”

3. Paradigm: I usually hate using the ‘p’ word – it seems so ‘management consultancy’ to me…but in this case it is spot on!

4. So…what if you don’t (yet) want Live Money: If you don’t want to do the profit sharing thing (even though you’ll be seriously missing out) then STILL GET RID OF THE INCENTIVES!

Chapter 3: Can executives change the ‘shareholder value’ machine?

So Chapter 1 explained Henry Ford’s philosophy, only for Chapter 2 to give modern ‘large corporations’ (including their executives and short-term shareholders) a bit of a slap around. You might reasonably ask whether executives can actually do anything about this, for the good of the organisation. That’s the subject of this chapter:

shareholder-value-machineSo let’s say that you are an executive of a shareholder-owned corporation. Who are you legally answerable to, and therefore in whose interests must you act?

This is the subject of another superb book, ‘The Corporation’ (2005) written by Joel Bakan. Here’s what he has to say about this:

“Corporations are created by law and imbued with purpose by law. Law dictates what their directors and managers can do, what they cannot do and what they must do. And, at least in…industrialised countries, as created by law…it compels executives to prioritise the interests of their companies and shareholders above all others and forbids them from being socially responsible – at least genuinely so.”

Bakan cites company law as establishing the principle that directors have a legal duty to put shareholders interests above all others1.

Now the last line of the Bakan quote might seem strange because ‘don’t all those companies provide us with corporate social and environmental responsibility statements?’ (i.e. on their websites and in a prominent position within their annual reports)

Bakan goes on to explain the apparent conflict:

“There is, however, one instance when corporate social responsibility can be tolerated – when it is insincere. The executive who treats social and environmental values as means to maximise shareholder wealth – not as an ends in themselves – commits no wrong.”

Now, this is pretty disturbing stuff! You might come back at me and say “but other laws and regulations will stop ‘em!” Mmm, it would be nice if that were so:

“For a company, compliance with law, like everything else, is a matter of [weighing up the] costs and benefits.”

Simply having laws and regulations isn’t going to protect the public. If the costs of meeting the ‘rules’ becomes exorbitant, the company will consider the legal and reputational costs of breaking (or ‘manipulating’) them as against the benefits to be derived….a small oil spill here, a dodgy tax deal there, with a sprinkling of marketing propaganda to cover up or divert attentions elsewhere.

[Quick side note: I recently watched the 1st Trump: Clinton debate and ‘the Donald’ referred to such logic as ‘smart business’…and why America needs him. Nice…not!]

Further, Bakan defines the concept of corporate externalisation:

“The corporation…is deliberately programmed, indeed legally compelled, to externalise costs without regard for the harm it may cause to people, communities and the natural environment. Every cost it can unload onto someone else is a benefit to itself, a direct route to profit.”

This illuminates the gulf between Dead Money power and the public good.

plastic-birdTake the really simple example of packaging for food and other consumables. Sure, the supermarket pays for the costs of the plastic…but they happily externalise the cost of dealing with this packaging once the item has been bought. “What do you mean it got into the sea and is killing stuff? Not our problem anymore!”

Are the big supermarkets bothered about this? Not really…but they become so if, and only when, we make it in their interests to be bothered…and you can be sure that, if they then make any improvements, their Public Relations (PR) machine will crow long and hard about how they are ‘making our world a better place’.

This is looking for good news out of what you are being forced to do, rather than doing the right things in the first place.

And beware of that supposed ‘good news’. The wonderful stuff (that they say) they are now doing, might not be so wonderful. I’ve just watched another episode of ‘Hugh’s war on waste’ and am appalled at big coffee’s2 attitude to coffee cups – they are perfectly comfortable with us all thinking that they are recyclable when they know that they aren’t. Nothing to see here – move along!

