The Performance Improvement Blog

Economic Recovery Depends on Businesses Redefining and Aligning Strategy

Michigan, having been hit harder by the recession than all other states due to its heavy reliance on auto manufacturing, is just now beginning to emerge from the economic devastation that ensued. However, you’d think from all of the attention put on venture capital and government financing that the solution to recovery is all about money. To find out what really is needed for success, Robert Pasick, Ed Holinski,   and I surveyed business leaders in Southeast Michigan about their most pressing problems. Three hundred leaders of mostly small businesses were sent an online survey; 45 people responded. We asked them a series of questions to determine which of these 20 challenges concerned them the most:

1. Setting a strategic direction for the organization
2. Aligning employee activities with strategic goals of organization
3. Capitalizing on changes in the marketplace and evolving customer expectations
4. Managing changing expectations of diverse stakeholder communities
5. Managing how organization responds to new government regulations
6. Adjusting to the slow pace of economic recovery
7. Identifying new sources of revenue
8. Creating an environment that fosters innovation
9. Growing business without diluting leadership and culture
10. Managing risks to the brand and to the enterprise
11. Attracting, retaining, and leveraging talent in the organization
12. Ensuring that managers are involved in coaching, mentoring, and developing employees
13. Developing an environment that helps employees learn more rapidly
14. Getting business results from investment in employee training and development
15. Developing a more engaged and productive workforce
16. Managing people's time and energy effectively
17. Facilitating effective and candid communication among employees
18. Managing generational differences among employees
19. Having adequate information and an effective process to make decisions
20. Responding to and leveraging rapid changes in technology

Respondents indicated that while having sufficient operating revenue was, of course, top on the list, having a strategic direction that was aligned with employees was a close second. These leaders have a strong need to redefine their strategic direction and ensure that they attract and retain the talent to achieve those goals. “Nothing exceptional will happen without this.  A strategy is only as good as its execution,” said one business owner. In this time of economic uncertainty, business growth and sustainability depends on having a well-thought-out strategy and aligning talent with that strategy. Revenue is critical but if companies don’t also have a clear direction and the right people doing the right things to get them there, they will not emerge out of this economy successfully.

Crisis Leadership: BP vs. Toyota

What can we learn about leadership from BP’s handling of the Deepwater Horizon oil rig disaster in the Gulf of Mexico? Last week leadership expert John Baldoni, author of Lead Your Boss: The Subtle Art of Managing Up, was interviewed by Mark Kelley for his show “Connect” on the CBC network. Kelley asked Baldoni   (minute 30 of show) about the leadership effectiveness of BP’s CEO, Tony Hayward. Baldoni said that in a crisis, people need their leaders to “be seen, be heard, and be there.” In other words, leaders should be visible to the people being affected by the crisis, they should communicate clearly and often, and they should show that they care and are listening to concerns. Unfortunately for BP and the people of the Gulf coast, Hayward failed on all three counts.

Kelley compared the BP CEO to Toyota’s president, Akio Toyoda, who, during the worst part of Toyota’s recent recall crisis, was apologetic, contrite, willing to acknowledge mistakes, take responsibility, and communicate what the company was doing to resolve the situation. Even with his limited English, the Japanese leader was more believable to Americans than BP’s British leader. And the Toyota president appeared to learn from his own mistakes, becoming more responsive as time went on. Not so with the BP CEO. He is still not seen enough (except on his yacht), not heard enough, and not there enough. 

Managing Paradox

Leaders of BP and all of the deep water oil companies would do well to read a recent article in   ChiefExecutive.net written by Ralph Jacobson and Alfred A. Marcus. The authors say that in many organizations it’s not the problems that get them into trouble, it’s the paradoxes. They describe the difference in this way:

Problems may be simple or complex, but once an effective solution is implemented, the problem is solved. For example: Should we build a new plant? Extend our current product line? Hire a new vice president? Partner with another organization? Paradoxes, on the other hand, are the hard core contradictions in organization life that cannot be resolved—they must be vigilantly balanced.

