Copyright

Copyright2000PresidentandFellowsofHarvardCollege

Allrightsreserved

ThepaperusedinthispublicationmeetstherequirementsoftheAmericanNationalStandardforPermanenceofPaperforPublicationsandDocumentsinLibrariesandArchivesZ39.48-1992.

FirsteBookEdition:May1999

ISBN:978-1-5785-1124-2

FromJeffreyPfeffer

OnJanuary19,1985,ImetKathleenFowler.Mylifehasnotbeenthesamesince.Sheinspires,encourages,teaches,andmostofall,lovesmeinwaysthatIseldomevenfullycomprehendorappreciate.WithoutKathleen,nothingispossible,andwithher,anythingis.January19,1985,iscertainlytheluckiestdayofmylife.

FromRobertI.Sutton

Aswithalmosteverythinggoodthathashappenedtome,thisbookneverwouldhavebeenwrittenwithoutMarinaPark,mybeautifulandpatientlove.IthankMarinaforitall,especiallyforherconstantandforgivinglove,forbeingwiserthananyoneIhaveevermet,andforoursweetandrambunctiousoffspring,Tyler,Claire,andEve.

Contents

Copyright

Preface

1 Knowing“What”toDoIsNotEnough

2 WhenTalkSubstitutesforAction

3 WhenMemoryIsaSubstituteforThinking

4 WhenFearPreventsActingonKnowledge

5 WhenMeasurementObstructsGoodJudgment

6 WhenInternalCompetitionTurnsFriendsintoEnemies

7 FirmsThatSurmounttheKnowingDoingGap

8 TurningKnowledgeintoAction

Appendix:TheKnowingDoingSurvey

Notes

AbouttheAuthors

Preface

WEWROTETHISBOOKbecausewewantedtounderstandwhysomanymanagersknowsomuchaboutorganizationalperformance,saysomanysmartthingsabouthowtoachieveperformance,andworksohard,yetaretrappedinfirmsthatdosomanythingstheyknowwillundermineperformance.Thisbookwasinspiredbyseveralintertwinedevents.Afterthepublicationoftwobooksonhowtomanagepeopleforenhancedorganizationalperformance,JeffreyPfefferwasintriguedandpuzzledtofindthat,overandoveragain,onthistopicandmanyothers,peopleobviouslyknewwhattodo,butdidn’tdoit.PfefferalsonoticedthatmanyofhiscolleaguesatStanfordBusinessSchoolalmostinvariablydidn’tdoanythingremotelyrelatedtowhattheytaughtwhentheyfoundthemselvesinleadershiproles.Finally,henoticedthatthereweremoreandmorebooksandarticles,moreandmoretrainingprogramsandseminars,andmoreandmoreknowledgethat,althoughvalid,oftenhadlittleornoimpactonwhatmanagersactuallydid.

So,itwasclearthatknowingwhattodowasnotenough.Itwasclearthatbeingsmartwasnotenoughtoturnknowledgeintopractice.Itwasevidentthatreading,listeningto,thinking,andwritingsmartthingswasnotenough.Pfefferwastakenwiththisproblembecause,whileitisobviousandpervasive,andthereisnodoubtitisimportant,thereispreciouslittleunderstandingaboutwhatcausesitorhowfirmsovercomeit.Hesuspectedtheproblemswerelargelyinorganizationalpractices,notindividualpsychology,butheneededmuchmoreevidence.Sohedecidedtolaunchanintensivelong-termresearcheffortto

discoverwhatpreventedorganizationsthatareledbysmartpeoplefromdoingthingsthattheyknowtheyoughttodo.

Thiswas,andis,anunstructuredandmessyquestion.Therearerelevantbodiesofliteratureandideas,butitwasclearthattheonlywaytoexplorewhatwecametocalltheknowing-doinggapwastousebothqualitativeandquantitativefieldmethodsforstudyingorganizations.Pfefferneededanallywhoknewhowtousethesekindsofmethodsandwhowasequallyintriguedbythisproblem.So,PfefferenlistedthehelpofRobertSutton,afriendandStanfordcolleagueformanyyears.Andoffwewent,tolearnhowsomeorganizationsfailedtoturnknowledgeintoaction,howsomesucceeded,andwhy.

Ourconvictionthatthisisoneofthemostimportantandvexingbarrierstoorganizationalperformancehasbeenfueledthroughoutthisprojectbythestrong,andquiteemotional,reactionswealwaysgettothistopic.Whentalkingaboutothertopicstotheengineers,managers,andexecutivesweteachorwhenworkingwiththeorganizationswetrytohelp,weoftenmakebriefallusionstotheknowing-doingproblem.Againandagain,afterjustaone-sentencedescriptionoftheproblem,peopletellus(ofteninterruptingusinthemiddleofoursecondsentenceonthetopic)thattheyalreadyknowwhateffectiveorganizationsshoulddoand,iftheydon’thavesuchknowledge,itisusuallyeasyforthemtofindabookor,inthecaseofexecutivesorfirms,tohirenewemployeesorconsultantstofindoutwhattheyneedtoknow.Whattheydon’tknowhowtodo,whattheygetwildlyfrustratedabout,whatmakesthemwhine,holler,curse,moan,andevencry,istounderstandwhytheirfirmssooftenfailtoturnthisknowledgeintoaction.Thisfrustrationhasalsomeanttheyarecurious,attimesevendesperate,tolearnhowotherfirmsavoidorovercomebarrierstoturningperformanceknowledgeintoorganizationalactions.Thedepthofthisfrustrationandthedeepinterestweencounteredeverywhereabouthowtosurmountknowing-doinggapsinspiredustopressaheadthroughoutthefour-yearprogramofresearchthatledtothisbook.

Wewerealsosodevotedtothisproject(“obsessed”isprobablymoreaccurate)becauseourcollaborationwasamongthemostdelightfulandengagingworkingrelationshipsweeverhad.Themixofintellectualexcitementandrollicking,rantingfunwesharedduringthelastfouryearswasarareprivilege.Webothhaveextensiveexperiencewritingwithcollaborators,withover100coauthoredbooksandarticlesbetweenus.Weknowthattheintellectualsparkandjoywehavesharedduringthisprojectonlyhappenafewtimesinaresearcher’slifetime.Thereweresomanywonderfulmoments.Oratleastwe

thoughttheywerewonderful.Thepeoplearoundusprobablyfoundthemsillyandannoying.Hollering,arguing,andjumpingupanddowninourregularbrainstormingsessions.Rantingateachotherduringlongairplaneflightsthatseemedshortbecausewehadsomanyideastoargueabout.And,perhapsthebestmemoryofall,aneveninginSeptemberof1997inthePalaceHotelexecutivefloorloungeinNewYorkCity,whenademandingJeffreyPfefferkeptpushingagrouchyandresistantRobertSuttontodevelopideasforthebook.Suttoncomplainedmightilythathewastired,hejustwantedtoeat,drink,andtalkaboutsomethingelse.Butanhourorsolater,wehadanoutlinethatmatchesthechapterheadingsinthisbookalmostperfectly.

Wedon’twanttoleavetheimpressionthatthisprojectflowedeasilyandentailednosetbacks.Onthecontrary,wehadlotsoffailuresalongtheway.Wedevotedafullyeartoafailedcollaborationwithaconsultingfirm(that,bytheway,isintheknowledgemanagementbusiness)thattriedmightily,butprovedunable,toimplementastudyofthegapbetweenknowledgeandaction.Wetriedotherideasthatalsodidn’tworkout.Butoncesomethingwasclearlynotworking,weabandonedthepathquickly,stoppingjustlongenoughtofigureoutwhatweshouldlearnbeforetryingsomethingnew.Weneverstoppedtoworryabouthowmuchtimewehadwastedandneverspentoneminutetalkingaboutwhichoneofuswastoblameforthelastdeadend.Rather,wewereinspiredbythesuccessfulfirmswestudied,inwhichsetbacksandmistakeswereviewedasaninevitable,evendesirable,partofbeingactionoriented.Weheededtheiradvicethattheonlytruefailurewastostoptryingnewthingsandtostoplearningfromthelastefforttoturnknowledgeintoaction.

AcknowledgmentsTherearesomanypeoplewhohavehelpeduslearn.OurstudentsinvariouscoursesattheStanfordBusinessSchoolandEngineeringSchoolnotonlydidenlighteningcasestudies,butwerealsoreallearningpartnersinanexplorationintothemessybutimportantquestionofwhyknowing-doinggapsexisted.Eachofthemhasourheartfeltgratitude.Wealsowanttothankeverypersonateverycompanywhoparticipatedinthevariousquantitativeandqualitativestudiesthatweandourstudentsdidduringthecourseofthisproject.SpecialthanksgotoPeterB.Ashley,DennisBakke,GwenBooks,CharlieBresler,PatriciaDunn,LarryFord,BettyFried,BenGibert,JamesGoodnight,FredGrauer,GaryHigh,JeffJefferson,DavidKelley,TomKelley,AnnetteKyle,DianeLumley,Charles

Lynch,DaveMorthland,DavidRusso,RogerSant,SteveScammell,ElmarToime,BurgessWinter,andGeorgeZimmerforbeingsogenerouswiththeirtimeandforhelpingusgatherusefuldataandinsightsinsomanydifferentways.Wewouldalsoliketothankourresearchassistants.WearegratefulforthemajorrolesthatLauraCastanedaandTanyaMenonplayedinthefieldresearchwedidforthisbook.WealsothankFrankFlynnandRoyVellafortheirresearchassistance.

WethankMarjorieWilliams,ourskilledandwiseeditor,andhermanycolleagueswhohavebeensohelpfulattheHarvardBusinessSchoolPress.WhenwesaythatMarjorieisourfavoriteeditor,wearen’tjusttalking.Wehavebackedthisstatementwithaction.Betweenthetwoofus,thisisthefifthbookthatwehavefinishedunderherguidance,andbothofushaveanotherHBSPressbookontheway.Marjorie’smodeofoperationremindsusofthemosteffectiveleaderswestudiedwhilewritingthisbook.Sheneverstopsmovingforward,neverstopstalkingabouthowgoodthingsalreadyare,howmuchbettertheycanbe,andexactlywhatshouldbetriednexttoachieveexcellence.Wedon’talwaysagreewithMarjorie,butwealwaysappreciateherbecause,moresothananyeditorwehaveevermet,shecaresaboutthequalityoftheworkandaboutmaintaininglong-termrelationships.IfpeopleelsewherefollowedMarjorie’sleadandalwaysactedasifqualityandlong-termrelationshipswithsuppliersweretheirtoppriorities,thegapbetweenknowledgeandactionwoulddisappearinmanyorganizations.

Wethanktheinstitutions,andespeciallythesupportivepeoplewithinthem,thatprovideduswiththetimeandresourcestowritethisbook.TheStanfordBusinessSchool,andparticularlyDavidBrady,theassociatedeanovertheorganizationalbehaviorgroup,providedfinancialsupportofmanyforms,includingtime,themostimportantresource.TheBostonConsultingGroupprovidedfundingforsomeresearchassistanceandincidentalexpenses,moneythatwasvitallyimportantforsuccessfullycompletingthisproject.JeffreyPfefferwrotethisbookpartlyduringtheyearhewasaFellowattheCenterforAdvancedStudyintheBehavioralSciences.NeilSmelserandBobScottarerolemodelsofhowtorunanacademicinstitutionandhowtobuildaculturethatencourageslearning,collaboration,andpersonaldevelopment.Thanksdon’tseemadequatefortheopportunitytheyhaveprovided.SupportforJeffreyPfeffer’syearattheCentercamefromNationalScienceFoundationGrantSBR-9022192.

RobertSuttonwouldliketothankcolleagues,students,andstaffintheStanfordEngineeringSchoolforsupportinghiminsomanywayswhile

StanfordEngineeringSchoolforsupportinghiminsomanywayswhiledevelopingthisbook.TheCenterforWork,Technology,andOrganizations(WTO)providedfinancialsupport,andhisdearfriendandcolleagueSteveBarley(co-directorofWTOwithSutton)providedemotionalsupportonnearlyadailybasis,hadstrangeandwonderfulideasaboutnearlyeverything,anddidhundredsoftasksthatfreedSuttontowritethebook.DianeBaileyandPamelaHinds,hiswonderfulnewfacultycolleaguesatWTO,providedSuttonwithsupport,ideas,andconstantamusement.SuttonisalsogratefulfortheresearchsupportprovidedbytheStanfordTechnologyVenturesProgram(STVP),aneffortledbytheastoundingTomByers,oneofthemostcaringandaction-orientedhumanbeingsontheplanet.STVPissupportedbytheKauffmanCenterforEntrepreneurialLeadershipandthePriceInstituteforEntrepreneurialStudies.SuttonwouldalsoliketothankStanfordEngineeringcolleaguesKathleenEisenhardt,JamesJucker,andElisabethPate-Cornellfortheirencouragement.JohnHennessy,theleaderoftheStanfordEngineeringSchool,wasaninspirationthroughout;hejustmightbethefinestdeananywhere.Finally,SuttonisindebtedtoPaulaWright,whodidatleastathousandofthetasksthatmadethisbookpossible.

MuchofourfieldresearchwascompletedwhenRobertSuttonservedasafacultymemberattheHaasBusinessSchoolduringthe1997–98academicyear.TheHaasSchoolsupportedhisresearchtime,andU.C.Berkeley’sInstituteforIndustrialRelationssupportedaresearchassistantduringthatyear.HethanksJenniferChatman,RichardMeese,andBarryStawfortheirideas,theirhelp,andmostofall,theirunderstanding.

Theideasinthisbookwereshapedbyconversationswithmanyothercolleagues.OurdearfriendCharlesO’Reillygaveusmanyideasaboutthehazardsandvirtuesofstrongorganizationalculturesandhowtochangesuchstrongbeliefsystems.TalkingtoBobCialdini,althoughnotnearlyoftenenough,keptusgroundedingoodsocialpsychologicaltheory.ArieKruglanskiprovidedresearchontheneedforcognitiveclosure.

Weowespecialthankstothepeoplewhogaveusdetailedcommentsonearlierdraftsofthisbook.BethBenjamindidafabulousjob,underterrifictimepressure,ofreadingadraftofthemanuscriptandprovidinginsight,examples,wisdom,andencouragement.J.RichardHackmanofferedbothsupportandconcretesuggestionsforimprovingourwork.Wehopewelearnedallwecouldfromhisgenerousadvice.FrancineGordon,onceagain,waskindenoughtoprovidenotonlymoralsupportandfacilitatefinancialsupportoftheproject,butalsotofurnishideasandhelpfulsuggestionsonthemanuscript.Colleagueslikethesearemorepreciousthananymerewordscanexpress.

thesearemorepreciousthananymerewordscanexpress.

1 Knowing“What”toDoIsNotEnough

WHYDOSOMUCHEDUCATIONandtraining,managementconsulting,andbusinessresearchandsomanybooksandarticlesproducesolittlechangeinwhatmanagersandorganizationsactuallydo?

In1996,morethan1,700businessbookswerepublishedintheUnitedStates,1andmorearepublishedeachyear.Manyofthesebooksarefilledwiththesameanalysesandprescriptions,albeitusingdifferentlanguageandgraphics,ascouldbefoundinsimilarbookspublishedtheyearbefore.Infact,manyoftheideasproclaimedasneweachyearcanbefoundinsimilarbooksprinteddecadesearlier.2Yetthesebooksfindareadymarketbecausetheideas,althoughoftenwidelyknownandproventobeusefulandvalid,remainunimplemented.So,authorstry,inpartthroughrepackagingandupdating,tosomehowgetmanagerstonotonlyknowbuttodosomethingwithwhattheyknow.Andmanagerscontinuetobuythebooksfilledwithideastheyalreadyknowbecausetheyintuitivelyunderstandthatknowingisn’tenough.Theyhopethatbysomehowbuyingandreadingonemorebooktheywillfinallybeabletotranslatethisperformanceknowledgeintoorganizationalaction.

Eachyear,morethan$60billionisspentontraininginandbyorganizations,particularlymanagementtraining.Muchofthistraining,onsubjectssuchasTotalQualityManagement(TQM),customerserviceandbuildingcustomerloyalty,leadership,andorganizationalchangeisbasedonknowledgeandprinciplesthatarefundamentallytimeless—unchangedandunchanging.Nevertheless,thetrainingoftenisrepeated.Regardlessofthequalityofthecontent,thedelivery,orthefrequencyofrepetition,managementeducationis

oftenineffectiveinchangingorganizationalpractices.ProfessorMarkZbarackioftheUniversityofChicagostudiedTotalQuality

ManagementtraininginfiveorganizationsinwhichseniorexecutivesbelievedthatTQMmethodscouldenhancethequalityoftheirproductsandservicesandthatthetraininghadchangedhowpeopleperformedtheirjobs.3Zbarackifound,however,thatthequantitativeTQMmethodswerenotusedatallinfouroftheorganizationsandonlyonalimitedbasisinthefifth.ThisresultisnotuniquetoTQM—weobserveditrepeatedlyduringourresearch.