Now, I think that you and I know that we could dig up literally hundreds, if not thousands, of case studies over the years showing the harm caused to organisations and society by Dead Money…but let’s keep it real simple and just look at one that’s been in the media recently3:

Example: Mylan and the Epipen

epipenLet’s have a look at the drug company Mylan and their 2007 purchase of Epipen (an auto-injector of adrenaline, to counter an anaphylaxis reaction). The product had been around for many years and was making modest revenues of US$200m.

So here’s what Mylan came up with:

  • let’s strongly market it to concerned parents (so they feel morally compelled to buy more pens – for home, for school, for camp….);
  • let’s get laws passed that increase demand;
  • let’s get labelling rules changed that allow it to be marketed more widely;
  • let’s work hard on hindering competitors from bringing their substitute products to market
  • …let’s do whatever to push and protect this product.

And so, between 2008 – 2015: Mylan increased prices 400% (to US$600 for a twin-pack), sales rose to US$1 billion and the product margin went from 9% to 55%.

(Note: those price increases are the exact opposite of Ford’s success4)

But what of the customer (the public)? Well, as is often the case, the really needy people are the ones that suffer. Many parents of allergic children can no longer afford the best product (or the rising health insurance premiums). They have no choice but to take alternative actions, like:

  • carrying expired Epipens and hoping the drug still works; or
  • reverting to the old fashioned method of regular syringes, by paying a doctor to fill them with the drug…costing about $20… and hoping that it is administered correctly when the time comes.

Even officials in many states are training their medical technicians to use the old ‘regular syringes’ method so as to save hundreds of thousands of $ from their budgets.

…and, finally the dam burst: the story got out, with mainstream and social media waging war on Mylan’s CEO, Heather Bresch.

So, did Bresch do anything wrong? Who says? The shareholders had been ecstatic with her actions…at least until ‘we’ found out.

Has Bresch taken some steps to address the mess? Hell yes!…but only to defuse, protect and then, no doubt rebuild. Nothing has fundamentally changed. She might be ‘shamed’ into resigning (not looking likely)…but I hazard a guess that if this occurred:

  • her salary cheque (and share options) will likely comfort her;
  • there will be many job offers from other companies wanting to benefit from her ‘corporate acumen’; and
  • Mylan will look for, and easily find, a replacement CEO in her image.

So, where’s that much vaunted ‘purpose’ in all this? If you want to have a read about Mylan, their Mission and their Values then have a look here. The following words from Mylan’s website give me a lump in my throat, and tears in my eyes:

Doing what’s right is sacred to us. We behave responsibly, even when nobody’s looking.”

It reminds me of a rather nice Jon Stewart quote:

“If you don’t stick to your values when they’re being tested, they’re not values; they’re hobbies.”

If you were wondering about the insincerity part of Bakan’s quote above then I hope the Epipen example assists. Mylan’s demonstrable purpose is money, not its customers (the public).

It’s worth noting that Mylan’s short-termism has laid itself bare to disruption by those who (are seen to) champion the customer. I expect competing products to do well from this media saga, and new products to emerge.

We shall see how this affects Mylan…but they have clearly lost a great deal of trust from the public.

As an important side note: How many of Mylan’s employees do you think now love working for them vs. how many are embarrassed to say so? And what effect might this have?

The unholy alliance:

unholy-allianceThere is of course a further (and huge) problem implied within the above: Those short-term thinking shareholders have formed an unholy alliance with those they employ as their agents – the directors and executives. By which I am referring to share option incentives.

This isn’t new stuff – and I often reflect that not much in human history is!

Here’s what Henry Ford had to say about the stock [share] market nearly 100 years ago:

“The most common error of confusing money and business comes about through the operation of the stock market. And especially through regarding the prices on the exchange as the ‘barometer of business’. People are led to conclude that business is good if there is lively gambling upwards in stocks, and bad if the gamblers happen to be forcing stock prices down.

The stock market as such has nothing to do with business. It has nothing to do with the quality of the article…nothing to do with the output…it does not even increase or decrease the amount of capital used in the business. It is just a little show on the side.”