Problem solving follows a predictable pattern: Highlight an issue, gather the facts, investigate causes, formulate solutions, and implement the answer. The objective is to gain control. If we fail we cast blame on others and ourselves. But what happens if there are issues for which solutions are non-existent? Here are some examples: Should we…

·         Focus on the short or long-term?

·         Invest in new business initiatives or maximize profits from existing businesses?

·         Centralize operations or decentralize them?

·         Hold individuals accountable for results or teams?

I suspect that BP and the other oil companies look at an oil leak as an isolated problem to be managed when it occurs. Rather, they should manage the paradox: compliance with too many rules and regulations can stifle production of oil while compliance with too few can result in loss of life and environmental disaster. This is an inevitable contradiction in the oil production industry that doesn’t have a solution. It requires a constant balancing of the demand for safety with the demand for productivity. And an awareness of the Law of Unintended Consequences. 

Organizational Redesign

Much of evaluation in organizations is focused on making incremental change in programs when what is needed might be redesign of the program and the organization as a whole. The current economic crisis presents an opportunity for all organizations to re-examine what they are doing and how they do it. William A. Schambra, director of the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal, in speaking about nonprofit organizations said this in a speech to the annual meeting of the Memphis-based Alliance for Nonprofit Excellence.

When times begin to get sour, we initially scramble madly to sustain all that activity that we’ve added in the good times. That’s what a lot of us have been doing over the past year. We desperately don’t want to let go of that new identity we’ve developed as a sophisticated, complex, multi-service organization.

But slowly it dawns on us that we simply can’t scramble fast enough to keep it all going. We realize that we not only have to scale back staff and program, but we have to fundamentally revisit the questions of what our fundamental purpose in society truly is, and which of our activities truly reflect that purpose.

The first impulse of managers in any organization is to find ways to sustain the programs for which they are responsible. Whether effective or not, this is their identity, their power, their span of control. They will do what they can to defend their turf. It’s a natural reaction to threat. Over time, this can result in maintaining activities and processes that are no longer needed or could be done in more effective ways. I once served on the Board of Directors for a nonprofit that delivered 16 distinct programs, from adolescent group homes to foster care to Big Brothers/Big Sisters. The agency had grown into a $12 million bureaucracy by adding almost any social service program for which funding was available. When we were faced with serious budget problems, our reaction was to make cuts in people and resources in order to maintain all of the programs. After a number of painful years of this, new Board members and a new Executive Director finally asked the question, “What is the best and most efficient way to deliver these services to customers?” In short order, the nonprofit was dissolved and all of the programs and most of the staff found new homes in existing agencies in the community. We should have asked that question sooner. This might be an extreme example, but it is the kind of redesign that all organizations should consider from time to time.

Babak Armajani, partner in the Public Strategies Group, writes this about redesign in government:

This is how we need to start thinking about K-12 education, health care, corrections, and other major public service delivery systems.  These systems can be redesigned.  We can get quantum leaps in improved results from these systems even as we are spending less money on them.

What stands between us and these possibilities is our own skepticism about whether there really is a better way and our reluctance to invest ourselves in finding it.  

Most change initiatives start with the program and try to incrementally improve what is already being done. Armajani’s notion of “redesign” starts with the desired outcomes and, within available resources, designs the best way to achieve those outcomes. It’s an opportunity for creativity and risk-taking and finding new ways of approaching old problems. Although human nature can be a barrier to this kind of change, effective leaders create an environment of safety and security where it is possible for this kind of transformation to occur.

Short-Term Jobs and Long-Term Employment

Regardless of Tom Friedman's op-ed column in the New York Times calling for more start-ups, the private sector is not going to create the number of jobs needed to make a substantial impact on unemployment, at least not in the foreseeable future. Automation, "lean" manufacturing, office technology, Web-based businesses, outsourcing, and the expanding use of temporary workers, are all contributing to structural unemployment. Companies (new and old) just don't need as many permanent employees as they did in the past to do similar work. In response, the Obama Administration is turning to government agencies and nonprofit organizations to create jobs. The federal government announced recently that $234 million will be given to Americorps to put 57,000 additional people to work doing projects in low-income communities   around the country. The plan is to increase the number of people employed through Americorps from 75,000 to 250,000 by 2017. But these jobs are not permanent and the question becomes: what happens to these employees and other temporary public sector workers if jobs growth remains low? What will they do after their public service job ends.