Eachyear,billionsofdollarsarespentonmanagementconsultantsbyorganizationsseekingadvice—oneestimatefor1996was$43billion.4Butthatadviceisseldomimplemented.Oneconsultant,makingapresentationtoobtainworkfromalargeU.S.bank,showedanoverheadslidethathadtherecommendationsfromfourpreviousconsultingstudiesconductedinjustthepriorsixyearsforthatbank.Allfourstudieshadcometothesameconclusions,whichisnotsurprisinggiventhatsmartpeoplefromfourdifferentfirmslookedatessentiallythesamedata.Thepresenter,sellingimplementationandchangeratherthananalyticalservices,askedtheassembledexecutives,“Whydoyouwanttopayforthesameanswerafifthtime?”Heandhisfirmgotthejob.Asanotherexampleofknowingbutnotdoingintheworldofmanagementconsulting,twoconsultantsfromoneoftheleadingfirmsworkedonaprojectforalargeelectricalutilityinLatinAmericathatwasfacingderegulation.Theywerechagrinedtodiscoverthatmanagementalreadyhadafour-year-old,500-pagedocumentwithextensiveplansandrecommendationsproducedbyadifferentconsultingfirminapreviousengagement.Theyreported:

Theolddocumentwasverygood.Ithadbenchmarkingcoststudiesfrombest-practiceutilitiesallaroundtheworld,summariesofthemostsuccessfultrainingsystemsinotherindustrialcompanies,andprettydetailedimplementationcalendars….Asouranalysiswasbasedonthesame…informationthatwasgiventothelastconsultantsfouryearsbefore…ourrecommendationswerebasicallythesame.Theproblemwasnotanalysis.Itwasimplementation.Althoughwecouldidentifysomenewareasforimprovement,thecorewasalmostacopyoftheolddocument….Theclientalreadyhadthebasicinformationweweregivingthem.5

EachyearthehundredsofbusinessschoolsintheUnitedStatesgraduatemorethan80,000MBAsandconductnumerousresearchstudiesonbusinesstopics.Businesseducationandresearcharegrowinginscopeandprominenceincountriesaroundtheworld.Yetthetranslationofthisresearchandmanagementeducationintopracticeproceedsslowlyandfitfully.Thereislittleevidencethatbeingstaffedwithpeoplewhohaveanadvancededucationinbusinessisconsistentlyrelatedtooutstandingorganizationalperformance.Manytop-performingfirms—SouthwestAirlines,Wal-Mart,TheMen’sWearhouse,ServiceMaster,PSS/WorldMedical,SASInstitute,AES,WholeFoodsMarket,andStarbucks—don’trecruitattheleadingbusinessschoolsanddon’temphasizebusinessdegreecredentialsintheirstaffingpractices.Numerousresearchershavefoundthat“littleofwhatistaughtincollegeorevenbusinessschoolsreallyprepareswould-bemanagersfortherealitiesofmanaging.”6Onestudyreportedthat73percentofthesurveyedMBAprogramgraduatessaid“thattheirMBAskillswereused‘onlymarginallyornotatall’intheirfirstmanagerialassignments.”7

Didyoueverwonderwhysomucheducationandtraining,managementconsultation,organizationalresearch,andsomanybooksandarticlesproducesofewchangesinactualmanagementpractice?Didyoueverwonderwhythelittlechangethatdoesoccuroftenhappenswithsuchgreatdifficulty?Whyitisthat,attheendofsomanybooksandseminars,leadersreportbeingenlightenedandwiser,butnotmuchhappensintheirorganizations?

Wewondered,too,andsoweembarkedonaquesttoexploreoneofthegreatmysteriesinorganizationalmanagement:whyknowledgeofwhatneedstobedonefrequentlyfailstoresultinactionorbehaviorconsistentwiththatknowledge.Wecametocallthistheknowing-doingproblem—thechallengeofturningknowledgeabouthowtoenhanceorganizationalperformanceintoactionsconsistentwiththatknowledge.Thisbookpresentswhatwelearnedaboutthefactorsthatcontributetotheknowing-doinggapandwhyandhowsomeorganizationsaremoresuccessfulthanothersinimplementingtheirknowledge.

Wehavespentthelastfouryearsonacrusadetolearnaboutwhatcausestheknowing-doinggapandhowtocureit,andhowsomeorganizationsavoidthegapsinthefirstplace.Westartedbyscouringthepopularandacademicliteraturetofindstories,casestudies,andlarge-scalestudiesofmultiplefirmsthatcouldprovideinsightsintotheknowing-doingproblem.Wefoundevidence

thatorganizationsineveryindustrysufferfromthismalady.Butwefoundfewsatisfactoryanswersabouteitherthecausesorremediesforthisvexingproblem.Thereforeweperformedaboutadozenofourownqualitativeandquantitativestudiesofknowing-doingproblemsinorganizations,includingfinancialservicefirms,productdesignfirms,traditional“metal-bending”manufacturingcorporations,miningfirms,electricpowerfirms,andretailandrestaurantchains.WealsotaughtclassesatStanford,inboththebusinessandengineeringschools,whereourmanagementstudentsdidabout100oftheirowncasestudiesofknowing-doingproblemsandhowtheseproblemshadbeen,ormighthavebeen,repaired.

Weexaminedawiderangeoforganizationalpracticestolearnabouttheknowing-doinggap.However,wehavefocusedmoreonasetofpracticesthat,althoughseldomimplemented,areknownbymostmanagers,arewidelytalkedaboutinorganizations,andhavebeenconsistentlyshowntoincreaseorganizationalperformance:so-calledhigh-commitmentorhigh-performancemanagementpractices.Thesepracticeshavebeendescribed,andtheirpositiveeffectsonperformanceanalyzed,innumerousbooksandarticles.8Wewilltouchonthisevidenceasneededtomakeourpointsabouttheknowing-doinggap,butwillnotpresentdetaileddescriptionsofeachofthesepracticesoranextensivereviewoftheevidenceshowingtheirpositiveeffectsonperformance.Ourinterestisinunderstandingthebarrierstoturningknowledgeintoactionandhowsomefirmsovercomesuchbarriers.Theknowing-doingproblemswehaveobservedaregeneralandseemtocrosstopicdomains,includingtheapplicationofmarketingknowledgeandbestpracticesincustomerserviceandretentionandtheimplementationofsuperiormanufacturingpractices.

Wefoundnosimpleanswerstotheknowing-doingdilemma.Giventheimportanceoftheknowing-doingproblem,ifsuchsimpleanswersexisted,theywouldalreadyhavebeenwidelyimplemented.Andtherarefirmsthatareabletoconsistentlytranslateknowledgeintoactionwouldnotenjoythesubstantialcompetitiveadvantagesthattheydo.Wewillprovideyouwithinsightsanddiagnosesofsomeimportantsourcesofknowing-doingproblemsandwithexamplesofcompaniesthatsufferseverelyfromsuchproblems,companiesthatdon’t,andsomethathavebeenabletoovercomeknowing-doinggaps.Butoneofthemostimportantinsightsfromourresearchisthatknowledgethatisactuallyimplementedismuchmorelikelytobeacquiredfromlearningbydoingthanfromlearningbyreading,listening,oreventhinking.Thereisalimittowhatwecandoforyouinthisbook,regardlessoftheinsightswehaveacquired.

Oneofourmainrecommendationsistoengagemorefrequentlyinthoughtfulaction.Spendlesstimejustcontemplatingandtalkingaboutorganizationalproblems.Takingactionwillgenerateexperiencefromwhichyoucanlearn.

Whenwedescribedtheknowing-doingproblemtoothers,wefrequentlygotthesameresponse.Peoplewouldsaythattheknowing-doingproblemcomesfrominherentproblemsofindividuals—alackofknowledgeorskillsor“personality”problems—andthatitsexistenceisareflectionofindividualdeficiencies.Itisn’t.Ifyouworkinaplacewhereyouoryourcolleaguesdon’tturnyourknowledgeintoaction,itprobablyisn’tjustyourfault.Thereisnodoubtthatsomepeoplearebetterabletoactontheirknowledge,thatsomepeoplearementallyhealthierandbetteradjustedthanothers,andthatindividualpsychologymustsurelyplaysomeroleintheknowing-doingproblemsweuncovered.Butourresearchsuggeststhatthisisnotalargepartofthestory.Someorganizationsareconsistentlyabletoturnknowledgeintoaction,anddosoevenastheygrowandabsorbnewpeopleandevenotherorganizations.Otherorganizations,composedofintelligent,thoughtful,hard-working,nicepeople,failtotranslatetheirknowledgeaboutorganizationalperformanceintoaction.Itisalmostasifthereweresomekindofbrainvacuuminthosefirmsthatsucksthewisdomandinsightoutoftheirpeople.Thesedifferencesacrossfirmscomemorefromtheirmanagementsystemsandpracticesthanfromdifferencesinthequalityoftheirpeople.Greatcompaniesgetremarkableperformancefromordinarypeople.Not-so-greatcompaniestaketalentedpeopleandmanagetolosethebenefitsoftheirtalent,insight,andmotivation.Thatiswhywefocusonmanagementpracticesthateithercreateorreducetheknowing-doinggap.

ImplementationorIgnorance:DoesaKnowingDoingGapReallyExist?

Howdoweknowthatknowledgeisn’talwaysimplementedandthatthisisaproblemaffectingorganizationalperformance?Andperhapsevenmoreimportant,howcanorganizationsdiscovertowhatdegreetheyarenotactuallydoingwhattheythinktheyshould?Theseareimportant,butrelativelystraightforward,issues.

EvidenceofKnowingDoingGaps

Thereareanumberofstudieswithinsingleindustriesdemonstratingthattherearesuperiorwaysofmanagingpeopleandorganizingtheirwork.Yetalthoughthesesuperiormanagementpracticesarereasonablywellknown,diffusionproceedsslowlyandfitfully,andbackslidingiscommon.Astudyofapparelmanufacturingdemonstratedthatmodularproduction,withanemphasisonteam-basedproduction,producedfarsuperioreconomicperformancealonganumberofdimensionscomparedwiththetraditionalbundlesystemofmanufacturingusingindividualpieceworkandlimitedtraining.9Tradepublications,industryassociations,andtherelevantunionshadfavoredmodularproductionsincetheearly1980s.Nonetheless,in1992about80percentofallgarmentswerestillsewnusingthebundlemethod,andsomeplantsthathadadoptedmodularproductionabandoneditandreturnedtothebundlesystem.

Similarly,evidencefortheadvantagesofflexibleorleanproductioninautomobileassemblyiscompelling.10Thisknowledgeiswidelydiffusedwithintheindustryandhasbeenforsometime.Nevertheless,afive-yearfollow-upstudyofthediffusionofflexiblemanufacturingsystemsfoundthattherewasonlymodestimplementationofflexiblearrangementsandthat“someplantsundertookonlyminorchangesintheiruseofhigh-involvementworkpractices…andstillothersshowedmodestdecreases.”11Andalarge-scalestudyofsemiconductorfabricationrevealedsubstantialdifferencesinperformance,asmeasuredbycycletime,lineyield,anddefectdensity,basedonthemanagementpracticesused.Yetthestudyfoundsubstantialvariationinthesepractices,eveninanindustrythatwascharacterizedbygeographicconcentration,particularlyofcorporateheadquarters,andsubstantialmovementofpersonnelbetweenfirms.Intheseandotherstudiestheevidenceseemscompellingthat,althoughtherearebetterwaysofmanagingandorganizing,thesesuperiorpracticesarenotnecessarilyquicklyorreadilyadopted.12

Someotherexamplesillustratethefrequentlylargegapbetweenknowingthatsomethingisimportantandactuallydoingit.Forinstance,theAssociationofExecutiveSearchConsultantsconductedasurveyinwhich“three-quartersoftherespondingCEOssaidcompaniesshouldhave‘fasttrack’programs,[but]fewerthanhalfhaveoneattheirowncompanies.”AsnotedinaFortunearticlecommentingonthisstudy,“Maybechiefexecutivesdon’tsaywhattheymean,andmaybetheyhavetroubleimplementingwhattheysay.”13Ourresearchindicatesthatitisthelatterproblem—implementingwhatleaderssayandknow—thatismorepervasive.

Evidencefromvariousindustrystudies,andfromstudiesoffirmsinmultipleindustries,showsthatknowledgeofhowtoenhanceperformanceisnotreadilyoreasilytransferredacrossfirms.Moreover,thereisevidencethatknowledgeofhowtoenhanceperformancedoesn’ttransferreadilyevenwithinfirms.Therearepersistentandsubstantialdifferencesinperformancewithinfacilitiesinthesamecompany.Onestudyof42foodplantsinasinglecompanydoingessentiallythesamemanufacturingtaskswithsimilartechnologiesfounddifferencesinperformanceof300percentbetweenthebest—andworst—performingplants.Thebestplantearned80percentmorethanthemean,andtheworstplantearned40percentlessthanthemeanforalltheplants.14Astudyofoilrefineriesreportedlittleconsistencyinperformanceinmultirefineryorganizations.Therewasnoevidenceofa“companyeffect”onperformance,indicatingthattherewasnotmuchconsistencyinmanagementpracticesorphilosophyacrossdifferentfacilitieswithinthesamecompany.15

AnintensivestudyofanefforttomakeaHewlett-Packard(HP)manufacturingunitmoreeffectivereported:“Byinterviewingthirteensuchstakeholdersfromotherdepartments,includingprocurement,processgeneration,engineering,andfinance,designteammembersdiscoveredthatcommunicationbetweendepartmentswaspoor,thuslimitingthedegreetowhichtheylearnedfromeachother….Opportunitiestoshareinnovativeprocesstechnologiesorothersourcesofcompetitiveadvantagewerebeingoverlooked.”16TheproblemsassociatedwithtransferringknowledgewithinHPhaveledLewPlatt,theCEO,tolament,“IwishweknewwhatweknowatHP.”17Anotherstudyofthetransferofbestpractices,orknowledge,withinfirms,noted:

Youwouldthinkthat…betterpracticeswouldspreadlikewildfireintheentireorganization.Theydon’t.AsWilliamBuehler,seniorvicepresidentatXerox,said,“Youcanseeahigh-performancefactoryoroffice,butitjustdoesn’tspread.”…OneBaldrigewinner[said],“Wecanhavetwoplantsrightacrossthestreetfromoneanother,andit’sthedamnedestthingtogetthemtotransferbestpractices.”18

MeasuringtheKnowingDoingGapWewantedtoseeifwecouldquantitativelymeasuretheknowing-doinggapand

iftherewerestatisticallysignificantdifferencesbetweenwhatmanagersthoughtshoulddoneandwhatwasactuallybeingimplemented.Perhapstheobserveddifferencesinpracticesevenwithinasingleorganizationwereafunctionofdifferencesinbeliefsaboutwhatoughttobedoneratherthanbecausethatknowledgewasn’tbeingimplemented.So,basedontheliteratureonhigh-commitmentmanagementpracticesandonorganizationalinnovation,wedevelopedasetof25statementsthatrepresentedthesemanagementpractices.Theappendixpresentsthefulllistofthesestatements.Wedescribethesurveyinmoredetailtherebecauseitisausefultoolthatfirmscanemploytolearnaboutthemselves.Wethenadministeredasurveybasedonthislistinatelephoneinterviewwiththemanagersandassistantmanagersinarandomlydrawnrepresentativesampleof120unitsofalarge,multiunitrestaurantchain.

Themanagerswereaskedtowhatextenttheyagreedthatthepracticesinthesurveyenhancedarestaurant’sfinancialperformance,usingasix-pointscalefromstronglydisagreetostronglyagree.Thesequestionsassessmanagerialknowledgeaswedefineit—thatis,whatleadersbelieveisimportantinaffectingperformanceintheirunits.Then,boththemanagersandtheassistantmanagerswereaskedtowhatextentthebehaviorinquestionwasdescriptiveofwhatoccurredintheirrestaurants—ameasureofwhatwasactuallydone—usingthesamesix-pointscale.Inmostcases,therewasexcellentagreementaboutwhatdid,infact,occurintherestaurant.Therewere,however,bigdifferencesbetweenwhattherestaurantmanagersbelievedproducedsuccessandwhattheyreportedpracticingintheirunits.For17ofthe25managementpractices,therewasastatisticallysignificantdifferencebetweenwhatthemanagersthoughtwasimportantforrestaurantsuccessandwhattheyandtheassistantmanagersreportedusingintherestaurant.Ineachinstance,thedirectionofthedifferenceindicatedthattheyweren’tdoingwhattheyknewtobeimportant(seeTable1-1).Thedatashowthat,forthemostpart,restaurantmanagersrecognizetheimportanceofsharinginformationwiththeirpeople,providingfeedback,andinvolvingtheminlearningabouthowtoimproveoperations.Theseactionsareeasiertotheextentthatmanagershirecarefully,sotherestaurantshavetherightpeopletobeginwith.Yet,therewasmuchlessimplementationofthesepracticeseventhoughtheirimportancewaswidelyunderstood.

