W Edwards Deming

Control Charts: A ‘how to’ guide

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A key component of Deming’s ‘Theory of Profound Knowledge’ is in relation to the measurement of performance (of a system) and the ‘Theory of Variation’.

I’ve noticed over the years that, whilst the foundational points around variation can be well understood, the use of control charts within operational practice can be ‘absolutely butchered’ (technical term 🙂 ).

 

This caused me to write a ‘how to’ guide a while back, for me and my colleagues.

I recently ‘dusted it down’ and tidied it up into a version 2.0 in order that I can share it more widely, for anyone who can find value within.

I attach it as a pdf document for anyone interested:

Control charts – a how to guide V2.0

It doesn’t replace the excellent writings of Donald Wheeler…though it hopefully makes you curious to ‘pull’ his writings towards you.

It doesn’t tell you what to measure…because it couldn’t!

It doesn’t ‘do it for you’…but, hopefully, it does give you enough so that you can experiment with doing it for yourself.

…and it can’t beat working alongside someone who knows what they are doing, and can act as your coach.

 

Note: If you do end up using/ sharing this guide then I’d be grateful if you could add a simple comment at the bottom of this page so that I am aware of this. Not because I’m going to invoice you (I’m not!)…but because I would find this knowledge useful (#feedback).

You might tell me: what you thought of it (warts and all), where you might use it, whether you have shared it with others (and whether they appreciated this or not!)… and if it has improved your measurement practices.

Thanks, Steve

Targets on measures of targets on measures of things

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In this post I’m going to differentiate between:

  1. Measures of things
  2. Targets on (measures of things)
  3. Measures of (targets on (measures of things)); and
  4. Targets on (measures of (targets on (measures of things)))

Wow, that last one is hard to write, let alone say out loud! You might think that it’s a nonsense (which it is) but, sadly, it’s very common.

Note: I added the brackets to (hopefully) make really clear how each one builds on the last.

I’ll attempt to explain…

1. Measures of things:

Seems straight forward enough: I’m interested in better understanding a thing, so I’d like to measure it1.

Some examples…

A couple of personal ones:

  • What’s my (systolic) blood pressure level? or
  • How quickly do I ride my regular cycle route?

A couple of (deliberately) generic work ones:

  • how long does it take us to achieve a thing? or
  • how many things did we achieve over a given period?

Here’s a graph of a measure of a thing (in chronological order):

Nice, we can clearly see what’s going on. We achieved 13 things in week 1. Each thing took us anything between 2 and 36 days to achieve…and there’s lots of variation in-between.

It doesn’t surprise me that it varies2 – it would be weird if all 13 things took, say, exactly 19 days (unless this had been structurally designed into the system). There will likely be all sorts of reasons for the variation.

However, whilst I ‘get’ that there is (and always will be) variation, the graph allows us to think about the nature and degree of that variation: Does it vary more than we would expect/ can explain?3 Are there any repeating patterns? Unusual one-offs? (statistically relevant) Trends?

Such a review allows us to ask good questions, to investigate against and learn from.

“Every observation, numerical or otherwise, is subject to variation. Moreover, there is useful information in variation.” (Deming)

2. Targets on (measures of things):

Let’s say that we’ve been asked to achieve a certain (arbitrary4) target.

Here’s an arbitrary target of 30 days (the red line) set against our measure:

And here’s how we are doing against that target, with some visual ‘traffic lighting’ added:

Instance (X)12345678910111213
Target of 30 days met? (Yes/No)NYYNYYYYYYYNY

We’ve now turned a rich analogue signal into a dull digital ‘on/off’ switch.

If we only look at whether we met the target or not (red vs. green), then we can no longer see the detail that allowed us to ask the good questions.

  • We met ‘target’ for instances 2 and 3…but the measures for each were quite different
  • Conversely, we met ‘target’ for instances 5 all the way through to 11 and then ‘suddenly’ we didn’t…which would likely make us think to intensely question instance 12 (and yet not see, let alone ponder, the variation between 5 and 11).

The target is causing us to ask the wrong questions5, and miss asking the right ones.

3. Measures of (targets on (measures of things)):

But I’m a fan of measures! So, let’s show a measure over time of how we are doing against our target.

In week 1 we met our 30-day target for 10 out of our 13 instances, which is 77%. Sounds pretty good!

Here’s a table showing how many times we met target for each of the next five weeks:

Week12345
Things achieved1315141112
Number meeting 30-day target10141278
% meeting  30-day target77%93%86%64%67%

Let’s graph that:

It looks like we’ve created a useful graph, just like in point 1.

But we would be fooling ourselves – we are measuring the movement of the dumbed-down ‘yes/no’ digital switch, not the actual signal. The information has been stripped out.

For example: There might have been huge turbulence in our measure of things in, say, week 3 whilst there might have been very little variation in week 4 (with lots of things only just missing our arbitrary ‘target’)…we can’t see this but (if we want to understand) it would be important to know – we are blind but we think we can see.

4. Targets on (measures of (targets on (measures of things))):

And so, we get to the final iteration:

How about setting an arbitrary target on the proportion of things meeting our arbitrary target…such as achieving things in 30 days for 80% of the time (the red line)…

And here’s the table showing how we are doing against that target:

Week number:12345
80% Target on 30-day Target met?NYYNN

Which is a double-dumbing down!

We’ve now got absolutely no clue as to what is actually going on!!!

But (and this is much worse) we ‘think’ we are looking at important measures and (are asked to) conclude things from this.

The table (seemingly) tells us that we didn’t do well in week’s 1, 4 and 5, but we did in week’s 2 and 3…

The base data series used for this example:

In order to write this post, I used the Microsoft Excel random number generator function. I asked it to generate a set of (65) random numbers between 1 and 40 and then I broke these down into imaginary weeks. All the analysis above was on pure randomness.

Here’s what the individual values look like when graphed over time:

(Noting that instances 1 – 13 are as per the graph at point 1, albeit squashed together)

Some key points:

  • There is nothing special about any of the individual data points
  • The 30-day target has got nothing to do with the data
  • There is nothing special about any of the five (made up) weeks within
  • The 80% target on the 30-day target has got nothing to do with anything!

The point: Whilst I would want to throw away all the ‘targets’, ‘measures of target’ and ‘targets on measures of target’…I would like to understand the system and why it varies.

This is where our chance of improving the system is, NOT in the traditional measures.

Our reality:

You might be laughing at the above, and thinking how silly the journey is that I’ve taken you on…

…but, the ‘targets on (measures of (targets on (measures of things)))’ thing is real and all around us.

  • 80% of calls answered within 20 seconds
  • 95% of patients discharged from the Emergency department within 4 hours
  • 70% of files closed within a month
  • [look for and add your own]
  • …

Starting from a position of targets and working backwards:

If you’ve got a target and I take it away from you…

…but I still ask you “so tell me, how is [the thing] performing?” then what do you need to do to answer?

Well, you would now need to ponder how has the thing been performing – you would then need to look at a valid measure of a thing over time and ponder what this shows.

In a nutshell: If you’ve got a target, take it away BUT still ask yourself ”how are we doing?”

A likely challenge: “But it’s hard!”

Yes… if you peel back the layers of the ‘targets on targets’ onion so that you get back to the core of what’s actually going on, then you could be faced with lots of data.

I see the (incorrect) target approach as trying to simplify what is being looked at so that it looks easy to deal with. But, in making it look ‘easy to deal with’, we mustn’t destroy the value within the data.

“Everything should be made as simple as possible, but no simpler.” (attributed to Einstein)

The right approach, when faced with a great deal of data, would be to:

  • Look at it in ways that uncover the potential ‘secrets’ within (such as in a histogram, in a time-series plot); and
  • understand how to disaggregate the data, such that we can split it up into meaningful sub-groups. We can then:
    • compare sub-groups to consider if and how they differ; and
    • look at what’s happening within each sub-group (i.e. comparing apples with apples)

To close:

If you are involved in ‘data analysis’ for management, I don’t think your role should be about ‘providing the simple (often 1-page) picture that they’ve asked for’. I would expect that you would wish your profession to be along the lines of ‘how can I clearly show what’s happening and what this means?’

