I knew it wasn’t that simple!

giantknave Brain Farts , , , , ,

Prospect TheoryI’ve recently had that experience: the one where you’ve always thought something is peculiarly wrong about conventional wisdom but couldn’t quite put your finger on why…then you happen to read a book and “aha! That explains it.”

Now, rather than pointing you to the research…or (worse) attempting to rewrite (by which I mean ‘butcher’) it here, I’m going to try and provide a concise post around my ‘aha’ moment:

The topic in question:

I’ve written before about the harm that contingent rewards do, and this has mainly been from the point of view that they distract us and distort our actions (and these remain massive criticisms) …but I’ve always thought that there is more to be said about the emotions people experience when it comes to the annual bonus.

If you’ve worked in an organisation that uses financial incentives, cast you mind back to the joys of bonus time. How much of the following rings true:

  • You’ve got a bonus but you aren’t exactly ecstatic about it…there’s plenty of negative emotions going on
  • You are aware of what you didn’t get
  • You compare with what you got in previous years
  • You were really only ‘arguing over’ a couple of hundred dollars in your performance review…but you still fought hard for this or, if you are introverted, perhaps you did so in your head.
  • …no doubt you can add your own thoughts for the reactions and emotions you experience (or, if you manage people, have to deal with).

This sounds crazy – you should be happy shouldn’t you?…you got a bonus! So what’s going on?

Utility Theory1:

Classical economists have based their thinking around the ‘rational person’ for hundreds of years. In particular they assume that, given a set of options, we make logical comparisons and then make rational choices.

Given that two options may not be directly comparable (say a carrot with a banana), Economists talk about utility as a measure of worth. At its simplest, the measure of utility is your willingness to pay different amounts for different goods (and services).

Further, when there is uncertainty about an outcome, utility theory assumes that we rationally use probabilities in our thinking. i.e. If there’s a 75% chance of earning $1,000 then the utility of this option is $750.

…but it turns out that we aren’t that rational!

Example 1: You are offered the choice between:

  1. a sure gain of $750; or
  2. a 75% chance at winning $1,000 and 25% of winning nothing

What would you do? … please consider and take a few seconds to decide.

Utility Theory expects these choices to be identical (both valued at $750) but, to the vast majority of us, they are not.

It turns out that we overwhelmingly prefer the certainty in the sure gain of $750 (we are risk-avoiding). This probably feels right to you but what’s going on?

‘Behavioural Economists’ to the rescue…

Psychologists consider what people really do (and why), as opposed to what a rational (well reasoned) analysis says they should do.

Some of these psychologists started looking at ‘real’ decisions made by people that contradict what a rational economist would expect. This gave birth to the rather trendy (and I would say fascinating) school of ‘behavioural economics’.

Prospect Theory2:

Two of the early giants of behavioural economics, Amos Tversky and Daniel Kahneman, spent years together considering scenarios where utility theory broke down (i.e. where real people took irrational decisions) and how this can be explained.

They arrived at a new ‘Prospect Theory’ that far better explains3 why we behave as we do. So, now that you have this background knowledge, let’s consider the annual bonus:

That wonderful (?) annual bonus:

So, when ‘Management’ believe that they are offering you a healthy bonus, they likely think you are conforming to Utility Theory. Indeed, much of their (verbal and written) communications around such a bonus suggest this is so.

But such thinking is far too simplistic, and flawed. Tversky and Kahneman identified a number of cognitive features at play. I’ll explain two key features below:

Feature 1 – Reference point:

Do you think that a financial trader should be ecstatic with her mega $2 million bonus?

What now if I told you that this is only half of what she has become accustomed to?

I expect that you would be ‘over the moon’ with such a bonus but you also understand that the trader may not be (however much this might annoy or even disgust you)…you have different reference points.

Why the difference? This is because we don’t just consider the quantity of an outcome; we use a reference point as a comparator, though we may not be conscious of doing so.

Here’s another way of thinking about the importance of reference points: If I told you that two people had been at the (horse) races today and they both came out with $50 you don’t have enough information to predict how they feel…you need a reference point: how much did they start with?

Our reference points have a huge effect on our thinking and this cognitive feature is relevant to the annual bonus scheme:

Scenario: Let’s take Bob who is on a $70,000 salary and is being ‘motivated’ (!) by the chance to earn a 10% bonus.

‘Management’ would like to believe that Bob is thinking about his chance to gain up to $7,000; that he will consider this to be a sizeable amount; and that this is a positive experience for him (translation: it is acting as an ‘effective bribe’ to get more out of him):

i) If this is the first year of the annual bonus scheme, then Bob’s reference point is $70,000 and he is happy when he is awarded, say, a 75% ‘performance’ score equating to a bonus of $5,250 (i.e. 75% of $7,000);

ii) If this is, say, the 3rd year of the scheme and Bob has averaged a 75% performance score on both his previous years, then his reference point has become $75,250. This is what he has come to expect and he will compare any bonus he receives this year against this reference point…which you can see means that the bonus has lost a great deal of value to him. Indeed, it is very likely to be a disappointment.

Annual bonus schemes look great at the start, but cause problems after only a few iterations. There is nothing procedurally that can be done to resolve this – the reference point has moved away from a person’s base salary and to what they now expect.

Kahneman notes that “For financial outcomes, the usual reference point is the status quo, but it can also be the outcome that you expect, or perhaps the outcome to which you feel entitled, for example, the raise or bonus that your colleagues receive. Outcomes that are better than the reference points are gains. Below the reference point they are losses.” …which leads nicely on to:

Feature 2 – Loss Aversion:

So far we have only looked at potentially gaining $$$, but what happens with loses?

Example 2: You are offered the choice between:

  1. a sure loss of $750; or
  2. a 75% chance at losing $1,000 and 25% of losing nothing

What would you do? …please consider and take a few seconds to decide.

This looks very similar to example 1 – it’s the same except that we are looking at a loss rather than a gain…but it turns out that people treat gains and losses differently – we are loss averse.

People really don’t like losing and, as a result, are willing to take a gamble (we become risk seeking). The majority of people would go for the 2nd option in example 2 and take the chance. They might get away with losing nothing and they find this attractive as compared to the unpleasant certainty of losing $750.

Note: If you go back up to the graph used as the picture for this post, the curve represents the logic within Prospect Theory, showing that we feel far more pain from a loss than joy from an equally sized gain.

Tversky and Kahneman’s experimental research on peoples’ real choices identified that our loss-aversion co-efficient* is around 2 in many contexts, and much higher in others (e.g. it can be as high as 50 when it comes to decisions about our health).

* This means that I feel as much emotional pain from a $375 loss as I do joy from a $750 gain. They are asymmetric.

Putting the two together:

So let’s assume that it’s year 4 of the bonus scheme’s operation and Bob has become used to the $75,250 ‘salary plus bonus’ reference point. Let’s now compare and contrast two different outcomes for this performance year:

Outcome 1: Bob’s score delivers an annualised $76,000 pay packet– what does he think?

Feeling: “Yeah, big deal, I got another $750…nothing much to that.

Note: He isn’t thinking too much about $6,000 i.e. the absolute size of the bonus

Outcome 2: Bob’s score delivers an annualised $74,500 pay packet– what does he think?

Feelings: “That’s terrible, I’ve lost $750….I’m really not happy about that!!!”

Note: Worse (from management’s perspective) than not thinking about the $4,500 bonus, Bob actually think of it in terms of a loss and that loss really hurts him (far more than its apparent size).

What’s the point?

Our emotions about our annual bonus award are dealing with far more than the simple bonus number printed on the payslip: There is sooo much more going on in our minds:

  • Reference points: can reduce a seemingly large bonus figure down to a virtual irrelevance; and
  • Loss aversion: can turn us to think in terms of losses, and feel emotionally hurt by them by far more than would appear to be rational.

I always knew it wasn’t as simple as looking at that bonus figure on my payslip – there are lots more emotions going on!