Employment, even in low paying, short-term jobs, can have a very positive impact on workers. Aside from the income (which is meager in the case of Americorps), people who are doing important work benefit from developing enhanced self-esteem, having a structured day, making new friends, widening their network of potential employers, and learning good work habits. Years ago, I evaluated the Youth Conservation Corps in Michigan which employed young adults for a year to do needed conservation projects on State property. These were youth who otherwise would have been unemployed, on the streets, and at great risk of ending up in the justice system, costing taxpayers much more than what it cost to employ them in the YCC for a year. In interviews, these young people told me that the greatest benefit  to them was that they felt better about themselves and what they were capable of doing. The program made them feel worthwhile.

Low paying, temporary jobs in the community can make a difference, but if the intent is that the formerly unemployed become long-term contributors to the economic vitality of a community, these programs must do more than simply put people to work. Workers need guidance in how they can learn the skills they need for their careers, not only the immediate job. They need people around them who communicate high expectations for their performance and their learning. They need someone supervising them who cares about their success and tells this to them. They need the opportunity to practice new skills until they get it right. And they need constant feedback on how they are doing. A job can have short-term financial benefits for the worker, but long-term, community benefits will only come about through active support from supervisors and mentors.

BP, Jurassic Park, and the Law of Unintended Consequences

 “… your scientists were so preoccupied with whether or not they could, they didn't stop to   think if they should.” –Dr. Ian Malcolm, Jurassic Park

Large, complex organizations, like BP, would do well to heed the Law of Unintended Consequences. This is the notion, attributed to sociologist Robert K. Merton, that any complex system will have outcomes that cannot be foreseen by the actors in that system. It is not, as risk managers in BP would claim, that there is a tolerably low probability that something undesirable (e.g., explosion on deep sea oil rig platform) will occur; rather, the complexity of the system means something undesirable is certain to occur.

David Brooks, in a New York Times op-ed column about the Deepwater Horizon explosion, writes

… the real issue has to do with risk assessment. It has to do with the bloody crossroads where complex technical systems meet human psychology.

Over the past decades, we’ve come to depend on an ever-expanding array of intricate high-tech systems. These hardware and software systems are the guts of financial markets, energy exploration, space exploration, air travel, defense programs and modern production plants.

These systems, which allow us to live as well as we do, are too complex for any single person to understand. Yet every day, individuals are asked to monitor the health of these networks, weigh the risks of a system failure and take appropriate measures to reduce those risks.

One of the explanations for why unintended consequences occur is that people fail to see every aspect of a problem. Stephen Haines, in an article in the March/April issue of Training Magazine, likens this to trying to solve the Rubik’s Cube by arranging one color on one side and then moving on to arrange the next color. The puzzle can’t be solved this way. But that is how we tend to approach complex situations. We deal with one element at a time rather than looking at the system as a whole. And, as Brooks suggests, no single person is capable of understanding the total system.

In examining lessons-learned from another disaster, the Challenger space shuttle, Malcolm Gladwell concludes that if we can’t handle the unintended consequences, maybe we shouldn’t be in that business. He writes:

What accidents like the Challenger should teach us is that we have constructed a world in which the potential for high-tech catastrophe is embedded in the fabric of day-to-day life. At some point in the future-for the most mundane of reasons, and with the very best of intentions-a NASA spacecraft will again go down in flames. We should at least admit this to ourselves now. And if we cannot-if the possibility is too much to bear-then our only option is to start thinking about getting rid of things like space shuttles altogether.

However, the Law of Unintended Consequences isn’t only about interaction between humans and technology. Any complex social organization is subject to the Law. Dubner and Levitt, authors of Freakonomics, point out that the system for doctors treating deaf patients, the system for requiring debt relief every seven years (sabbatical year) according to Jewish law, and the system for protecting endangered species have all had some of the opposite effects for which they were intended. Any large company can count on the fact that policies and procedures will have effects that cannot be anticipated. For example, lines of communication and authority, while important in managing productivity, can also be barriers to the right information getting to the right people at the right time, which can have disastrous consequences.