If you are a manager looking at measures: why would you want an (overly) simple picture so that you can review it quickly and then move on to making decisions? Wouldn’t you rather understand what is happening and why … so that good decisions can be made?

Footnotes

1. Measurement of things – a caution: We should be careful not to fall into the trap of thinking that everything is measurable or, if we aren’t measuring it, then it doesn’t matter.

There’s plenty of stuff that we know is really important even though we might not be measuring it.

2. Variation: If you’d like to understand this point, then please read some of my earlier posts, such as ‘The Spice of Life’ and ‘Falling into that trap’

As a simple example: If you took a regular reading of your resting heart rate, don’t you think it would be weird if you got, say, 67 beats per minute every single time? You’d think that you’d turned into some sort of android!

3. Expect/ can explain – clarification: this is NOT the same as ‘what we would like it to be’.

4. Arbitrary: When a numeric target is set, it is arbitrary as to which number was picked. Sure, it might have been picked with reference to something (such as 10% better than average, or the highest we’ve ever achieved, or….) but it’s arbitrary as to which ‘reference’ you choose.

5. Wrong questions: These wrong questions are then likely to cause us to jump to wrong conclusions and actions (also known as tampering). Such actions are likely to focus on individuals, rather than the system that they work within.

6. ‘Trigger’: The writing of this post was ‘triggered’ the other day when I reviewed a table of traffic-lighted (i.e. against a target) measures of targets on measures of things.

Yin and Yang

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Yin Yang blankYou’ll probably be familiar with the ‘Yin – Yang’ symbol – a circle that is half black and half white, with a black and a white dot in each of the opposing ‘tear drop shaped’ halves.

So, where does it come from and what does it mean?1

As I understand it, the symbol can be traced back to ancient China and its meaning is utilised in the Eastern Philosophies of Taoism and Confucianism.

The symbol represents the idea that the universe, and what lies within, is governed by duality – sets of two opposing and yet complimentary forces.

These forces are not total opposites – they are relative to each other, two sides of the same coin. They don’t, and can’t, exist on their own. They are inter-related parts of a bigger whole.

Some examples:

  • Light and dark
  • Alive, and not2
  • Masculine and feminine
  • Good and bad
  • Asleep and awake
  • Hot and cold
  • Rest and movement
  • Front and back
  • …and we could keep on going!

Further, the two dots ‘within’ each half represent the idea that everything contains the seed of its opposite.

Given this duality, we are best to learn from both the Yin and the Yang, and their inter-relatedness3.

Context

Why am I writing this post? Well, I feel the need to point out – and open up – what I see as a duality.

Over the years I’ve been very aware of how many (most?) organisations, and their management systems, have dwelt on ‘the individual’:

  • ‘Here’s your target’ and ‘Here’s your score’
  • ‘Well done, here’s a pat on the back’ or ‘Must try harder’
  • ‘Here are your values…and the attitude you must adopt’
  • ‘It’s your personal responsibility to succeed and progress’
  • ‘Do the right thing!’
  • …and on and on

Further, much of the work of Deming, Seddon and other giants of mine has been to help organisations move away from focusing on (and usually ‘judging’) the individual and, instead, to work on the system that the individual is working within.

Some classic quotes fit here:

“95% of the reasons for failure to meet customer expectations are related to the deficiencies in the system rather than the employee…the role of management is to change the process rather than badgering individuals to do better.” (Deming)

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

“A bad system beats a good person every time.” (Deming)

It’s the system, stupid!” (Seddon)

I strongly agree with the messages within the above quotes (and the accompanying bodies of work). However, I consider that we need to retain a focus on the individual, as well as massively working on the environment in which ’we’ work. But such a focus would be to help the individual rather than judge them.

This isn’t a criticism of Deming, Seddon etc. I expect that they would agree.

Two ‘angles’ interest me in this regard:

‘Individual A’ that comes to believe that, if it’s about ‘the system’, then it’s not really ‘their’ problem…so they’ll sit back and wait for ‘others’ (usually up the hierarchy) to ‘solve’ the system; and conversely

‘Individual B’ that really grasps that it’s about the system; takes a huge responsibility (burden) on their shoulders to ‘move’ the system; and then experiences great stress (and potentially depression) from limited successes.

So I’d like to bring it all back to a duality – the individual and the environment they are in.

The Yin – Our environment:

Yin halfI run a 2-day course based around Deming’s theory of profound knowledge. The psychology part includes some powerful considerations in respect of social psychology.

We discuss three of the classic experiments regarding the power of ‘being in a world of others’ (i.e. our environments):

  • Solomon Asch’s 1951 ‘peer pressure’ experiment on an individual’s strong urge to conform (fit in) with those around them, where this power can be stronger than their personal values or basic perceptions.
  • Stanley Milgram’s 1963 behavioural study on Obedience to Authority, where people do what they are told to, even where this conflicts with their personal values.
  • Philip Zimbardo’s 1972 ‘Stanford Prison’ experiment, where the existence (or not) of power led people to adopt abusive (or submissive) behaviours.

The reason for discussing these (in)famous experiments is to open people’s eyes to the huge power of the environment that people are working (and living) within, and that, if we work on getting our environment(s)4 ‘right’ then great things can happen5….and conversely, if we get it wrong, we end up fighting each other for survival.

However, the environment is only part of the picture. It is made up of individuals within, capable of making choices…

It must be, else why would the system be ‘as it is’…and how could it be changed?

The Yang – Us as individuals:

Yang halfA (social) environment is made up of individuals.

Some of the nature of that environment is because of how individuals behave within it. Some of it comes from outside forces.

I think that it’s worth constantly thinking about, and working on, the things that ‘I’ (i.e. the individual) can control…and calmly coping with the things that I cannot.

  • I know that there are some huge system constraints as to why the current system(s) work as they do.
  • I know that they won’t change overnight, just because I ‘pointed them out’ or even because I (and others) tried to do something about them.

In terms of my role within:

  • I can choose to think about and (try to) modify my actions and behaviours
  • I can choose to ponder how to go about this
  • I can choose to persevere, or to pivot – to try different strategies and tactics as I learn what doesn’t seem to work.
  • I can choose my attitude about what is before me, and what to do about it.

Attempting to do this is not easy (it takes much thought and constant practice) but it is worthwhile (with meaning).

As an aside: If you want to know more about achieving meaningful change of a system, then you might want to read about normative change.

On Meaning

Victor FranklOne of the most renowned books written which considers, in part, the subject of attitude is Victor Frankl’s ‘Man’s search for meaning’.

The first half of the book describes his terrible experiences as a prisoner spanning three years across four Nazi concentration camps. To put it mildly, it’s not pleasant BUT it is a hugely important piece of work. At his liberation in 1945 all but one of his close family members had died/ been killed.

He pondered much on what could be learned from his experiences. Who had survived? Who had not? And perhaps why? And, in his writings, he provided us with much to contemplate:

“Everything can be taken from a man but one thing: the last of the human freedoms – to choose one’s attitude in any given set of circumstances, to choose one’s own way.”

But why would we choose one way over another?

“The way in which a man accepts his fate and all the suffering it entails…gives him ample opportunity – even under the most difficult circumstances – to add a deeper meaning to his life.

It may remain brave, dignified and unselfish. Or in the bitter fight for self-preservation he may forget his human dignity and become no more than an animal.

Here lies the chance for a man either to make use of or to forgo the opportunities …that a difficult situation may afford him. And this decides whether he is worthy of his sufferings or not.”