I am reminded of Alfie Kohn’s insight that “within every carrot, there is a hidden stick”.

Annual bonus schemes appear great in their first year (if you subscribe to Theory X thinking )….and then become a major burden.

Some organisations think the answer is to ‘reboot’ them every now and then. I don’t.

Notes

  1. This introduction to Utility Theory is necessarily ‘overly simplistic’ but it makes the necessary point about rationality vs. reality.
  2. You can read an account of this in Kahneman’s mind-bending book ‘Thinking fast and slow’. Their paper on the theory was first published in 1979 and is included as an appendix to the book.
  3. Kahneman recognised that Prospect Theory isn’t perfect. It has since been revised as ‘cumulative prospect theory’.

Good Morning Mr Hill, how can I help you today!

giantknave Brain Farts , ,

Hello DaveSo I moved house a few months ago and I’ve been really slow at updating my address details with all those organisations that have wheedled their way into my life – I am suffering from the well known condition called ‘Post Office redirection service’ apathy.

(i.e. once you’ve got a 6 month redirection arrangement in place, you forget about it!)

I finally got around to attempting some address changes…which meant that I had to interact with organisations back in my land of birth (England). I naively thought that this would give me a feel for where ‘state of the art’ customer ‘centricity’ had got to!

So, off I set: I pick my UK pension company as the place to start my address changing chores. I find some paperwork in my filing cabinet and, yippee, it indicates that they’ve got an online presence. A further dig around and my paperwork shows that I registered for their online service a few years back – excellent, this should be easy!

Next, I go to the website. After a few wild guesses at my online sign-in details, I finally crack the code and I’m in!

Yep, there’s the ‘My details’ section and yep, there’s my old address…now to change it….oh, I can’t…eh?…oh, right, go to that tab that says I can and…no, the function is there but it doesn’t appear to be activated for me…apparently I have to ring them!!

So, I ring them.

I get a weird sounding computerised voice straight away:

Computer lady thing: “In a few words, please explain what you would like us to help you with”

Me: I look around the room. I feel somewhat silly holding a conversation with a machine and I wonder how good ‘she’ is at understanding me…so I speak slowly and clearly: “CHANGE  (pause)  ADDRESS”

Computer lady thing: “Can you tell us whether you are an employer, trustee, financial advisor or plan holder?”  

Me: Erm, I’ve got no idea whether ‘she’ understood my answer to the 1st question! She’s moved straight on without comment. I wait for what I think is an appropriate time and provide an answer to the 2nd question: “PLAN (pause) HOLDER”

Computer lady thing: “Can you tell us your plan number”

Me: And so, after what I think is a reasonable pause, I do, with clear enunciation on each letter and number…I’ve still got no idea how well she’s doing at getting what I have said so far – she’s not complained so I assume all is good.

Computer lady thing: “Please tell us your surname”

 Me: I wait, and then say my surname loud and clear

Computer lady thing: “Please tell us your date of birth. Please say it like the following example –  23rd March 1972”

Me: I wait and then provide my date of birth in the format requested.

Computer lady thing: “I’m sorry I didn’t understand that. Please tell us your date of birth”

Me: Aha, I think, that shows that ‘she’ must be getting everything else I’ve said so far! I provide my date of birth again but slower and, hopefully, even clearer!

Computer lady thing: “Thank you. A customer service agent will be with you as soon as they can.”

I then wait, wait, wait…yes! I now get to speak to a human.

 Call handler: “Good Morning Mr Hill, how can I help you today” said in a very smiley (empathetic) way

Me: “Eh? I’m not Mr Hill!”

 Call handler: “Ah, sorry sir, can I take your details”

…and so I am asked for all of my details again by a human with a brain.

“I hear what you say…but I don’t want to change my world”

giantknave Brain Farts , , ,

Upton Sinclair quoteSo, for this post, I’m going to use a ‘true story’ as explained by Daniel Kahneman in his mind-bending book ‘Thinking fast and slow’.

(Kahneman is a Nobel prize winning giant in the field of human psychology and I will be adding him to my group of giants soon).

Some years ago, Kahneman was invited to speak at an investment firm whose advisors provide financial advice to wealthy clients. I can almost hear them shouting “buy, sell…buy” across the trading floor.

Pre-meeting preparation.

Kahneman asked the firm’s executives for some data so that he could prepare for the talk he was due to give.

He was provided with a spreadsheet containing the investment outcomes of 25 of the firm’s advisors, for each of 8 consecutive years. No names, just anonymous identifiers.

The firm used the investment outcome success of each advisor as the main determinant of their (potentially large) year-end bonus.

…so what was Kahneman interested in understanding about this data set? And what did he do to interrogate it?

His thinking: That investment outcomes will be a combination of skill (on the part of the advisor) and luck1

His question: How much of the outcome in this ‘providing expert investment advice’ work was down to skill and how much to luck?

How to determine the answer: Kahneman was interested in understanding whether any apparent differences in skill were persistent i.e. did the same adviser consistently achieve better (or worse) returns year on year?

postive corelation pictureTo work this out he calculated the correlation coefficients2 between the advisor rankings in each pair of years: year 1 with year 2, year 1 with year 3….all the way along to year 7 with year 8. This gave him 28 correlation coefficients from which to calculate the average.

  • An average score close to 1 would mean that it was a very highly skilled job and the best (and worst) advisors were easy to identify – in this scenario, luck plays virtually no part;
  • A score midway between 0 and 1 would mean that skill mattered a bit but that luck also had a huge part to play.
  • Anything nearing 0 would mean that it was really just about luck.

So what were his findings and what does this mean?

Drum roll…he was surprised to find that the score was…0.01 or put more simply ‘zero’.

In Kahneman’s words “The consistent correlations that would indicate differences in skill were not found. The result resembled what you would expect from a dice-rolling contest, not a game of skill.”

Clarification: Just in case you are thinking “hey, that’s just one set of data. He got lucky!”…Kahneman knew roughly what he was going to uncover because this ‘person or system’ type analysis has been done many times by many people. He knew the theory and the evidence….he expected it to be low but he didn’t expect it to be soooo close to zero!

So what happened next?

Well, he ended up having dinner with the investment firm’s executives the night before he was due to give his talk.

He explained the question he had asked of the data they had provided to him and asked them to guess the year-to-year correlation in the rankings of their advisers.

The executives (being intelligent and self-protecting people) thought they knew what was coming and calmly accepted that performance certainly fluctuates and, yes, there was an element of luck…however, none of them expected the average correlation to be zero.

Kahneman gave them the clear message that “the firm was rewarding luck as if it were skill”.

This should have been a major shock, but it created no great stir…they calmly went on with dinner as if nothing of note had been said.

Kahneman goes on to write about “The illusion of skill: Facts that challenge such basic assumptions – and thereby threaten people’s livelihood and self-esteem – are simply not absorbed….people consistently ignore statistical studies of performance when it clashes with their personal impressions from experience.”

Why write this post?

There are two key points within the case above:

The first is that Kahneman’s story is an (extreme) example of the system vs. the individual. Yes, some people may be outstanding but a great deal of ‘performance’ can only be ascribed to the system in which they operate. (You might perhaps take note that investment advice is little more than a game of chance.)

But perhaps the second (and main) point is clearly expressed in the phrase “I don’t want to change my world”. The executives may very well accept ‘the maths’ and the conclusion…but that doesn’t mean they are about to change anything.

Consider that executives are probably also on a (larger) bonus structure which will have a similarly dubious rationale. We can expect little change unless and until those ‘at the top’ of an organisation understand, agree and want it.

People (such as me) can bang on about performance reviews and contingent rewards, providing ever increasing evidence and logic…yet (and this is an open question) what will cause a change?

1 This is another way of stating Deming’s x + y(x) = the result equation. i.e. the result is partly down to the person and a large part down to the system in which they operate (which is simply luck from the person’s perspective).