Table1-1

DifferencesbetweenKnowingandDoingin

120UnitsofaRestaurantChain

Statement WeKnowWeShouldDo

This

WeAreDoingThis

Gettinggoodideasfromotherunitsinthechain 4.9 4.0Institutinganactivesuggestionprogram 4.8 3.9Usingadetailedassessmentprocessforhiringnewemployees 5.0 4.2Postingalljobsinternally 4.2 3.5Talkingopenlyaboutlearningfrommistakes 4.9 4.3Providingemployeeswithfrequentfeedback 5.7 5.2Sharinginformationaboutyourrestaurant’sfinancialperformancewitheveryone 4.3 3.8

Note:Responsesareratedonasix-pointscaleonwhich1equals“stronglydisagree”and6equals“stronglyagree.”Alldifferenceswerestatisticallysignificantatlessthanthe.001levelofprobability.

Timeaftertimepeopleunderstandtheissues,understandwhatneedstohappentoaffectperformance,butdon’tdothethingstheyknowtheyshould.Wedidasimilarstudyofanotherrestaurantchainthatfoundnearlyidenticalresults.Inthatstudy,wealsoobservedthatleadersfrequentlyrationalizedtheiractions—ormoreaccuratelytheirinaction—bycreatingelaborateexplanationsforwhytheychosenottodothethingstheyknewwereimportanttotheirbusinesssuccess.Theseniorexecutives,managers,andworkersthatweinterviewedinthissecondchaininvariablyhadconvincingexplanationsforparticularknowing-doinggapsandwhytheypersisted.Thefirmpaidlowwages

andoperatedinaverycompetitivelabormarket.Thismadehiring,particularlyforserviceskills,difficult.Storemanagersalsohadsomanyreportstofilloutthatevenhadtheywantedto,theydidn’thaveenoughtimetodevotetohiring.Butwhenthestoreshiredthewrongpeople,turnoverwashigher.Withhigherturnover,themanagerswereunderevenmorepressuretofillpositionsquicklyandbecameevenlessselective.Thisledtofurtherserviceandemployeequalityproblems,moreturnover,andaviciouscycle.

DoestheKnowingDoingGapMatter?

Theanswertothequestionofwhethertheknowing-doinggapactuallymattersfororganizationalperformanceisnotasobviousasitmightatfirstseem.Itispossiblethatdifferencesinorganizationalperformancecomefromdifferencesinwhatfirmsknow—thequalityanddepthoftheirinsightsaboutbusinessstrategy,technologies,products,customers,andoperations—ratherthanfromtheirabilitytotranslatethatknowledgeintoaction.Thereare,however,numerousreasonstodoubtthisisthecase.Wedonotdenythatthereareimportantdifferencesinknowledgeacrossfirms,suchasdifferencesinthesophisticationoftheirunderstandingofmanagementandoperations.Butwearguethatsuchdifferencesareonlypartofthereasonfordifferencesinfirmperformance,andthatamuchlargersourceofvariationinperformancestemsfromtheabilitytoturnknowledgeintoaction.

Whydowearguethatthegapbetweenknowinganddoingismoreimportantthanthegapbetweenignoranceandknowing?First,becausetherearetoomanyactivitiesandorganizationsinvolvedinacquiringanddisseminatingknowledgetoplausiblymaintainthattherearemanyimportantperformance“secrets.”Considertheplethoraofbooks,articles,consultants,andtrainingprogramswehavealreadydescribed.Allofthesehaveasoneoftheirobjectivesthetransmissionofinformation.Thereareorganizationsthatspecializeincollectingknowledgeaboutmanagementpractices,storingit,andthentransferringtheinformationtothosewhoneedsuchinformationaboutenhancingperformance.Theseorganizations,sometimescalledknowledgebrokers,makeabusinessoftransferringperformanceknowledge.Atleasttwomajorconsultingfirms,AndersenConsultingandMcKinsey&Company,haveunitsthatspecializeintransferringknowledgeaboutbestpracticeslearnedfromworkwithpastclients

tocurrentclientswhodidnotknow,oratleastdidnotuse,suchinformation.19Althoughthemarketforinformationabout“bestpractices”maynotbeas

efficientasfinancialorcapitalmarketsarereputedtobe,itisnonethelessimplausibletopresumethatbetterwaysofdoingthingscanremainsecretforlong.Therearefewmanagerswhocanresistthetemptationtotelltheircounterpartsatotherfirmsorthebusinesspressaboutwhattheyaredoingtoachieveorganizationalsuccess.Managersofsuccessfulfirmsarealsofrequentlyinterviewedandhiredbycompetingfirmsinthesameindustryandbyfirmsinotherindustriesthathopetolearnandimplementthepracticesofthesefirms.

SouthwestAirlinesisafirmthatusesfairlysimplebusinesspracticesthatarewidelyknown,butitcontinuestohavethebestfinancialperformanceintheairlineindustry.Numerousbooks,casestudies,andtelevisionshowshavedescribedSouthwest’smanagementapproach,20butthefirm’scompetitorshaveeithernottriedtoimitatewhatitdoesor,whentheyhave,liketheUnitedShuttledid,theyhavenotbeennearlyassuccessfulasSouthwest.

Second,researchdemonstratesthatthesuccessofmostinterventionsdesignedtoimproveorganizationalperformancedependslargelyonimplementingwhatisalreadyknown,ratherthanfromadoptingneworpreviouslyunknownwaysofdoingthings.Consideronerepresentativestudy.AfieldexperimentwasconductedwithanelectricalwholesalecompanywithheadquartersinMelbourne,Australia.Theexperimentcomparedsaleschangesinbranchesthatusedbenchmarkingwithbranchesthatsethighperformancegoals.Inthemore-effectivebenchmarkingtreatment,“atthebeginningofeachmonth…eachbranchwassenta‘LeagueLadder’showingthepercentageimprovement[insales]andrankingofallthebranchesinthatgroupforthepastmonth.Inaddition,theyweresentalistof‘BestPractice’hintscompiled…frominformationprovidedbymanagersofthebest-performingbranches.”21Overathree-monthperiod,thesebranchesimprovedtheirsalesperformancebyalmost6percent.

The“BestPractice”hintswereactually“well-knownpractices,withtheextradimensionthattheywerereinforcedandcarriedoutreliablyinthebetterperformingbranches….Mostmanagersagreedwiththehints,butclaimedtheywerealreadyawareofandemployingmostofthem….Giventhenatureofthe‘BestPractice’hints,wecanruleoutdiscoveryandcommunicationofhighlyoriginalandeffectivepracticesasthereasonforimprovementinthebenchmarkinggroup.”22Usingregularschedulestoplanweeklyactivities,

conductingmeetingsofbranchstafftoreviewanddiscussbranchstaffperformance,trainingsalesrepresentativesinunderstandingandinterpretingsalestrendreports,andusingpracticesthatensurefastandreliablecustomerservicearefarfromrocketscience.Theyare,infact,commonsense.23Itisinterestinghowuncommoncommonsenseisinitsimplementation.

OrconsiderHonda’seffortstoenhancetheperformanceofitssuppliers,whichresultedinproductivityincreasesaveraging50percentatthe53suppliersparticipatinginHonda’sBP(BestPractice,BestProcess,BestPerformance)program.24AstudyofHonda’sprocessnotedthat“theunderlyingscientificknowledgeforthereengineeringofproductionlineswasprimarilyconcreteandsimpleratherthanabstractandcomplex.”25Thechangeswereconsistentwiththeideaofkaizen,orcontinuousimprovement,mostofthembeingsmall,simple,andinmanycases,quitecommonsensicalgiventheparticularmanufacturingprocess.ThegeniusoftheHondasystemwasinitsimplementation,notinparticularlynovelorcomplicatedtechnicalideasforenhancingproductivity.

Ifthereiswidespreaddiffusionofinformationon“best”(oratleast“better”)practices,andiftheevidencesuggeststhatmanysuccessfulinterventionsrelymoreonimplementationofsimpleknowledgethanoncreatingnewinsightsordiscoveringobscureorsecretpracticesusedbyotherfirms,thenourpositionthatthegapbetweenknowinganddoingisimportantforfirmperformancefollowslogically.Thisconclusionmeansthatalthoughknowledgecreation,benchmarking,andknowledgemanagementmaybeimportant,transformingknowledgeintoorganizationalactionisatleastasimportanttoorganizationalsuccess.

HowKnowledgeManagementContributestotheKnowingDoingProblem

Onemightthinkthatwiththecurrentinterestin“knowledgemanagement”andintellectualcapital,therewouldn’tbeaknowing-doingproblem.Afterall,thereisgeneralacceptancethat“knowledgehasbecomeincreasinglyimportantasacontributortoacountry’sandindividualfirm’ssuccessinindustrialcompetition.”26TomasStewart’sconclusionistypical:“Theneweconomyis

aboutthegrowingvalueofknowledgeasaninputandoutput,makingitthemostimportantingredientofwhatpeoplebuyandsell.”27Buttheviewofknowledgetakenbymanyconsultants,organizations,andmanagementwritersisofsomethingtobeacquired,measured,anddistributed—somethingreasonablytangible,suchaspatents.Therearetwoproblemswiththisconceptionofknowledgeorknow-how.First,theconceptionofknowledgeassomethingexplicitandquantifiabledrawsaproblematicdistinctionbetweenknowledgeasatangiblegoodandtheuseofthatgoodinongoingpractice.Theemphasisthathasresultedhasbeentobuildthestockofknowledge,acquiringordevelopingintellectualproperty(notetheuseofthetermproperty)underthepresumptionthatknowledge,oncepossessed,willbeusedappropriatelyandefficiently.Aswehaveseen,thispresumptionisoftennotvalid.

Thereissomeattentioninboththemanagementliteratureandinmanagementpracticetoknowledgeinuse,butthisperspectiveiscomparativelyrare.Commentingonthepapersataconferenceonknowledgemanagement,DonCohennoted,“IntheU.S.,mostknowledgepracticefocusesoncollecting,distributing,re-using,andmeasuringexistingcodifiedknowledgeandinformation.Practitionersoftenlooktoinformationtechnologytocaptureanddistributethisexplicitknowledge;firmsmeasuresuccessbynear-termeconomicreturnsonknowledgeinvestment.”28AnErnst&Youngsurveyof431firmsconductedin1997isquiterevealingaboutwhymostfirms’effortsinknowledgemanagementarenotlikelytodomuchgoodandmayevenbecounterproductiveregardingturningknowledgeintoorganizationalaction.Accordingtodatafromthatsurvey(Figure1-1),mostfirms’effortsconsistofinvestinginknowledgerepositoriessuchasintranetsanddatawarehouses,buildingnetworkssothatpeoplecanfindeachother,andimplementingtechnologiestofacilitatecollaboration.Theseareallactivitiesthattreatknowledgeprettymuchlikesteeloranyotherresource,tobegathered,shared,anddistributed.Whatfirmshaven’tdoneverymuchisbuildknowledgeintoproductsandservices,ordevelopnewproductsandservicesbasedonknowledge.Furthermore,thereisnoitemonthislistofknowledgemanagementprojectsthatreflectsimplementingknowledgeonanongoingbasis.

Figure1-1KnowledgeManagementProjects

Source:DatafromRudyRuggles,“TheStateoftheNotion:KnowledgeManagementinPractice,”CaliforniaManagementReview40(summer1998):83.

Oneofthemainreasonsthatknowledgemanagementeffortsareoftendivorcedfromday-to-dayactivitiesisthatthemanagers,consultingfirms,andinformationtechnologistswhodesignandbuildthesystemsforcollecting,storing,andretrievingknowledgehavelimited,ofteninaccurate,viewsofhowpeopleactuallyuseknowledgeintheirjobs.Sociologistscallthis“workingknowledge.”29Knowledgemanagementsystemsrarelyreflectthefactthatessentialknowledge,includingtechnicalknowledge,isoftentransferredbetweenpeoplebystories,gossip,andbywatchingoneanotherwork.Thisisaprocessinwhichsocialinteractionisoftencrucial.Arecentstudyof1,000employeesinbusiness,government,andnonprofitorganizationsreportedthat“mostworkplacelearninggoesonunbudgeted,unplanned,anduncapturedbytheorganization….Upto70percentofworkplacelearningisinformal.”30ThisstudybytheCenterforWorkforceDevelopmentfoundthatinformallearningoccursindozensofdailyactivities,includingparticipatinginmeetings,interactingwithcustomers,supervisingorbeingsupervised,mentoringothers,communicatinginformallywithpeers,andtrainingothersonthejob.

Yet,mostknowledgemanagementeffortsemphasizetechnologyandthestorageandtransferofcodifiedinformationsuchasfacts,statistics,cannedpresentations,andwrittenreports.AJune1997ConferenceBoardconferenceoncreatingandleveragingintellectualcapitalreported:“Mostcorporateinitiativestomanageintellectualcapitalarefocusedonspecificprojects,themostcommonofwhichdeploytechnologytoshareandleverageknowledgeandbestpractices.”31Thereisanunfortunateemphasisontechnology,particularly

informationtechnology,intheseefforts.Forinstance,onerecentarticleonmakingknowledgemanagementarealityassertedthat“it’sclearthatanintranetisoneofthemostpowerfultoolsforachievingresultswithinthis[knowledgemanagement]arena.”32Anotherarticleassertedthat“knowledgemanagementstartswithtechnology.”33Webelievethatthisispreciselywrong.AstheConferenceBoardreportnoted,“Dumpingtechnologyonaproblemisrarelyaneffectivesolution.”34Whenknowledgeistransferredbystoriesandgossipinsteadofsolelythroughformaldatasystems,itcomesalongwithinformationabouttheprocessthatwasusedtodevelopthatknowledge.Whenjustreadingreportsorseeingpresentations,peopledon’tlearnaboutthesubtlenuancesofworkmethods—thefailures,thetasksthatwerefun,thetasksthatwereboring,thepeoplewhowerehelpful,andthepeoplewhounderminedthework.

Formalsystemscan’tstoreknowledgethatisn’teasilydescribedorcodifiedbutisnonethelessessentialfordoingthework,calledtacitknowledge.So,whilefirmskeepinvestingmillionsofdollarstosetupknowledgemanagementgroups,mostoftheknowledgethatisactuallyusedandusefulistransferredbythestoriespeopletelltoeachother,bythetrialsanderrorsthatoccuraspeopledevelopknowledgeandskill,byinexperiencedpeoplewatchingthosemoreexperienced,andbyexperiencedpeopleprovidingcloseandconstantcoachingtonewcomers.

TheErnst&Youngsurveydescribedearlieralsoaskedexecutivestoratetheirorganizationsonhowwelltheyweredoinginthevariousdimensionsofknowledgemanagement.TheseresultsarereproducedinFigure1-2.Managersseemtobelievetheyaredoingagoodjobingeneratingnewknowledgeandevendoingprettywellinobtainingknowledgefromtheenvironment.Whattheyaren’tdoingverywellatall,bytheirownassessments,istransferringknowledgewithintheorganization.Andperhapsmostimportant,Ernst&Youngdidn’tevenaskiftheknowledgeinthesefirmswasbeingusedbythefirms—notjustindecisionmaking,whichwascoveredinthesurvey,butinday-to-dayoperationsandmanagementpractices.

Figure1-2Self-AssessmentofHowWellOrganizationsAreDoinginTheir

KnowledgeManagementActivities

Source:DatafromRudyRuggles,“TheStateoftheNotion:KnowledgeManagementinPractice,”CaliforniaManagementReview40(summer1998):82.

Knowledgemanagementsystemsseemtoworkbestwhenthepeoplewhogeneratetheknowledgearealsothosewhostoreit,explainittoothers,andcoachthemastheytrytoimplementtheknowledge.Forexample,Hewlett-Packard’sStrategicPlanning,Analysis,andModelinggrouphashadsuccesstransferringknowledgeaboutsupplychainmanagementthathasbeenimplementedinmanyHPdivisions.Oneofthereasonsthegrouphasbeensuccessfulisthatthesamepeoplewhodothisinternalconsultingarealsoresponsibleforstoringanddisseminatingknowledgeaboutitwithinthecompany.CoreyBillington,theheadofthisgroup,describeshisjobas“partlibrarian,partconsultant,andpartcoach.”35Heisresponsibleforknowingthetechnicalsolutionsandthestoriessurroundingthe150orsoconsultingjobshisgrouphasdonewithinHPsothatheandothersinhisgroupcansuggestideastohelpnewinternalclientsandcanactuallycoachtheclientsastheyimplementtheideas.

