Alfie Kohn

Back to that ‘Profit Sharing’ Nirvana

giantknave Brain Farts , , , , , ,

cakeMy last post set out why profit sharing beats incentives by a country mile but I also laid out a note of caution on one aspect, short-termism:

I wrote that “A key consideration for anyone designing a profit share method is to avoid short-termism. Alternative thinking on how to achieve this might be to consider payment in shares that can’t be sold for a certain period, or payments into a person’s pension scheme, or [some other way of thinking outside the box]”

I have been keeping my eye open for a ‘for profit’ organisation out there that has been demonstrably successful in operating a profit sharing method that fits, and doing so for a reasonable (i.e. proven) period of time…and I believe that I have found such a thing! A Swedish bank called Handelsbanken.

Here’s the story:

At the end of the 1960s Handelsbanken was in crisis so it searched around for a radical thinker to lead them. They found Jan Wallander – an economist who had metaphorically ‘put his money where his mouth is’ by leaving academia and becoming a director of a rival Swedish Bank…and he was doing rather well whilst challenging conventional wisdom.

WallanderHe took on the role of Handelsbanken’s CEO in 1970 and got stuck in to doing things quite differently! As an example, he was particularly scathing about budgets:

“either a budget will prove roughly right and then it will be trite, or it will be disastrously wrong and in that case it will be dangerous. My conclusion is thus: Scrap it!”

As a result of this, Handelsbanken have now been operating very successfully without budgets for over forty years! (There’s an important ‘Beyond Budgeting’ post coming soon)

….but getting back to the profit-sharing subject:

Jan Wallander believed in a profit-sharing system that:

  • is intended as a reward for everyone’s collective efforts and competitive success (i.e. as against other banks); and conversely
  • should not be an incentive for individuals to pursue financial targets.

“beating the competition…is a far more powerful weapon than financial incentives. Why do people need cash incentives to fulfill their work obligations to colleagues and customers? It is recognition of effort that is important. Managers will only strive to achieve ambitious goals if they know that their ‘best efforts’ will be recognised and not punished if they fail to get all the way.”

Wallander set out an overall goal for the organisation (within its banking purpose): attaining a better return on equity than its (listed) banking competitors. This is rather interesting:

  • it doesn’t tolerate for any ‘resting on their laurels’ in easy market conditions; and conversely
  • it reasonably accommodates what might seem disappointing results (in absolute terms) when the market is tough.

Starting in 1973, the bank has allocated part of its profits to a profit-sharing scheme for employees. The main condition for an allocation to be made is that the ‘return on equity being better than the competition’ goal is achieved for that year.

The funds are paid to a profit-sharing foundation called Oktogonen (which was set up by the bank’s trade union club). In turn, the Oktogonen Foundation places 90% of these funds in Handelsbanken shares, thus giving the employees owner representation on the bank’s board.

The Oktogonen Foundation has become the bank’s largest shareholder, with over 10% of voting power.

Okay, so there’s a big fat fund of money…but how do the employees get at it?

This is the long-term bit, mixed with a healthy dose of equality.

Every year that the bank makes a profit allocation into the foundation (which, as it happens, has been achieved every year since its inception) then each current employee is allocated an equal share of units (i.e. salary level is not relevant to this allocation).

The value of each unit then goes up and down with the value of the foundation’s investments i.e. mainly the price of Handelsbanken’s shares.

Current and past employees can cash up their units from the age of 60 i.e. they cannot access any money until this point. This gives the Oktogonen Foundation the character of a pension fund.

This 2013 financial report shows that, if an employee had worked full time at the bank since the start of the scheme in 1973 (i.e. a 40 year working life), their fund units would be worth SKr 14,000,000…which is US$1.7 million at today’s exchange rate!!!! …that would be my pension pot sorted.

Some thoughts on this:

  • you can see that everyone working for the bank is ‘joined together’ (working as a system), aiming in the exact same direction over the long term…yet they also need to do so with speed so as to release the yearly profit allocations. This harnesses together the desires for efficiency and effectiveness;
  • it removes the need for the whole ‘setting personal objectives – arbitrary targets – judgemental scoring – giving of contingent rewards’ commotion….and the people can use this huge amount of freed-up time and wasted energy to work towards purpose. A bye-product is that people can now ‘get on’ as adults rather than as Parent – child;
  • it removes the batch behaviours associated with annual bonus payments:
    • there isn’t a period before year end where some people ‘hang on’ to get their payment when they’ve already checked out for something/ somewhere else; and
    • there isn’t an exodus of people out the door in the months after the bonus cheque has been cashed…causing a renewed batch of recruitment.

… people leave as and when they want to, which makes for transparency and a clear flow, making the balancing of capacity much easier;

  • it binds the employees and the shareholders together. They now have the same long term interest of building and sustaining a business for the future. Conversely, it will likely dissuade short term investors attracted merely by share price volatility…which isn’t in the best interest of organisational success.

What about some likely criticisms?

Here are four likely retorts to the idea of long-term profit sharing instead of short-term incentives:

1. “But what about ‘poor performers’?”

This is usually the first criticism of the profit-sharing method and rests on the belief* that some people will always ‘work harder’** than others and why should ‘slackers’ benefit at the expense of ‘grafters’.

* it is interesting that most people working in a command-and-control environment appear to have this belief about themselves as compared to others. A bit like everyone thinking that they are a ‘better-than-average’ driver 🙂

** I am only covering the ‘effort’ question here. The ability/ scarcity of resource question is covered within the differing levels of salary that people receive.

Incentive schemes are not the answer to supposed ‘poor performance’ – they are frequently used as a substitute for good management and, as such, are an abdication of management’s responsibilities.

Alfie Kohn writes that “In order to solve problems in the workplace, we must know what caused them….holding out a carrot – ‘Do better and here’s what you’ll get’ – is a pseudo solution; it fails to address the issues that are actually responsible for holding back the organisations and the people who work there.

Incentive schemes are frequently used as a substitute for giving workers what they need to do a good job…much less effort is required to dangle a bonus in front of employees and wait for the results…[however] there is evidence that pay-for-performance plans tend to displace careful management…a compensation system is no substitute for careful management.”

But it’s not just management, it’s also about peers! Here’s Handelsbanken’s response to the ‘poor performers’ fear:

“In a team based organisation driven by peer pressure, free riders are exposed very quickly and replaced by people more willing to commit themselves to real performance challenges.” (Source Book: ‘Beyond Budgeting’)

i.e. rather than gifting ‘free riders’ with easy money, the profit sharing method exposes and deals with them!

On advocating the removal of the ‘incentive-performance management’ system, Deming was once asked by a member of his audience “but what will we do instead?” His response was “Try leadership”.