2 A correlation coefficient (usually denoted with the letter R) is a statistical measure of the strength of the relationship between two sets of data.

Correlation coefs

R = 1 means that the two sets of data are a perfect positive fit.

R = -1 indicates a perfect negative fit

R = 0 indicates that there is no relationship i.e. any relationship is purely random.

A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally described as weak. 

 

I’m just a spanner!

giantknave Brain Farts , ,

spannerSo there’s a TV programme that I love called ‘How it’s made’. It takes the viewer through the manufacturing journey of a unit of production. An episode might focus on something small, like making a can of fizzy drink. Another episode might focus on something HUGE, like building a cruise ship…but there is a similarity within.

The other day I watched an episode that showed how a spanner was made (a ‘combination wrench’ if we are being techy). Watch it here (it’s only 5 mins).

Once you’ve watched it, I’d ask you to put yourself in the place of one of those wonderful spanners (call yourself Sammy if you like and have a think about yourself)….I did, and here’s what I thought:

“I’m just a spanner….

  • I don’t have a brain
  • I’m not purposeful – I just ‘am’
  • I don’t have a genetic make-up passed on to me – I don’t have a mum and dad!
  • I have no memory of my past experiences from which to form opinions
  • I’m not capable of emotion
  • I can’t respond to things that happen to me or make choices for myself

In short: I cannot think or communicate, which is ironic given that I appear to be writing this post 🙂

Further, all of this is relatively static – it doesn’t change over time…other than perhaps the ever-so-slow process of entropy as I likely corrode.

…and so, given this I really don’t mind that:

  • my destiny (to be ‘that spanner’) is predetermined for me, and completely specified ‘up front’ by my makers…without any input from me;
  • there is nothing unique/ special about me: I am treated exactly the same as every other ‘standardised’ spanner;
  • I am bundled together with other spanners in convenient batches as and when my makers see fit;
  • I am passed from process to process as my makers determine, for their benefit;
  • I sit around (in piles) waiting for when the next process is ready for me
    • which may be days or even weeks…in fact whenever my makers wish
    • …and nothing really happens to me whilst I am waiting
  • …and so on

Each process knows exactly what it is getting from the last one and knows exactly what to do (e.g. I will arrive at process ‘x’ as a blank and I will then have a hole stamped through me, ready for process ‘y’)

It doesn’t really matter what mood each worker on my production line is in, how they are presented…even what language they speak or views they hold. They will ‘process me’ and move on with their lives!

This arrangement may very well work out just fine for our Sammy the spanner…but now let’s turn our attention to service organisations (and service value streams):

If you go back to the monologue above and substituted a customer into the role of our hero, the spanner, you would find that all is most definitely NOT okay! Go on, take a short minute to do it – it’s a good exercise in realising how and why service and manufacturing are VERY different.

Treating customers as brain-less, purpose-less, emotion-less and lacking in memory is not recommended. “Fine”  I hear you say ”….we’d never do that!”

But, now consider whether many (most?) service organisations:

  • attempt to standardise customers into a service ‘straight jacket’;
  • pass customers through rigid pre-defined processes (e.g. from front office to back office; through vertical silos of order taking – assessment – solution – payment and closure…and then ‘after care’)
  • juggle customers between multiple members of staff (with no-one really taking responsibility);
  • put customers into queues to process at the service’s convenience (perhaps using computers to elicit ‘data attributes to classify, sort, prioritise and schedule’*)
  • treat the customer’s time and effort as free; and
  • decide when the customer’s need has been fulfilled (rather than allow the customer to determine this for themselves)

* If that sounds awfully boring and techy, it’s meant to because that’s what computers are good at – algorithms, not people.

Now, you might yawn and say “Steve, you are on your ‘service is different’ band wagon again” and you’d be right! You might even point me at some posts that I have already written in a similar vein.

But the fact is that every single day we, as customers, experience service organisations treating us more like a spanner than a person. This likely causes huge frustration, failure demand and negativity towards the service being experienced.

I want a service organisation to understand:

Many a service has gone down the wrong path. It is time for them to wake up…

“No matter how long you have been on the wrong road, turn back.”

Do you sometimes feel like you are being treated like a spanner instead of a customer?

Conversely, if you work in a service organisation (or service value stream), what do you think your customers feel like?

A final reflection:

It’s worth considering the following quote: “In service, the best hand-off is no hand-off.”

I’m not saying that this is necessarily achievable…it’s more of a challenge towards which we should be pointing. At its most basic it is a sobering antidote to all those out there running in the other direction whilst chanting the ‘standardise and specialise’ mantra.

Getting Away from Pyramid Selling

giantknave Brain Farts , , , , , , ,

Mgmt pyramidSo I wrote my recent ‘Farmers and Facilitation’ post on who should be promoted and why…but that wasn’t the end of it. Here’s ‘Part 2’:

Rethinking the ‘Promotion’ idea

Not everyone can ‘get to the top’. In fact hardly anyone can! Yet many (most?) of us spend our working lives striving to reach the next rung of the ladder…and then find ourselves eyeing the next one. It’s a bit like a pyramid selling scam!

As ever, Alfie Kohn has some interesting things to say:

“In thinking about promotion, we take for granted that an organisation must be shaped like a pyramid, with many people clamouring for a very few desirable and lucrative jobs at the top, as if this arrangement had been decreed by God. In fact, both how many such positions are available and how many people want them are the result of institutional decisions.

We create a climate in which employees are made to feel like failures if they are not upwardly mobile, and we arrange the majority of jobs so that those who hold them are given very little money and responsibility. Were these things to change, the competitive scramble for promotions might be eased and we would be obliged to rethink the whole issue of who does what in an organisation.”

Kohn is challenging us to think differently…so let’s have a go at this by winding back to what’s happening in our brains:

‘Threat and Reward’ response

One of the core areas of research on the brain has understandably been about threat vs. reward. The Neuroscientist Evian Gordon refers to this “minimise danger, maximise reward response” as “the fundamental organising principle of the brain.”

The ‘Neuro-Leadership’ scientist David Rock explains that the threat response “is mentally taxing and deadly to the productivity of a person…[the threat response] impairs analytical thinking, creative insight and problem solving.” …and so it would be a very good idea to understand and avoid triggering our threat response1..

Rock explains a set of five social qualities that enable employees and executives alike to minimise the threat response and instead enable the [intrinsic] reward response.

These five qualities are: status, certainty, autonomy, relatedness, and fairness. I expect you will understand, and concur with these basic human desires.

Status

For the purposes of this post, I’m looking at the status social quality:

“As humans, we are constantly assessing how social encounters either enhance or diminish our status. Research shows that when people realise that they might compare unfavourably to someone else, the threat response kicks in…we are biologically programmed to care about status because it favours our survival.”

David Rock goes on to observe that “organisations often assume that the only way to raise an employee’s status is to award a promotion.”

Here’s the punch line: it isn’t that we want promotion as such – we want what we think promotion implies – we want a feeling of status.

Personally, I couldn’t care less what title you give me* or how many people ‘report to me’ or how long I’ve been in my current position…but I understand and accept that (as a human being) I care about status just like the next person.

(* as long as it is logical and isn’t derogatory!)

So, if the number of management positions is (and always will be) limited AND it isn’t actually about promotion…then what can we do/ how can we act to look after everyone’s feeling of status?

I don’t (and shouldn’t) have a perfect answer for this…but some starters for ten are that our perceptions of status increase when:

  • We have meaningful work to perform (because it aligns to a purpose that we care about2.);
  • The organisation demonstrably values the role we play (which implies that the work we are doing is fully understood and that we feel valued, included and listened to by those put in place to manage us);
  • We constantly master new skills3. (where we have a degree of freedom as to what these might be, and where they take us)
  • …and these new skills are then used in yet more meaningful work….and back round the virtuous circle.

