Knowledge Workers (That’s Us!) Need a New Organization

We’re living in a “knowledge economy” where intangibles like brains and innovation trump tangibles like corporate mass and size. So I was especially eager to read the Economist’s “survey” of this issue in its January 21 issue. I recommend it to you (see www.economist.com) , and in particular I want to bring one passage to your attention. Especially since I’ve been singing this tune with my clients for years, I was especially pleased to see it so eloquently presented. Here’s what the Economist said:

Companies now are investing huge sums in such systems of “knowledge management”, which include their intranets and their internal databases. One company describes its intranet as “a vibrating current of what is going on in the business”. The challenge is to ensure that employees can plug into this vibrating current as and when they need it.

Re-read the last sentence. The key to effective knowledge management is not for leaders to censor, filter, and dole out information to employees as they (leaders) see fit. (I’ve seen a lot of this careful editorial censorship when executives present supposedly “sensitive” data like financials and competitive information to the rank and file). Nor does effective knowledge management occur when leaders simply overwhelm employees by sending them copies of just about every message and document and fact that flows through the organization. When people are drowning in data, they can’t effectively use information. Either alternative reduces knowledge management to the status of lip service, or a soft mockery.

Instead, the solution is to provide employees with the capacity to quickly access whatever information, document, communication, archive, or person that they need to in order to make an optimal decision. Each employee and manager decides what he or she needs and doesn’t need, and when. They decide which spigot to use, and when to turn it on and off.

But don’t believe me. Here’s what the Economist says:

There are three broad approaches to knowledge management. One is to create a system where all information goes to everybody, which is hugely inefficient; the second tells people what others think they need to know, which may not match their real needs; and the third enables them to find for themselves whatever they want to know. Companies like to say that they aim for the third approach, but they do not always find it easy.”

They don’t find it easy because they operate in a closed-door, “for-your-eyes-only” culture or with information systems that are technologically weak or not geared towards frictionless candor. In other words, the organization must have both an “boundariless”, transparent culture and the most state-of-the-art information systems and technologies. If you really want to capitalize on the knowledge economy, start addressing these culture and technology issues, and invest heavily in training people to operate in that sort of environment.

Word Playing with Priorities, Imperatives, and Initiatives

Words have power. “Delegate”, for example, is fundamentally different from “empower”. In the first case, the leader hands off prescribed tasks and responsibilities to the employee. In the latter case, the leader lets the employee figure out the optimal way to achieve results.
Two entirely different outcomes, two entirely different vibes.

I recently sat in on a top management meeting where the importance of words took on, well, importance. I noticed that the managers in the meeting were frustrated because they were disagreeing on which organizational policies and processes were must-do non-negotiable, driven down from the top—and which policies and processes were open to challenge, and, for that matter, which policies and practices ought to be generated bottom-up. If you think about it, these are critical distinctions which many leaders fail to properly confront and articulate.

I made a simple suggestion. I had noticed that in discussing the above alternatives, the managers were using the terms priorities, initiatives, and imperatives interchangeably. My suggestion was to distinguish among those terms in this way:

• Strategic priorities are driven top-down. They describe broad plans of action, missions, values and organizational performance standards that are developed by top leaders, who are perfectly within their right to expect everyone to adhere to them. Priorities define the direction and tone of the entire organization. Here’s the market space we’re in, here’s what we’re striving for, here’s our compelling value proposition, here’s our business model, here’s how we relate to each other, here’s what we stand for. Unless there is compelling evidence and logic to the contrary, priorities ought to be driven from the top and non-negotiable.
• Imperatives are also top-down entities, but with more opportunity for bottom-up input. Imperatives are more micro oriented than priorities. They define the goal, performance and behavioral kinds of expectations that leaders have for particular teams and units within the organization. What do we hope and expect from this division, or this region, or this facility, or this marketing department, or this accounting function? What do we hope and expect from you the individual? Smart leaders are involved in this process, and they usually make the final decisions, but they encourage lots of input, feedback and dialog from all ends.
• Initiatives are bottom up flows, with, of course, opportunity for leader input. Initiatives reflect self-propelled ideas and actions that represent contributions to revenue-line enhancement, cost-reduction, customer care, supply chain management, product development, and such. Individuals and teams at any level develop them, champion them, run with them, and apply them. Leaders are involved, but often only at the end, when results are available. Sometimes they take a hands-off approach, assuming that their people are empowered and accountable for using their brains, and touching base with them only periodically. And in performance reviews, smart leaders ask two questions: One, in addition to “doing” your job, how did you “change” your job? What changes and improvements did you initiate that created new contributions to value and wealth in this organization? Second question: have I (the leader) created an environment where you had the expectation, tools and the capability to launch initiatives.