…it has clearly worked rather well for Handelsbanken!

2. “How do we get people to leave? Won’t people hang around forever?!”

This view fits alongside the concern about ‘poor performers’. Consider though that the supposed ‘poor performance’ may very well evaporate…and we now have hugely experienced AND motivated people.

‘But they will be dinosaurs, unable to change’ I might hear someone reply. Really? Do you think that you couldn’t change even if you wanted to? Consider that “People don’t resist change, they resist being changed” (Scholtes). It’s back to that environment again!

Perhaps those ‘resistant to change’ are suffering from ‘change fatigue’: namely, being tired of their huge knowledge being ignored as the next overly simplistic ‘silver bullet’ change programme is done to them.

An organisation with high employee turn-over allows (and often forces) years of highly skilled knowledge to regularly ‘walk out the door’, only for the learning to start again, almost from scratch by the ‘next batch’. If the experienced workers stay, just think of where they could ‘kick on’ to if they so desired.

…but don’t worry, we haven’t engineered a prison! People can and will leave as they wish…and retain the profit-sharing units already assigned to them.

3. “People like getting a lump sum each year to pay for, say, their holidays”

Yes, I can see this (I do too)…but I would happily trade in the pain of the annual performance process (including the dysfunctional behaviours it causes) and the resultant lump sum payment if it meant that I got a real kick out of work because of the amazing environment that I worked in, with people who are equally energised, and who are ‘all running in the same direction’ and helping each other do so.

This brings to mind the quote “Pay people well and fairly…then put money out of their minds.” (Alfie Kohn)…though I might fondly look ahead every once in a while to that pension pot!

4. “What happens if the organisation goes bust?!”

Yep, you’d lose your investment (or at least be at the back of the creditors’ line)…so you would be very keen to constantly:

  • stay alert: look ahead to see external change coming (rather than ‘sit back and wait’);
  • know what’s happening: keep close to your customers and how their needs are changing…and be sure to deliver value to them;
  • innovate: think differently, look at what others are doing, try things out (experiment), pivot in new directions;
  • collaborate and roll-in meaningful change that demonstrably works for the whole system;
  • seek out, recognise, and directly attend to obvious waste and failure demand.

i.e. constantly improve your capability of meeting your customer’s purpose….just what your shareholders and profit-share foundation unit holders (incl. past employees) would want of you!

…and finally, that’s not the whole story:

Cleary, it wasn’t just a superb profit-sharing scheme that has led to Handelsbanken’s success…but it is seen as an enabler and a foundation for the necessary environment to stimulate and secure long term success. Jan Wallander did lots of things differently – probably the greatest being that he was also a firm believer in empowering people through decentralisation.

There is a clear relationship between decentralisation2 – empowerment – intrinsic motivation – purpose – systemic collaboration – continuous improvement – profit sharing.

Notes:

1. Handelsbanken reference material: The history of Handelsbanken

2. On Decentralization: “What is commonly understood by decentralization originates in the conventional command-and-control paradigm, defined as Decentralization 1.0.

To cope with the world’s exploding complexity, some vanguard companies have evolved to a higher level of organization by adopting a new kind of decentralization originating in the enabling-and-autonomy paradigm – hence the term Decentralization 2.0. This refers to organizations consisting of autonomous groups facilitated by an enabling support organization. To keep these high-trust, spirit-driven organizations together, a new kind of deep leadership is practiced by them.” (Decentralization 2.0)

3. The Oktogonen Foundation: For a very clear explanation, scroll right down to Appendix A at the bottom of the ‘Written evidence from Handelsbanken to the UK Parliamentary Commission on Banking Standards’. (Parliament UK)

“So, tell me about yourself”

giantknave Brain Farts , , , ,

InterviewA good friend of mine got talking to me about interview questions the other day.

She was having a laugh at the ‘creative’ questions that many interviewers can dream up such as “tell me what makes you special!”

I replied that I think the worst interview question is the “what are your greatest weaknesses”…and then I got thinking about why this is so.

Now, an interviewer can dream up all sorts of weird and wonderful questions that will allow you the space to sell yourself (if you are willing and able to) but this ‘weakness question’ is different. I suspect that it makes us all squirm because it causes a huge moral dilemma:

  • you want to be yourself, to be genuine, to be open and honest….

BUT

  • you also want the job!

So you’ve been put in a rather tight spot!

I’ve read all sorts of ‘clever’ (cheesy) responses. There’s plenty of advice on the web to answer this tricky conundrum, but they all try to do the same thing: get around the question rather than being brutally honest.

So, why am I bringing up this dastardly interview ‘weakness’ question?

Well, because I realised that this is an excellent parallel to the (ir)regular performance management meeting.

How so?

If you are part of a ‘set personal objectives – rate performance against – provide contingent reward’ Performance Management system then you too are in a rather tight spot.

Let’s imagine that you are in your annual performance review meeting:

  • on the one hand, you have a manager before you who has the job of developing you and, to do this, needs to truly know about how things are for you. They need genuine, open and honest ‘warts and all’ feedback;
  • on the other hand, this same manager has to judge you, which requires an interrogation of the available evidence and the scoring of it, as compared to your peers. You need to sell yourself.

What’s wrong with this?

These two ‘management’ roles are diametrically opposed. A manager cannot be judge and counsellor/coach at the same time.

If you were to lie down in a psychiatrist’s chair, you can expect that he/she will go to great lengths to put you at your ease, make clear that everything spoken is private and that no judgement of you will take place….and even then I suspect that it would take multiple visits before you truly opened yourself up….and in so doing, you provide the knowledge and insights required for you to develop.

Now, I know you won’t lie on a reclining chair in a performance review meeting (at least I don’t) but a similar environment of trust is required for a manager to truly help you (and, by extension, the organisation).

“When the person to whom you report decides how much money you will make (or what other goodies will be awarded to you) you have a temptation to conceal any problems you might be having. Rather than asking for help, which is a pre-requisite for optimal performance, you will be apt to spend your energies trying to flatter that person and convince him [or her] that you have everything under control. Moreover…you will be less likely to challenge poor decisions and engage in the kind of conflict that is beneficial for the organisation if you are concerned about losing out on a reward. Very few things are as dangerous as a bunch of incentive-driven individuals trying to play it safe.” (Alfie Kohn)

If you know that you are being judged (with a carrot or stick at the end of this) then you are going to be extremely careful (and selective) about what you do and say. You will likely:

  • seek, sift through and provide only positive evidence (choosing feedback wisely and carefully omitting what doesn’t fit your wishes);
  • talk up what has occurred, and you role within (it was all ‘because of me’!);
  • defend your position when it is challenged (presenting a strong case as to why something or someone else was to blame);
  • keep quiet about areas you have struggled with;
  • …[and so on – no doubt you can expand]

None of this is to call you a ‘bad person’…you would be merely playing your part in the game of survival that has been put before you.