If I am doing meaningful work (to me and the organisation), I am constantly growing as a person and I am being suitably valued then I’ll be fully engaged and pretty damn happy with things.

This now links nicely back to ‘part 1’ : If I am able to self-develop then perhaps I have achieved the first step of eligibility for promotion.

Some final comments from David Rock to close:

“Value has a strong impact on status. An organisation that appears to value money and rank more than a basic sense of respect for all employees will stimulate threat responses among employees who aren’t at the top of the heap.

Similarly, organisations that try to pit people against one another on the theory that it will make them work harder reinforce the idea that there are only winners and losers, which undermines the standing of people below the top 10 percent.”

In short: The practises of judging people and making them compete with each other aren’t going to help!

To conclude:

If ‘status’ in an organisation is all about your position within a hierarchy then this creates a limited and circular line of thinking, within management and employees, whereby promotion is the aim (rather than a responsibility).

Rather than spending our time talking to everyone about transparent promotion paths and career development “so you too can get to the top”, let’s spend it ensuring that everyone has a feeling of status.

A healthy feeling of status should be attainable by everybody in every position. Whether this is the case will depend upon the management system in place, and the resultant environment that it produces.

“Um, okay Steve…but I still want promotion to look good’

A personal thought: For those of you comparing yourself to those around you (at work, family, friends, and connections), here are a few lines from one of my favourite song lyrics:

“Sometimes you’re ahead, sometimes you’re behind
The race is long and in the end, it’s only with yourself”

(Baz Luhrmann – Sunscreen)

Notes:

  1. It is worth noting that ‘Performance reviews’ provoke the threat response because the person ‘passing judgement over us’ puts us on the defensive and appears, to us, to be claiming superiority over us. We find ourselves fighting for survival.
  2. I suspect that a really good ‘test’ of the meaningfulness of work to you is how you feel when someone outside of your working life (say your partner, children, family or friends) asks you what you do. Is it painful or easy to respond?!
  3. David Rock notes that “paying employees for the skills they have acquired, rather than for their seniority, is a status booster in itself. This is a very different logic to ‘incentive pay’.

Farmers and Facilitation

giantknave Brain Farts , , , , , , , ,

FarmerI’ve been meaning to write a post about promotion (into, and through the hierarchy of management) for a while now…it’s taken me a bit to frame it. Here’s ‘part 1’:

Before considering promotion we should ask ourselves…

What is the work of management?

A great deal has been written on this question. Womack’s essay ‘The work of management’ gives us an all too familiar view as to what management actually means in practice:

“Most managers I observe spend most of their time with incidental work – box ticking, meetings that reach no actionable conclusions, report writing, personnel reviews that don’t develop personnel, etc. And in the time left over they do rework. By the latter I mean the fire fighting to get things back on course as processes malfunction. Most managers seem to believe that this is their ‘real’ work and their highest value to their organisation.”

Is this what we actually want our managers to be doing? Does this create value or is it just about survival?

Who do we hire/ promote into management?

In another of his essays, ‘Fewer Heroes, More Farmers’, Womack explains that when he asked a Command & Control CEO at a very large American Corporation about his management hiring/ promotion logic he got the following in reply: “I search for heroic leaders to galvanize my business units. I give them metrics to meet quickly. When they meet them they are richly rewarded. When they don’t, I find new leaders.”

Womack went on to ask this CEO, given the very high level of turnover of his business unit heads, “why does your company need so many heroes? Why don’t your businesses consistently perform at a high level so that no new leaders are needed? And why do even your apparently successful leaders keep moving on?”

He got the usual answers in reply: “business is tough, leadership is the critical scarce resource, and that a lot of turnover indicates a dynamic management culture.”

…and yet such businesses preside over:

  • A confusion as to its purpose (a mismatch between what is stated and reality);
  • The constant rolling out of the latest ‘revitalising’ programme from the top;
  • Poorly performing processes, that tend to get worse instead of better;
  • Dispirited people operating these broken processes at every level of the organisation; with
  • Mini-heroes everywhere devising workarounds.

Rather than heroes, Womack suggests that we need farmers whose role is to steadily tend every important process, continually asking three simple questions:

  1. Is the business purpose of the process [in the eyes of the customer] correctly defined? [and Seddon would add ‘is its capability measured?’]
  2. Is action steadily being taken to create value, flow and pull in every step of the process while taking out waste?
  3. Are all of the people touching the process actively engaged in making it better?

“This is the gemba mentality of the farmer who, year after year, plows a straight furrow, mends the fence and obsesses about the weather, even as the heroic pioneer or hunter who originally cleared the land moves on.

Why do we have so many heroes and so few farmers, and such poor results in most of our organisations? Because we’re blind to the simple fact that business heroes usually fail to transform businesses. They create short-term improvement, at least on the official metrics. But these gains either aren’t real or they can’t be sustained because no farmers are put in place to tend the fields. Wisely, these heroes move on before this becomes apparent.

Meanwhile, we are equally blind to the critical contribution of the farmers who should be our heroes. These are the folks who provide the steady-paced continuity at the core of every lean enterprise”.

Now, after reading the above back to myself, I can feel a back lash from the current cool management buzz of ‘everything today is about innovation!’…as in “but the world is ever changing Steve! We can’t just rely on Continuous Improvement – we’ve got to constantly reinvent ourselves or else we will get left behind!”

I agree! What is written above isn’t confined to making small step changes and doesn’t constrain discontinuous (breakthrough) improvements. Womack’s 3 questions equally apply for the seeds of innovation to blossom within a healthy working environment.

Conversely, hero management with financial targets and contingent rewards can seriously damage the chances of true and meaningful innovation from happening. (Both Alfie Kohn and Dan Pink explain the research showing the harm that incentives do to innovation).

If your purpose is clear and everyone is working together towards it (not towards individual targets) then you will likely alternate between many small steps and infrequent leaps as new ideas and technologies come along and existing ones are steadily improved.

Who should we want as our managers?

“The greatness in people comes out only when they are led by great leaders” (Akio Toyoda)

Liker, in his excellent book ‘The Toyota Way to Lean Leadership’, explains Toyota’s leadership development model. He explains it in four building blocks:

(Note: whilst I am mixing the words ‘leader’ and ‘manager’, there is a big difference between them. Please reflect on Confusion over two words)

First, to be considered for leadership, a person has to be committed to self-development i.e. to constantly seek to improve themselves and their skills. This is enabled and assessed by those ahead1 of them providing suitable challenges, space and coaching to allow self-development to occur.

Clarification: You may have years of experience and/or rolls of qualifications…but this doesn’t demonstrate that you have, or can, self-develop:

“What is often mistaken for 20 years’ experience is just 1 year’s experience repeated 20 times” (Source unknown)

Not everyone will be up for self-development2. Clearly, Toyota are looking for those who can and want to grow. This is in stark contrast to organisations that want merely to bring in people from outside to ‘implement here what they have done to people elsewhere’ (but now appear to be running away from this!)

Second: Once a person has suitably demonstrated their ability and desire to self develop, then they need to show the development of others. To be clear: this does not mean merely coaching (supposedly) star performers or favourites (the ‘chosen few’)…it means developing everyone. In fact, your ability to develop someone where this appears challenging* is a sure sign of your development capabilities. Liker uses the Toyota quote that “the best measure of a leader’s success is what is accomplished by those they trained3.” It’s not about what you can do; it’s about what they can now do because of you (even though they may not comprehend this link).

(*The greatest case study I know of this is what Toyota achieved at NUMMI with ex-GM employees who were considered the worst of the worst. They re-hired them and turned them into the best. The problem wasn’t a shortage of talent, as we are so often led to believe, but an inability to engage and develop the talents lying dormant within people).

Third: So you are a self-developer and can develop others. It now becomes about your ability to enable daily improvement – facilitating groups of people through constant improvement: being a farmer as described above.

The focus is not on attempting to force improvement (top down) but in enabling, encouraging and coaching improvement from the bottom up.