What about trying to ignore our circumstances? Frankl reflects on many who took this approach:

“A man who let himself decline because he could not see any future goal found himself occupied with retrospective thoughts…

…but in robing the present of its reality there lay a certain danger…instead of taking the camp’s difficulties as a test of their inner strength…they preferred to close their eyes and to live in the past.

Life for such people became meaningless.”

And, sadly, Frankl’s experience was that those who came to a point without meaning gave up living soon after.

Thankfully, our lives don’t come even close to that of Frankl’s. This fact makes his reflections even more powerful. If lessons on meaning and attitude apply even in a ‘hell on earth’ then they most certainly apply to our ‘ordinary lives’.

Frankl quotes the philosopher Friedrich Nietzsche in his summing up:

“He who has a why to live for can bear with almost any how” and

“That which does not kill me, makes me stronger.”

In short:

  • be clear on meaning (what is your longer-term, valuable-to-society, purpose?)
  • work through the constant challenges that you most certainly will encounter on the way
  • If you move onwards ‘knowing why’, then you can use this to ‘keep yourself grounded’ on the bumpy journey ahead.

Note: This line of thinking opens a related topic, which I hope to write about in a follow-up post in respect of resilience. It’s all very well ‘telling ourselves’ to be resilient, but some help in being so might be useful.

 Back to that duality:

B=fPEGoing back to one of the early social psychologists, Kurt Lewin, we find that he clearly saw the duality. He expressed it as a simple equation:

‘Behaviour is a function of the person in their environment.’

The equation has two variables: you, and your environment. One doesn’t exist without the other.

Yes, the environment can have a HUGE influence on you and I…but there is a capability within us (the individual) to choose (to a degree) what we think, and do, about it.

Further, within every individual is the seed of their environment influencing them and within every (social) environment there is the seed of the individual able to influence it right back!

Footnotes:

1. Yin and Yang explanation: Here’s a nice short 4 min. animated video that explains at a deeper level: Yin & Yang TED Ed video by John Bellaimey

2. Alive, and not: I’ve deliberately not written ‘life and death’ because the duality is much more than this. There was also a HUGE period of time (circa. 4 billion years) that I wasn’t alive before I was born.

3. Reductionism vs. Synthesis: The underlying message within the Yin and Yang sits very well with Systems Thinking and the truth that reducing a system into its parts will give a limited and limiting view.

4. Environments: We live within multiple, often overlapping, social environments. Our home life, our work life, our communities and our wider society.

5. Deming’s ’14 Points for Management’ are all about creating the right environment for an organisation to thrive.

Smoke and mirrors

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Smoke and mirrorsI drafted a post a few years ago, but never got round to ‘topping and tailing it’…and so it never got posted. However, I had a chance conversation with someone this week in which the content of the post became highly relevant. So, after searching around a bunch of digital ‘nooks and crannies’, I finally found it, dusted it down, and completed it:

Over the last few years I’ve run various education courses and coaching sessions to introduce people to the fundamentals of ‘Systems Thinking and Intervention’.

I deliberately ‘mess with their heads’ using questions, exercises and simulations that explore systems, value (in respect of purpose), measurement (of system performance), learning, motivation and leadership. It’s good fun but also serious and important stuff.

I sometimes1 experience somebody come up to me at the end of such a course, saying something like:

“Wow, that’s amazing…we need to do something about this NOW…but we can’t do anything without a clear plan of how other organisations have successfully implemented what you have told us about!”

A variation on this is:

“We accept your critique of how we are now, and the problems this causes…but that’s no good if you don’t tell us what to do instead! We need you (or others like you) to come in and sort this all out!”

Now, before I go any further, I should write that I understand the burning desire to do something! The reality is that many of the insights (aha moments) in the education course/ coaching can be quite tender for people – they are having ‘known truths’2 spelt out in black and white to them, they feel uncomfortable about this and they want to go back and change their working reality.

There is a treatment…but it ISN’T me (or others like me) coming in to implement a plan that copies what others have (supposedly successfully) done.

If you want to read some earlier posts that get into the ‘why not’ then:

Often, the person that raised the question doesn’t like hearing this. It makes them think that I’ve just (painfully) diagnosed the truth of their working world but that I am deliberately withholding the cure.

Let’s see if I can provide a rational explanation of the necessary treatment (there’s some irony in that sentence – see footnote 1 again):

Mirrors

First, you must be curious….and if you are not, well there’s not much that I (or anyone) can do for you – except perhaps provoke you!

“And if you can’t come, send nobody” (Deming, quoting William E. Conway)

Okay, so let’s say you show some interest…

Mirror… if you are curious I can find you a mirror

  • that would be your system (which will be made up of its components, their interconnections, and its purpose…though you probably won’t clearly see these yet).

… if you are still curious I can then hold the mirror up for you

  • that would be to help you create meaningful measures as to how your system is actually performing for your customers (in terms of demands placed upon it, and its capability at meeting them).

… if you remain curious I can then help you stand in the right place to see your reflection

  • that would be to help you go to, and immerse yourself within, the place where the work is performed (often referred to by the Japanese word ‘Gemba’)…which will contain the reasons as to why the system performs as it does.

So, having helped you to stand directly in front of the mirror…

…I can never see for you!

I would (and should only) be acting as a catalyst3 i.e. assisting, but not being part of, the reaction.

  • I shouldn’t be writing reports for you – because you won’t then own them…though I will certainly reflect on anything you consider necessary to write;
  • I shouldn’t be taking any responsibilities from you – because you won’t experience the feedback from your actions, and learn from this…though I will certainly stand with you, providing counsel and encouragement;
  • I cannot provide any guarantees as to what you can (and will) achieve – because this is in your gift, not mine. Such achievements will likely be hard to quantify, and should continue to flow long after I have carefully stepped away.

Smoke

Dont smokeThe opposite of mirrors would be smoke. And this is where conventional ‘change’ resides:

  • ‘Going to the market’ to procure ‘solutions’ from (often self-anointed) experts;
  • Contracting with ‘outsiders’ who convinced you that they can ‘do it for you’, perhaps with attractive ‘benefits to be realised’ guarantees;
  • Dealing in reports of recommendations, business cases, ‘benchmarks’ on what others have done, methodologies, plans, resources…;
  • Setting up projects, seconding people away from the work and then requiring those in the work to comply with the outcome;

And, finally, at the end of it all, that champion imposter of ‘transformation’ jargon, the promised knowledge transfer!

…which usually means “we did it to you…and we’ll leave you with the ‘artefacts’ so that you can attempt to copy what we did after we’ve left the building.”

Footnotes

1. At first, I saw such a response as a failure on my part (i.e. as in not getting my message across). I don’t see it this way now – it doesn’t matter how good my rational explanations have been, I shouldn’t expect to have solved anything for people – they have to go and see it for themselves. All I can do in such sessions is create curiosity, and provide a language, concepts and frameworks which can assist what may happen next. Many will be curious. A few won’t.

Update: I (think that) I’m a lot clearer when attempting to educate people now.

2. ‘Known Truths’: Once uncovered, most people understand what is being put to them…and indeed, a number exclaim that they’ve thought like this for quite a while but have never had it articulated to them. In fact, for these people, it can be a release – like a valve on a pressure cooker.

3. Catalyst: My school boy chemistry reminds me that a catalyst is “A substance that increases the rate of a chemical reaction without itself undergoing any permanent chemical change” (Oxford Dictionary).

This isn’t strictly accurate because, since I am a human being, I (the interventionist) cannot help being changed by my (attempted) intervention. I hope you get the point though that ‘catalyst’ suggests that it’s ALL about you, and really NOT about me.

4. Source of the smoke and mirrors image:  https://www.flickr.com/photos/theilr/5091351124

Not Particularly Surprising

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pH scaleHave you heard people telling you their NPS number? (perhaps with their chests puffed out…or maybe somewhat quietly – depending on the score). Further, have they been telling you that they must do all they can to retain or increase it?1

NPS – what’s one of those?