You might get your carrot, but your organisation will miss out on what it really needed to know…and the game will continue on to its next round.

A better way

Wouldn’t it be just fantastic if you were willing to ‘share it all’ with your manager, and to do so without any salesperson’s spin. How about: where you got it wrong; where you didn’t understand; where you don’t agree, where you feel weak and exposed, where you’d really like some help… where it was actually a joint team effort (not just ‘me’)…basically what is really going on!

Even better, how about being willing to have these conversations as and when the need arises (and not, say, 6 months later in some staged meeting).

This is possible….but only with a different way of thinking.

Here’s where I repeat Alfie Kohn’s 3-step approach that I have already shared in an earlier post (The Chasm):

  1. abolish incentives: remove extrinsic motivators (incentives, competitive awards….);

“pay people well and fairly…then put money out of their minds.” (Kohn)

  1. then re-evaluate ‘evaluations’: move from formal time-batched judgement events to continual 2-way conversations divorced from the issue of compensation;
  1. then create the conditions for authentic motivation:
    • Collaboration: across the horizontal value stream
    • Work content: make it interesting
    • Choice: allow people to experiment and learn

There’s a reason for the order of these steps: True organisational success is unleashed by point 3…but, most importantly, is held back (even quashed) without first attending to point’s 1 and 2.

Irony

There are some people who are willing and able to say exactly what they think in a performance management review*, which they do because they have a desire to make their organisation a better place to work (for them, and everyone else)….and then risk the consequences of low(er) ratings and a poor ‘reputation’ with their manager (as in “s/he’s a trouble maker that one!”)…which may even then go on to be ‘shared’ with others in the hierarchy.

This is ironic madness. I favour any management system that encourages and supports open-ness and honesty that is devoid of personal agendas.

* I’m not suggesting that there is anything particularly great about such people. Such willingness and ability may come down to personality and economic circumstance allowing…which is not so for most.

 

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’.

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.

Rolling, rolling, rolling…

giantknave Brain Farts , , , , , ,

cheese-rolling1So let’s suppose that we (‘Management’) have come up with (what we think) is a great idea to improve a process. We’ve tried it out in one place (such as a branch/ outlet or a team/ shift or a channel/ brand) and we now want everyone else to change to our new brilliant way.

i.e. let’s do a roll out!

Excellent, so let’s ‘grease those wheels’ by bringing in a ‘change manager’1 who can work out sensible things to make this roll out happen:

  • Let’s ‘big it up’: We’ll prepare fancy presentations (and perhaps some posters for around the office) that explain the change in an up-beat and positive way that makes it sound just great!
  • Let’s deal with the worries: We’ll have a period of consultation, prepare a set of FAQ’s in response, and make small changes to show that we have taken these worries on board;
  • Let’s ‘motivate them’ to want it: We’ll adjust everyone’s balanced scorecard and related objectives, targets and incentives so as to make it ‘front and centre of stage’;
  • Let’s create a launch: We’ll design a competition2 where ‘demonstrated compliance’ with the new way wins prizes for an initial period of time.

…does any (all!) of the above look familiar?

Now to reverse this logic:

Imagine that every team:

  • Understands its capability (against a system’s purpose) and works in an environment that wants to continually improve;
  • …so wants to experiment (for themselves) with new ways of working;
  • …so, as well as coming up with their own ideas (which their environment encourages), is really interested in going to see what other teams are doing;
  • …so brings back new ideas to adjust, try, consider and conclude upon (using the Plan-Do-Study-Act cycle);
  • …so is intrinsically motivated to rolling in new ways of working that they believe in.

John Seddon came up with the label ‘Roll in’ to explain this point. Here are his definitions:

“Roll-out: Method that involves developing an improved process, standardising it and applying it to other areas*. This tends to create two problems:

  1. The solution is not optimised for each specific context so it is not a good fit;
  2. The staff in the other units have not been through the same learning and therefore feel little sense of ownership. They may also feel a loss of control and resist change.

(*I note that the much used ‘achieving buy-in’ phrase is synonymous with the ‘rolling out’ phrase i.e. it is actually about someone trying to sell something)

Roll-in: A method to scale up a change to the whole organisation that was successful in one unit. Change is not imposed. Instead each area needs to learn how to do the analysis of waste for themselves and devise their own solutions. This approach engages the workforce and produces better, more sustainable solutions.”

…meanwhile back at Toyota:

You might have heard that a big part of the hugely successful Toyota Production System (TPS) is standardisation3. and you might then make the mental leap to assume that every shift in every comparative production line in every Toyota plant across the world conform to the one ‘standard’ (i.e. the exact same methods). Yet such an assumption would be incorrect.

Liker’s decades of Toyota research makes clear that change is most definitely NOT imposed on the people and their processes. Instead, each unit (at all levels) is set a clear challenge (a target condition ) that aligns with purpose and is then coached through experiments to achieve it. And, once achieved, the cycle starts again.

So a given team on a given line in a given plant will want a standard way of working so that they are very clear on how to (currently) perform a task but this standard may be quite different to another team/ line/ plant.

Key points in this Toyota way of thinking:

  • The challenge that is set isn’t about rolling out some pre-defined solution. The solution is not known. It is up to each team to work out how to get there for themselves (see ‘how to have a successful journey’);
  • Each challenge is specific to each team, taking account of their current condition;
    • A mature plant in Japan would have very different challenges set to a much newer plant in, say, America, even though they might be making the same car model;
  • It is perfectly acceptable for one plant (say) to arrive at a different method of working to another. This is in fact considered a good thing because it keeps people thinking, broadens ideas and sets off yet deeper studying and understanding…fuelling yet more improvements;
  • It creates a desire for collaboration between plants: they are very interested in what others are doing (going to each others ‘Gemba’* ). This is the total opposite to the competitive (and myopic) mentality of ‘Our team’s way is the best way…it must be – we won a prize!‘;
    • In fact, a mature Japanese plant wants to go and see what a newer American plant has come up with because they understand that the ‘newbies’ may have come up with completely different (and potentially step-change) ways of thinking.
  • If a team from plant B do a Gemba walk at sister plant A and sees something of interest, they don’t just go home and implement it! They can’t – because that would just be the ‘plant visit’ team dictating to their colleagues back home. No, instead, they will explain what they saw, experiment, decide whether it is of use to them and, if so, adapt so that it fits for their needs;
    • The original plant A is highly likely to do a ‘reverse’ Gemba walk to see what plant B has done with their ideas…and then rush back home to experiment again….and, hey presto, what a healthy innovation cycle we have!