…and, to the highly problematic part:

“The state of the stock market may make a deal of difference to the officers and directors of a company if they are dabbling in the stocks and trying to make money out of the securities of the company instead of out of its service.

It’s interesting that Henry saw this point clearly so long ago. I wonder what he’d say to the size and nature of the modern share option incentive packages! This has become a modern ‘large corporate’ virus5, attacking at the heart of the (supposed) customer purpose.

To close:

So, we have:

  • A problem of dead money usurping purpose;
  • An ownership model that favours short-termism over doing the right things for the long term success of the business; and to cap it all…
  • Directors and Executives ‘bought’ by those short-term shareholders to keep it this way.

Many an executive could throw their hands up in the air and cry “I know…but what can I do?!”

In Chapter 4, I’ll put forward some alternative thinking – for ways to alter the ownership model and thus change the foundation for the good of all (including the shareholders).

Update: Link forwards to Chapter 4

Footnotes:

1. Shareholders as King: If you want to really delve into: the detail on the ‘shareholder primacy’ issue; recent attempts to move to an ‘enlightened shareholder value’ concept; and the conclusion that little has really changed then here’s an in-depth paper that does that.

2. ‘Big Coffee’: Hugh investigated the (misleading) words and (contradictory) actions of Starbucks, Costa Coffee and Cafe Nero in the UK.

3. Wells Fargo: I had already written Mylan as the case study when I saw the Wells Fargo fraud come out in the media…I could have added this case, but I expect that you’ve got the point – lots and lots of big corporations focused on dead money power, not service power for the public.

If you don’t know about, but would like to read up on the Wells Fargo case, then here’s a link.

4. Price: Henry Ford constantly sought ways to reduce his costs and pass these savings onto his customers (the public) by reducing the price of his cars. The price of a Model T ford dropped from $850 when it was introduced, to $260. (Source for price info.)

5. That ‘Unholy Alliance’: Just in case you were wondering (and this note is mainly for the benefit of shareholders), studies have examined the link between the introduction of executive incentive (i.e. share) packages and shareholder value – and it hasn’t exactly worked out well for the shareholders! A book to read here would be ‘Fixing the game’ by Roger Martin.

A recent study of 1,500 large corporations by Raghavendru Rau (Finance Professor at Judge Business School) found that:

“shares in firms that paid their CEOs in the top 10% of incentive pay [i.e. with high executive ‘incentive’ packages] typically saw their share price decline – and they fared considerably worse than the shares of companies in the bottom 10% [ i.e. with no or little executive incentive packages]”

Chapter 2: “That’s what WE do!”

Okay, so to recap, in Chapter 1 I took you back 100 years to consider the visionary Henry Ford and his foundational philosophies. I know he wasn’t a saint, I know he didn’t ‘solve the worlds problems’ and I know that he was lucky to be the right side of a technological disruption…but there’s bucket loads to learn from him.

what-peple-say-and-doThe ending of Chapter 1 was about Money power and, in particular, the idea of Dead Money provided by professional financiers – people focused on profit.

Now, I can almost hear any and every ‘large corporate’ executive, after reading Ford’s words, shouting back that “yes, yes, YES” – they understand ALL of this…they don’t run the business solely for profit…and this is why they have a rather wonderful Purpose Statement!1

To those ‘large corporate’ executives that would protest that they are ‘at one’ with Henry, I would reply with Stafford Beer’s acronym POSIWID, which stands for ‘The Purpose Of the System Is What It Does’.

To better explain this point I will borrow from my earlier post on this point:

“There’s a BIG difference in what we might like the purpose of our (organisational) system to be and what it actually is!

You can say that the purpose of the system is [XYZ] until you are blue in the face but, if this isn’t what it actually delivers, then by point of fact it ISN’T its (current) purpose.”

Every time I hear the ‘purpose’ words and then see the conflicting profit actions, I have to go and have a lie down.