Am I being nit-picky on words? You decide. All I can say is that words do have power, and too few leaders make the priority/imperative/initiative distinctions clear to their workforce, and doing so sure helped the executives in that break through some serious management impasses.

Two Leadership Lessons from Goldman Sachs

A colleague just loaned me the book Goldman Sachs: The Culture of Success, written by Lisa Endlich in 1999. I usually get bored with sequential historical recitations in corporate biographies but this book provides some valuable insights for any leader who wants to create a high-performance culture. Here’s two of my favorites:

1. A human resources vice president at Goldman Sachs said: “The firm demands that you be a contributor. No one can survive as just an employee.”

Wonderfully put. In your organization, can people survive (or even worse, get promoted) if they are simply “employees” who “do their job”? One of your most important steps as leader is to convey the message that everyone on staff, managers included, will be judged by their contributions to the success and prosperity of the organization. If they can document value-creating contributions, reward them like crazy. If they can’t, despite your efforts to help and mentor, then shepherd them out.

2. One of most senior partners at Goldman Sachs said: “It is vital that information flows smoothly within our firm: horizontally (across departmental, divisional, and geographical boundaries) as well as vertically (so that people on the front line feel comfortable in passing necessary but unpleasant information upward, or in making controversial suggestions).”

Wonderfully put. The more the bottlenecks to the fast unfettered flow of information, the more pernicious the brakes on an organization's progress. The bottlenecks can be procedural, structural, habitual, or personal, but they all act to create “friction”. Processes and systems that deny people access to information, managers who are never confronted about acting as lone wolves who won’t collaborate, cultures marked by secrets and “closed door” decision-making—these are all part and parcel of friction. Michael Dell once told me that one his most pressing duties at Dell was to reduce friction in his company.

Lisa Endlich herself made the following comment in the book: “Thus it stood to reason that those organizations with the least amount of friction in the flow of information would find the greatest success. Friction resulted from cultures in which employees were not used to a continuous dialogue and in which their efforts to communicate among themselves were neither encouraged nor rewarded. [In contrast, Goldman Sach’s] culture, its high degree of integration and the tangible rewards bestowed on those who cooperate, allowed it to move away from the pack in the early part of the 1990’s.”

So regardless of your industry, keep in mind two great leadership principles: One, hire and reward primarily on the basis of peoples’ contribution to the success of the organization. Two, focus on reducing bottlenecks, hurdles, and any other sources of friction that slow down the free flow of communication, information, and collaboration.

20 70 10 for 5 (Years)

Those of you who have been following my blogs may remember my May 10 contribution entitled “20 70 10”. I described Jack Welch’s perspective on managing peoples’ performance this way:

Locate the top 20%, tell them where they stand, and reward them profusely with significant compensation, lucrative career mobility, and lots of loving attention. The great gray 70% should also be told where they stand: and then rewarded with mild approval, job security, training and development, and the enthusiastic opportunities to get into the top 20%. The bottom 10% should also be told where they stand, given opportunities to improve, and if they don’t—they’re out. A failure to let people know where they stand, and act differentially, says Welch, is not only lousy leadership, it’s immoral.

Obviously, this 20 70 10 approach, like any forced ranking system, is like a nuclear bomb. It has to be handled very carefully, or else vicious backstabbing politics arise and contaminate everything. Yet I’ve always appreciated the underlying principle behind Welch’s approach: Your friendly personality and good intentions do matter, but at the end of the day, it’s your actual contributions that matter the most. If you add genuine value to the organization, you’ll add genuine value to your compensation and your career. If you don’t, you won’t get nearly the goodies that value creators do, and you may even wind up losing your job. That’s the underlying principle, and I find that it’s missing in many decaying organizations.