Clarification: This is NOT about that ’empowerment’ word!

…and, finally, Fourth: It is now about ensuring that the right big-picture challenges are set, pursued and accomplished by the people and, in so doing, that this causes much experimentation, reflection and learning.

None of this leadership development logic is about being promoted because you are the best at performing your current job or that you are a hardened ‘go get ’em’ management hero. All of it is about your ability to facilitate improvement through others.

Managers instead of Consultants

…this leads me to observe that many a ‘command and control’ manager brings in consultants (or ‘Black Belts’) to facilitate his/her team through the likes of a Kaizen/ Rapid Improvement Event.

  • Worse still, such facilitators often prefer that the manager isn’t involved in these improvement events (except as ‘statesman’ at the beginning and ‘rubber stamper’ at the end) because their presence would seriously hinder what the people can achieve.
  • To add insult to injury, such an absent manager has attempted to delegate their improvement responsibilities and thus finds themselves even further from the work (the gemba) and with new/ higher barriers between themselves and their people.

…owch! If this is the case (and, sadly, it often is) then this is a very poor state to be in.

At Toyota, facilitation of improvement is what their managers are for! And, rather than a week-long ‘point improvement’ event performed every (say) 6 months, this facilitation should be ongoing.

You might respond that “Nice idea Steve…but our managers don’t have very good facilitation skills. We need expert practitioners to come in”. And that is precisely why Toyota looks for those people within its ranks that have the potential as facilitators of improvement…and then develops them into leaders.

Rother makes clear that “The primary task of Toyota’s managers and leaders does not revolve around improvement per se, but around increasing the improvement capability of people. That capability is what, in Toyota’s view, strengthens the company. Toyota’s managers and leaders develop people who in turn improve processes through the improvement kata [pattern].

Developing the improvement capability of people at Toyota is not relegated to the human resources or the training and development departments. It is part of every day’s work in every area…”

Sense-check: It may be that your current managers are (or could be) great facilitators. However, if they have to use a ‘command and control’ management system on their people then it is unlikely that such fantastic skills will get a chance to blossom and deliver the potential value within. Worse, their efforts will likely clash with all that commanding and controlling going on.

Next time you feel the need to bring in facilitators, reflect on why. Is it because your managers:

  • don’t have the capability? or
  • do have the potential, but are constrained by the management system that they are required to operate within?

If your answer is a), then develop them. If it’s b), you have far bigger fish to fry…but don’t let this stop you from doing anything – remember the Two Parallel Tracks.

______________________________________________________________________

To close:

  • this post (Part 1) considers who we should be promoting, and why;
  • Part 2 will turn this all on its head and question the promotion career ladder logic. In short: we can’t all ‘get to the top’ and neither should we all want to.

Notes:

  1. Ahead: I use the word ‘ahead’ rather than ‘above because I’d like the reader to get out of a ‘superiors in the hierarchy’ mindset and, instead, think about people who happen to have been promoted to more senior positions because they are more advanced on this leadership development journey. This is merely a matter of timing, rather than importance.
  2. Fixed vs. Growth mindset: Professor Carol Dweck’s research suggests that we can judge how good people will be at learning new skills – our capacity to learn is determined by our beliefs as to whether our abilities are innate or can be learned. Dweck suggests a continuum with two extremes: A Fixed mindset and a Growth mindset. Don’t despair of those already in leadership positions that appear to have ‘fixed’ mindsets. This may very well be down to the environment in which they work (and have always worked) within. The important bit is to assess them once their environment is changed to encourage self-development and growth.
  3. Trained: the use of the ‘trained’ word in this quote applies to its meaning as is used in sport. Rother notes that “The concept of training in sports is quite different from what ‘training’ has come to mean in our companies. In sport it means repeatedly practicing an actual activity under the guidance of a coach. That kind of training, if applied as part of an overall strategy to develop new behaviour patterns is effective for changing behaviours.”

What have the Romans ever done for us!!

giantknave Brain Farts , , , , , , ,

Biggus DicusFor those of you Python fans out there, I suspect the title of this post draws a smile of recollection from you. It draws out a big hearty grin from me.

For those of you who don’t know what I am writing about (and for those who do…but would like to relive the moment – go on, you know you want to!), here’s the famous clip from the Monty Python film ‘The Life of Brian’:

What have the Romans… (1 min. 25 secs)

This clip was triggered in my mind the other day when pondering how people collect and use data in reports (I had just seen one that offended my sensibilities!). I get frustrated when I point out a serious fault within a report and the response I get is “yes, but apart from that….”

Here’s my attempt at a Python-like response:

Leader (John Cleese): “Look at what this report is telling us!”

Minion 1: “…but we don’t have enough data to know what’s actually happening.”

John Cleese: “What?”

Minion 1: “We are only using a couple of data points to compare. This tells us virtually nothing and is likely to be highly misleading.”

John Cleese: “Oh. Yeah, yeah. We have only got this month vs. last month. Uh, that’s true. Yeah.”

Minion 2: “…and we’re using averages – we’ve got no idea as to the variation in what is happening.”

Side kick 1 (Eric Idle): “Oh, yeah, averages, John. Remember some of the mad decisions we’ve made in hindsight because of averages?”

John Cleese: “Yeah. All right. I’ll grant you that our lack of data over time and the use of averages makes our report a bit suspect.”

Minion 3: “…and, even if we did have enough data points and could see the variation, we don’t understand the difference between noise and a signal (common and special cause variation)”

John Cleese: “Well, yeah. Obviously we don’t want to be caught tampering. I mean, understanding the difference between common and special cause goes without saying doesn’t it? But apart from a lack of data, (miss)using averages and tampering – ”

Minion 4: “We often compare ‘apples with pears’: Lots of the things we ‘hold people to account for’, they have virtually no ability to influence.”

Minion 5: “Much of the data we use is unrepresentative and/or coerced out of people, which makes any data biased.”

Minions: “Huh? Heh? Huh… “

Minion 6: “And we are focusing on one KPI and not seeing the side effects that this is causing to other parts of the system.”

Minions: “Ohh…”

John Cleese: Yeah, yeah. All right. Fair enough.

Minion 7: “and we are using targets, which are arbitrary measures that have nothing to do with the system and cause dysfunctional ‘survival’ behaviours from our people.”

Minions: “Oh, yes. Yeah… “

Side Kick 2 (Michael Palin): “Yeah. Yeah, our targets cause some pretty mad behaviours, John, and it’s really hard to spot/ find this out because our people don’t like doing ‘bad stuff’ and, as such, don’t like to tell us about it. Huh.”

Minion 8: “Our reports are focused on people (and making judgements about them), rather than on the process that they have to work within.”

Eric Idle: “And our people are ‘in the dark’ about how the horizontal value stream they work within is actually performing, John.”

Michael Palin: “Yeah, they only know about their silo. Let’s face it. If our people knew how the horizontal flow was actually doing, they’d be far more engaged in their work, more collaborative (if we removed some of the management instruments that hinder this) and therefore far more able and willing to continually improve the overall value stream.”

Minions: “Heh, heh. Heh heh heh heh heh heh heh.”

John Cleese: “All right, but apart from a lack of data, (miss)use of averages, tampering, comparing apples with pears, biased data, focusing on one KPI, the use of arbitrary targets, reports focused on judging people, and our value workers being ‘in the dark’….Look at what this report is telling us!”

Minion 9: We’re using activity measures (about outputs), rather than seeing the system and its capability for our customers (about outcomes).

John Cleese: Oh. Seeing the capability of the system from the customers’ point of view? SHUT UP!

  • THE END –

In short, many (most?) organisations are terrible when it comes to measurement. They are stuck in a weird ‘conventional reporting’ world. Perhaps this is a blind spot in our human brains?