(* Reminder: Gemba roughly translates as ‘the place where the work happens’)

In short: Seddon didn’t invent the ‘roll in’ idea (Toyota, as an excellent example, have worked this way for decades) but he is very good at putting it into words, giving it a name and passionately championing it.

Looking back, it seems pretty obvious that if people find out about and learn things for themselves then this will be fulfilling and lead to real and sustained successes….which will create a virtuous circle. No such worthy circle exists from ‘stuff being done to you’.

But what about that Iceberg?

Many of you will have been introduced to, and likely read, John Kotter’s well written business story book called ‘My Iceberg is melting’. If you haven’t then it’s about a colony of penguins having to deal with a change being imposed upon them (the clue to that change is in the name of the book!).

Now, if you are having a change imposed upon you, then Kotter’s logic might be very useful to you….but, wow, wouldn’t it be sooo much better if you decided on your own changes!

I think one quote sums much of this post up nicely:

“People don’t resist change, they resist being changed.” (Scholtes)

Be realistic!

“Oh come on Steve, sometimes change is imposed and you’ve just got to deal with this!”

Yes, this is most definitely so. But here’s some counters to this critique:

  • Such a change should be coming externally (such as a legislative, societal or environmental change)…not from within the organisation;
  • Even if such change occurs, it is still better for the organisation to deal with it by setting its people suitable challenges (rather than dictated solutions) and leading them through rolling in changes for themselves;
  • If your people are used to the ‘roll in’ change paradigm then you will have a whole bunch of people who are skilled, creative and motivated problem solvers …just imagine how fantastic that capability would be for an organisation every time the challenge of an external change has to be handled!

…and finally:

Here’s an Ackoff ‘f-Law’ that might resonate with you as a true-ism:

“The only thing more difficult than starting something new in an organization is stopping something old.”

I think we all recognise that the ‘roll out’ problem doesn’t stop with merely getting someone to do something new…

Consider that, in contrast, by using ‘roll in’ the people are choosing for themselves to stop doing the old (whatever that is for them).

______________________________________________________________________

Addendum: I always ask someone (relevant to the subject) to act as editor before I publish. My editors always add great value Here are a few improvements:

  • Whilst Toyota may not enforce the same standard way of working across everywhere, it could be argued that they do have a cross-organisational standard way of thinking and acting (i.e. their management system, which has been termed ‘The Toyota Way’)…but, just like rolling in, this wasn’t copied from elsewhere and dictated to them – it came about through years of humility and experimentation;
  • If you want everyone rolling in the same direction then you still need a very clear (and meaningful) purpose, and systems thinking, such that all challenges being set lead to the same point on the horizon;
  • The ‘corporate form’ (e.g. a public body, private enterprise, large publicly quoted company,…) will likely have a huge impact on where you are now, and where you can get to;
  • You might like the idea of rolling in (as compared to rolling out) and say “yeah, great…how do we get there from here?” This is a BIG question, and just happens to relate to a future post which the ink is drying on….so, with that segue, please tune in again then.

Notes:

  1. Change management within command and control organisations is usually about senior leaders getting people to do what they want them to. Their employment of a skilled ‘change manager’ (of which there are many) may substantially improve the roll out outcomes…but it is still a roll out, with all its associated limitations.
  2. Competitions: Please don’t run ‘change’ competitions like this…or, if you do, know the harm that they cause. Research* shows that: Providing a reward for doing something seriously devalues that thing; and people think even worse of that thing once the reward period has finished, thus likely slipping back to how it was before and then making it that much harder to ‘get them to change’ (* see Alfie Kohn’s book ‘Punished by Rewards’).
  3. Standardisation: Don’t make the assumption that this standardisation principle is exactly the same for service organisations – it isn’t. I use it in this post merely to explain and demonstrate the roll-in principle.

A breakthrough!…but is it all that it seems?

giantknave Brain Farts , , , , ,

The word Breakthrough breaking through glass to symbolize discovSo, over the last few days a number of people have sent me links to this recent business article on Stuff: Accenture ditches annual performance reviews. Thanks for that, you know who you are 🙂

In summary:

  • Accenture, one of the largest professional services organisations in the world has decided to radically change its people processes: getting rid of the annual performance review
  • They aren’t the first ‘big beast’ to do something like this:
    • Deloitte (THE biggest professional services organisation in the world) went public in a similar vein last March. An April 2015 HBR article called Reinventing performance management explains where they are going;
    • I understand that the likes of Microsoft, Expedia and Adobe dropped most or all of the performance review process a couple of years ago;
    • Our very own NZ organisation, Telecom (or is that Spark?!), appeared to be heading down a similar path back in 2013 , though this would appear to me to have been driven by cost rather than the science of psychology:

Telecom [will] stop using online forms to appraise staff performance, reverting to a “far lighter” system of one-on-ones and “adult-to-adult conversations” on regular four-to-eight week cycles, he [Simon Moutter, CEO] said.

The “forms and processes” associated with performance appraisal had impeded Telecom, he said.”When we hit ‘appraisal season’, the company nearly grinds to a halt with the bureaucracy.”

Caveat: Looking at this 2015 Spark site, I’m not sure whether they successfully ‘broke away’ from the past…the picture at the bottom looks remarkably familiar!

A reminder: I have written quite a bit on the subject of performance review. In particular see An exercise in futility.

Ironic

What I find highly ironic about professional services firms eulogising about their new found wisdom is that they have large ‘human capital’ consulting arms that have been selling their wares for decades (I know, I used to work alongside them)…and what have they been earning millions of $ on? Yep, advising on implementing supposedly highly researched incentives schemes and performance review programmes….you know, the ones that they have now decided aren’t so great.

Taking a look, for example, at Deloitte’s website, I can deduce that they see a huge opportunity in presenting themselves as (what professional service organisations love to call themselves) ‘thought leaders’ to sell their new-found performance management brilliance (the next Silver Bullet) to all the other organisations out there.

A Fudge?

I have read the Deloitte HBR article (referenced above) and I see their ‘answer’ as a likely fudge.

They talk a lot about the wasteful time and effort expended in the current annual appraisal system. They talk about it not actually deriving valid results (being hugely biased by who is making the judgement). Yet their answer (when boiled down to its essence) is to merely make it simpler – a sort of ‘reboot’. It would appear that they are still asking questions about a person to rate them, which will determine a reward.

You could point to their strap line of “Replace ‘rank and yank’ with coaching and development” and, yes, I can get behind that BUT:

  • they haven’t once talked about the system and its monumental effect on what a person can (or cannot) achieve; and
  • they appear to be clinging to the idea of motivating an individual’s performance through contingent rewards, and judging them accordingly.