‘Net Promoter Score’, or NPS, is a customer loyalty metric that has become much loved by the management of many (most?) large corporations. It was introduced to the management world by Fred Reichheld2 in his 2003 HBR article titled ‘One number you need to grow’.

So far, so what.

But as most things in ‘modern management‘ medicine, once introduced, NPS took on a life of its own.

Reichheld designed NPS to be rather simple. You just ask a sample of subjects (usually customers3) one question and give them an 11-point scale of 0 to 10 to answer it. And that question?

‘How likely is it that you would recommend our company/product/ service to a friend or a colleague?’

You then take all your responses (which, incidentally, may be rather low) and boil them down into one number. Marvellous…that will be easy to (ab)use!

But, before you grab your calculators, this number isn’t just an arithmetic average of the responses. Oh no, there’s some magic to take you from your survey results to your rather exciting score…and here’s how:

  • A respondent scoring a 9 or 10 is labelled as a ‘Promoter’;
  • A scorer of 0 to 6 is labelled as a ‘Detractor’; and
  • A 7 or 8 is labelled as being ‘Passive’4.

where the sum of all Promoters, Detractors and Passives = the total number of respondents.

NPS calculation.jpgYou then work out the % of your total respondents that are Promoters and Detractors, and subtract one from the other.

You’ll get a number between -100 (they are all Detractors) and +100 (all Promoters), with a zero meaning Detractors and Promoters exactly balance each other out.

And, guess what…a positive score is desirable…and, over the long term, a likely necessity if you want to stay in business.

Okay, so I’ve done the up-front explanatory bit and regular readers of this blog are probably now ready for me to go on and attempt to tear ‘NPS’ apart.

I’m not particularly bothered by the score – it might be of some interest…though exceedingly limited in its usefulness.

Rather, I’m bothered by:

  1. what use it is said to be; and
  2. what use it is put to.

I’ve split my thoughts into two posts. This post deals with the second ‘bother’, and my next one will go back to consider the first.

Qualitative from Quantitative – trying to ‘make a wrong thing righter’

The sane manager, when faced with an NPS score and a ‘strategic objective’ to improve it, wants to move on from the purely quantitative score and ‘get behind it’ – they want to know why a score of x was given.

Reichheld’s NPS method covers this obvious craving by encouraging a second open-ended question requesting the respondent’s reasoning behind the rating just given – a ‘please explain’ comments box of sorts. The logic being that this additional qualitative data can then be provided to operational management for analysis and follow up action(s).

Reichheld’s research might suggest that NPS provides an indicator of ‘customer loyalty’, but…and here’s the key bit…don’t believe it to be a particularly good tool to help you improve your system’s performance.

There are many limitations with attempting to study the reasons for your system’s performance through such a delayed, incomplete and second-hand ‘the horse has bolted’ method such as NPS.

  • Which subjects (e.g. customers) were surveyed?
  • What caused you to survey them?
  • Which subjects chose to respond…and which didn’t?
  • What effort from the respondent is likely to go into explaining their scoring?
  • Does the respondent even know their ‘why’?
  • Can they put their (potentially hidden) feelings into words?…and do they even want to?

If you truly want to understand how your system works and why, so that you can meaningfully and sustainably improve it, wouldn’t it just be soooo much better (and simpler) to jump straight to (properly5) studying the system in operation?!

A lagging indicator vs. Operational measures

One of my very early posts on this blog covered the mad, yet conventional, idea of ‘management by results’ and subsequent posts have delved into ‘cause and effect’ in more detail (e.g. ‘Chain beats Triangle’).

My ‘cause and effect’ post ends with the key point that:

“Customer Purpose (which, by definition, means quality) comes first…which then delivers growth and profitability, and NOT the other way around!”

Now, if you read up on what Reichheld has to say about NPS, he will tell you that it is a leading measure, whereas I argue that it is a lagging one. The difference is because we are coming from opposite ends of the chain:

  • Reichheld appears to be concerned with growth and profitability, and argues that NPS predicts what is going to happen to these two financial measures (I would say in the short term);

  • I am concerned with customer purpose, and an organisation’s capability at delivering against its customers’ needs. This means that I want to know what IS happening, here and now so that I can understand and improve it …which will deliver (for our customers, for the organisation, for its stakeholders) now, and over the long term.

You might read the above and think I am playing with semantics. I think not.

I want operational measures on the actual demands coming in the door, and how my processes are actually working. I want first hand operational knowledge, rather than attempting to reverse engineer this from partial and likely misleading secondary NPS survey evidence.

“Managers learn to examine results, outcomes. This is wrong. The manager’s concern should be with processes….the concentration of a manager should be to make his processes better and better. To do so, he needs information about the performance of the process – the ‘voice of the process’. “ [‘Four Days with Dr Deming’]

Deming’s clear message was ‘focus on the process and the result will come’ and, conversely, you can look at results all you like but you’d be looking in the wrong place!

NPS thinking fits into the ‘remote control’ school of management. Don’t survey and interrogate. ‘Go to the gemba’ (the place where the work occurs).

 “But what about the Lean Start-up Steve?”

Some readers familiar with Eric Ries’ Lean Start-up movement might respond “but Eric advocates the use of customer data!” and yes, he does.

But he isn’t trying to get a score from them, he is trying to deeply engage with a small number of them, understand how they think and behave when experiencing a product or service, and learn from this…and repeat this loop again and again.

This fits with studying demand, where it comes in, and as it flows.

The Lean Startup movement is about observing and reflecting upon what is actually happening at the point of customer interaction, and not about surveying them afterwards.

To close – some wise words

After writing this post I remembered that John Seddon had written something about NPS…so I searched through my book collection to recover what he had to say…and he didn’t disappoint:

“Even though NPS is completely useless in helping service organisations improve, on our first assignment [e.g. as system improvement interventionists] we say nothing about it, because we know the result of redesigning the system will be an immediate jump in the NPS score…and because when this is reported to the board our work gets the directors’ attention.

It makes it easy to see why NPS is a waste of time and money. First, it is what we call a ‘lagging measure’ – as with all customer satisfaction measures, it assesses the result of something done in the past. Since it doesn’t help anyone understand or improve performance in the present, it fails the test of a good measure5 – it can’t help to understand or improve performance.” [Seddon, ‘The Whitehall Effect’]

Seddon goes on to illuminate a clear and pernicious ‘red herring’ triggered by the use of NPS:  the simple question of ‘would you recommend this service to a friend’ mutates to a hunt for the person who delivered the particular instance of service currently under the microscope. Management become “concerned with the behaviour of people delivering the service” as opposed to the system that makes such behaviour highly likely to occur!

I have experience of this exact management behaviour in full flow, with senior management contacting specified members of staff directly (i.e. those who handled the random transaction in question) to congratulate or interrogate/berate them, following the receipt of particularly outstanding6 NPS responses.

This is to focus on the 5% (the people) and ignore the 95% (the system that they are required to operate within). NPS “becomes an attractive device for controlling them”.

Indeed.

The title of this post follows from Seddon’s point that if you focus on studying, understanding and improving the system then, guess what, the NPS will improve – usually markedly. Not Particularly Surprising.

My next post called ‘How good is that one number’ contains the second part of my NPS critique.

Footnotes

1. This post, as usual, comes from having a most excellent conversation with a friend (and ex-colleague) …and she bought me lunch!

I should add that the title image (the pH scale) is a light-hearted satire of the various NPS images I found i.e. smiley, neutral and angry faces arranged on a coloured and numbered scale.

2. Reichheld has written a number of books on customer loyalty, with one of his more recent ones trying to relabel ‘NPS’ from Net Promoter Score to Net Promoter System (of management) …which, to put it mildly, I am not a fan of.

It reminds me of the earlier ‘Balanced Scorecard’ attempting to morph into a system of management. See ‘Slaughtering the Sacred Cow’.