‘Statistics’ is a word that strikes fear into the hearts and minds of many of us. I’m happy to admit that I’m no expert. But I think we should have a healthy respect for data and how it should and should not be used. I’ve heard many a manager raise their voice to say that they have the data and so can ‘prove it!’…and then go on to make inferences that cannot (and should not) be justified.

(Personal view: I think that it is better to be mindful (and therefore cautious) of our level of competence rather than blissfully ignorant of our incompetence, charging on like a ‘Bull in a china shop.’)

Where to from here?:

I’ve previously written a few posts in respect of measurement. I’ve linked a number of them in the skit above or in the notes below. Perhaps have a (re)read if you’d like to further explore a point I’m attempting to make.

…and here’s a reminder of the brilliant Inspector Guilfoyle blog that is dedicated to measurement. He writes nice ‘stick child’ stories about the mad things we do, why they are mad…and what a better way looks like.

Some closing notes on some of the ‘reporting madness’ points made above:

Binary Comparisons: Here’s a really great explanation of the reasons why we shouldn’t use a couple of data points: Message from the skies

Averages: If you don’t understand the point about averages, then have a think about the following quote: “Beware of drowning in a river of average depth 1 metre.” (Quoted by John Bicheno in ‘The Lean Toolbox’)

Variation: Deming’s red bead experiment is an excellent way to understand and explore the point about variation that is inherent in everything. I’ve written about variation in (what happens to be my most read post to date): The Spice of Life

Tampering: This comes about from people not understanding the difference between common and special cause variation. I wrote a specific post about the effects of tampering on a process: Tampering

Biased data: There are loads of reasons why data collected might be biased. The use of extrinsic motivators (as in contingent monetary incentives) is a BIG one to consider and understand.

Targets: John Seddon  is the place to go if you want a deeper understanding of the huge point being made. His book ‘Freedom from Command and Control’ is superb. Also, see my post The trouble with targets.

Capability measures: I believe that this point can take a bit to understand BUT it is a huge point. I wrote Capability what? In an attempt to assist.

School boy debating society

giantknave Brain Farts , , , ,

donald-trump…so I was in a room with a few Executives who had ‘spared me some of their time’ to allow a discussion about how I could help them move their organisation towards its stated purpose.

I said something and almost immediately one of the Executives leapt back with a seemingly clever (or was that merely ‘conventional’) and forceful counter. He then looked at me in such a way as to imply that:

  • what I had said was clearly very stupid; and
  • my lack of immediate and razor-sharp response to his challenge proved that he was right.

The implication was that I didn’t know ‘as much’ as him (as in “Silly boy, you are wasting my time…best go away until you can justify being before me”). There was no consideration that I (might) know different things to him.

I took a moment, I pondered what he had said, I thought about what I had said and I provided a reasoned response.

…and he leapt back with another counter, getting more animated and looking around the room at his fellow executives for emotional support. They (quite naturally) returned some smirks to him, translated as clear and obvious agreement with what he was saying.

I quickly realised that this had (unexpectedly) escalated, that my original comment had not fitted into his current world view and that there was no way that I would alter his thinking by attempting a short verbal rational explanation…so I politely said words to this effect and attempted to move on.

..and so he and the Executives sat back with smiles on their faces, looking smug that they had ‘won the argument’ – and that they were clever, and clearly more so than this upstart before them.

Hang on a minute! ‘Won the argument’? Who said there was an argument? It certainly wasn’t supposed to be (Cue Monty Python ‘argument’ sketch).

I suspect that such meetings with ‘command and control’ executives are all too common.

I compare them back to what I imagine to be the format of public school boy debating societies:

  • you have a position which must be pushed, and defended, at all costs;
  • you’ve got a fixed time to put your point across;
  • there will be a vote at the end to determine a result;
  • there is glory to be seen as the winner;
  • there is mirth to be shown to the loser, who will be considered ‘weak’; and
  • once the debate is over, it is ‘case closed’.

Note: None of the above was actually a surprise to me. I know about different worldviews, about rational vs. normative change and about the boomerang effect*.

(* the unintended consequences of an attempt to persuade resulting in the adoption of an opposing position instead).

The reasons for writing this post are merely to share:

  • the similarity between exchanges with ‘command and control’ executives and school boy debating; and
  • how easy it is for such a well meaning ‘rational’ conversation to descend into a head-to-head ‘win or lose’ argument.

…oh yes, and as some form of therapy for me 🙂

 

To all those executives out there:

If you are an executive and people put forward ideas that differ to your own, I’d humbly suggest you see this as a (free, yet valuable) opportunity to self-develop and improve (rather than protect) your world view.

As a point of fact: If the person in front of you believes differently to you then there must be reasons for this…and it could be very useful for you to consider and understand why…and thus mature and/or expand (rather than defend) your thinking.

False Economies

giantknave Brain Farts , , , , , ,

chasing moneySo I expect we have all heard the phrase ‘Economies of Scale’ and have a view on what is meant.

The phrase is probably covered within the first pages of ‘Economics 101’ and every ‘Beginner’s book of management’. I think the idea has even leaked out of these domains and is used in every-day parlance. It is seen merely as ‘common sense’*.

(* please read and reflect upon a hugely important quote on ‘common sense’ when you get to the end of this post)

So what is the thinking behind ‘Economies of Scale’?

Let’s start at the beginning: Why is it said that we benefit from ‘economies’ as an organisation grows larger?

The idea in a nutshell: To run a business you need resources. As you grow, you don’t necessarily need a linear increase in those resources.

Basic example: A 1-man business premises needs a toilet (if he needs to go, well he needs to go). But when the next person joins the growing company he doesn’t get his own personal toilet written into his ‘remuneration package’. No, he has to share the existing toilet with his fellow employee. You can see this logic for lots of different things (one building, one IT system, one HR manager….), but I reckon a toilet is about as basic as it gets.

The theory goes that as the volume of output goes up* then unit costs come down (where unit cost = total cost/ units of output).

(* I’m writing generally now…I’ve moved on from toilet humour 🙂 )

It should be noted that the classical economists that came up with the theory did accept the idea of ‘diseconomies of scale’: that of costs rising as growing organisations become more complex, more bureaucratic…basically harder to manage.

You’ll likely see all this expressed in economics text books with a very simple diagram (below) and, voila, it is surely so!

economies of scale

Getting into more specifics about the phenomenon, three distinct reasons are given for those scale economies:

  • Indivisibility: Some resources aren’t divisible – you can’t (easily) have half a toilet, a quarter of a receptionist, 1/8th of a manager and so on.
  • Specialisation along with Standardisation: this reason goes way back to the writings of Adam Smith and his famous book called ‘The Wealth of Nations’ (1776). In it, he used the example of a pin factory to explain the concept of ‘the division of labour’. He explained that one person performing all the steps necessary to making a pin could perhaps make only 20 pins a day but if the pin-making process were broken up into a series of limited and standardised operations, with separate people performing them in a joined-up line, productivity could rise to thousands of pins per day per worker.
  • Machinery: Investing in ever larger machines mean that they can turn out more and at a faster rate…and our beloved unit costs come down. In service organisations the equivalent could be a ‘bigger, better’ telephone system, IT system,…etc.

Sounds like a water tight case to me – ‘Economies of scale’ proven, case dismissed!

Not so fast…a few dissenting voices:

“All the above seems to be about managing our costs? We are concerned about where this might lead – shouldn’t we be first and foremost focused on delivering value to our customers?”

“We’ve got really low unit costs at lots of our activities…and we keep on making ‘economies of scale’ changes to get them even lower…but this doesn’t seem to be reducing our total costs (they remain annoyingly high)…are we missing something?”

“Gosh, that ‘economies of scale’ average cost curve looks so simple…so all we need to know is when we are at the optimum size (Q) and stop growing. Easy! Can someone tell us when we reach that point? How about a nice warning signal when we are getting close? What do you mean it’s just ‘theoretical’ and no-one actually knows?!”