I can see that the games people understandably play will simply mutate, yet remain.

“Tell me how you will measure me and I will [show] you how I will behave” (Goldratt).

Going back to Alfie Kohn’s work:

  • First you need to remove contingent rewards;
  • Second, you need to re-evaluate the performance review process (change from judgement to feedback);and
  • Then you can create the conditions for authentic motivation.

A reminder of why judgement and rewards do not belong anywhere near helping people develop:

“If your parent or teacher or manager is sitting in judgement of what you do, and if that judgement will determine whether good things or bad things happen to you, this cannot help but warp your relationship with that person.

You will not be working collaboratively in order to learn or grow; you will be trying to get him or her to approve of what you are doing so that you can get the goodies.

A powerful inducement has been created to conceal problems, to present yourself as infinitely competent, and to spend your energies trying to impress (or flatter) the person with power.” (Kohn)

“Mind the gap”

Many an organisation might read about* what the likes of Accenture are doing and conclude that, clearly, they need to copy them.

But a reminder of the dangers of copying: Yes, look at what others are doing and, yes, be curious as to why…BUT you need to work it out for yourselves – you need to ‘get’ why it is the right thing to do and then adapt it accordingly. Otherwise you can expect one great big mess.

(* A particular quote from the Accenture article which I found of interest: “Employees that do best in performance management systems tend to be the employees that are the most narcissistic and self-promoting” We should be seriously questioning if this is actually what we want.)

“Nothing to see here”

Whilst a part of me is very pleased to see the big beasts ‘coming out’ (more or less) against the performance review process:

  • I’m unmoved (being polite) by their commissioning/ invoking of seemingly new and brilliant research that arrived at their ‘new insights’.

Why? Well, there’s nothing new here. Go back to Alfie Kohn’s brilliant book ‘Punished by Rewards’ to see the body of research from many decades ago. Go back to Deming’s 4 day lectures that he gave to thousands between 1981 and 1993 (that’s more than 30 years ago!!):

Deming’s Deadly disease number 3: Evaluation of performance, merit rating, or annual review

“In practise, annual ratings are a disease, annihilating long term planning, demolishing teamwork, nourishing rivalry and politics, leaving people bitter, crushed, bruised, battered, desolate, despondent, unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior…sending companies down the tube.”

…go back even further to what Deming and the Japanese were doing from the 1950s.

During this time, the majority of large corporations have been pushing in, and constantly justifying, the exact opposite of where they have arrived at now.

Now, to be clear, I think it is really great that there appears to be a movement against the ridiculous performance review process BUT:

  • I’m not convinced that they fully ‘get it’ in respect of human psychology; and
  • I think it is disingenuous, arrogant (or maybe ignorant) of any organisation that does not (outwardly) recognise that what they have just ‘discovered’ has been there, loud and clear, in front of their eyes all the time.

People and relationships

giantknave Brain Farts , , , , , , , , ,

!cid_image003_png@01D0AE76Relax, don’t worry about the title: I will be limiting this post to ‘work relationships’…and I don’t mean ‘relationships at work’.

Peter Scholtes wrote that, to understand people, we need to understand relationships. In particular, leading people requires the establishment and nurturing of personal relationships on a daily basis and the encouragement of others to do the same.

He sets out some characteristics of what he calls “a good, old-fashioned one-to-one, face-to-face, first name to first name personal relationship”:

  • You listen to each other. You are able to talk to each other;
  • Each respects the other and knows how to show this respect; and
  • Each knows the other well enough to know their vulnerabilities and cares enough to avoid them.

Now, relationships are hugely important between manager and employee. Unfortunately, these relationships in most organisations are patronising and paternalistic.

The psychiatrist Dr Eric Berne (1910 – 1970) set out three ‘ego states’ – postures that we assume in relation to each other. These are:

  • Parent: from nurturing and supportive through to judgmental and controlling;
  • Adult: from realistic, logical, rationale through to affectless; and
  • Child: from playful and creative through to rebellious and spiteful.

Command and Control management systems necessitate ‘management’ to assume a parent ego state, which often ends up causing the employee to adopt a child-like ego state in reaction. The words ‘boss’ and ‘subordinate’ (both of which I dislike) fit this parent – child relationship narrative.

In reality, we are all adults at work. It just happens that we are employed to play different roles – from helping customers through to running a business division.

It is each leader’s choice as to the ego state they adopt…and therefore the likely ego state that their employees will take in response.

As an example: I find it odd when a manager verbalises to ‘their’ employee that what they are about to say to them is a ‘coaching moment’ (i.e. “…so listen up and take note!”) – how much closer could you get to a parent – child presumption by the manager? It’s akin to what my youngest son refers to as “getting a lecture” from me.

To be clear, I am most certainly NOT saying that I can’t be coached (I clearly can)….but:

  • A coachee needs to a) have a personal goal and b) a desire to be coached towards it. You can’t ‘coach’ without these two requisites;
  • A leader can equally (and often) be coached by employees, but only if they have their mind opened to be so; and
  • Pointing out to someone that ‘this is a coaching moment’ is patronising and presumptuous and demonstrates an (often sub-conscious) intent to enforce a superior (‘alpha’)/ inferior relationship signal…and it generally breaks point 1, so it isn’t actually coaching.

Right, coaching rant over, back to it….

Leaders need to recognise that we are all people (organistic systems), with our own separate purposes (just like them). The need is to establish adult-adult relationships, in which no one sets themselves out as being ‘above’ or ‘better’ than anyone else. If an organisation’s leaders succeed in this then they will have created a hugely powerful environment.

So, moving on to trust:

Healthy relationships require trust. Here’s an interesting figure from Scholtes showing the two converging beliefs that need to coexist for one person to trust another:

!cid_image002_png@01D0AE76

I find this figure illuminating. It makes me see that (and understand why) I have had some managers that I have respected and some that I have had (professional) affection for…but trust is much rarer.

Scholtes writes that “When I believe you are competent and that you care about me, I will trust you. Competency alone or caring by itself will not engender trust. Both are necessary.”

A couple of comments on trust:

  • I doubt it can be over emphasised that trust is in the eye of the beholder! ‘You’ can say that you care about me and that you know what you are doing but only ‘I’ decide whether I believe this…and I will be looking closely (and constantly) at your actions, not taking your word for it;
  • Some command and control managers have the view that employees need to earn their trust…this is the wrong way round! If someone wants to lead, they have to earn the trust of those that they would like to follow them.