Thesecondproblemwithmuchoftheexistingliteratureandpracticeinknowledgemanagementisthatitconceptualizesknowledgeassomethingtangibleandexplicitthatisquitedistinctfromphilosophyorvalues.AsDonCohen,awriterspecializingonknowledgeissues,putit,“Thenoun‘knowledge’impliesthatknowledgeisathingthatcanbelocatedandmanipulatedasanindependentobjectorstock.Itseemspossibleto‘capture’knowledge,to‘distribute,’‘measure,’and‘manage’it.Thegerund‘knowing’suggestsinsteadaprocess,theactionofknowersandinseparablefromthem.”36AleadingJapanesescholarintheareaofknowledgeinorganizationsmadeasimplebutimportantpoint:“Knowledgeisembeddedin…thesesharedspaces,whereitis

thenacquiredthroughone’sownexperienceorreflectionsontheexperiencesofothers….Knowledgeisintangible.”37

Thefactthatknowledgeisacquiredthroughexperienceandisoftenintangibleandtacitproducesathirdprobleminturningknowledgeintoaction.Oneimportantreasonweuncoveredfortheknowing-doinggapisthatcompaniesoverestimatetheimportanceofthetangible,specific,programmaticaspectsofwhatcompetitors,forinstance,do,andunderestimatetheimportanceoftheunderlyingphilosophythatguideswhattheydoandwhytheydoit.Althoughspecificpracticesareobviouslyimportant,suchpracticesevolveandmakesenseonlyaspartofsomesystemthatisoftenorganizedaccordingtosomephilosophyormeta-theoryofperformance.Assuch,thereisaknowing-doinggapinpartbecausefirmshavemisconstruedwhattheyshouldbeknowingorseekingtoknowinthefirstplace.

WhyTypicalKnowledgeManagementPracticesMakeKnowingDoingGapsWorse

Knowledgemanagementeffortsmostlyemphasizetechnologyandthetransferofcodifiedinformation.Knowledgemanagementtendstotreatknowledgeasatangiblething,asastockoraquantity,andthereforeseparatesknowledgeassomethingfromtheuseofthatthing.Formalsystemscan’teasilystoreortransfertacitknowledge.Thepeopleresponsiblefortransferringandimplementingknowledgemanagementfrequentlydon’tunderstandtheactualworkbeingdocumented.Knowledgemanagementtendstofocusonspecificpracticesandignoretheimportanceofphilosophy.

WhyhasitbeensodifficultforotherautomobilemanufacturerstocopytheToyotaProductionSystem(TPS),eventhoughthedetailshavebeendescribedinbooksandToyotaactuallygivestoursofitsmanufacturingfacilities?Because

“theTPStechniquesthatvisitorsseeontheirtours—thekanbancards,andoncords,andqualitycircles—representthesurfaceofTPSbutnotitssoul.”38TheToyotaProductionSystemisaboutphilosophyandperspective,aboutsuchthingsaspeople,processes,quality,andcontinuousimprovement.Itisnotjustasetoftechniquesorpractices:

Onthesurface,TPSappearssimple….MikeDaPrile,whorunsToyota’sassemblyfacilitiesinKentucky,describesitashavingthreelevels:techniques,systems,andphilosophy.Sayshe:Manyplantshaveputinanandoncordthatyoupulltostoptheassemblylineifthereisaproblem.A5-year-oldcanpullthecord.Butittakesalotofefforttodrivetherightphilosophiesdowntotheplantfloor.39

AsimilarperspectiveisevidentinthestudyexamininghowHondacreatesleansuppliers.Hondachoosesitssupplier-partnersinlargepartbasedontheattitudesofthecompanies’management.“InthewordsofRickMayo,theHondaengineerdirectingtheseactivities,‘Weareaphilosophy-drivencompany…Hondafeltitwaseasiertoteachthetechnicalknowledgeassociatedwithadifferentproductorprocesstechnologythantofindatechnically-capablesupplierpossessingthecombinationofrisk-takingattitude,motivationtoimprove,responsivenesstofutureneeds,andoverallcompetencethatisvaluedsohighly.”40

NoristhisemphasisonphilosophyjusttheviewofsomeJapaneseautomobilecompanies.TheimportanceofvaluesandphilosophyisathemethatwasrepeatedbyHowardBehar,presidentofStarbucksInternational,thecoffeecompany;DavidRusso,vicepresidentofhumanresourcesforSASInstitute,asoftwarefirmrecentlyrankedbyFortuneasthethird-bestcompanytoworkforintheUnitedStates;andGeorgeZimmer,founderandchairmanofTheMen’sWearhouse,arapidlygrowing,extremelyprofitableoff-priceretaileroftailoredandcasualmen’sclothing.Allthreeoftheseorganizationshavebeenfinanciallysuccessful,andallarerenownedfortheirpeoplemanagementpractices.Inallthreeinstances,themessagewasthesame:Whatisimportantisnotsomuchwhatwedo—thespecificpeoplemanagementtechniquesandpractices—butwhywedoit—theunderlyingphilosophyandviewofpeopleandthebusinessthatprovidesafoundationforthepractices.Attemptingtocopyjustwhatisdone

—theexplicitpracticesandpolicies—withoutholdingtheunderlyingphilosophyisatonceamoredifficulttaskandanapproachthatislesslikelytobesuccessful.Becauseoftheimportanceofvaluesandphilosophyinthemanagementprocessesofmanysuccessfulcompanies,theemphasisonthetangible,explicitaspectsofknowledgethatcharacterizesmostknowledgemanagementprojectsisunlikelytoprovidemuchvalueandmaybe,atworst,adiversionfromwhereandhowcompaniesshouldbefocusingtheirattention.

TheFirstPrinciple:IfYouKnowbyDoing,ThereIsNoGapbetweenWhatYouKnowandWhatYouDo

Peoplearealwaysfascinatedbysuccessfulcompanies.Manybusinessbookshavealargedoseof“whatsuccessfulcompaniesdo”inthem,andsuchinformationcertainlycanbehelpful.Butlearningbyreading,learningbygoingtotrainingprograms,andlearningfromuniversity-baseddegreeprogramswillgetyouandyourorganizationonlysofar.Youandyourcolleaguescancertainlyacquireconceptsandframeworksandatleasttheillusionofknowledge,ifnottherealthing.Butyouwillnotnecessarilybeanyclosertobeingabletoactuallyimplementthatknowledgeorturntheframeworksintoaction.Thereisonlyalooseandimperfectrelationshipbetweenknowingwhattodoandtheabilitytoactonthatknowledge.Theironyisthatthisstatementistrueevenforthisbook,asitisforallbooksonmanagement.Ifreadingandunderstandingabookmeantthatyouandyourfirmcouldreadilyimplementtheknowledgecontainedtherein,therewouldnotbethetremendousadvantageaccruingtothosefirmsthatareactuallyabletoturnknowledgeintoaction.Competitiveadvantagecomesfrombeingabletodosomethingotherscan’tdo.Anyonecanreadabookorattendaseminar.Thetrickisinturningtheknowledgeacquiredintoorganizationalaction.

ThisinsightwasfirstsuggestedtousbyvariousAsianmanagersandthosefamiliarwithAsian,includingJapanese,managementpractices.ThecontrastbetweenthemandtheirU.S.counterpartsinthereactionstothequestionswewereaskingwasstriking.Whenwedescribedthe“knowing-doing”researchprojecttoAmericanmanagers,theycouldimmediatelyrelatetobothitsrelevanceanditsimportance.Theywerecognizantofmanyexamplesinwhich

theyandtheirorganizationsfailedtoimplement,inpractice,theirconceptualknowledgeofhowtomanage.ButwhenwedescribedtheprojecttoJapaneseandotherAsianmanagers,theyseemedperplexed.Operatinginsystemsinwhichknowledgewaslargelydevelopedonthejob,bydoing,andinwhichmanagersweremoreoftentightlyembeddedintheactualworkprocesses,theyfoundithardtounderstandhowsomeonecould“know”andnot“do.”Thisseemedlikeaprovocativeinsight—maybetherewassomebenefitinlearningbydoingthatwasmissedintheformalclassroom-,case-,andtheory-basedpresentationsanddiscussionssotypicalofmuchcontemporarymanagementeducation,thoughitwasnotmissedininternshipandco-oplearningprograms,whichareoftenmuchmoreeffectiveindevelopingjob-relevantskills.

Andthen,throughsomestudents,webecameacquaintedwithKingstonTechnology,acompanythatseemedtoexemplifylearningbydoing.Kingston,forthosewhodon’tknow,wasrankedasnumber2inthe1998Fortunemagazinelistingofthe100bestplacestoworkinAmerica.Foundedin1987,thecompanyisthelargestmakerofcomputermemoryboards—DRAMs—intheworld,with1997salesof$1.3billionanda55percentmarketshareintheUnitedStates.Thefirmhasgrownatacompoundedrateof92percentsinceitsfounding.Itoperatesinaverydifficult,cyclical,competitivebusinessthathasfacedrapidlyfallingpricesandchallengingmarketconditions.

DavidSunandhispartner,JohnTu,havebuiltacompanyinwhichtheimplementationofknowledgeisfairlyeasyandautomatic.ThatisbecauseSunbelieves,“Ifyoudoit,thenyouwillknow.”Thismeansthat“ifmanagersaskforinputandfeedbackfromemployees,overtime,theywilllearnwhatmanagementpracticestoimplement,alter,ordiscard.Sunbelievesthathismanagementpracticesareeffectivebecausehisemployees,inlargepart,wereresponsiblefortheirdesignand/orfine-tuning.AsSunsays,‘justdowhattheytellyoutheywant.’”41

Honda,whichhassuccessfullyimportedleanproductiontechniquestoitsplantsintheUnitedStates,alsobelievesinknowledgedevelopmentandtransferthroughdirect,ratherthanvicarious,experience.Initseffortstoenhancequality,itusesaprocessthatisshortonmeetingsandpresentationsandlongondirectobservation:

Hondaemphasizeshavingpeopleactuallyseequalitydefectsdirectly….Productionworkerswilloftengotoanotherpartofthe

planttoseeacarwithadefect….Hondahasasayingforthis…“actualpart,actualsituation.”Thephilosophyisthatwhenapersonseesaqualityproblem,s/heismorelikelytoanalyzeitsystematically,tocommunicatetheproblemmoreaccuratelytoothers…,andtobemotivatedtofindapreventiveremedy.42

TheU.S.Armyandothermilitaryorganizationsprovideanothergoodexampleoflearningandknowingbydoing.Whenthearmyisnotincombat,itisconstantlytrainingforcombat.Muchofthistrainingisdonebyhavingsoldiersperformtheveryactionsthatwillbenecessaryduringwartime.Soldiersengageinstagedbattles,drills,andotherrealisticsimulationsdesignedtohavethemobserve,perform,andrepeattheactionstheywillneedtocarryoutinrealcombat.Thearmy’sNationalTrainingCenter“iscreditedwithalmostsingle-handedlytransformingthepost-Vietnamarmy….SeveralofAmerica’smostforward-thinkingcompanies—includingMotorolaandGeneralElectric—studyitasasourceofideasaboutleadershipandlearning.”43Acquiringknowledgethroughpractice,performance,andevenfailureisindispensablefororganizationsofallsizesandtypes.

Thus,atonelevel,theanswertotheknowing-doingproblemisdeceptivelysimple:Embedmoreoftheprocessofacquiringnewknowledgeintheactualdoingofthetaskandlessinformaltrainingprogramsthatarefrequentlyineffective.Asonecomprehensivestudyofthedevelopmentofexecutivesconcluded,“Onelearnstobealeaderbyservingasaleader.”44Butthispracticeisrarelyfollowed.Itisrevealingthat,atleastintheUnitedStates,thephilosophyof“ifyoudoit,thenyouwillknow”isappliedmostconsistentlyinoccupationsinwhichpeoplemightdieiftheworkisdonebadly.Althoughthereisobviouslyclassroomtrainingforsurgeons,theU.S.military,andsomeforairplanepilots,inalloftheseoccupations,trainingquicklyturnstolearningbydoing.Insurgery,thereisanold,nearlytruesayingdescribinghowaresidentlearnsanewprocedure:“Hearone,seeone,doone.”45Peopleintheseoccupationslearnprimarilybydoingbecause,regardlessofhowwelltheycananswerquestionsabouthowtodotheircraft,weonlywantthemtousetheirknowledgeonuswhentheyhaveshowntheycanactuallydothetask.

Aswewillseeinthenextchapter,manyorganizationsandmanagerswouldrathertalk,conceptualize,andrationalizeaboutproblemsandissuesthanconfrontthemdirectly.Inbusinessandbusinesseducationandtraining,theprincipleseemstobe“hearone,seeone,sayone.”And,ironically,inmany

principleseemstobe“hearone,seeone,sayone.”And,ironically,inmanycompaniespeoplearemorelikelytogetaheadbytalkingsmartthanbydoingsmartandproductivethings.Soournextchapterconsidershowtalksubstitutesforactionand,intheprocess,impedesmanycompaniesfromturningwhattheyknowaboutenhancingperformanceintoaction.

2 WhenTalkSubstitutesforAction

ONEOFTHEMAINBARRIERStoturningknowledgeintoactionisthetendencytotreattalkingaboutsomethingasequivalenttoactuallydoingsomethingaboutit.Talkingaboutwhatshouldbedone,writingplansaboutwhattheorganizationshoulddo,andcollectingandanalyzingdatatohelpdecidewhatactionstotakecanguideandmotivateaction.Indeed,rhetoricisfrequentlyanessentialfirststeptowardtakingaction.Butjusttalkingaboutwhattodoisn’tenough.Norisplanningforthefutureenoughtoproducethatfuture.Somethinghastogetdone,andsomeonehastodoit.Yet,incaseaftercase,managersactasiftalkingaboutwhattheyorothersintheorganizationoughttodoisasgoodasactuallygettingitdone.

Forexample,DavidKelley,CEOoftheaward-winningproductdesignfirmIDEOProductDevelopment,toldushowsurprisedhewastofindthat,infirmafterfirmhevisited,executivesactedasifmerelyhearingandtalkingaboutmethodsfordoinginnovativeworkeliminatedtheneedtoactuallyusethesemethods.Kelley’sreactiontoseeingsomuchtalkandsolittleactionwastogiveaspeechtoexecutivesinwhichheassertedthatanobvious,butoftenignored,“secret”tobecominganinnovativecompanyisrealizingthat“talkingaboutmultidisciplinaryteamsisnotenough.”1

Ofcourse,talkisindispensableforinspiringaction.Talkingandinteractingarewhatorganizationsareabout.Howelsecaninterdependentactivitiesbecoordinated,peoplemotivated,knowledgeandideasgeneratedandexchanged?So,thequestionis,Howandwhendotalkandrelatedacts,suchasplanningandanalysis,failtoinstigateaction?Whendotheseactivitiesbecomesubstitutesfordoinganything?Ourobservationsoforganizationsindiverseindustrieshavegeneratedinsightsaboutthesequestions,particularlyaswecomparedfirmsthat

generatedinsightsaboutthesequestions,particularlyaswecomparedfirmsthatwereeffectiveinturningknowledgeintoactionwiththosethatweremiredintalkinginsteadofacting.

Theproblemofusingtalkasasubstituteforactionoccursinmanyorganizations.Thischaptershowsdifferentwaysthattalksubstitutesforaction,explainswhytalkthathaslittleornoeffectonactionisoftenovervalued,anddescribesstepsorganizationscananddotaketoavoidthistrap.

HowTalkIsaSubstituteforAction:VariationsontheTheme

MakingDecisionsasaSubstituteforAction:TheShifttoaProject-BasedOrganizationThatNeverHappenedInsomeorganizationsthatwestudied,thereseemedtobeanunspoken,butpowerful,beliefthatonceadecisionhadbeenmadetodosomething,noadditionalworkwasneededtomakesureitwasimplemented.Decisionmakingseemedmostlikelytobeusedinlieuofaction,oratleastdidn’tseemtoleadtoaction,whentherewherefewmechanismstoensurethatagreed-uponactionswouldoccur,whenpeoplelikedeachotherandsodisagreementsweremaskedbypublicagreement,andwhentherewaslittlesenseofurgencybecauseshort-termearningswereacceptable.Allofthesefactorswerepresentinonemanufacturingfirmthatwantedtospeeduptheproductdesignanddevelopmentprocess.Thecompanyhiredanexecutivewhohadahistoryofleadingfastandsuccessfulproductdevelopmentefforts.Thisexecutiveledatwo-dayworkshopintendedtoteachpeopleaboutthecultureandworkmethodsthatareneededtosupportrapidproductdevelopment.Theworkshopresultedinalistof“tenactionablesteps.”Theveryfirstrecommendationonthatlistwastobecomeaproject-basedorganization.