“I’ve heard that ‘behavioural economics’ is debunking a central assumption within Adam Smith’s classical economic ideas. Apparently we are all human beings (with our own unique purposes), not rational robots!” (Nice link: Who cooked Adam Smith’s dinner?)

“We don’t make pins. We are a service organisation. We have much variety in demand and our customers are ‘co-producers’ within our process…specialisation and standardisation can do much harm to them, and therefore us!”

Meanwhile, on another planet…

Taiichi Ohno developed the Toyota Production System (TPS). In so doing, he used totally different thinking, with profound results.

(Note: Historians have identified a core reason for this difference in thinking as the heavily resource-constrained context that Japan found itself in after the 2nd world war. This was in complete contrast to 1950s America that had an abundance of resources and booming customer demand. In short, Ohno had to think differently to succeed.)

The big difference – Flow, not scale, as the objective: Ohno concentrated on total cost, not unit costs. He realised that, first and foremost, what matters is how smoothly and economically a unit of demand is satisfied, from initial need through to its completion (in the eyes of the customer).

The flow is everything that happens between these points and, as well as all the value-adding steps, this includes:

  • all the time that nothing is happening (a huge proportion of a traditional process)
  • all the steps that occur but shouldn’t really need to (i.e. they are non-value adding);
  • all the repeat and/or additional steps needed because something wasn’t done right; and (the worst of all)
  • everything needed to be done when the customer returns with the good or service as not being acceptable (where this could be days, weeks or even months later)

There’s no point in a particular activity being made ‘efficient’ if this is detrimental to the flow.

‘Economies of scale’ thinkers (and their management accountants) are obsessed with how much each activity costs and then targeting reductions. Their belief is that, by reducing the costs of each activity, these aggregated savings will come off the bottom line. Such thinking has led to:

  • ‘large machine thinking’ (which also relates to centralisation/ shared services);
  • ‘batch thinking’ to make these resources work (allegedly) more efficiently;
  • ‘push thinking’ to keep these resources always working – high utilisation rates are king; and
  • inflexibility due to highly specified roles and tasks

…which cause a huge amount of waste and failure demand.

Ackoff made incredibly clear in his systems TED talk (using the automobile as his example) that trying to optimise the components of a system will not optimise the system as a whole. In fact, the reverse will be true and we can expect total costs to rise.

Rather than trying to get the cost of a specific activity down, Toyota (and other system thinkers) focus on the end-to-end horizontal flow (what the customer feels). This is a different (systemic) way of thinking and delivers far better outcomes.

It is no coincidence that Ohno is also credited with much of the thinking around waste. It is only by thinking in terms of flow that waste becomes visible, its sources understandable, and therefore its reduction and removal possible.

In short, Cost is in flow, not activity.

Flow thinking has led the design of systems to:

  • ‘right-size thinking’ and ‘close to customer thinking’;
  • ‘single-piece flow thinking’;
  • ‘pull thinking’; and
  • handling variety ‘in the line’ thinking (Note to self: a future post to be written)

These all seem counter-intuitive to an ‘economies of scale’ mindset, yet deliver far better outcomes.

(How) does this apply to service?

Okay, so Ohno made cars. You might therefore question whether the above is relevant to service organisations. Here are examples of what the ‘Economies of scale’ mantra has given us in service, broken down into comments on each of specialisation, standardisation, centralisation and automation:

Specialised resources: Splitting roles into front, (middle) and back offices; into demand takers (and ‘failure’ placators), transactional processors, back room expert support teams and senior ‘authorisers’…meaning that:

  • we don’t deal with the customer when/ where they want;
    • causing delay, creating frustration – which needs handling;
    • incorrect setting of customer expectations;
    • unclear ownership, leading to the customer having to look out for themselves
  • we have multiple hand-offs;
    • causing batching, transportation, misunderstandings, re-work (re-reading, re-entering, repeating, revising);
    • we break a unit of value demand into separate ‘work objects’ which we (hope to) assign out, track separately, synchronise and bring back together again (…requiring technology);
  • we collect information to ‘pass on’ (…requiring technology)
    • often passing on incomplete and/or incorrect information (or in Seddon’s words “dirty data”), which escalates to the waste of dealing with the defects as the unit progresses down the wrong path;
  • we categorise, prioritise, allocate and schedule work around all these roles (…requiring technology)
  • …all of the above lengthens the time to deliver a service and compromises the quality of the outcome, thus generating much failure demand (which we then have to deal with)

Standardised activities: Trying to achieve a standard time (such as Average Handling Times) to perform a standard task (using standard templates/ scripts) that appears to best fit with the category that ‘we’ (the organisation) jammed the customer into

  • rather than listening to the customer’s need and attempting to deliver against it (i.e. understanding and absorbing customer variety);

Centralisation: Seeing ‘shared services’ as the answer using the “there must be one good way to do everything” mantra.

  • creating competition for shared service resource between business units and the need for SLAs and performance reporting;
  • requiring some ‘super’ IT application that can do it all (“well, that’s what the software vendor said!”);
  • ‘dumbing down’ the differences between services (and thus losing the so-called ‘value proposition’)
  • loosening the link between the customer and the (now distant) service.

Automation: Continually throwing Technology at ‘the problem’ (usually trying to standardise with an ‘out of the box’ configuration because that will be so much more efficient won’t it) and, in so doing, creating an ever-increasing and costly IT footprint.

Whilst technology is amazing (and can be very useful), computers are brilliant at performing algorithms (e.g. calculations and repetition) but they are rubbish at absorbing variety, and our attempts at making them do so will continually create failure demand and waste.

In summary: ‘Economies of scale’ thinking is more damaging in service because of the greater variety in demand and the nature of the required outcomes.

To close:

This post isn’t saying that scale is wrong. It is arguing that this isn’t the objective. Much harm is, and has been, done by blindly following an activity focused logic (and the resultant ‘specialise, standardise, centralise, automate’ mantra)

Further, I get that some of you might say “you’ve misunderstood Steve…we aren’t all running around saying we must be big(ger)!”…but I’d counter that the ‘economies of scale’ conventional wisdom is implied in a relentless activity cost focus.

Put simply, “Economy comes from flow, NOT scale” (Seddon)

End notes

Beware ‘Common sense’:

“There is a time to admire the grace and persuasive power of an influential idea, and there is a time to fear its hold over us.

The time to worry is when the idea is so widely shared that we no longer even notice it, when it is so deeply rooted that it feels to us like plain common sense.

At the point when objections are not answered anymore because they are no longer even raised, we are not in control: we do not have the idea; it has us.” (Alfie Kohn)

Credit: The ‘Economies of scale’ explanation comes from reading a John Seddon paper.

Being fair to Adam Smith: He understood that the specialisation of tasks can lead to “the almost entire corruption and degeneracy of the great body of the people [the workers]. … unless government takes some pains to prevent it.” i.e. it might be great for the factory owners…but their workers are people, not machines.

Social workers, Sociopaths and Politicians

giantknave Brain Farts , , , , ,

silence of lambsI have written a few posts to date about money and one thing that constantly comes up in the mainstream media is pay. I break these ‘news’ stories into three categories:

  • Pay for social workers;
  • Pay for sociopaths; and
  • Pay for politicians

Warning: This post is a bit political…sorry about that. Normal service will resume once I’ve got this one out of my system.

Social workers:

I am using the ‘social worker’ label in a very broad way and deliberately so. I am referring to those workers who provide incredible value to our society yet do not get paid mega bucks for doing so.

You know who they (and perhaps ‘you’) are – just look for the perennial ‘offenders’ in the eyes of the establishment1 for complaining about their meagre pay. Yes, these are the health workers, teachers, emergency services (police, fire and ambulance) and so on.

Here’s the thing I find interesting about these social workers – we all recognise that:

  • we want ‘the best’ people in these roles: we have a vested interest since they nurture, develop and care for us!
  • (virtually2) all of them ‘bust a gut’ in their roles, doing far more than most of us should expect of them (or might do ourselves); and yet
  • for the value they provide to our society, the effort they put in and sacrifices they make, they aren’t paid well.