Yet another ‘management idea’ expanding beyond its initial semblance of relevance, in the hands of book sellers and consultants.

Sorry, but that’s how I feel about it.

NPS is linked to the ‘Balanced Scorecard’ in that it provides a metric for the customer ‘quadrant’ of the scorecard …but, as with financial measures, it is still an ‘outcome’ (lagging) measure of an organisation’s people and processes.

3. The original NPS focused on customers, but this has subsequently been expanded to consider other subjects, particularly employees.

4. Being British (i.e. somewhat subdued), I find the labelling of a 7 or 8 score as ‘Passive’ to be hilarious. A score of 7 from me would be positively gushing in praise! What a great example of the variety inherent within customers…and which NPS cannot reveal.

5. For the ‘tests of a good measure, please see an earlier post titled ‘Capability what?’

6. Where ‘outstanding’ means particularly low, as well as high.

Polishing a Turd

giantknave Brain Farts , , , , , , ,

turd polishWhen I was growing up, I remember my dad (a Physicist) telling me that it was pointless, and in fact meaningless, to be accurate with an estimate: if you’ve worked out a calculation using a number of assumptions, there’s no point in writing the answer to 3 decimal places! He would say that my ‘accurate’ answer would be wrong because it is misleading. The reader needs to know about the possible range of answers – i.e. about the uncertainty – so that they don’t run off thinking that it is exact.

And so, with that introduction (and flashback to my school days) this post is about the regular comedy surrounding business cases, and detailed up-front planning…and what to do instead.

A seriously important concept to start with:

The Planning fallacy

Human beings who desire something to be ‘a success’ (e.g. many an Executive/ Senior Manager) tend to:

“make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities. They overestimate benefits and underestimate costs. They spin scenarios of success while overlooking the potential for mistakes and miscalculations. As a result, they pursue initiatives that are unlikely to come in on budget or on time or deliver the expected returns – or even to be completed.” (Daniel Kahneman)

This isn’t calling such individuals ‘bad people’, or even to suggest that their actions are in some way deliberate – it is simply to call out a well-known human irrationality: the planning fallacy.

We all ‘suffer from’, and would be wise to understand and guard against, it.

I’ve worked (or is that wasted time) on many a ‘detailed business case’ over the years. There is an all-too-common pattern….

“Can you just tweak that figure till it looks good…”

models are wrongLet’s say that someone in senior management (we’ll call her Theresa) wants to carry out a major organisational change that (the salesman said) will change the world as we know it!

Theresa needs permission (e.g. from the board) to make a rather large investment decision. The board want certainty as to what will happen if they sign the cheque – there’s the first problem1.

Theresa looks around for someone who can write a great story, including convincing calculations…and finds YOU.

Yep, you are now the lucky ‘spreadsheet jockey’ on this proposed (ahem) ‘transformation programme’.

You gather all sorts of data, but mainly around the following:

  • a ‘base case’ (i.e. where we are now, and what might happen if we took the ‘do nothing’ option);
  • a list of ‘improvements’ that will (supposedly) occur if the board says ‘Yes’;
  • assumptions relating to the potential costs and benefits (including their size and how/when the cash will flow); and
  • some ‘financial extras’ used to wrap up the above (interest rates, currency rates, taxes, the cost of capital…and so on)

You create an initial broad-brush model and then, after gaining feedback from ‘key’ people, you work through a number of drafts – adding in new features and much detail that they insist as being essential.

And voila! We have a beautifully crafted financial model that has a box at the end with ‘the answer’ in it2.

You show the model to Theresa.

Wow, she’s impressed with the work you’ve put in (over many weeks) and how sophisticated the model is…but she doesn’t like this initial answer. She’s disappointed – it’s not what she was looking for.

You go through all of the assumptions together. Theresa has some suggestions:

  • “I reckon the ‘base case’ comparison will be worse than that…let’s tweak it a bit”
  • “Our turnover should go up by more than that…let’s tweak it a bit”
  • “Nah, there won’t be such a negative productivity hit during implementation – the ‘learning curve’ will be much steeper!…let’s tweak it a bit”
  • “We’ll save more money than that…and avoid paying that…let’s tweak it a bit”
  • “Those savings should kick in much earlier than that…let’s tweak it a bit”
  • “We’ll be able to delay those costs a bit more than that…let’s tweak it a bit”

…and, one of my favourites:

“Mmm, the ‘time value of money’3 makes those upfront costs large compared to the benefits coming later…why don’t we extend the model out for another 5 years?”

And, because you designed a nice flexible model, all of the above ‘suggestions’ are relatively easily tweaked to flow through to the magic ‘answer’ cell…

“now THAT looks more healthy! The board is going to LOVE this. Gosh, this is going to be such a success”.

Some reflections

John Dewey quote on learningSome (and perhaps all) of the tweaks might have logic to them…but for every assumption being made (supposedly) tighter:

  • one, or many, of the basic assumptions might be spectacularly wrong;
  • plenty of the assumptions are being (conveniently4) ignored for tweaking…and could equally be ‘tightened’ in the other direction (i.e. making the business case look far worse); and
  • there are many assumptions that are completely missing…because you simply don’t know about them….yet…or don’t want to know about them.

With any and every tweak made, nothing has actually changed: Nothing has been learned about what can and will actually occur. You have been ‘polishing a turd’…but, sadly, that’s not how those around you see it. Your model presents a highly convincing and desirable story.

Going back, your first high-level draft model was probably more useful! It left many ‘as-yet-unknowns’, it contained ranges of outcomes, it provided food-for-thought rather than delusional certainty.

We should reflect that “adding more upfront planning…tends to make the eventual outcome worse, not better” (Lean Enterprise). The more detailed you get then the more reliant you become on those assumptions.

The repercussions

Theresa gains approval from the board for her grand plan and now cascades the (ahem) ‘realisation of benefits’ down to her direct reports…who protest that the desired outcomes are optimistic at best, and sheer madness at worst (though they hold their tongues on this last bit).

Some of the assumptions have already proven to be incorrect – as should be expected – but it’s too late: the board approved it.

The plan is baked into cascaded KPIs…and everyone retreats into their silos, to force their part through regardless of the harm being caused.

But here’s the thing:

“Whether the project ‘succeeds’ according to [the original plan] is irrelevant and insignificant when compared to whether we actually created value for customers and for our organisations.” (Lean Enterprise)

The wider point…and what to do instead

validated learningIt’s not just financial models within business cases – it is ‘detailed up-front’ planning in general: the idea that we should create a highly detailed plan before making a decision (usually by hierarchical committee) as to whether to proceed on a major investment.

The Lean Start-up movement, led by Eric Ries, makes a great case for a totally different way of thinking:

  • assumptions aren’t true! (it seems daft to be writing that…but the existence of the planning fallacy requires me to do so);
  • we should test big assumptions as quickly as possible;
  • such testing can be done through small scale experimentation (which doesn’t require huge investment) and subsequent (open-minded) reflection;
  • we will learn important things…which we did not (and probably could not) predict through detailed up-front planning. This is a seriously good thing – we can save much time, money and pain, and create real customer value;
  • we may (and often will) find a huge flaw in our original thinking…which will enable us to ‘pivot’5 to some new hypothesis, and re-orientate us towards our customer purpose.

The big idea to get across is what has been termed ‘validated learning’.

Learning comes from actually trying things out on, and gaining direct feedback from, the end customers (or patients, citizens, employees etc.), rather than relying on our opinions about them.

Validated is about demonstrating what the customer (or patient, citizen, employee etc.) actually does (or doesn’t do), not what they say they would do when asked (i.e. from external market research or internal survey). It is to observe and measure real behaviours, rather than analyse responses to hypothetical questions.

…and to do the above rapidly by experimenting with ‘minimum viable products’ (MVPs).

Delay (whilst writing a beautiful document, getting it approved, and then building a seemingly golden ‘solution’) prevents the necessary feedback from getting through.