Thedecisionmadealotofbusinesssense.Bygivingprojectsbudgetsanddeadlines,therewouldbemorefocusonthedevelopmentcycle.Becausetheallocationofpeople’stimewouldnowhavecosts,therewouldbeanincentivetoeconomizeonperson-hours,staffprojectsmorecarefullywiththerightpeople,andgettheprojectcompleted.Thelackofaproduct-orproject-orientedstructuremeantthatpeopleworkedonmultipleprojectstodiversifytheirportfolio,tobuildfunctionalexpertise,andtogainreputationsforsayingsmartthings,ratherthandevotingthemselvestoanyparticularproduct.Mostprojectshadnoowners.Peoplespentthebulkoftheirtimegoingfromoneprogressmeetingto

owners.Peoplespentthebulkoftheirtimegoingfromoneprogressmeetingtoanotheronthevariousprojects.Theyalsospenthourafterhoursendingandreadingnumerouse-mailmessagesassociatedwitheachproject.Onemanagercomplainedthatshecouldn’tgetanythingdonebecause,asamemberofmanydifferentprojectteams,shewasreceivingandtryingtoreadmorethanathousande-mailmessagesaweek.Theworkonmostprojectsmovedslowlybecausepeoplespentsomuchtimeinmeetingschartingtheprogress(orlackthereof)onthevariousproductsandsendingandreadinge-mailabouttheprojects.

Thedecisiontomovetoamoreproject-basedstructureemergedfromacarefulbenchmarkingprocess.Therewereexplicitcomparisonsofthefirm’smanagementpracticeswithotherfirmsinwaysthatshowedspecificchangesinworkmethodsandrewardsystemsthatcouldbeadopted.Asaconsequenceofthisanalysis,theleadersofthefirmbecamequiteknowledgeableandarticulateinexplainingwhyamoreproject-orientedfocuswouldenhancetheirproductdevelopmentprocess.

Theseniormanagementteam,includingthechiefexecutive,apparentlymadeadecisiontomovetoamoreproject-basedorganizationstructure.Wesay“apparently”becausetherewassomequestionastowhetherthedecision,althoughmade,wastrulyaccepted.Thecultureofthecompanyandthehistoryoftheexecutivesworkingtogetherdictatedthatlittledisagreementonfundamentaldecisionswouldbeopenlyexpressed.Instead,theremightbepublicacceptancebutthennothingdonetoimplementthedecision.Asthevicepresidentofresearchanddevelopmentdescribedit:

TheCEOdecidedthatitoughttobedone….Theheadofengineeringagreedthatitoughttobedone….Hedidn’tagreetodoit,butheagreeditoughttobedone.Itwascommunicatedtotherankandfilesotheywereallexpectingittohappen,atleastonsomelevel.Andnothing’shappened.

Morethanayearlater,nothinghadchanged.Therehadbeennochangeintheformalstructure,nochangeinthemethodofassigningpeopletoprojects,nochangeinthebudgetingandresourceallocationprocess,nochangeintheperformanceevaluationandreviewprocesstohighlightproject-relevantperformance,and,mostimportant,almostnochangeinthepaceorqualityoftheproductdevelopmentprocess.Projectsstilldidnothavemanagerswithrealbudgetsandprofitandlossresponsibility.Howcouldthisabsenceof

budgetsandprofitandlossresponsibility.Howcouldthisabsenceofimplementationhaveoccurred,giventheconsensusthatthechangewasbothnecessaryanduseful?

Therearemanyanswerstothisquestion,someofwhichwewillexploreinsubsequentchapters.But,itseemsclearfrominterviewingtheparticipantsthatthebeliefwasthatsincethegrouphadtalkedextensivelyabouttheissue,hadallpubliclyagreedonwhatneededtobedone,andhadeventalkedabouttheprosandconsofspecificproductdesignpractices,theproblemwassolved.Itwasasiftalkingmadethingsreal,thatconversation,inandofitself,madethingshappen.Therewerenomechanismsinplacetoactuallytrackimplementationand,asshort-termbusinessresultsremainedquitegood,therewaslittlesenseofurgencytofixtheproblem.So,theexecutivesneverbotheredtoactuallydoorchangeanythingtoensurethatthedecisiontheymadewasactuallyimplemented.Theleadershadforgottenanimportanttruisminorganizations:Adecision,byitself,changesnothing.

MakingPresentationsasaSubstituteforAction:BHPExecutivesManagefromaDarkenedRoomInthelargemanufacturingfirmjustdescribed,thereseemedtobeanunstated—andirrational—beliefthatoncethedecisionwasmade,noadditionalworkwouldbeneededtoimplementit.Anevenmoreextremeformofsubstitutingtalkforactionoccurswhenmanagersactasiftalk,writing,andanalysisarethemaintasksthatthey,oranyoneelseinthefirm,everneedtodo.Thisproblemseemstobeparticularlyacuteinlargeorganizations,especiallywheremanyseniorexecutivesarefinanciallyorientedandoutoftouchwithhowworkisdoneintheirfirms.Managersinsuchfirmsseemtospendmuchoftheirtimepreparing,delivering,andlisteningtoflashyandwell-rehearsedpresentationsthataredesignedtoimpressoneanother.Executivesdevoteagreatdealoftimetopresentations,buttheyoftenspendlittleornotime“ontheground,”tryingtodirectlylearnaboutandimproveworkprocesses.

Forexample,BurgessWinter,anIrishmanwhohadspenthiscareerinthecopperminingindustry,accomplishedaremarkabletransformationinashorttimeatMagmaCopperafterbecomingCEOin1988.Inathree-yearperiod,bybuildingcooperativerelationswiththeunionsandundertakingatransformationinworkplacemanagementpractices,theoperatingcostperpoundofcopperdeclined24percent,productionfromthecompany’sminesgrew30percent,andthecompanyenjoyedanoverallincreaseinproductivityontheorderof50

percent.2MagmawaspurchasedbyBrokenHillProprietary(BHP),alargeAustralianfirm,in1996—forapricerepresentinganincreaseinshareholdervalueofabout700percentoveraneight-yearperiod.WinterwasthengiventheresponsibilityofmanagingallofBHP’scopperoperationsthroughouttheworld,notjustMagma.Withinayear,however,Winterleftthecompany.AfterthepurchasebyBHP,Magma’sperformancebegandeterioratingalmostimmediately,andwithin18months,BHPtooka$1billionwrite-offagainsttheimpairmentoftheasset.Whathadhappened?

BHPwasalargeandbureaucraticorganizationthatemphasizedfinancialandbusinessplanningandforecastingmeetings,financialreports,andcentralizedcontrolfromcorporateheadquarters.ThesemanagementpracticessometimescreatedproblemsinBHPdivisions.Forinstance,onehigh-performingunitcouldonlygive2.75percentaverageraisesoneyearbecausetheoverallcorporationhaddonepoorlyandthatwasthecentrallydeterminedraiseamount.Peopleinthedivisionwereangryanddisheartenedthattheirexcellentworkandperformancecouldnotberecognizedbecauseoffactorsoverwhichtheyhadnocontrol.Severaldivisionsclaimedthatthecorporatecenterhadrestrictedtheirbusinessdevelopmentcapabilityandcomplainedaboutthetimeandenergylostinmeetings,reportpreparation,andespeciallyindevelopinganddeliveringpresentations.Inthecaseofthecopperoperations,BurgessWinterdescribedtoushowhespenthistimeaftertheacquisitionandwhyhehadfoundsuchdifficultyandfrustrationindoinghisnewjobatBHP:

IspentalmosttwoweeksofeverymonthflyingbackandforthtoMelbourne[thecompanyheadquartersinAustralia]andwhilethere,sittinginadarkenedroom—watchingoverheadafteroverheadbeingprojectedonthescreen.Therewereplans,reports,presentationsofstrategy,presentationsoffinancialsfromthroughouttheorganization,andsoforth.Butthepurposeofthesessionswasn’treallytolearnfromotherpartsoftheorganization.Instead,theagendawastoimpressyourcolleagueswiththequalityofthepresentationyouweregiving.Ikepttryingtoremindmyassociatesthatweweren’tinthebusinessofmakingoverheads,butinthebusinessofminingandsmeltingores,makingsteel,refiningoil,andsoforth.Ifwehadbeeninthebusinessofmakingpresentations,wewouldbedoingalotbetterthanwewere.

Everythingwascontrolledfromheadquarters,andheadquartersfeltthatthesereportsandmeetingskeptthemontopofwhatwasgoingon.Theproblemwasthereweresomanyhoursspentinmeetingsandpresentationsthattherewasn’ttimetoactuallybeinthefield,figuringoutwhatwasgoingonandactuallyimprovingoperations.

PreparingDocumentsasaSubstituteforAction:TheLeadershipthroughQualityProgramatXeroxBHPisnotalone.Therearemanyotherfirmswhereplanningactivities,holdingmeetingstodiscussproblemsandtheirsolutions,andpreparingwrittenreportsaremistakenforactuallyaccomplishingsomething.Suchfirmsproduceactions:meetings,conversations,andthegenerationofreports.Theyjustdon’tproduceactionsthathavemucheffectonimplementingwhatthefirmknows,orturningknowledgeintoaction.AnexampleisXeroxCorporation’simplementationofaTotalQualityManagementapproachinitsLeadershipThroughQualityprogram,whichgotboggeddowninproducinganddiscussingwrittendocuments.Accordingtoacasestudyofthiseffort,3theprogramwasfirstdiscussedinthesummerof1982andthenlaunchedinearly1983.Theprogram’sgoalwastohelpXeroxovercomeproblemsinmanufacturing-costcompetitiveness,timetomarket,productquality,andcustomerservice.ThisprogramwasbackedenthusiasticallybytheCEOatthetime,DavidKearns,whosawitasafundamentalpartofXerox’scompetitivestrategy.ApparentlyXeroxtookbeingadocumentcompanyquiteseriously,becausetheLeadershipThroughQualityprogramproducedmostlybooks,manuals,meetings,andaccompanyingmaterials:

ByAugust1983,theteamhadproducedasecondBlueBook,acorporateimplementationplan….The25executiveswhohadmetinFebruaryreconvened…toworkthroughtheBlueBook….Thismeetingresultedintheissuanceofthecompletedstrategicplan,nowcalledtheGreenBook….Thebulkofthe92-pagedocumentconcentratedonguidelinesforimplementation.4

OnememberoftheQualityImplementationTeamhad,fromthestart,worriedaboutsubstitutingmeetingsanddocumentsforaction:

Wewouldhaveagreatideaandbuildaprogramaroundit.Therewouldbespecialformsand3-ringbindersofinstructionsandreportsandspecialmeetings.Soontherewassomuchbusywork,itovershadowedtheoriginalintent.Thingsbecamesobureaucraticthattheydiedoftheirownweight.5

Inhindsight,thisconcernaboutsubstitutingmeetingsanddocumentsforrealactionwasjustified.In1987,fouryearsaftertheLeadershipThroughQualityinitiativebegan,implementationremainedspotty.Approximately70,000Xeroxpeoplehadcompletedsixdaysofqualitytraining,420,000person-daysoftraining.Yetassessmentinterviewsrevealedthatonly25percentofXeroxpeoplefeltthatthecompanyusedtheLeadershipThroughQualityprocessestoagreatorverygreatextent,only15percentfeltthatrecognitionandrewardswerebasedonquality,andonly13percentreportedusingcostofqualityintheirdecisionmaking.6Althoughsomebusinessmeasuresofperformancehadimprovedintheinterim,thesummaryassessmentnoted,“Despitealltheeffort,qualityisnotthebasicbusinessprincipletodayatXerox.”7Howcouldsomanymeetings,taskforces,anddocumentsproducesolittledifference?Ouransweristhatthesmalleffectwasbecauseof,notinspiteof,theprogramandhowitevolved.InXerox,likethetraditionalmanufacturingfirmandBHPdiscussedearlier,talk,meetings,documents,decisions,andanalyticalprocessescametosubstituteforaction,ratherthanguidingandfacilitatingaction.

ThereisaninterestingpostscripttotheXeroxcasethatillustrateshowtoovercomethetendencytosubstitutetalkforaction:Imposearealdeadlinewithrealmeasures:

CongresscreatedtheMalcolmBaldrigeNationalQualityAward…toencourageU.S.companiestostriveforimprovedqualityinallaspectsoftheiroperations….KearnsandAllairewereintriguedbytheaward….InDecember1988Xeroxlaunchedaconcertedyear-longbidtocompetefortheBaldrige,intheprocessundertakingagruellinginternalanalysis….AccordingtoKearns…therealvalueoftheexerciselayinforcingXeroxtofocusharderthaneveronitsqualitygoals….Thefollowingyear…thecompany’sBusinessProductsandSystemsdivisionwasoneofonlytworecipientsof

the1989BaldrigeAward.8

UsingMissionStatementsasaSubstituteforAction:ASecuritiesFirmEspouses,butDoesNotEnact,CoreValuesMissionstatementsareamongthemostblatantandcommonmeansthatorganizationsusetosubstitutetalkforaction.Don’tgetuswrong.Webelievethatmissionstatements,visionstatements,andcorporatevaluescancontributetolong-termsuccess.Muchevidencesuggeststhathavingacoreunderlyingphilosophythatiswidelycommunicated,understood,andsharedisimportantfororganizationalmanagement.9Theproblemisthattherearetoomanyorganizationswherehavingamissionorvaluesstatementwrittendownsomewhereisconfusedwithimplementingthosevalues.Thesefirmsactasifgoingthroughtheprocessofdevelopingastatement,perhapspublishingitonlittlecardsthateveryonecarriesoronplaquesorpostersonthewalls,isenoughtohelpthecompanyperformbetter.Ithasamission,ithasavision,ithasvalues.So,nowitcangoonaboutitsbusiness.

Thereisnoreasontoexpectthatjustcompilinganddisplayingaphilosophyandcorevalueswillchangehowpeopleact.Yetexecutivesactasifthesestatementshadmagicalpowerstosatisfycustomers,increasequality,andmakeemployeeshappierandmoreproductive.Becausesomanymanagersactasifsuchmagicwilloccur,EileenShapirosuggestedthatonedefinitionofamissionstatementis“Insomecompanies,atalisman,hunginpublicplaces,towardoffevilspirits.”10

Thefollowingexampleshowshowamissionstatementhelpedconvinceleadersinonesecuritiesfirmthattheydidnotneedtoaddressaproblem,eventhoughtheyrecognizedtheproblemandthefirmhaddoneanalysestoseehowitcouldbeameliorated.Thefirmhadamissionstatementthat,iffollowed,meanttheproblemcouldnothappen,sonostepsweretakentoturnknowledgeaboutreducingtheproblemintoaction.

Investmentbanksandsecuritiesfirmsallhavefinancialanalystprograms.TheseprogramstypicallyrecruittopundergraduatesfromthebestschoolstoworkforthefirmforafewyearsbeforetheanalystsreturntoschooltoearnanMBAdegree.Manyinvestmentfirmsareconcernedaboutthe“rateofreturn”ontheiranalystprograms.Analystswhohaveabadexperiencewithafirmrarelyreturnafterbusinessschool.Thefirmlosestalentithasspenttimeandmoney

developing.Worseyetfromthefirm’spointofview,analystswhohadbadexperiencestelltheirfellowMBAs,makingthefirm’srecruitingeffortsmoredifficultandcostly.Conversely,ifanalystshaveagreatexperienceinthefirm,theyaremorelikelytoreturnandtotelltheirclassmatesgoodthingsaboutthefirm,whichwillmakeiteasiertorecruittopMBAs.Executivesineverysecuritiesfirmandinvestmentbankunderstandthesimpledynamicsdescribedaboveandknow,atleastintuitively,thatthecostsofturnoverandanegativereputationaresubstantial,particularlywhenthemarketfortalentishotandpotentialrecruitshavemanyoptions.

Onekeyprobleminanalystretentionishowbadlytheanalystsaretreated.Buttopmanagersinthesefirmsseldomseethisproblempartlybecausetheirfirmshavelaudatorymissionandvisionstatementsandtheycometobelievethatthosestatementsreflecthowthingsactuallyoperate.Oneprominentsecuritiesfirmhasasetofvaluesthattopmanagementpromulgatesconsistentlyandpublishesateveryopportunity.Theseare(1)respectfortheindividual,(2)teamwork,and(3)integrity.Executivesseemtobelievethatthesevaluesensurethatthefirmwilltreatitsanalystswellandfairly.Thevaluesarewrittendown,theyarebelieved,andtheyareviewedasimportant.Buttheyarenotlived,atleastintheanalystprogram.Oneanalysisofthefirm’sprogramstates:“Yet,thewordsseemtohavereplacedaction.Aslaterinterviews…show,…analystsfeellikeprinciplesoneandtwoarenotcarriedout.”Atthisfirm,recruitingis“seenasasecondtierresponsibility.”Peoplewhoareseenashavingrealeconomicvaluedotransactions,notrecruiting.Thiscertainlydoesnotsendamessageofrespectfortheanalyststhefirmtriestorecruit.Thisproblemiscompoundedbytheworktheanalystsareaskedtodo:“Analystswantresponsibility,butgetsecretarialwork….Management’sunderlyingbeliefaboutanalystsisthattheycannotbetrustedandwillmostlikelymakemajormistakes…[thefirm]hirespeoplewhoareoverqualifiedfortheposition.”Throughout,theculturesendsthemessagethat“analystsarenotpartoftheteambutinsteadashort-termcontractorwithlimitedpotential.”11Thisbehaviorconveysalackofrespectforindividualsandtheirtalents.Analystsarenottreatedasindividualsatall,butarestereotypedaslowstatus,lowskill,andmistakepronesimplybecausetheyarelabeledasanalysts,membersofagroupatthebottomoftheorganization’scastesystem.