Classical economic doctrine would hold that, if you want the best, you have to pay for it. Further, if you don’t, then they will swap to complimentary careers that pay better.

But here’s the interesting thing: the vast majority of these social workers stay and soldier on in spite of the pay and conditions (i.e. the ideological policies handed down to them by politicians who have little real knowledge about what they are commanding).

This got me thinking: There is clearly an error in this supply/demand economic model. If I’m a social worker (using my wider definition), poorly paid, working long hours, and could get, say, an admin. job on similar money and far less stress…why do I stay and put up with this sh1t?!

Here’s my answer: Because they are paid in more than money – they are doing something that meets with their purpose (i.e. gives them great personal satisfaction). This, to them, is worth more than the monetary alternatives on offer.

And here’s the catch-22:

  • We want people like this to be doing social worker jobs! We don’t want people doing it ‘for the money’, we want people to be doing it because of the good that they do;
  • However, it would be very easy for society at large to take advantage of such people (in fact we do!), paying them poorly knowing that they can’t easily leave a job that they love.

I think society has to be thankful for, be respectful of, and do all it can to protect and support such people. This means:

  • providing them with a decent standard of living so that they can do as much good as possible, and not have to worry about the roof over their heads, the food in their bellies, the clothes on their backs and the bringing up of their families; and
  • listening to them, to use their undoubted passion and expertise to make our world a better place.

Sociopaths:

So, clearly, I put this group forward as a sort of opposite to the social worker. As usual, I want to get my terms right so here’s a definition:

“Sociopath: a person with a psychopathic personality whose behaviour is antisocial, often criminal, and who lacks a sense of moral responsibility or social conscience.“ (Dictionary.com)

I then turn my attention to executives and their pay. Here’s an illuminating graph:

PayGap

Bizarrely, rather than being ashamed of this graph, many an executive uses it as justification to lobby for more pay from their boards!

“Look at what he/she gets in comparison to me…it’s not fair – I need a pay rise!”

This is merely a never ending race-to-the-top argument.

Indeed, I know of one (Antipodean based) executive using it to argue that their high pay isn’t an issue because “look at the Americans!”. Yes, you poor thing – it’s all soooo unfair.

We are fed the line that they (the executives) are brilliant, that only they could do the job and as a result, their pay is totally rational and justifiable.

Even more weirdly, if a good candidate for leading an organisation told its board that they would do the job for far less pay than what the market was demanding, the board would likely think that they surely can’t be up to it!

Here’s a test for any board:

Test: Advertise the top jobs to people in the company for, say, 10 – 20x workers pay, see who applies and find the best one.

Likely outcome: The person selected may very well be someone with great passion, leadership and humility…where money wasn’t the driver…you know, where they truly believed in the organisation’s purpose and are willing to bust a gut to strive towards it.

Executives have conned us into believing that, unless they are being paid mega-bucks, then they clearly aren’t competent to hold the job…what a topsy-turvy way of thinking.

Worse still – the majority of executives preside over command-and-control management regimes as if this were a good thing. It is, for them…but not for their employees, customers and (as a result) their shareholders3.

Some daring thoughts:

  • if a job is so big that it really is so hard and complex that it is worth millions of dollars in pay…then the job is too big and needs breaking down into many roles.
  • just because a person happens to be brilliant at something doesn’t mean that we need to shower them with riches.
    • Who believes that the best teacher4 in this country (who shapes hundreds of lives daily over a dependably long and loyal career) should be paid many millions per year? Anyone?
  • the person who says that they need to be paid millions or else they won’t do it is likely not the best fit for an organisation – they aren’t really in it for the organisation’s true purpose, they are in it for themselves.
    • It’s no surprise that founders live and breathe their company – it is most likely about their passion rather than the money.

Cor, that’s all a bit controversial….I’ll be accused of being a socialist next….and then it’s not too far down the spiral to be branded a communist…I’ll get my coat!

Here’s a theory: If you are paid, say, 100+ times the amount of your workers and you think this is justified then you are a sociopath.

(Corollary: If you get paid this much and don’t think it’s justified then you are likely unhappy in yourself, with feelings of guilt, which isn’t very healthy for you)

Why do I put this theory forward?

  • you think that you are better than everyone else (with your sense of extreme entitlement); and/or
  • you have an unhealthy relationship with money (and are excellent at rationalising why you need it).

And, just to head you off from the ‘communist’ label you may be lovingly making for me right now, here’s where I turn sideways, go all Zen and pull out one of my favourite quotes:

“The meaning of life is just to be alive. It is so plain and so obvious and so simple.

And yet, everybody rushes around in a great panic as if it were necessary to achieve something beyond themselves.” (Alan Watts)

Or, put into this context: sure we need enough to cover our basic needs but, after that, money cannot buy happiness. I’m pretty sure there’s been a song or two written about that?

Politicians:

And finally, I’ve saved the best till last!

This post wasn’t really about sociopaths, and it doesn’t matter whether you agree with my logic above or not (my views, whilst reflecting what I currently think, are just a red herring)…but it was necessary to set executives up for comparison purposes because this is what is done for and by politicians.

Back in February of this year, we had the all too common comedy of MP’s being awarded a hefty pay rise by an ‘independent’ body and then the leaders of political parties desperately trying to distance themselves from said pay rise.

Setting the scene: MPs in democracies around the world realised a while back that they were on a sticky wicket when it comes to their pay…so they create an ‘independent pay authority’ to take pay rises out of their hands…and then they can say “erm, I’m not asking for it but they think I deserve it – what can I do?”

Then some MPs aim to look pious by being seen to be ‘turning down’ a portion of their pay rise.

The MPs independent pay authority becomes the scape goat but, with some justification, argues in reply that:

”it’s fulfilling its obligations, set by Parliament, that include relativity with comparable positions, recruiting and retaining competent individuals and any prevailing adverse economic conditions.”

The underlying scam: The ‘independent’ part of the pay authority sounds good in practise but what are its terms of reference? What is the job that it has been given to do? It has been set up on the same basis as boards considering executive pay.

  • To use money to ‘get the best’ (as in “if we don’t pay them well, they won’t come”); and
  • To compare, which includes against the corporate world (as in “look what a private sector CEO gets – MPs are at least as important as them!”);

The comedy:

“I think there are two sorts of MP: those who see being an MP as a public service and know what they are there to stand up for, and those who see it as a conveyor belt to a private-sector job after two terms and a spell in government. There seem to be many more of the latter these days” (Quote from a backbench British MP, Source: Owen Jones’ book ‘The Establishment’)

Sure, have pay set independently, but with what objectives? …which points directly to THE question to be answered:

Who do we want our Politicians to be compared with? Social workers or sociopaths?

…and whatever your answer is, will be what you will get.

Good luck to all of us with that!

 Footnotes:

1. Regarding complaining: as in “their Unions are being unreasonable again and are threatening to strike!”

2. Regarding ‘busting a gut’ for us: sure, you’ll find the odd incompetent or bad egg but this is surely so in every walk of life. This can be an issue of selection but, more likely, of what ‘the system’ has done to them/ turned them into.

3. If you want to know why this is so then this is the subject of virtually all the other posts on this blog. In particular, please read “Your money or your life!”

4. The best teacher: If (as unlikely as it seems) you are a politician reading this, I’m only theorising – PLEASE don’t think you should now rush off and hire some consultants to supposedly come up with a measure for this!!!

5. Addendum (written in 2015!!): As I look ‘in’ at the current wonder that is the American electoral process, I see the following candidates for President: a gaggle of smooth politicians, 1 social worker and 1 sociopath. It sure is an interesting one – Go America, see what you can do…but (for the sake of the rest of the world) please consider what I write above. No pressure! Thanks in advance 🙂