Caveat: Many an organisation has read ‘The Lean Startup’ book (or employed a consultant who has) and is using the above logic merely at the start of their legacy ‘investment decision’ process…but, through grafting new labels (such as Lean) onto old methods and retaining central hierarchical approval committees, their process remains ostensibly the same.

You don’t do validated learning merely at the start of an investment process – you re-imagine what ‘making investments’ means!

“It’s moving leaders from playing Caesar with their thumbs up and down on every idea to – instead – putting in the culture and the systems so that teams can move and innovate at the speed of the experimentation system.”

“The focus of each team is iterating with customers as rapidly as possible, running experiments, and then using validated learning to make real-time investment decisions about what to work on.” (Eric Ries)

 Notice that it is the team that is making the investment decisions as they go along. They are not deferring to some higher body for ‘permission’. This is made possible when:

  • the purpose of the team is clear and meaningful (i.e. based around a service or value stream);
  • they have meaningful capability measures to work with (i.e. truly knowing how they are doing against their purpose); and
  • all extrinsic motivators have been removed…so that they can focus, collaborate and gain a real sense of worth in their collective work.

Nothing new here

You might read the above and shout out:

  • “but this is just the scientific method”; or
  • “it’s yet another re-writing of the ‘Plan – Do – Study – Act’6 way of working”

…and you’d be right.

Eric Ries’ thinking came about directly from his studying of Deming, Toyota etc. and then applying the learning to his world of entrepreneurship – to become effective when investing time and money.

His book, ‘The Lean Startup’, and the ‘validated learning’ concept are an excellent addition to the existing body of work on experimentation towards purpose.

Footnotes

1. We should never present a seemingly certain picture to a board (or merely hide the caveats in footnotes)…and we should coach them to be suspicious if they see one.

2. For the financially aware: this will likely be a net present value (NPV) figure using a cost of capital (WACC) provided by the finance department, or some financial governance body.

3. The ‘time value of money’ reflects the fact that $1 now is worth more to you than $1 in a year’s time.

4. Conveniently doesn’t mean intentionally or maliciously – it can just be that lovely planning fallacy at work.

5. Pivot: This word has become trendy in many a management conversation but I think that its original (i.e.intended) meaning is excellent (as used by Eric Ries, and his mentor Steve Blank).

Eric Ries defines a pivot as “a structured course correction designed to test a new fundamental hypothesis….”

6. PDSA: Popularised by Deming, who learned it from his mentor, Walter Shewhart. A method of iterative experimentation towards your purpose, where the path is discovered as you go, rather than attempted to be planned at the start. Note that, whilst the first step is ‘Plan’, this DOESN’T mean detailed up-front planning of an answer – it simply means properly planning the next experiment (e.g. what you are going to do, how you are going to conduct it, and how you are going to meaningfully measure it).

 

‘Chain’ beats ‘Triangle’

giantknave Brain Farts , , , ,

chain-beats-triangleFollowers of ‘Modern’ (?) management find themselves in essentially the same position: Trying to increase value1 to their investors. But, if this is their outlook, where to start?

Introducing the Triangle

Perhaps the place where ‘the triangle’ is seen most visibly is within many a traditional project management book – you will likely see a lovely little diagram within its first few foundational pages, with the words ‘quality’, ‘cost’ and ‘time’ at its points.

triangleIt will go on to suggest that the Project Manager’s job is to juggle these three variables so as to deliver ‘on time, within budget and to an acceptable quality’.

The key thing to notice is the assumption that there is an equation in which these variable are somehow related….and received wisdom goes on to suggest that there is a trade off and ‘we can’t have it all’ e.g. if we want higher quality then this would sacrifice time and/or cost.

…and the thinking behind that triangle isn’t limited to projects…it goes right across the organisation, in everything it does – basically that faster and cheaper are the opposite of higher quality.

All makes sense doesn’t it – nothing to see here. Blog post over?

Well no, as you’ve probably guessed, I’m just revving up!

And so to Dr Deming:

In his book ‘Out of the Crisis’ (1982), Dr W. Edwards Deming wrote about the “folklore…that quality and productivity are incompatible: that you can’t have both. A manager will usually tell you that it is either or. In his experience, if he pushes quality, he falls behind in production. If he pushes production, his quality suffers. This will be his experience when he knows not what quality is nor how to achieve it.”

Deming’s last line suggests that there could be value in exploring:

  • What ‘quality’ means; and
  • His thinking on how to achieve it.

What is quality?

It’s obvious isn’t it? Surely, it’s simply “how good something is!” Well, yes…but that doesn’t get us very far. It poses the rather obvious question “good for who?”

There are two levels to drill into:

Level 1 (and perhaps you’ll all be yawning reading this much-stated point) is that quality is, and can only be, defined by ‘the customer’ (or citizen or patient or….).

It follows that you can’t tell your customers what quality is, or quietly determine this for them. Instead, if you really want to deliver ‘quality’, you’d better spend time constantly understanding2 your customers and what they want/ need from your product/ service/process.

Level 2 is that there is no such thing as the average customer – no two customers are the same – and, as such, quality is defined by each unique customer…and this point has profound implications (particularly for service organisations).

For example, it would be a mistake to create a ‘customer specification’ and think that you have solved the quality conundrum. We need to understand the particular customer before us and design a system that can effectively, and efficiently, absorb their variety. This would be the opposite of trying to force them into a straight jacket.

“You’ve ‘dissed’ the triangle…but what’s your ‘Chain’ got to do with it?”

And so to Deming’s thinking on how to achieve quality. I’ll start by introducing his ‘quality chain reaction’:

Deming wrote that, in the post World War 2 period, some Japanese companies observed that “improvement of quality begets naturally and inevitably improvement of productivity.” i.e. that when quality goes up, costs actually come down. This would seem to be the opposite of our triangle!

How can this be so? Well, when the quality goes up, costs decrease due to fewer mistakes, less rework, fewer delays…reduced failure demand…and on and on. This leads to a continually improving flow.

Deming went on to write that the following “chain reaction was on the blackboard of every meeting within top management in Japan from July 1950 onwards:”

Improve quality – costs decrease – productivity improves – capture market (better quality, lower prices) – stay in business – provide jobs…and more jobs.

Notice where it ends – jobs. Contrast this with where most cost-cutting ‘initiatives’ start – jobs…but not to create them!

Deming calls out a difference in thinking3:

“Western Industry is satisfied to improve quality to a level where visible figures may shed doubt about the economic benefit of further improvement. As someone enquired, ‘how low may we go in quality without losing customers?’ This question packs a mountain of misunderstanding into a few choice words. It is typical of management’s misunderstanding in America.

In contrast, the Japanese go right ahead and improve the process without regard to figures. They thus improve productivity, decrease costs, and capture the market.” (Deming)

‘Triangle’ thinking requires a detailed business case, showing a healthy (yet imaginary) ‘return on investment’ (ROI) before anything can gain authorisation to proceed. This is, unhelpfully, labelled as ‘governance’.

‘Chain reaction’ thinking uses a clear vision, for the customer, and gets on with constantly experimenting towards it, whilst checking the results. This generates a purpose-seeking learning organisation.

Updating the Quality chain

Dan Jones, in one of his YouTube videos, expands Deming’s quality chain reaction to show its wider effect on the full organisational system4. I really liked what he had done on his slide…but I wanted to make it clearer still…and so I ‘tweaked it’ (see below5)…showing that, if you start at quality, the chain reaction is kicked off and then continues to flow around and around the system:

quality-chain-reaction

Now, many a command-and-control organisation would look at the above and shout out “that’s exactly what we are doing!”…and so, to counter this riposte, I thought I’d re-do the diagram but this time start at cost.

i.e. if your starting point is to reduce costs (usually by interrogating line items on the P&L, and focusing on activities) then you are NOT on the quality chain reaction. You would be on quite a different journey:

activity-cost-spiral

In a sentence:

Customer Purpose (which, by definition, means quality) comes first…which then delivers growth and profitability, and NOT the other way around!