Teamworkisalsonotanenactedvalueatthisfirm,afailingcommontomostsecuritiesfirmsandinvestmentbanks.Thereismuchtalkaboutteams,andteamworkisoftenanarticulatedvalue,butfewfirmshaveteam-basedcompensation,andthepaysysteminsteadencouragesastarorfree-agent

compensation,andthepaysysteminsteadencouragesastarorfree-agentmentality.Thislook-out-for-yourselfpointofviewaugurspoorlyforthebankers’relationshipswiththeanalysts.Theyaretoobusylookingoutforthemselvesintheshortterm,fortheirowntransactionsanddealflow,toworryaboutretainingsomeoneyearsdowntheroad.

Thisfirmisjustoneofmanywehaveseeninwhichleadersactasifhavingsomethingintheirmissionorvaluesstatementmeantthatitmustbetrue.Itisasifwishing,ortalking,madeitso.Whentheexecutivesseeproblemsgeneratedbyrealpracticesthatclashwiththeirfirm’smissionandvalues,theyseemtobelievethattheproblemscan’tberealorasdescribed.Theydon’tseemtobecapableofacceptingthatbehaviorcanbeverydifferentfromthevaluesthefirmholdsdear.Andtheythinkthatnothingneedstochange;theybelievethatsincetheyaretalking,theyarealsodoingwhattheyaretalkingabout.Thisispreciselywhathappenedinthesecuritiesfirmjustdescribed.Seniorleadershiprefusedtobelievetheproblemexisted,eveninthefaceofsolidevidence,becauseitwasinconsistentwiththeirespousedmissionandcorevalues.

PlanningasaSubstituteforAction:BHPversusAESRelatedtothe“missionstatement”problemisthe“planning”problem.Justaspeopleconfusetalkwithactionandmissionstatementswithreality,theyfrequentlyconfusehavingaplananddoingplanningwithactuallyimplementingtheplanandlearningsomething.Therearefilecabinetsinorganizationsfilledwithplansandstrategiesthatremainunimplemented.Anenormousamountoftime,effort,andattentionareconsumedintheplanningandanalysisprocess,resourcesthatmightbebetterspentinteractingwithandchangingtheenvironmentratherthancontemplatingandtalkingaboutit.RecalltheexampleofBHPearlierinthischapter.BHPwasandcontinuestobeanorganizationthatvaluesplanningand,asaconsequence,produceswonderfuldocumentsandpresentations.Timeandattentiondevotedtoplanningandtoplanningmeetingsistimeandattentionpotentiallytakenawayfromaddressingbusinessproblemsandfrombeinginthefieldlearningandaddressingtheorganization’sissues.

Thereseemstobelittleconnectionbetweenhowmucheffortanorganizationdevotestoplanningorevenhowwellitdoesplanningandhowwellitperforms.BHPisgreatinplanningbutpoorinoperationsandfinancialperformance.Incontrast,theAESCorporation,whichbuildspowerplantsintendedtolast40years,hasnocentralplanningorstrategyfunction.Byreactingwith“disciplinedopportunism”toopportunitiesastheypresentthemselves,thefirmhasgrownat

aprodigiousrateinwhatisoftenconsideredtobearelativelystableindustry.Thecompanyhasmorethan400peopleoutdrummingupnewbusiness,morethananyofitsrivals,“halfofthemattheplantlevel,ameasureoftheextremedecentralizationandincentive-buildingnatureofthecompany’sstructure.”12Relativelyjuniorpeople,inbothhierarchicalrankandageandexperience,havetheopportunitytopursuenewbusinessopportunities,anddoso.Forinstance,alargetransactioninAustraliawasconductedbyateamheadedbysomeonewho,aftercompletingthedeal,leftAEStoreturntobusinessschool—ayoungmaninhistwenties.Thisistheopportunism.Thedisciplinecomesbecausepeopleareexpectedtogetadvicefromtheircolleagues,thereisactivetrafficonthee-mailnetworkthateveryonecanseeasdealsarediscussed,thecompanyhasahighhurdlerateforexpectedreturns,anditvirtuallyneverchasesdealsjustforthesakeofclosingthem.Insteadofcentralplanning,thecompanyhasplaceditsfaithinhavingpeopleallovertheworldgatheringinformationandmakingdecisions—aformofdistributedintelligencethathasthusfarworkedverywell.

Existingresearchontheeffectivenessofformalplanningeffortsisclear:Planningisessentiallyunrelatedtoorganizationalperformance.Summarizingextensivequantitativeandcasestudyresearch,HenryMintzbergwrote:

Anumberofbiasedresearcherssetouttoprovethatplanningpaid,andcollectively,theyprovednosuchthing.Allkindsofanecdoteshavehighlightedalitanyofproblemswithplanning,andthefactsaboutleading-edgeeffortstoapplyplanning…provedevenmorediscouraging.13

Justasmissionstatementsandtalkcansubstituteforactionratherthaninformingsuchaction,planningcanbearitualisticexercisedisconnectedfromoperationsandfromtransformingknowledgeintoaction.Ofcourse,planningcanfacilitatedevelopingknowledgeandgeneratingaction.Butitdoesnotinvariablydosoandoftendoestheopposite.

WhyDoesTalkMatterSoMuch?EvaluationsBasedonSoundingSmartandSayingaLot

Whyissomuchemphasissometimesplacedonwhatpeoplesay,andsolittleemphasisplacedonwhattheydoorenableotherstodo?Onthefaceofit,thisdoesn’tseemtomakemuchsense.Afterall,aren’tmanagers(andperhapsmanagementconsultants)whoenablethingstogetdonelikelytogainmorefinancialrewardsandgreaterstaturethantheircounterpartswhoarealltalkandnoaction?Wefoundanumberofreasonswhypeoplewhoarealltalkoftenreapmorerewardsthantheydeserve.Thesereasonshaveimplicationsforidentifyingwheretheproblemofsubstitutingtalkforactionwillbemostinsidious.

SmartTalkHappensNow,SmartActionsHappenLaterItisanaturalhumantendencytoformimpressionsofothers.Theliteraturesuggeststhatfirstimpressionsareparticularlypotentandoftendifficulttoalter,andsomeresearchevensuggeststhatwebegintoformimpressionsofothersinthefirstmomentswemeetthem.Forinstance,researchonhowfirmsselectnewemployeesshowsthatinterviewersoftendecidewhetherornottheywanttohireacandidateduringthefirstfewminutesofthejobinterview.14Thisnaturalhumantendencytoassessandevaluateothersisamplifiedinorganizationsinwhichmanagersmustmakerecurringjudgmentsaspartoftheirjobs:notjustwhotohire,butalsowhotopromote,whotoassignaspecifictaskorproject,whoseadvicetoseek,andsoforth.

Evaluations,notjustannualperformanceevaluations,andimpressionsareanomnipresentpartoforganizationallife.Sothequestionbecomes,Onwhatbasisarethesejudgmentsandevaluationsformed?Thereareatleasttwopossibilitiesthatarereasonablyindependentofoneanother:(1)Wecanformourimpressionsofothersbasedonhowwelltheyperform,howwelltheygetthingsaccomplished,andwhattheycontributetotheorganizationthroughtheiractions;or(2)wecanformourimpressionsofothersbasedonhowsmarttheyseem.Inmanyinstances,thislatterinformation—howsmartsomeoneseems—istheonlydataimmediatelyathand.Appearingsmartismostlyaccomplishedbysoundingsmart;beingconfident,articulate,eloquent,andfilledwithinterestinginformationandideas;andhavingagoodvocabulary.

Aproblemariseswhensmarttalkisconfusedwithgoodperformance.Acolleaguewhohasservedonabusinessschooladvisorygroup—seniorexecutiveswhomeetoccasionallytogiveadvicetotheschool—describedhowhelearnedthedifferencebetweensmarttalkandgreatperformance.Whenhejoinedtheadvisoryboard,hemettwobankCEOswhowerealsoserving.Onelookedlikeabankerandsoundedbrilliant.Hecouldtalkarticulatelyabout

lookedlikeabankerandsoundedbrilliant.Hecouldtalkarticulatelyaboutfinancialissuesallovertheworld,aboutfinancialinstitutionstrategies,aboutthechangingcompetitivelandscape.Hewas,ifnothingelse,asmarttalker.Theotherbankerseemedmuchlesssmooth.Hedidn’tdressassharplyandwasn’tasglibandarticulate.Ourcolleagueconfidedthatwhenhefirstmetthisotherperson,hewonderedhowhehadeverattainedhisCEOposition.Overtime,however,itbecameclearhowandwhytheless“smart”personachievedhisjob:Hisbankhasbeen,overthepastdecade,oneoftheconsistentlybestperformers,bothintermsoffinancialresultsandcustomersatisfaction.Thebankledbythesmarttalkerhasbeenanotoriousunderperformer,havingtroublegrowingitsrevenues,andincreasingitsprofitsonlythroughavigorouscost-cuttingprogram.Ourcolleaguelearned,fromfirsthandexperience,thedifferencebetweensoundingsmartandsmartperformance.Thetwoaren’talwaysnegativelyrelated,buttalkingsmartandbeingsmartarefarfromperfectlycorrelated.

Talk,soundingsmartornot,isallweoftenevaluate.Itisallweseeatfirst.Youmightnotknowhowwellapersoncanmanage,butyoucanquicklyassesshowsmartheorshesounds.Second,particularlyinlarge,complexsystemsorinorganizationsinwhichpeoplemovearoundalot,youcan’tknowwhatapersonhasaccomplishedbecauseitisnotveryvisible.Overallorganizationalperformancecomesfromtheactionsofmanyinterdependentpeople,sodiscerninganyoneperson’scontributionisproblematicandfraughtwitherror.Peoplealsomovefromjobtojobsomuchthatitisdifficulttoknow,unambiguously,whatanygivenpersonhasaccomplished.Whatyoucanknowimmediatelyandwithlessambiguityishowsmartapersonsounds.

NegativePeopleSeemSmarterUnfortunatelyforgettinganythingdoneinorganizations,oneofthebestwaysofsoundingsmartistobecriticalofothers’ideas.Thedevastatingintellectualput-downissometimespartandparceloftheacademicgame.Itislargelyharmlessinuniversitiessincelittleofconsequencehappensasaresult.Muchtooursurprise,however,put-downsareoftenpartofthecorporategameaswell.Atalargefinancialinstitutionwestudied,peoplescoredpointsbycriticizingothers’ideasinmeetings.Thisbehaviorwasparticularlylikelytooccurinfrontofseniormanagement,asjuniorexecutivessoughtstatusbyappearingtobesmartthroughcritiquingtheideasoftheirpeers,somethingthatdiminishedthestatusoftheirvictimsandincreasedtheirownstatus.

Theideathatbeingcriticalofothersmakesapersonappearsmarterisn’tjustbasedonwhatwehaveobservedinorganizations.ProfessorTeresaAmabileoftheHarvardBusinessSchoolpublishedanexperimenttitled“BrilliantbutCruel”thatshowedthatpeoplewhogavenegativebookreviewswereperceivedbyothersaslesslikeablebutmoreintelligent,competent,andexpertthanpeoplewhowrotepositivereviewsofthesamebooks.Shesummarizedherfindingsbynoting,“Onlypessimismsoundsprofound.Optimismsoundssuperficial.”15But,attheendoftheday,somethingstillneedstogetdone.Ifallthathashappenedisthatthosewiththecouragetoactuallyproposesomethinghavebeendevastatedintheprocess,theorganizationwillbefilledwithcleverput-downartistsandwithinactivity.Thissituationarisesbecausethepeoplearesoclever,andsodeterminedtoappearclever,thattheywillsucceedatcritiquingeverythingtodeath.

Itisalwayspossibletofindareasontosaynotosomeideaorproposal.Peopleinmanyorganizationsareremarkablyskilledatmakingexcusesaboutwhysomethingcan’tbedone,whysomethingwon’twork,and,therefore,whythepresent,albeitimperfect,conditionisbetterthantryingsomethingnewandactuallyimplementingnewknowledgeorideas.Beverywaryofjudgingpeoplejustonthebasisofhowsmarttheysound,andparticularlyontheirabilitytofindproblemsorfaultwithideas.Thesearedangerouspeople.Theyaresmartenoughtostopthingsfromhappening,butnotactionorientedenoughtofindwaysofovercomingtheproblemstheyhaveidentified.

PeopleWhoTalkaLotHaveMoreStatureAnotherreasonthattalkissovaluedinorganizationsisthatpeoplewhosaymorearemorelikelytobejudgedbyothersasinfluential,highstatus,andasleaders.Weonceaskedanewdivisionmanagerwhyshewasselectedforthejoboverseveralotherfunctionalmanagersandhowthingshadchangedsinceshehadbeenpromoted.Shejoked,“TheygavemethejobbecauseIcouldn’tkeepmymouthshutandwouldn’tletanyoneelsesayanythingandnowthatIamtheboss,theyexpectmetotalkevenmorethanbefore.”Thismanager’sinformaltheoryissupportedbygroupdynamicsresearchonhowtalkingtimeandinterruptingothersaffectshowgroupmembersperceiveeachother.Aswemightexpectfromourdiscussionofsmarttalk,studiesofleadershipinunstructured,leaderlessgroupsshowthatpeoplewhoareviewedasmakingmoreintelligentandvaluablecommentsaremorelikelytoemergeasleaders.Butthesestudies

alsosupportwhathasbeencalledthe“babble”or“blabber-mouth”theoryofleadership.Independentofthequalityofthecomments,peoplewhotalklongerandwhomakemorecommentsare,comparedwithlesstalkativegroupmembers,morelikelytoemergeasleadersinnewgroups,tobeidentifiedasleadersbyobserversofthegroup,tobeviewedasinfluentialbybothgroupmembersandoutsiders,andtohavegreaterinfluenceovergroupdecisions.16

Anthropologicalresearchinnumerouspreindustrialsocieties,aswellasobservationsinmodernorganizations,suggeststhattalkingmorethanothersisameansthatpeopleusetowinwhathasbeencalledthe“conversationalmarketplace.”17Inaddition,thefactthatothersallowapersontointerruptthemandtotakemoretimeisasignthattheindividualhasachievedhighstatusinagroup.GeorgeMaclayandHumphreyKnipeputitthiswayinThePeckingOrderinHumanSociety:

Wheneveraninformaldominanceorderestablishesitself,wecanusuallyworkouttherankoftheindividualsinvolvedbymeasuringthelengthoftimethattheyareallowedtotalk.Asarule,themostinfluentialpersonwillbeallowedthemosttalkingtime….Onabusyoccasion,thoseatthebottomofthehierarchyarelikelytofindthattheycanbarelygetawordinedgewise.Anindividualwhotalksmorethanothersfeelhedeserveswillgraduallybeignored.18

Forbetterorworse,peoplewhowanttogetaheadinorganizationsortoachieveinfluenceoftenlearnthattalkingalothelpsthemreachsuchgoals,perhapsevenmorereliablythantakingactionorinspiringotherstoact.Oncepeopleachievehighstatus,theyareexpectedtotalkmorethanever.Dominatingthegroup’sairtimeisonewaytoleteveryoneknowthattheyarestillincharge.Asweshownext,businessschoolsandmanagementconsultingfirmsreinforcetheviewthatprestigeisachievedbywinningintheconversationalmarketplace,notbybeingbestatturningsmartideasintoorganizationalaction.

HowBusinessSchoolsandManagementConsultingFirmsMagnifytheProblem

Thetendencyfororganizationstoplacetoomuchvalueonpeoplewhoseemsmartandwhotalkalot,andtoolittlevalueonpeoplewhodosmartthingsandgetalotofthingsdone,isexacerbatedbythewaythatMBAsandexecutivesaretaughtandbythemethodsusedinmostmanagementconsultingfirms.Manyexecutivesincontemporaryorganizationshavebeentobusinessschool.Andevenseniormanagerswhodon’thaveMBAdegreesoftenhaveattendedexecutiveeducationprogramsthataretaughtbybusinessschoolfaculty.Moreover,businessschoolscurrentlyhaveagreatdealofprestigeandallure.