KITA management (aka the picture at the top):

Now, onto the idea of KITA management: the term ‘KITA’ was coined by the psychologist and Professor of management, Frederick Herzberg (1923 – 2000)*. It stands for Kick-in-the-(pants)…he was too polite to write what the A actually stood for.

Herzberg wrote about positive KITA (carrots) and negative KITA (sticks)…and here’s why it isn’t motivation:

“If I kick my dog (from the front or the back), he will move. And when I want him to move again, what must I do? I must kick him again…” (Herzberg)

The related problem with KITA thinking is that it locks manager and employee in a highly unhealthy parent-child relationship. Further, when rewards are competitive (which they usually are in some way) KITA thinking creates winners and losers and adversarial relationships among those who should be colleagues.

* Note: Herzberg wrote the classic 1968 article “One More Time, How Do You Motivate Employees?” This is one of the most requested HBR articles of all time and has sold well over 1 million copies.

…and finally:

I’d like to share with you some wise words written by Alfie Kohn under the self-explanatory title ‘Rewards rupture relationships’

“We need to understand what the process of rewarding does to the interaction between the giver and receiver:

If your parent or teacher or manager is sitting in judgement of what you do, and if that judgement will determine whether good things or bad things happen to you, this cannot help but warp your relationship with that person.

You will not be working collaboratively in order to learn or grow; you will be trying to get him or her to approve of what you are doing so that you can get the goodies.

A powerful inducement has been created [through the regular judgement and resulting outcomes] to conceal problems, to present yourself as infinitely competent, and to spend your energies trying to impress (or flatter) the person with power….

… people are less likely to ask for help when the person to whom they would normally turn wields carrots and sticks. Needless to say, if people do not ask for help when they need it, performance suffers on virtually any kind of task.”

…and, in so writing, Alfie eloquently uncovers the damage caused by rewards and the stunting effect they have on the ability of an organisation, and its people, to improve.

The positive bit: It would be great if all of us worked really hard to attain an adult-adult relationship footing…realised when this had been broken by our words and deeds …and, through humility and dialogue, worked even harder to bring it back again.

An apology: I have a rule that a post should only cover one thing…and this one doesn’t appear to! It’s a bit of a journey from relationships, through leadership, coaching, trust, motivation and ending at rewards, which brings it full circle back to what rewards do to relationships.

In fact the topics in this journey do all belong together, under the competency of ‘Understanding people and why they behave as they do’. My intent was to show how they are all so tied up together so I hope you don’t mind me bending my rules 🙂

Outstanding!

giantknave Brain Farts , , , , , ,

Hello-My-Name-is-SlackerWhen I discuss my posts on performance appraisal and contingent rewards with people I get a lot of great understanding and support…but there’s always one question that pops up: “but then how will you deal with the slackers?”

Putting to one side whether our management instruments actually ‘deal with the slackers’ at the present, I find this an understandable response from within a command-and-control management system.

I usually find myself responding with:

“…and why do you think they are ‘slacking’*…do you think they want to perform an unfulfilling job all day long? Do you think this is how they started out when they got the job?”

(* if indeed they are ‘slacking’…our activity measures may present a different story than reality)

I then usually get: “yeah, but there will always be some people who take the p1ss!”

This uncovers a pretty hollow view of people. I’m not criticising people for thinking this …it’s more a recognition of the likely environments that people have had to endure through our working lives.

I would respond with a Deming quote to ponder:

“Anyone that enjoys his work is a pleasure to work with.”

  • You and I want to enjoy our work…and the environment that we work within will have a monumental influence on this;
  • I absolutely ‘get’ that there will almost always be a small % of people that sit outside the normal bell curve…but should we be designing our management system for the 5% or the 95%?
    • Do we tar everyone with the 5% brush?
    • Do we effectively yet compassionately deal with this 5% now?
    • Does it make sense that people ‘decay’ to being seen in this 5% bracket?

Regarding dead wood: “Why do we hire live wood and kill it?”

Kohn puts a deliberate order to his suggested actions (see the bottom of the ‘Exercise in Futility‘ post) and he most certainly doesn’t stop at removing contingent rewards and stopping performance appraisals…this is actually the point at which the real (and interesting) work can start to be done, with the process performers on collaboration, content and choice.

Okay, so you still think you’ve got a slacker:

If we are to consider the ‘slacker’ accusation, we also need to consider the other side of this coin, the supposed ‘talent’. Together, we can call these ‘outstanding performers’ where, as Scholtes explains:

We need to “use ‘outstanding’ in the statistical sense, not in the psychological sense.

Statistically*, ‘outstanding’ refers to something occurring outside the current capabilities of the system.” …and therefore it makes it worth investigating as to what is happening and why.

* Note: There is variety in everything. We should not be tampering when there is nothing special about this variety. So ‘John’ achieved more than ‘Bob’ this week…big deal, we would expect differences…but is it significant, and is it consistently so?

Scholtes provides the following guidelines for our response to outstanding performance:

First: Determine for certain if they are truly outstanding:

  • Does (quality) data (properly) substantiate this ‘outstanding’ performance?
  • Does this data cover a sufficient timescale to indicate consistent performance at this lower or higher level?
  • Is there consensus among the outstanding performers’ peers (from observation, not gut reaction or rumours)

If the answer is ‘No’, it’s not actually outstanding!

If the answers to the above are all ‘Yes’ then:

Second: Investigate to discover what is behind this occurrence (using data!):

If the person is ‘positive’ outstanding, do they (for example):

  • use better methods which can be taught to others?
  • put in more hours?
  • have a wider range of skills?
  • have more experience?
  • have more native talent?
  • …

If the person is ‘negative’ outstanding, do they (for example):

  • need to learn a better method?
  • need to pick up speed?
  • need coaching or mentoring for a while?
  • lack the basic requisites for the job?
  • …
  • are they going through a difficult period?

And, depending on the explanation:

Third: Formulate an appropriate response:

For ‘positive’ outstanding:

  • teach methods to others;
  • provide higher pay* to recognise their change in market value (* but NOT contingent!)
  • provide more latitude in job definition

For ‘negative’ outstanding:

  • coaching, mentoring, training
  • provide greater structure for a while
  • get counselling and support
  • find a more appropriate position
  • …
  • Finally, sensitive and fair dismissal

If you take the last response, you still have a systems problem – you need to deal with how you ended up with this scenario.

Seddon deals with the issue of an individual’s supposed poor performance (and it being considered a ‘people problem’) in a similar vein to Scholtes. Put simply, there’s a whole host of questions that need to be asked about the system in which the individual operates before you can fairly arrive at the conclusion that the problem is with the individual.