…and, for all you executives/ senior managers out there, many (most!) of your people already know this6.

Footnotes

1. The definition of Value: I reflect on a rather nice quote from Jeffrey Liker: “The first question…is always: ‘What does the customer want from this process?’ This defines value.”

Unfortunately, the modern corporate world has somewhat twisted this definition, and has come to believe that value is defined by the providers of ‘dead money’.

2. Understanding your customer: This requires much more than simply asking them what they want/ need. They often don’t know or, even if they do, can’t (or won’t) clearly articulate this. We need to listen to, and observe, the demands that they place on the system…and then we can truly understand how they behave.

3. Deming’s ‘Western/ American vs. Japanese’ comparison reflects the age, and focus, that he was operating within. Times have changed – not all Western/ American organisations can be tarred with the same brush…and not all Japanese organisations have stayed true to this thinking.

I suggest a modern interpretation would be to compare how organisations are run, by:

  • Command-and-Control ‘financial engineers’, attempting to use remote-control management; with
  • ‘Systems thinking’ value stream managers

4. Dan Jones presentation: See his slide with the heading ‘defining value’

5. Value for investors: I’ve added employees to the ‘value to investors’ column label within the diagram, to reiterate my recommendation that the system needs ’live money’ to enable this way of thinking.

6. A common aim: “The production worker in Japan, as anywhere else in the world, always knew about this chain reaction; also that defects and faults that get into the hands of customers lose the market and cost him his job.

Once management in Japan adopted the chain reaction, everyone there from 1950 onward had one common aim, namely, quality.

With no lenders nor stockbrokers to press for dividends, this effort became an undivided bond between management and production workers.” (Deming)

I know that it’s a broken record but…this last sentence returns back to “Your Money or your Life!”

Slaughtering the ‘Sacred Cow’

giantknave Brain Farts , , , , , ,

moo-cowI’ve written enough posts now to ‘write a book’ 🙂 …so it’s about time I dealt with a seemingly sacred cow – the ‘Balanced Scorecard’.

Context

First, I’ll delve into a bit of history…

Robert Kaplan and David Norton performed a research project back in 1990 in respect of measuring organisational performance.

It was based on the premise that:

  • An organisation’s knowledge-based assets1 were becoming increasingly important;
  • The primary measurement system remained2 the financial accounting system; and
  • Executives and employees pay attention to what they measure and, therefore, were overly focused on the (short term) financials and insufficiently on the (longer term) intangible assets.

balanced-scorecardThe outcome of their research project was the concept of a Balanced Scorecard of measurements (and, of course, the accompanying Harvard Business School (HBS) management book).

This retained the organisation’s financial measures (as historic results) but added three additional perspectives:

  • Customer;
  • Internal Business Processes; and
  • Learning & Growth.

The last two were said to represent the lead indicators of future financial performance.

The Balanced Scorecard quickly gained traction in many corporations. This was helped by many a ‘big consultancy’ cashing in3 on the lucrative ‘implementation’ revenue stream.

Version 2.0

Over a decade later (2004) Kaplan and Norton then took things further by linking strategy formulation and execution to their measurement ideas and came up with the Strategy Map concept (and, you’ve guessed it…an accompanying HBS management book). I imagine that this was for two reasons:

1. They saw some improvements to/ holes in the original idea;

…and with my cynical hat sat jauntily on my head…

2. They now had an adoring following that would buy the sequel which, as ever, sets out:

– the big idea in detail;

– a set of carefully curated case studies; and

– instructions on how to implement ‘the big idea’ in (on?) your organisation

strategy-mapThe ‘Strategy Map’ turned the four quadrants of the balanced scorecard into a linear cause-effect view (see picture)

The idea went that the desired financial outcomes would be stated at the top, which would then be achieved by reverse engineering down the strategy map to the bottom.

Thus, through setting objectives from top down to bottom and using measures, targets and action plans (involving initiatives with business cases and budgets), the desired outcome could be achieved.

Wow, that all looks really cool – neat looking and oh-so-complete! Doesn’t it?

So why the ‘Sacred Cow’ reference?

Well, many (most?) organisations feverishly adopted the Balanced Scorecard/ Strategy Map tools and technique as if it were common sense. Indeed, some 20 years later, it has become ‘part of the management furniture’. Unquestioned…even unquestionable.

However, I believe that there are a number of serious problems within…so let’s consider whether that proverbial sacred cow deserves to be slaughtered…

There are two angles that I could come at it from:

  1. The thinking within the Balanced Scorecard/Strategy Map logic; and
  2. How organisations typically implement these ‘big ideas’.

It would be too easy to shoot at how organisations typically implement them (i.e. how they might have bastardised it4)…and you could easily accuse me of ‘cheap shots’, saying that these aren’t Kaplan and Norton’s fault. So, instead, I’ll critique the foundational logic using four headings.

Here goes…

1. Measurement:

The foundation of Kaplan and Norton’s logic is that we must have measures if we are to manage something…and this is regarded as conventional wisdom…but here’s a counter-quote from W. Edwards Deming to ponder:

“Of course visible figures are important but he that would run his company on visible figures alone will in time have neither company nor figures. The most important figures are unknown and unknowable but successful management must nevertheless take account of them.”

His point is that we seem to be obsessed with trying to measure the effect of a given change (usually to ‘claim it’ for some recognition or even reward), but that we cannot accurately do so…and it is a mistake to think that we can. Sure, we can likely determine whether a change is having a positive or negative effect on the system (and thereby try to amplify or dampen it) but we cannot isolate the change from everything else going on (internally or externally; occurring right now, previously or in the future)

Deming went on to provide some examples of ‘important but unknowable’:

  • The multiplying effect on sales that comes from a happy customer, and the opposite from an unhappy one;
  • The improvement of quality and productivity from teamwork (across the horizontal value stream and with suppliers);
  • The boost in quality and productivity all along a value stream from an improvement at any activity upstream;
  • The loss from the annual rating of people’s performance (the time taken by everyone to perform this process and, of far greater concern, the resulting de-motivation and relational damage caused)
  • …and so on

Deming famously wrote that “it is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth.”

feedback-cartoonExample: Can I manage how employees feel? Yes, by how I behave.

Should I become obsessed with measuring employee feeling through those dreaded culture surveys? No!!!!

…just continue to manage how people feel – by constantly and consistently applying simple philosophies such as the most excellent “Humanity above Bureaucracy” (Buurtzorg).

Leave the constant crappy ‘surveying of the obvious’ to those organisations that (still) don’t get it.

The balanced scorecard was derived because of the major limitations of purely financial measures. However, we should not assume that such a tool is a definitive answer for what we need to manage.

Indeed, it causes damaging behaviours – with management wearing blinkers when focusing on the scorecard “because we’ve tied all our management instruments into it and therefore that’s all that counts round here.”

The highly limited and ‘helicopter view’ scorecard becomes a major part of the ‘wrong management system’ problem.

2. Balance:

This word is used as if we need to balance our focus on the four different quadrants, playing one off against the others as if they are counterbalances to keep in check.

But this isn’t the case. If we did a little bit of, say, learning and growth (e.g. developing our people) and/or customer focus but then said “whoa…steady on, not too much…we need to balance the financials” then we aren’t understanding the nature of the system….and we certainly don’t ‘get’ cause and effect.

cause-and-effect

A metaphor for business to help explain the point:

Let’s suppose that you keep breaking out in a nasty skin rash.

You could pour ice cold water on it, apply a lotion or scratch it…until it bleeds (ouch).

These actions might appear to alleviate the effects…but they are also likely to make things worse…and none of them have considered (let alone dealt with) the cause!