Nowconsidertheessenceofthemanagementeducationprocess—thebusinessschoolexperience—aspracticedatleadinginstitutionsintheUnitedStatesaswellasthosethroughouttheworld.Theessenceofthiseducationprocessistalk—learninghowtosoundsmartincasediscussionsortowritesmartthings(talkturnedintowriting)onessayexaminationsbasedonbusinesscases.Inbusinessschoolclasses,asubstantialpartofstudents’gradesisbasedonhowmuchtheysayandhowsmarttheysoundinclassdiscussion.RobertReidwroteabookabouthisfirstyearinHarvardBusinessSchool’sMBAprogram.Henicelydescribestheclassroomprocessinwhichstudentslearnhowtotalkandlearnthatsoundingsmartinclassiswhatreallymattersinhischapter“TheBattleforAir”:

Mygeneralconcernaboutclassparticipationincreasedthroughouttheweek….Myurgencywasheightenedbythefactthatgrades(andFirstYearHonors!AndMcKinsey!…)dependedsoheavilyonin-classcommentary….Theopportunitytospeakwassuchapreciouscommoditythatmostpeoplewereterrifiedaboutblowingitbysayingsomethingshallow,repetitive,or…stupidwhentheywerefinallycalledon.19

Thepolicyofgradingonclassparticipationmakespedagogicalsenseforanumberofreasons.Thesegradingpracticesencouragestudentstocometoclassprepared.Bybeingmoreactivelyinvolvedintheclass,studentsaremoreengagedinthelearningprocess.Gradingonclassparticipationinvariablyencouragesmorefrequent,enthusiastic,andthoughtfulstudentcomments,whichcreatesmoreenergyintheclassroom.Thesearealldesirablegoals.Buthowisclassparticipationevaluated?Bysoundingsmart,bymakinginsightful,intelligent,facile,andrelevantcommentsontheissueunderdiscussion.Notby

beingabletodoanythingaboutthesituationortobeabletoactuallyimplementtherecommendationsandinsightsthatemergeintheconversation.Itissignificantthatattheverybeginningoftheirtraininginbusiness,andthenthroughouttheircontinuingeducationexperiences,peoplelearnthatwhatmattersissoundingcleverinfrontofyourpeersandyourboss—theprofessor.Theylearnthatwhatmattersistheabilitytotalkintelligentlyandconvincinglyaboutbusinessproblems.

Ifpeoplelearnthatsmarttalkiswhatmattersinschool,thelessonsafterschoolonlytendtoreinforcethismessage.Thehottestjobmarketforbusinessschoolgraduatesrightnowismanagementconsulting,withofferstypicallyexceedingsixfigures(inU.S.dollars)commonforgraduatesofmajorbusinessschools.Consultingfirmsexpandedrapidlyafterthedownsizingofmiddlemanagementandcorporatestaffs.Thisdownsizing,muchofwhichresultedfromadvicegivenbythesesameconsultingfirms,hascausedmanyfirmstohireconsultantstodotheworkthatwasoncedonebythose“excess”middlemanagersandstaff.Thedemandforpeopleissogreatthatconsultingfirmsareavidlyrecruitingnotjustnewlymintedbusinessschoolgraduates,butalsoexperiencedpeoplewiththerightstufftosucceedintheconsultingindustry.

Whatconstitutestherightstuffforsucceedinginconsulting?Whatdoconsultantsdo?Moretothepoint,whatistheirworkproduct?Writtenreportsandpresentationsfilledwithsharp-lookingoverheads!Managementconsulting,oneofthehottestandmostprestigiousoccupations,certainlyasmeasuredbytheeconomicrewardsforitspractitioners,sellstalk.Thisisnottodiscountthevaluethatmanagementconsultantscanprovide.Somefirmsofferinsightsonthemacro-economy,othersprovideindustryexpertise,systematicdataandanalysis,orvaluable,novelperspectives.Butwhattheyrarelyprovideisimplementation.Membersofthesefirmsoftencomplainthattheirreportsandpresentationsdonotleadtoorganizationalaction.Thereisincreasingtalkbythesefirmsaboutimplementation.Butattheendoftheday,whatconsultantsprovideisadvice—talk—andonlyoccasionallydotheygetinvolvedinthedetailsofdoingsomething.So,onecanbeaplantmanagerandmake,dependingonthefirm,theindustry,andthesizeoftheplant,between$80,000and$100,000.Oronecanbeinthebusinessofgivingadvicetotheplantmanagerandmakeabouttwiceasmuch.Notonlydoesthisposeaninterestingcareerchoice,itsendsamessageaboutthevaluetheeconomycurrentlyplacesonbeingabletoactuallyrunsomethingcomparedwithbeingabletotalkaboutrunningsomething.

Aswesuggestedearlier,thisemphasisontalkingsmartandtalkingalot,first

intheclassroomandlateronthejob,seemstoreflectanunstatedbutwidelyfollowedbeliefthattalkissomethingthathappensnow,andactionissomethingthathappenslater.Theideaisthataslongaswearetalkingaboutdoingtherightthingnow,thenweareusingourtimewiselyevenifweneverquitegetaroundtodoingit.SteveMariucci,theheadcoachoftheSanFrancisco49ersfootballteam,gaveaspeechinwhichhenotedthatanalmostidenticalproblemhasoccurredoneveryteamhehasknown:Playersandcoachestalkaboutwhatplaystheyshoulddesignorpracticeandwhatnewcoachingtechniquesorexerciseregimenstheyshouldimplement,buttheyoftendon’tgetaroundtodoingthesethings.Mariuccitoldthecrowdthathetriestofightthisproblembyneverwearingawatch,because“Ialwaysknowwhattimeitis.ItisalwaysNOW.AndNOWiswhenyoushoulddoit.”20

Talkisalsovaluedbecause,asnotedearlier,thequantityand“quality”oftalkcanbeassessedimmediately,butthequalityofleadershipormanagementcapability,theabilitytogetthingsdone,canbeassessedonlywithagreatertimelag.Suspendingevaluationuntilmoretangibleoutcomesoccurisdifficultforseveralreasons.First,doingsoclasheswiththenaturalhumantendencytoformimpressionsquickly,tocategorizeandstereotypepeopleequallyswiftly,andtoresistinformationthatcontradictssuchfirstimpressions.Second,itdoesnotfitwithinthetimescaleofmostorganizations’performanceappraisalandcareerprogressionsystems.IfImustappraiseyoumorerapidlythanIcanreliablyassesshowwellyouareactuallydoingintermsofjobperformance,oneofthefewthingsIcanuseinmyassessmentofyouishowcompetentyoumakeyourselfsound.Similarly,iftheorganizationmovespeopletonewpositionsonatimescalethatprecludesthemeversufferingorenjoyingtheconsequencesoftheirdecisionsandactions,itensuresthatpeoplecanonlybeevaluatedonhowsmartandcompetenttheyseemtobe—impressionsbasedmostlyonhowtheysoundratherthanwhattheydo.

TheMystiqueofComplexity

StatusSeekingthroughJargonInadditiontosayingsmartthingsandtalkingalot,anotherwaytoimpressothersisbyusingcomplexlanguage,complexideas,complexsentencestructure,andcomplexanalysisinaddressingorganizationalissues.Academicsareinfamousfortryingtoincreasetheirstatusbyusingcomplexlanguagetomask

simpleideas.C.WrightMills,afamoussociologist,notedthatthecomplexlanguageusedbyacademicsusuallyhasnothingtodowiththecomplexityofthesubjectmatter.Rather,“ithastodoalmostentirelywithcertainconfusionsoftheacademic…abouthisownstatus….Desireforstatusisonereasonthatacademicmen[sic]slipsoeasilyintounintelligibility.”21

Managersareoftenjustasguiltyasacademicsofusingcomplex,incomprehensiblejargontoexpressideasthatcouldbeexpressedinsimplelanguage.Unfortunately,usingcomplexlanguageandambiguousterminologyconfusespeopleandinhibitsaction.Oneorganizationwestudiedgaveemployeeslaptopcomputerstoprovidethemaccesstoe-mailandtheInternet,butdescribedthisasa“transformationtoavirtualorganization.”Thisjargonconfusedpeople,whothoughtthatthelaptopswerepartofsomemassivereorganizationandchangeinworkpractices.Thisresultedinweeksofspreadingrumors(e.g.,“ourofficeisclosingandweallhavetoworkfromourhomes”)andgeneralconfusion.

Theuseofcomplexlanguagehampersimplementationevenmore,however,whenleadersormanagersdon’treallyunderstandthemeaningofthelanguagetheyareusinganditsimplicationsforaction.Itishardenoughtoexplainwhatacomplexideameansforactionwhenyouunderstanditandothersdon’t.Itisimpossiblewhenyouusetermsthatsoundimpressivebutyoudon’treallyunderstandwhattheymean.Wediscoveredtheseverityofthisproblemwhenwestartedaskingmanagerstodefinethejargontheywereusingandwhatitmeantforhowpeopleintheirorganizationsoughttoact.Duringthepastfiveyears,wehaveaskedthisquestionofmanagerswhousedtermssuchaslearningorganization,balancedscorecard,businessprocessreengineering,chaostheory,paradigm,andvirtualorganization.Inmanyinstances,themanagerswereunabletogiveanydefinitionatallor,iftheygaveone,itwaswoefullyinadequate.

ConfusingEaseofUnderstandingwithEaseofImplementationComplexandincomprehensibletalkwastestimeifmanagersjustuseittogainstatus.Complicatedtalkdoesevenmoreharm,however,whenmanagersactuallytrytouseitasabasisfordesigningstructures,work,procedures,andstrategies.Inanefforttogainstatusthroughcomplexity,theleaderswindupconfusingothersintheirorganizationsandhindertheabilitytoturnknowledgeintoaction.FewseniorexecutiveswoulddescribetheirstrategyasDennis

Bakke,theCEOoftheenormouslysuccessfulglobalindependentelectricpowerproducerAES,did:“Wetryabunchofstuff,weseewhatworks,andwecallthatourstrategy.”Rather,complexityisvaluedinmanyfirms.Afterall,iffewpeoplearesmartenoughtocomprehendwhatthefirmisdoing,themanagementmustbereallysmart!

Thispreferenceforcomplicatedlanguage,strategies,andconceptsisbasedonanideathatisatoncepartlyrightandpartywrong.Thelogicisasfollows:(1)Firmsseektodevelopsustainablecompetitiveadvantage,whichrequires,bydefinition,doingsomethingthatisdifficulttoimitate;(2)itseemslogicalthatmore-complexmanagementsystems,strategies,ideas,andanalysesaremoredifficulttoimitatethansimplerversions;so,(3)sustainablecompetitiveadvantageisbuiltbydoingcomplex(andconsequentlydifficulttodo)things.Acorollaryofthislogicisthatsimpleprescriptionscannotpossiblybeofmuchvalue.Ifthesesimpleprescriptionswereusefulandvaluable,everyonewouldbedoingthemalreadybecauseoftheirsimplicity.Sincetheyaren’tbeingwidelyimitated,theycan’tbeworthmuch.Thisreasoningapplieswithparticularforcetooldideas.Surelyiftheideascouldbenefitfirms,theywouldalreadybewidelyadopted.Sothelogicsuggeststhattheonlyrarethingsworthdoingmustbethingsthatarerarebecauseoftheircomplexity.Thiskindoflogicmakescallingsomething“commonsense”aninsult.Yetitisacompliment.Intheworldofmanagementandorganizations,commonsenseisfarfromcommon.

You’reLikelytoFindTalkSubstitutingforActionWhen

Nofollow-upisdonetoensurethatwhatwassaidisactuallydonePeopleforgetthatmerelymakingadecisiondoesn’tchangeanythingPlanning,meetings,andreportwritingbecomedefinedas“action”thatisvaluableinitsownright,evenifithasnoeffectonwhatpeopleactuallydoPeoplebelievethatbecausetheyhavesaiditanditisinthemissionstatement,itmustbetrueanditmustbehappeninginthefirmPeopleareevaluatedonhowsmarttheysoundratherthanonwhattheydoTalkingalotismistakenfordoingalot

Complexlanguage,ideas,processes,andstructuresarethoughttobebetterthansimpleonesThereisabeliefthatmanagersarepeoplewhotalk,andothersdoInternalstatuscomesfromtalkingalot,interrupting,andbeingcriticalofothers’ideas

Thefundamentalpremiseofthischainofreasoningiscorrect.Sustainablecompetitiveadvantageisbuiltbydoingthingsthataredifficulttoimitate.Butthislineofreasoningconfuseseaseofunderstandingwitheaseofimplementation.Ideaslikedecentralizationanddelegationofdecision-makingresponsibility,sharingperformanceinformation,recruitingforjobskillsaswellasculturalfit,andtreatingpeoplewithrespectanddignityareeasytounderstand.Butactuallydelegating,aprocessthatentailsgivingupdecision-makingpower,isquitedifficulttoaccomplishinpractice.Sharinginformationwithallofyourpeopleentailsgivingupthepowerandprestigethatcomesfromknowingthingsthatothersdon’t.Recruitingforculturalfitinsteadofjustjobskillsrequiresthepatiencetodeveloptheabilitytodosoandbeingclearaboutdimensionsoffit.Actuallyputtingyourpeoplefirstandtreatingthemasiftheymattertotheorganization’ssuccess,althougheasytotalkaboutandeasytounderstand,isnotoriouslydifficulttoimplement.

Complexityinterfereswithturningknowledgeintoactionbecauseforknowledgetobeimplemented,itusuallymustbeunderstoodbylargenumbersofpeoplewhooftenworkinwidelyscatteredlocales.Comparedwithsimpleideas,complexconceptsaremoredifficulttocommunicatebroadlytolotsofpeopleindispersedlocations.Moreover,forknowledge,particularlyaboutspecificmanagementpractices,tobeimplemented,thatknowledgemusthavemeaningthatisreasonablystableandisconsistentovertime.Thinkbacktosomeoftheexamplesfromthefirstchapter.Forinstance,Honda’sprinciplefortrainingitssuppliersinquality,“actualpart,actualplace,actualsituation,”22isdeceptivelysimple.DavidRussomaintainsthattheSASInstitute’ssuccessinbuildingoneofthebestsystemsinthesoftwareindustryforattractingandretainingtalentcamefromrecognizingthatthefirm’smostimportantassetswalkoutthedooreverynightandthatthecompanyneedsthembackthenextday.Thefirmtreatsitspeopleasiftheyreallymatter,whichmeanstakingcare

ofthepeoplethatareimportanttotheemployees,includingtheirhusbandsandwives,children,domesticpartners,andparents.Itisasystemthatnotonlyreflectscommonsensebut,becauseofitsclarityandsimplicity,canalsobeimplementedevenasSAShasgrownto5,000employeesoperatingallovertheworld.Simple,clear,logicalprinciplescanbecommunicatedmorereadilyandcanbemoreeasilyimplementedinaconsistentfashionthancomplexorvagueones.

HowSomeOrganizationsAvoidHollowTalkandPromoteAction

Nowthatwebetterunderstandsomeofthereasonsthattalkisusedasasubstituteforaction,wecanseehowsomeorganizationsavoidthisproblem.Wearguedthatmanagementeducationfrequentlyteachesandrewardspeopleforsoundingsmartandthattheprofessionofmanagementconsultingisbasedinimportantrespectsontalkandpresentations.OthercompaniesandpeoplewithoutMBAsalsousetalkasasubstituteforaction.Wedon’trejectinformaltalk,formalpresentations,andquantitativeanalysis.Theseareoftenimportantprecursorstointelligentaction.It’sjustthattheyarenotsubstitutesforaction.And,obviously,hiringMBAsoroutsideconsultantswhohavelotsoftalentandgoodideascanbeuseful.Buttherearetrade-offsinvolvedthatarenotalwaysrecognized.Bringingpeopleintotheorganizationwhoseprimaryskillistalk—aseitheremployeesorconsultants—maymeanthat,alongwiththeideasandskills,thefirmhasimportedbarrierstoactingontheknowledgeithaspurchased.

Wefoundthatmanyorganizationsthatavoidusingtalkasasubstituteforactiondooneormoreofthefollowing:

Havecareersystemsthatbringpeopleintoseniorleadershippositionswhoactuallyhaveanintimateknowledgeoftheorganization’sworkprocessesbecausetheyhaveperformedthemthemselvesandhavegrownupwithorbeenpromotedfromwithintheorganization

Haveaculturethatvaluessimplicityanddoesnotrewardunnecessarycomplexity—acultureinwhichcallingsomething“commonsense”isacomplimentratherthananinsult,andinwhichthelanguageusedissimple,

clear,anddirect

Uselanguagethatisactionorientedand,evenmoreimportant,havefollow-upprocessestoensurethatdecisionsareimplementedandthattalkresultsinactionandnotjustmoretalk

Donotacceptexcusesandcriticismsforwhythingswon’tworkorcan’tbedone,butratherreframetheobjectionsintoproblemstobeovercomeratherthanreasonsnottotry

LeadersWhoKnowandDotheWorkManyhistoriansassertthatThomasEdison’sgreatestinventionwasnotanyoftheobjectsthatheisrenownedforinventing,suchasthephonograph,electriclight,ormoviecamera.Rather,theyargue,Edison’sgreatestinventionwasbuildingabusiness,“inventionfactories,”thatproducedhundredsofdiverseinventionseveryyear.OneofthemainreasonsEdisonwasabletoenjoydecadesofsuccessinhislaboratoriesinMenloParkandWestOrange,NewJersey,wasthatheworkedcloselywithpeopleinthelaboratoriesconceiving,testing,anddevelopingideas.DespitethemyththatEdisonwasaloneinventor,manyofthethousandsofinventionsproducedbytheselabswereactuallydevelopedbypeoplewhoworkedforhim,notEdisonhimself.HistoriansoftechnologysuggestthatEdison’sworkingknowledgeandintimateinvolvementintheworkofthelaboratorieshelpedhimmakebetterdecisionsaboutwhichideaswereworthpursuingandwhichwerenot.23

TheSASInstitute,a$750millionprivatelyownedsoftwarefirm,hasbeentremendouslysuccessful—22yearsofdouble-digitgrowth,listedasoneofthebestplacestoworkinAmericabyFortuneandothermagazines,suchasWorkingMother,andrecognizedasanoutstandingcompanybyBusinessWeek.Muchofitssuccesscomesfrombeingabletoattract,retain,andusethetalentsofanoutstandingworkforce.Inanintellectualcapitalbusiness,suchassoftware,thisisthekeytosuccess.Theimportanceofpeopleinaknowledgebusinessisnotamysterioussecret—allexecutivesunderstandthisfact.WhyhasSASbeenabletoactuallyimplementpoliciesthatproduceda3percentturnoverratein1997?