On the other hand, there's a gnawing problem. Let’s follow the 20 70 10 principle to its logical conclusion. If you, the leader, really do weed out the bottom 10% in this round of performance reviews, and then do it again next round, and then again, and so on, how long will it take before you’ve weeded out all the poor performers and are left with only the good ones? That’s your goal, isn’t it? But if you meet that goal, what’s the point of continuing a forced ranking like 20 70 10? You’d just be weeding out good people who—because of the requirements of the system—are “forced” to fall at the bottom end of the pile. A professor who has a class full of Einstein’s would be foolish to “grade on a curve”, because forcing students into a bell curve means that the largest group of Einstein’s would have to receive a “C”, and as many would receive “D’s” and “F’s” as “A’s” and “B’s”. In this environment, the group dynamics in class would become psychotic, and very few budding Einstein’s would be attracted to that professor’s class.

Lo and behold, some empirical evidence now corroborates my logical extrapolations. Recent research indicates that when first applied in an organization, forced ranking systems like 20 70 10 result in an impressive 16% improvement in productivity—but only after the first two years. Thereafter, the marginal gains diminish: 6% the third and fourth years, and so on until 0% in the tenth year—presumably because the forced rankings “worked” and everyone became a contributor.

So what does all this imply? I think that a leader might initially be wise to use a forced ranking like 20 70 10 to instill performance accountability, form a merit-based culture, separate the best performers from the mediocre ones, and build performance gains. But the leader should also be aware that if he or she is executing correctly, there will necessarily be diminishing returns to this process. I suspect that by year 5, the remaining performers ought to all be good ones. If that’s not the case, then keep up the forced ranking. But if your employees are all good, it might be wise to take a break from forced rankings and go back to some other form of individual merit assessments.

In any system, the good leader should always insure that the best performers are rewarded the most. But forcing the ratings into a bell curve might not be necessary after the fifth year—or, according to the research, certainly not after the tenth, . The leader should always track the team carefully, and if it looks like performance is starting to get ragged, or some people are slipping to the bottom, then going back to forced rankings might be the antidote. The key is flexibility in your quest for top performance. Don’t get hung up on the means. Focus on the ends.

The Nerve of Those Chinese—and Everyone Else Too!

Last week, Chinese automaker Geely announced within three years it would be prepared to export a five-passenger family sedan to the U.S., one that met all American emissions and safety regulations-- for under $10,000. A few months ago China’s Chery Automobile Co. announced similar plans to sell 250,000 mainland-made sports utilities, sedans, and sports coupes in the U.S. starting in 2007.

Can you believe those Chinese???? Not only do they have the nerve to export way too much to us (yeah, I know nobody is forcing us to buy their stuff, but still…..), and not only is the stuff they export cheap, but doggone it-- it’s not bad. Rich Walker, the CEO of American Architectural Manufacturers Association, tells me that what’s particularly distressing is that window product in his industry that comes in from China underprices American-made goods by at least a third, and the product is good quality. That’s totally unfair. Everyone knows that if you export cheap stuff to the U.S., it’s gotta be junk.

But here’s the deal. If it’s not China, tomorrow it’ll be Indonesia, Viet Nam and the Philippines, three countries where Toyota already has assembly facilities. And if it’s not those countries, it’ll be any other developing country, and there’s plenty of them out there with lower labor costs than ours (Just consider half the world subsides on $2 a day).

There are two implications for U.S. companies: The first one is a non-negotiable reality of a global marketplace. Whether they like it or not, American companies must now capitalize on the technology, work ethic, and lower labor costs available in developing countries by partnering with companies there, and by offshoring the commodity work that can be done at a fraction of the cost spent here.

The second implication is that the strategic focus of U.S. companies ought to be about getting to the top of the food chain in first-to-market product innovation, design, features, style, applications, customization, speed, business solutions and customer service—the kinds of higher-margin things that are less likely to be commoditized and imitated by companies in developing countries. That strategy demands a fresh look at your business, and an even fresher look at investing in people. To get to the top of the food chain, you need to hire and train smart people in the U.S. for more complex, higher paying jobs, and create a fast, innovative environment where their talents can flourish.

To thrive, you'll have to seriously consider both implications simultaneously. Companies in the U.S. will not survive, much less thrive, if all they do is copy the cheap copiers.