If you continue to ignore the cause and just treat the (currently visible) effects, things could escalate…with new effects presenting…complicating any necessary treatments…causing long lasting or permanent damage…and even death.

If you want to get rid of the rash…and keep it that way (and perhaps even improve your skin complexion and wider health)…then you need to focus your attention on its cause:

  • are you reacting to something you are putting on your skin?
  • what about something you eat, drink or otherwise introduce into your body?
  • maybe it’s something else more complicated?

And once you’ve worked out the likely cause(s) then you need to do something about it.

You work on the cause (such as stop using that brand of sun cream or stop eating shell fish or…stop injecting heroin!!) whilst checking whether it is working by observing the effect (what the likes of Seddon and Johnson would refer to as ‘keeping the score’).

You don’t think “mmm, I’ll balance the cause and the effect”…because you understand the glaringly obvious definitions behind the words ‘cause’ and ‘effect’

“Cause: A person or thing that gives rise to an action, phenomenon, or condition

Effect: A change which is a result or consequence of an action or other cause.” (Oxford Dictionary)

Okay, back to that Balanced Scorecard/Strategy map thingy and a cause – effect journey:

  • mgmt-cause-and-effectSenior Management’s beliefs and behaviours determine (i.e. cause) the management system that they choose to put into effect and (often stubbornly) retain;
  • The management system creates (i.e. causes) much of the environment that the people work within (effect);
  • The work environment is the foundation of (i.e. causes) how people act and react whilst doing their jobs (e.g. whether they are engaged, innovative, intrinsically motivated…or not);
  • How people act influences (i.e. causes) how processes are operated and the nature, size and speed of their evolution (whether by continuous or breakthrough improvements);
  • How processes operate and improve creates (i.e. causes) the outcomes that customers experience…and tell other potential customers about (i.e. as advocates or detractors);
  • Customers (whether they buy from, and advocate for us or ignore, avoid and slag us off) determine (i.e. cause) whether we stay in business.

The bl00dy obvious point is that THE FINANCIALS ARE THE EFFECT! So why are we so focused on them, other than to keep the score5.

…or, in a short, snappy sentence: This isn’t something to be BALANCED!!!!!!!!

The ‘balanced’ word keeps people tied to a ‘manage by results’ mentality, rather than managing the causes of the results such that the results then look after themselves.

What winds me up even more than the balanced bit is….wait for it…applying % weightings on the four quadrants5….usually with the financials (yes, the effect) getting the lions share!

That’s like saying “We’ll focus 75% on scratching the rash but only 25% on taking fewer heroin injections”. Aaaargh!!!

Now, you might respond to me by saying you believe that Kaplan and Norton understood the problem with the ‘balanced’ word…which is why they, ahem, ‘refreshed’ their logic with their ‘Strategy Maps’ book.

The problem with this is that they didn’t attack the results thinking, they merely added to it and, as such, many (most?) organisations continue with balancing and weighting…and spectacularly missing the point.

3. Key Performance Indicators vs. Capability:

kpi-statusOkay – let’s suppose that senior management accept that measures aren’t everything and that we shouldn’t be balancing (let alone weighting) things – I hope that we can all agree that some “right measures, measured right” (Inspector Guilfoyle) are going to be very useful…

…and so to the next whopper problem – the “measured right” bit.

Nothing (that I have seen) within the Balanced Scorecard/ Strategy Map logic reflects on, let alone deals with, the hugely important subject of variation and the need to always visualise measures over time.

Management simply use a set of KPIs on a ‘scorecard’ and look at their red down/ green up arrows against last period and/or their traffic lights against budget.

This is to completely ignore the dynamics of a system, and whether such movements are predictable or not….and therefore whether any special attention should be paid to them.

The Balanced Scorecard/Strategy Map approach can therefore create a set of Executives exhibiting the ‘God complex’ (as in “I have the answer!”) whilst being “fooled by randomness” (Taleb) – blissfully ignorant of the capability of their value streams (or processes within) and doing much damage by tampering.

and last, but by no means least…

4. Strategy vs. Purpose:

The underlying assumptions within the Balanced Scorecard/Strategy Map thinking would appear to be the conventional ‘shareholder value’ view of the world.

(I’ve previously written a 5-part serialised post on what I think about this….so I won’t repeat this here)

We get fed a feast of:

In short: The core problem (for me) with Kaplan and Norton’s two books is that, not only do they retain the problematic traditional command and control management system, focused on delivering shareholder value – they use it as their foundation to build upon.

It’s therefore no wonder that organisations carry on as before (doing the same crappy stuff), whilst waving their supposedly game-changing ‘Strategy Map’ around a lot.

Have you got hold of that cow? Good…now where’s my ceremonial knife?

To end: ‘having a go’ at me because I’m being so negative

You might shout back “okay you cynic…what would you do instead?!”

Well, I’m not going to be able to answer that in a paragraph – even Kaplan and Norton took two (rather verbose) books…and more than a decade in-between…to present their logic – but I’d suggest that, if you are curious, the 130+ posts on this site would go some way to expressing what I (and I believe my giants) think.

…and if you want to start at measurement then you might want to look here first.

Footnotes:

1. Knowledge based assets: Kaplan and Norton list the following as examples of assets that aren’t measured and managed by financial measures: employee capabilities, databases, information systems, customer relationships, quality, responsive processes, innovative products and services.

2. Measurement system remaining financially based: H. Thomas Johnson’s book ‘Relevance Regained’ makes clear that it wasn’t always so. Financial measures used as operational measures (a bad idea) only came into being from the 1950s onwards. Johnson refers to the period 1950s – 1980s as the ‘Dark Age of Relevance Lost’ and ‘Management by Remote Control’. I would argue that many an organisation hasn’t exited this period.

3. Big consultancies ‘cashing in’: I can (sadly) write this because I have first hand evidence – I was there! 😦

4. Bastardising the Strategy Map includes organisations changing the order of the four elements!!!

5. Financials: There’s a HUGE difference between a) using financial measures to keep the score (which would be good governance) and b) attempting to use them to make operational decisions! Using financials to make operational decisions is to attempt to ‘make the tail wag the dog’.

Yes, accountants should keep the score, for cash flow monitoring and assisting with longer term investment decisions…but accountants should not be attempting ‘remote control management’ of operations.

6. Weighting the elements of the scorecard: See, for example, fig. 9.8 in ‘The Balanced Scorecard’ (1996) and the related commentary.

7. Diversity: I understand that the cow is a holy animal to some. Please don’t be offended by my use of an English phrase in expressing my thinking – no real cows were harmed in the writing of this post…and no harm is intended to those living now, or in the future 🙂

 

It’s complicated!…or is it?

giantknave Brain Farts , , , , , ,

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

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

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

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

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

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

Starting with definitions:

Here are the OED definitions:

“Complex: consisting of many different and connected parts.

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

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

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

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

Turning to the ‘science’ of systems:

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

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

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

Example: your seat on an aeroplane

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

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

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

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

“…and the relevance of this is?”

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

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

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

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

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

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

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

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

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

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

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

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

So what?

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

Such a design might include:

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

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

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

From simple to complex…and back again6

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

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

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

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

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

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

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

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

Meadows went on to note that:

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

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

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

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

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

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

* Deming explained simply that we should:

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

…and a final warning against that oversimplification thing:

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

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

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

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

Footnotes

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

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

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

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

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

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

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

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

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

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

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

 

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

giantknave Brain Farts , , , , , ,

So I’ve:

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

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

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

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

These include:

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

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

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

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

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

Exploring the employee option:

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

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

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

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

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

In contrast:

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

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

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

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

Here’s why it is the exact opposite:

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

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

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

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

“Just close your eyes and imagine…”

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

“Imagine it as your own money!”

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

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

“But it’s not their money!!”

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

Some thoughts on this:

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

A start to the journey

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Update: Link forwards to Chapter 5

Footnotes:

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

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

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

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

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

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

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

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

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

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