Ford’s words are profound2 and agreeably fit with what has subsequently been written/said by all those giants I referred to in my earlier post ‘Oxygen isn’t what life is about’.

Here’s the summary from this post:

  • “You can state a purpose….but you’ve got to actually live it to move towards it;
  • An organisation’s purpose should NOT be ‘profit’, even though this outcome is necessary for the system and those that finance it;
  • If you think it’s the other way around i.e. that you need to state a purpose so as to chase profit, then you are likely to fall a long way short of what you could achieve…and will put your long term survival at serious risk;
  • A focus on short term profits and results for the market will likely destroy unknown and unknowable value.

For those of you who think ‘what a load of hippy liberal rubbish, of course it’s all about the shareholder’, here’s a really nice quote to consider from Sam Walton (founder of Wal-Mart):

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

…how would those shareholders feel if their investment became worthless?”

i.e. Purpose is above profit…and you can’t just say this – it has to be so.

We seem to have a problem with understanding the ‘purpose isn’t profit’ thing.

So, what’s the difficulty here? Why can’t we fix this? What might be the cause?

And so to Corporations

shareholder-demandsIf you’ve not read it then I heartily recommend a well written book by Ha-Joon Chang (Economics Professor at Cambridge) called ’23 Things they don’t tell you about Capitalism’3.

‘Thing 2’ is that “Companies should not be run in the interest of their owners”.

Now this will likely confuse most people, provoking responses like “…but isn’t this a building block of capitalism?”

And yes, in Ha-Joon Chang’s words, here’s what we are told:

  • “Shareholders own companies. Therefore, companies should be run in their interests. It is not simply a moral argument…;
  • Shareholders’ incomes vary according to the company’s performance, giving them the greatest incentive to ensure the company performs well…;
  • If the company goes bankrupt, the shareholders lose everything, whereas other ‘stakeholders’ get at least something. Thus, shareholders bear the risk that others involved do not.”

Okay, that looks pretty cut and dry in favour of the shareholders – so what is he on about?!

…but here’s what they don’t tell us:

  • “Shareholders,…as the most mobile of the ‘stakeholders’, often care the least about the long-term future of the company;
    • On mobility: whilst shareholders can sell their shares in the blink of an eye, the other stakeholders (customers, employees, suppliers and even the lending banks) have far higher barriers to untangling themselves
  • Consequently, shareholders, especially but not exclusively the smaller ones, prefer corporate strategies that:
    • maximise short-term profits, usually at the cost of long-term investments; and
    • maximise the dividends [and share buy backs] from those profits, which even further weakens the long-term prospects of the company by reducing the amount of retained profit that can be used for re-investment.

 Running the company for the shareholders often reduces its long-term growth potential.”

This could just as easily be Ford talking about ‘Dead money’!

short-termismHa-Joon Chang goes on to tear apart the 1980s principle of ‘shareholder value maximisation’ (I won’t reproduce his critique here…but it is well worth reading4).

He concludes that “[shareholders] ease of exit is exactly what makes [them] unreliable guardians of a company’s long-term future.”

Jack Welch (then CEO of General Electric) was the darling of the ‘shareholder value maximisation’ ideology…and it seemed to work really well for the large corporations…until it all inevitably came crashing down5.

Welch, many years later, reflected in an interview with a financial journalist that:

Shareholder value is the dumbest idea in the world…

…Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products.”

…and, whilst it’s good that I can use this quote here, I find it convenient (to put it mildly) that Welch utters these words after he has extracted his $$$ millions from the corporation he pillaged and the ‘Guru Management’ books he sold…and now earns yet more $ from the reflective books telling us it was such a dumb idea!

“So are you trying to argue that we shouldn’t have limited liability companies?!”

llc-pros-and-consNo, I’m not.

They have been rather useful to our societies in enabling large, risky and capital intensive ventures that, whilst important, wouldn’t have happened without risk sharing – e.g. large-scale industries such as the railways.