The categories of questions, in order, are:

  • Is it an information problem? (do they know purpose, capability, flow?)
  • Is it a method problem? (waste? system conditions such as structures, policies, measurement, IT?)
  • Are extrinsic motivators the problem? (i.e. distractions from intrinsic motivation)
  • Is it a knowledge problem? (necessary knowledge to do the job?)
  • Is it a selection problem? (necessary attributes to do the job?)

All of the above are the responsibility of management to resolve.

  • Finally, is it a willingness problem?

Then, and only then can you conclude that you probably have the wrong person for the job.

“95% of the reasons for failure to meet customer expectations are related to deficiencies in the system…rather than the employee…

…the role of management is to change the system rather than badgering individuals to do better.” (Deming)

It’s very easy for a manager to blame a person. It’s a lot harder for them to work out what the systemic cause is. One of these approaches can improve the system, the other cannot.

A final Deming quote to ponder:

Question from ‘Management’: [what you are saying] “implies the abolition of the annual merit rating system [performance appraisals] and of management by [cascaded] objectives….but what will we do instead?”

Deming’s response: “Try leadership.”

Blackmail

giantknave Brain Farts , , ,

the-beatings-will-continueI’ve written about why cascaded personal objectives and contingent rewards aren’t a good idea.

Question: What’s the worst form of this practise?

Answer: A rigged game.

Now clearly, contingent rewards are set by those (hierarchically) above you so as to strongly encourage you to comply with their wishes. That’s the whole point. But we should be very clear that compliance should not be mistaken for motivation.

“Rewards and punishments induce compliance, and this they do very well…but if you want long term changes in behaviour…they are worse than useless – they are actually counter-productive.” (Alfie Kohn)

The rigged game explained:

Consider if the objectives being set and the carrots/ sticks on offer really mean the following:

Carrot: “We’ll pay you money for saying what we want you to say…which will then make us look good…and is effectively buying you.”

Or

Stick: “If you don’t act as we want, we will make sure that you will lose out and even be disciplined.”

If a politician did this, they would be hung out to dry!

There was an interesting article on Stuff recently regarding an Australian company (Cotton On) that could easily be accused of playing this rigged game. Here’s an extract of that article, referring to their HR department’s leaked* four page code:

Failure to portray “fun, entrepreneurial, keeping it real, family, ethical, engaged” behaviour was unacceptable, the Australian clothing chain said.

It could result in counselling, warnings or instant dismissal, according to the four-page code** which was leaked to Fairfax Australia newspaper The Age.

* you don’t have to be a brain surgeon to see why it was leaked…being told to have fun ‘or else’ is quite a message to stomach!

** the need for a four-page code speaks volumes about a lack of trust. (Does your organisation trust you?)

Surveys linked to rewards:

Another example of rigging would be if you ask people to fill in a survey and then link (some aspect of) their rewards to the results of that survey. You can’t say that the outcome of such a survey can be unbiased.

An organisation’s culture will not be understood from reviewing survey results that merely capture how people felt they were expected to answer. In fact, the reverse is the case – the results from such a survey will hide, distort and confuse… leading to ignorance of the true state of play and the wrong conclusions being drawn.

Attitudes:

I personally dislike the idea that an organisation thinks it needs to tell me what specific ‘attitudes’ I should be adopting at work. What is much worse (and moves towards the rigged game) is that I am then rated and rewarded according to their judgement as to how well I meet them! This is not far removed from the Cotton On example.

The only difference is that Cotton On were daft enough to spell out the ‘stick’ as opposed to concentrating on the ‘carrot’….but this misses the point that, in every carrot there is a hidden stick (that you can be denied the reward).

The crucial point:

Our behaviours are a result of the environment in which we find ourselves.

If you want me to be motivated, happy, collaborative, engaged, ‘real’ … [keep going with a long list of words in a dictionary that are blindingly obviously desirable!]…don’t tell me to BE these words…don’t blackmail me to SAY that I am these words….provide the environment such that I AM these words!

Oh, and the final crunch point: I (and most normal human beings) actually WANT to be motivated, happy, collaborative, engaged, ‘real’. I’d be weird if I didn’t. It’s down to the management system (which defines the environment that I work within) that determines whether I can be.

The above is perfectly reflected in the saying “the beatings will continue until morale improves”.

A clarification: I’m certainly not saying that attitude isn’t important. In fact, I think that ‘attitude’ is just about the most important thing there is for a human being!

Here’s one of my favourite quotes ever (I have it on my wall at home and at work):

“The longer I live, the more I realise the impact of attitude on life. Attitude to me is more important than facts. It is more important than the past, than education, than money, than circumstances, than failures, than success, than what other people think or say or do. It is more important than appearances, gift, or skill. It will make or break a company…a church…a home.

The remarkable thing is we have a choice every day regarding the attitude we will embrace for that day. We cannot change our past…we cannot change the fact that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play on the string we have, and that is our attitude.

I am convinced that life is 10% what happens to me and 90% how I react to it. And so it is with you…we are in charge of our attitudes”. (Charles Swindoll).

It is this quote that often helps me write these (professionally provocative) posts. My attitude is that there’s not a lot of point in moaning about my environment. I choose to try to do something about it.

An Exercise in Futility

giantknave Brain Farts , , , , ,

Dalmatian-chasing-tail-006Now this post is a bit longer than normal, but I hope that the 1st quote grabs you and sucks you in…I reckon that once you start you won’t stop 

“Performance evaluation is an exercise in futility” (Scholtes)

Every organisation operating a ‘command and control’ management system uses the performance appraisal as a key tool in its arsenal.

The contention in this post is that one of the key steps in providing an environment that fosters a highly motivated and capable workforce is to scrap the performance appraisal system and replace it with something far better.

Problems with performance appraisals

Let’s first consider just some of the problems with actually carrying out what might be considered a valid performance appraisal of an individual – that’s you and me:

  • Appraiser Bias: Performance assessments tell us as much about the appraiser as the appraisee. It tells us how harsh a critic the manager is, how good a job he/she expects the employee to do, how well the two of them get along, what basic values they share and even whether their backgrounds are similar; 
  • Management performance: The quality of management has a huge influence. “any individual’s performance is, to a considerable extent, a function of how they are managed…so the manager is in part evaluating him/herself without appearing to do so.” (McGregor) 
  • Interdependence: None of us act alone. “Almost nothing is accomplished by an individual operating alone. Most work is obviously a collective effort. Yet even workers who seem quite independent depend on others for ideas, stimulation, feedback, moral support and administrative services.

When an individual makes some heroic effort and accomplishes an extraordinary task, often he or she can take the time to do that work only because others have filled in on the less heroic parts of the job. When someone is credited with a success, he or she is individually honoured [e.g. by money, award, public acclaim] for what was most likely the work of many.” (Scholtes)

  • The effects of the system: Deming used his famous red bead experiment to illustrate this point simply yet brilliantly. He explains that the performance of the employee is 95% governed by the system that they work within. The ranking of people is actually merely ranking the effect of the system on the people. 