Prior to their existence, a business person had to risk everything (including the shirt on their back) in order to carry out business…and if they failed then it was off to debtors prison.

The idea of a limited liability company was invented back in sixteenth century Europe (known as a joint stock company back then)…but, due to constraints imposed upon them, they didn’t come into general usage until the mid nineteenth century.

So why might society have wanted those constraints? Well, they didn’t trust them! Even Adam Smith, often referred to as ‘the father of economics’, said the following:

“directors of [limited liability] companies…being the managers rather of other people’s money than of their own, it cannot well be expected that they would watch over it with the same anxious vigilance with which the partners in [their own business] frequently watch over their own.”

So, the idea of limited liability? – Yep, this is definitely of use to society.

But the idea of purely dead money in a business, or even of it being the master? – No, this is not healthy, for the business, for society or (for that matter) those free floating shareholders caught holding the dead money when the music for the ‘short-termism’ pass-the-parcel game stops.

The music stops when the business fundamentals bite…and they always do.

What about those businesses that buy businesses that buy businesses?!

fish-eating-fish-eating-fishDon’t they need barrow loads of private financier’s money?

…and so back to a lovely Henry Ford quote to close out this chapter:

“What seems to be a big business may be created overnight by buying up a large number of small businesses.

The result may be big business, or again, it may be just a museum of business, showing how many curious things may be bought with money.

 [True] Big business is not money power: it is service power.”

Many a big corporate has used dead money to pursue a strategy of mergers and acquisitions…and has often destroyed so much value in the process….and, after licking its wounds (and perhaps the convenient ‘retirement’ of those involved) has repeated the same mistakes, again and again.

A business becomes successful because of service power, not because it took actions that merely made it big.

The point is that ‘big is not beautiful’, service is beautiful…which will likely lead to a growing business. Cause and effect.


So…this chapter considered the likely protests from ‘large corporate’ executives that they are doing exactly as Henry implored…and why it’s really not as simple as that. In fact, if we look at the idea of ‘shareholder value maximisation’ then Henry’s definition of Dead Money appears to fit oh-so-well.

This is all very interesting…but what if this is just how it has to be! Chapter 3 will consider whether executives can do anything about this, for the good of the organisation.

Update: Link forwards to Chapter 3

Footnotes:

1. I reflect that Simon Sinek’s excellent TED talk covering ‘Starting with Why’ has done extremely well in making its way around the world.

2. If you are a manager lecturing people as follows:

“We are here to make money and to [meet our purpose], in that order!…because if we don’t make money, we can’t [meet our purpose]”

…then PLEASE re-read and really think about what Ford (and the others) are saying.

Your ‘money comes first’ lecture is a classic case of ‘the tail wagging the dog’.

3. Anti-capitalism? Just in case you think Ha-Joon Chang, and perhaps I, a Communist, here’s a few lines from his concluding chapter:

“My criticism is of free-market capitalism, and not all kinds of capitalism….There are different ways to organise capitalism. Free-market capitalism is only one of them – and not a very good one at that…..so, capitalism, yes, but we need to end our love affair with unrestrained free-market capitalism, which has served humanity so poorly, and install a better-regulated variety.”

He goes on to set out eight principles to have in mind in redesigning our economic system.

4. Shareholder value maximisation: If you don’t want to buy Ha-Joon Chang’s book (it’s bloody good!) but do want to delve a little deeper in respect of “the dumbest idea in the world” then here’s a Forbes article that does similar.

5. General Electric: They became infamous during Welch’s tenure as masters of ‘legal earnings manipulation’ so that they always hit their earnings projections…and this was over a period of decades!

However, their underlying business didn’t look so hot when the pressure came on in the two crashes of the 2000s. Their share price (see graph below) tanked from $41 in Oct 2007 to $7 in March 2009.

ge-share-price-chart