“It is simply unfair to the extent that employees are held responsible for what are, in reality, systemic factors that are beyond their control.” (Kohn)  

  • A straight jacket: Appraisals ‘compare’ everyone against a uniform expectation (albeit per manager – see 1. above) rather than understand and embrace the reality that everyone is unique, with very different (often subtle) contributions to make.

Deming wrote the wonderful words that “a [true] manager of people understands that people are different from each other. He [or she] tries to create for everybody interest and challenge and joy in work. He tries to optimise the family background, education, skills, hopes and abilities of everyone. This is not ranking of people. It is, instead, recognition of differences between people, and an attempt to put everybody in position for development.”  

  • Ignoring variation: The work of each individual is characterised by variability…it will naturally fluctuate! You cannot be the same every minute of every day….if you were, you would be a machine! Further, the major causes of such variation are beyond the attributes of the individual. So should you be criticised or praised because of ups and downs in your supposed ‘performance’ outside of your control?

I could go on…but I fear that I would write a book!

The performance appraisal creates the illusion that management have indeed isolated and determined the performance of an individual. Worse still, it allows management to abdicate their responsibilities – they will simply meet the person each period, get the person to justify themselves (with evidence!) and then judge them….no need to actually get to understand who they are, what their dreams and aspirations are, and therefore discuss how they can help them become reality.

The effects of performance appraisals

Most organisations running performance appraisal systems will answer back in denial: “yes, we know all about the above and we have ‘continuously improved’ our process through much iteration so there’s no such problems here!”

I would contend that they may have succeeded in creating a (laborious, bureaucratic and wasteful) process that masks (i.e. disregards) the above, but they cannot remove them.

But, for the sake of argument, let’s just suppose they have….what about the effects of the performance appraisal:

[the system by which merit is appraised and rewarded is] “the most powerful inhibitor to quality and productivity in the Western world….it nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry…and leaves people bitter.” (Deming)

“Even if performance appraisals were adequate to gauge how well people were doing their effects are usually so destructive that they shouldn’t be used anyway. Not only is the fact of interdependence in the workplace ignored, but people are discouraged from cooperating in the future.” (Kohn)

“Appraisals leave people bitter, bruised, despondent, dejected, feeling inferior, some severely depressed.” (Seddon)

What do people running performance appraisals say they are for?

Rather than simply looking for a new technique to continue with the old flawed logic, let’s consider why people are being evaluated.

Kohn notes four ‘defences’ as being used by those that contend performance appraisals are required. They say they are needed to:

  1. Determine how much each employee should be paid and/or who should receive various awards and incentives;
  2. Make employees perform better for fear of receiving a negative evaluation or in the hope of getting a positive one;
  3. Sort employees on the basis of how good a job they are doing so we know who to promote; and
  4. Provide feedback, discuss problems, and identify needs in order to help each employee do a better job.

Taking each of these in turn, and using some of my previous posts so that you and I can finish this post today!!…

Regarding 1: Please read the following posts already on the blog that debunk the use of contingent rewards: The Chasm and Money as pay

Regarding 2: Please read Oh no, not that old theory and Making a wrong thing righter that explain why ‘carrot and stick’ approaches to motivation are counter-productive.

Regarding 3: Please read Anointing heroes. Further, there is a whole post to be written on promotion (I’ll add it to my list!). It’s not a good reason to carry out performance appraisals.

Defences 1 – 3 are about doing things to people…which leaves 4 as the only one which could be about working with people….mmm, if we got rid of 1 -3 then this is sounding promising! Read on.

So what should we replace performance appraisals with?

Kohn suggests that, if the over-riding purpose is to foster improvement (for the individual, and for the organisation) then the following principles take shape:

  • A two-way conversation:
    • An opportunity to trade ideas and ask questions;
    • NOT a series of judgements about one person pronounced by another;
  • A continuous process, rather than a time bound event (e.g. annual, quarterly);
  • It never involves any sort of relative ranking or competition (no scoring!);
  • It is utterly divorced from decisions about compensation
    • “Providing feedback that employees can use to do a better job ought never to be confused or combined with controlling them by offering (or withholding) rewards.” (Kohn)
    • It is “foolish to have a manager serving in the self-conflicting role as a counsellor (helping someone improve performance) when, at the same time, he or she is presiding as judge over the same employee’s salary” (Meyer)

Essentially, Kohn is arguing for good old fashioned regular and meaningful conversations between employee and manager within an environment of openness and mutual trust. I’ll have some of that!

Scholtes takes this further: Performance appraisals focus on the wrong target! The true opportunities for improvement are in an organisation’s systems and processes, rather than individuals or groups. Instead of focusing on individuals, managers should be working with individuals to focus on the problems with the system.

It’s worth noting that an organisation taking the above seriously won’t be able to move to this highly desirable state overnight: Once the scoring, ranking, rating and rewarding has been stripped out, it will take a bit of time for managers to establish the trust of their employees.

On the plus side, the vast majority of managers will relish the removal of the hugely wasteful processes and painful conversations of the old way…and will really enjoy spending the newly created time actually helping their team.

What about the advice from all those expensive consultants?

You will find queues of expensive consultants who will tell you otherwise.

Scholtes notes that most ‘research’ on performance appraisals consists of opinion polls asking “which kind of performance appraisal do you prefer?” They are usually:

  • conducted by consulting companies selling their ‘Human Capital’ services;
  • filled out by HR managers who, as a group, are predisposed in favour of performance appraisal…no disrespect meant but it is, after all, a major part of their (current) job; and then
  • sent back out to the same group of HR managers in glossy consultancy report format along with a nicely worded proposal as to how the consultancy can help implement what they now claim to be ‘best practise’ and move them up some supposed ‘maturity curve’!

Scholtes notes “when biased people ask the opinions of biased people, the results cannot be described as research.” This quote is so relevant to many a ‘big consultancy’ report purporting to be ‘research’.

…and finally: what do the Japanese do?

A really nice story from John Seddon:

“I was asked to write an article exposing the problems with performance appraisals for a Sunday newspaper. I submitted my 1st draft.

  • The editor suggested I should provide balance by talking about what to do instead.
  • My response was that you don’t need to find an alternative to doing a bad thing – you should just stop doing it!
  • The editor said ‘ring your friends in Japan and find out what they do’.
  • …so I did.
  • I asked ‘what do you do about performance appraisal?’
  • The reply was ‘what is that?’
  • …I explained.
  • Japanese people tend to be too polite to laugh.”