Therearemanyreasonsforthefirm’ssuccess,butoneisthateverymanagerisaworkingmanager,doingajobaswellasmanagingothers.Thisevenextendstoco-founderandCEOJamesGoodnight,whospendsasignificantpercentage

ofhistimeprogrammingandleadingproductdevelopmentteams.Whenaskedwhyhedidprogramminganddevelopmentwork,heresponded,“Runningabigcompanylikethisisprettyboring.”24Asaresult,oneisaslikelytofindGoodnightworkinginanR&DbuildingonaproductdevelopmentteamasinhisCEOoffice.

WhatdoesthispracticebyGoodnightandotherseniorexecutivesaccomplish?Firstofall,bydoingprogramminganddevelopmentwork,executiveslikeGoodnighthavemorecredibilitywiththosewhoalsoactuallydothework.Peoplecannotcomplainaboutabosswhodoesnotunderstandtheirproblemsandissueswhenthebosshimselfdoesmanyofthesameactivities.Beinginvolvedintheactualworkprocessalsokeepsthemintouchwiththecoretechnologyandworkprocessesoftheorganization.Byunderstandingtheday-to-dayissuesinsoftwaredevelopment,customerrequirements,schedules,andsoforth,theyconstantlylearnabouttheorganization,theproducts,andthemarketbydoing.Theresultisthatleadershelpeveryoneturnknowledgeintoaction.And,becausetheyareintimatelyfamiliarwiththeworkoftheorganization,SASexecutivesarelesslikelytobetakeninormisledby“smarttalk.”

Wesawthisthemeatotherorganizationsthatwereparticularlysuccessfulinturningknowledgeintoaction.Theyoftenhadleaderswhowereintimatelyinvolvedinandknowledgeableabouttheworkprocess.AtTheMen’sWearhouse,forinstance,thenormisthat,wheninthestores,everyonewaitsoncustomerswhoneedassistance.AfriendwasactuallywaitedonbyGeorgeZimmer,thefounderandCEO,inthePaloAltostore.CharlieBresler,thecompany’sexecutivevicepresidentforhumandevelopment,learnedsellingandwillwaitonpeopleinthestore.Itisasales-drivenorganization,somuchsothatitdoesn’tdoasmuchmanagementtraininganddevelopmentasitthinksitshould.Butbybeingfocusedonacoreprocess—sales—thateveryoneisfamiliarwithanddoes,knowledgeisacquiredandturnedintoactionalmosteffortlessly,becausenearlyeveryoneinthefirm,includingthemostseniorexecutives,isinvolvedinthiscoreprocess.

ValuingSimplicityandAvoidingUnnecessaryComplexityAswenotedattheoutsetofthischapter,talkisinevitableinorganizationsandnecessaryfordecisionmakingandaction.Weobservedthatorganizationsthatwerebetteratlearningandtranslatingknowledgeintoactionunderstoodthevirtueofsimplelanguage,simplestructures,simpleconcepts,andthepowerofcommonsense,whichisremarkablyuncommoninitsapplication.NewUnited

commonsense,whichisremarkablyuncommoninitsapplication.NewUnitedMotorManufacturing(NUMMI)andSaturnbothhavecomparativelysimplestructures.Theyhavefarfewerjobclassificationsthanatypicalautomobileplant—twoorthreecomparedwithseventyormoreinmostU.S.plants.Theplantshavefewerhierarchicallevelsaswell—threeorfourratherthansixorseven.Thesesimplerstructurespermitquickerandmorecompletedisseminationofinformation,becausetherearefewerfunctionalsilosandfewerlayerstodistortcommunications.Assuch,thelesscomplexstructuresandtheenhancedsharingofinformationandknowledgetheypermitarepartofthereasonthatNUMMIandSaturnarebetterabletoturnknowledgeintoaction.

Similarly,theturnaroundatContinentalAirlines,whichwentfromhavingtheworston-timeperformancetothebestinaboutaone-yearperiod,occurredusingsimpleideasandpractices.AsGregBrenneman,thepresidentandchiefoperatingofficer,stated:

SometimeswhenItalktopeopleaboutthelessonstheturnaroundtaughtus,theysay,“Well,Greg,thoseseemsimpleenough.”…SavingContinentalwasn’tbrainsurgery.Theactionstoreviveamoribundcompanyusuallyaren’t….Thefactis,youcan’taffordtothinktoomuchduringaturnaround.25

Simpletalkisvaluablebecauseitismorelikelytoleadtoaction.Itislesspossibletosecondguessordisputesimple,directideas.Onemaydisagreewithasimpleideaorasimplephilosophy,butthatistransparentattheoutset.Secondguessingandfingerpointingarelargelyprecludedwhentheorganizationoperatesonthebasisofsimple,straightforwardideasandlanguage.

Simplelanguageandavoidingcomplexityalsohaveanotheradvantage.Simplephilosophies,practices,andideasare,ironically,probablyunlikelytobeimitatedbyoutsidersandcompetitors.Sincemostorganizationsaretrappedintheirloveofcomplexity,fewwillbelievethatafirm’ssuccessisbasedonsuchsimplepremises.Consequently,theymaynoteventrytoimplementwhatthesuccessfulorganizationdoes.GregBrennemanofContinentalAirlinesputitthisway:“Theyhavemanywaysofsaying,‘Ifthesolutionweresimple,wewouldhavealreadythoughtofit.’”26

UsingLanguageThatMobilizesActionandFollowingUponDecisions

DecisionsLanguageisomnipresentinorganizations.Sothequestionisn’twhethertherewillbetalk.Rather,thequestioniswhatkindoftalktherewillbeandwhatwillhappenasaconsequence.Thetestoflanguageiswhetheritgeneratesconstructiveaction.27Organizationsthatarecomparativelymoresuccessfulinturningknowledgeintoactionemploytalkthatmobilizesactionanddothingsthatensurethattalkresultsinaction.Rhetoricthatmobilizesactiongenerallyhassomecombinationofthefollowingelements:“Animaginativevisionofthefuture,arealisticportrayalofthepresent,andaselectivedescriptionofthepastwhichcanserveasacontrasttothefuture,”28aswellasenoughspecificitytomaketheactionimplicationsofthelanguageclear.

GeneralElectric’sWorkOutprocessisanexcellentexampleoftheseprinciples.TheWorkOutprocess,begunin1989,wasaneffortbyJackWelch,GE’sCEO,totransformtheculture.Originallybegunasanefforttoeliminatewasteandredesignprocessestotakeoutunnecessarywork,thechangeeffortsoonfocusedonmorefundamentalissues:

Movingthecompanyawayfromitslonghistoryoffine-tunedfinancialanalysis,time-consumingstrategicdeliberations,centralizedcontrols,multilevelapprovals,andbureaucracytoaculturecharacterizedby“speed,simplicity,andself-confidence,”focusedonmeetingcustomerneedsandwinningintheglobalcompetitiveenvironmentofthe1990s.29

Welch’slanguageanddescriptionfortheWorkOutprocesswasactionoriented:

Arelentless,endlesscompanywidesearchforabetterwaytodoeverythingwedo….Weliketosay“workoutblewupthebuilding.”Considerabuilding:Ithaswallsandfloors;thewallsdividethefunctions,thefloorsseparatethelevels.Workouttookoutthewallsandfloors,leavingallthebodiesinonebigroom.30

WelchintentionallyusedsimplelanguageandconceptstodescribetheWorkOutprocessbecause,ashisspeechesandwritingsmakeclear,hevaluedsimplicityandtheactionthatsimpleideasproduced:

andtheactionthatsimpleideasproduced:

Workoutwasnothingmorecomplicatedthanbringingpeopleofallranksandfunctions—managers,secretaries,engineers,lineworkers,andsometimescustomersandsuppliers—togetherinaroomtofocusonaproblemoranopportunity,andthenactingrapidlyanddecisivelyonthebestideasdeveloped,regardlessoftheirsource.31…Simplicityisaqualitysneeredattodayinculturesthatliketheirbusinessconceptsthewaytheyliketheirwine,fullofnuance,subtlety,complexity,hintsofthisandthat.Inthe‘90s,cultureslikethatwillproducesophisticateddecisionsloadedwithnuanceandcomplexitythatarriveatthestationlongafterthetrainhasgone.32

TheWorkOutprocesshelpedpeopletalkconstructivelywitheachotheraboutrealproblemsandsolutions,inpartbyovercomingthefunctionalspecializationandhierarchicalpowerdifferencesthatinhibitedtheflowofinformationandthetakingofaction.Asdescribedbytwoobserversoftheprocess:

Typically,functionsandlevelsinorganizationsoftenconversethroughreports,presentations,andstudies.Theseareusuallypresentedunidirectionally,followedperhapsbysomeformoflimited“QandA”[questionsandanswers].Thediscussionsthereforearelimitedindepthandinnumberofparticipants….OrganizationslikeGEcametounderstandthattheapproachesofthepast30yearseachhadmissingingredients.Amuchmoresophisticated…patternofdialogueandinteractionwasneededforcompaniestobesuccessful.33

Butevenmoreimportant,theWorkOutprocessitselfwasdesignedtostimulateanopenorganizationaldialogueaboutproblemsandissuesandthentranslatethatdialogueintoaction.TheWorkOutprocesshadthefollowingcommonelements:

Focusonabusinessissueorkeybusinessprocess….Themajorityof

sessionstookaimatimprovingaspecificbusinessprocessorissue…

Multifunctional/multilevelparticipation….Sessionsincludedpeoplefromvariousfunctionsandatdifferentorganizationallevels…

Small-groupbrainstorming…

Townmeeting…aplenarysessionforallparticipantsatwhich…ideasforimprovementwerepresentedtooneormorebusinessleades….Attheendofeachdiscussion,thebusinessleaderwouldmakeanimmediatedecisionabouttheidea…

Actionfollow-up.Ineachbusiness,aprocesswasdevelopedtoimplementapprovedWorkOutideas,andtofollow-uptomakesurethatthechangeswereactuallyputinplace.34

TheGEculturalchangeprocesshadtwoelementsthatensuredtalkwouldnotbetheonlythingthatoccurred.First,thetalkitselfentailedlanguagethatimpelledactionbecauseofthespecificityandsenseofurgencyitconveyed.Overtime,thisaction-generatingaspectoflanguageimprovedasGeneralElectricpeoplelearnedwhatkindsoftalkproducedactionsandwhatdidn’t:“Whenideaswerepresentedthatwerefocusedandtangible,theyweremuchmoreoftenacceptedthanvagueandgeneralrecommendations.”35Second,themeetingsdidnotendwithdialogue,discussion,andpresentations.Decisionsweremadeandfollow-upoccurredtoensureimplementationwaspartoftheprocess.Intownmeetings,thebusinessleaderwasrequiredtodosomethingwiththesuggestionsonthespot.Theideacouldbeacceptedorrejectedimmediately,ormoreinformationcouldberequested.Butifmoreinformationwasneeded,theboss“hadtonameateamandsetadeadlineformakingadecision.”36“Bydecidingonthespothowtohandleeachidea,thebusinessleaderwasmodelingthetranslationofdialogueintoaction….Thepurposeofthedialogueispurposefulactionforthebettermentofthebusiness—andnotjustconversationforitsownsake.”37

FollowingupthemeetingstoensurethatdecisionswereactuallyimplementedwasalsoanimportantpartoftheWorkOutprocess.Action-planningmeetingsweresometimesheldrightafterthetownmeetingstoplanthespecificstepsrequiredtoimplementtherecommendationsthathadbeendeveloped.Aspecificindividualwaschargedwithbeingthedriverofthechange.Scheduleswereset,andtherewasfollow-uptoensurethatwhathad

change.Scheduleswereset,andtherewasfollow-uptoensurethatwhathadbeenagreedtowasactuallydone.

Closingtheloop,followinguptomakesuresomethingactuallyhappenswhenitisdecided,isn’taverycomplicatedidea.Thenotionthatpeoplelearnfromdoingratherthanfromjusttalkingaboutwhattheyshoulddoisn’tverycomplicatedeither.Butthesearepotentmeansforpreventingtalkfrombeingtheonlythingthatoccurs.Closingtheloopbetweentalkandaction,alongwithlearningbydoing,arecornerstonesofthemethodsusedbytheU.S.Army’sNationalTrainingCentertofacilitatelearningduringgruelingtwo-weekwargamesinwhichbrigadesof3,000to5,000soldiersgoheadtoheadinsimulatedcombat.38Approximately600instructors(oneforeverysoldierwhohasleadershipresponsibility)followeachbrigadethroughthe18-hourday.Aftereachdayofbattle,theseinstructorshold“AfterActionReviews,”inwhichtheyworkwithcombatantstounderstandwhatwentrightandwhatwentwrongandhowtheycandobetterinthenextday’sbattle.Theinstructorsplaceespeciallystrongemphasisonlearningfromfailure,viewingtheacceptanceoffailureascrucialtotheprocessoflearningbydoing.Theseexerciseshaveledtodramaticimprovementsincombatperformance.Insteadofprovidingsoldiersvagueorabstracttalkaboutwhattodoinbattle,theloopbetweenwhathappenedduringthelastbattleandwhatwassaidabouthowtofightthenextbattleiscloseddayafterdayduringthesetwo-weekexercises.

Organizationsthatturnknowledgeintoactionbynotlettingtalksubstituteforbehaviorarerelentlesslyactionoriented—intheirlanguageandinensuringthroughfollow-upandassigningaccountabilitythatsomethinghappensasaresultoftalk,planning,anddecisions.Theseorganizationsactontheessentialtruththatifyouchangebehavior,thennomatterwhatpeoplearesaying,planning,orfeeling,therewillnotbeaknowing-doinggap.Peoplewillknow—learn—fromthedoing.Thereisalargeliteraturedemonstratingthatattitudesfollowbehavior.39Thatmeansthatpeopleacceptnewbeliefsasaresultofchangingtheirbehavior.Andthefactthatbehaviorispreeminentsuggeststhatactioncaninfluencetalkevenmorepowerfullythantalkinfluencesaction.ThegeniusofJackWelchandtheGEWorkOutprogramwastheunrelentingfocusonactionandresults,notjustonreports,meetings,presentations,anddocumentslikewesawintheXeroxLeadershipThroughQualityprogram.Similarly,thegeniusoftheU.S.Army’s“AfterActionReviews”isthatthetalkcomesimmediatelyaftereachbattle,sothelessonsthatsoldiersbelievetheyhavelearnedcanbetestedinactionrightaway.

Reframing:FromWhyItCan’tBeDonetoOvercomingObstaclesAfterSASInstitutewaslistedasoneofthebestplacestowork,andafteritslowturnoverratebecamewidelyknownatatimewhentechnicaltalentwasscarceandtheattractionandretentionofpeoplewasakeytosuccess,manycompaniessoughttovisitSASortohavesomeonelikeDavidRussocomespeaktotheirorganizationabouthowthefirmhadachievedwhatithadwithitspeople.Russocalledthisthe“pilgrimage.”But,hecommented,henoticedsomething.WhenhewouldtalkaboutwhatSAShaddone—foritwasnosecret—frequentlythemanagersfromtheothercompanieswouldbegintogivehimallthereasonswhytheycouldn’tdothesamethings.Forinstance,SAShasofferedon-sitedaycareatsubsidizedpricessince1981.Somecompanieswouldacknowledgetheimportanceofdaycareandthedistractionscausedtopeoplewhentheyhaddifficultywithchildcarearrangements,butwouldarguethaton-sitedaycarewasn’tfeasiblebecauseoftheincreasedlegalexposureentailedincaringforchildrenatthecorporation’spremises.Or,theywouldarguethatthekindsofhealthbenefitsthatSASprovidedallofitspeopleweretooexpensive.Inshort,theywouldfindexcusesforwhytheycouldn’torwouldn’tdowhattheyhad,ironically,justspentsomeeffortlearningabout.

Russo’sresponsewasoftentonotethatonecanalwaysfindareasonnottodosomething.Hewouldtellthevisitorstocomebackwhentheywereactuallyseriousaboutdoingsomethingabouttheirissues.Thereisanotherresponse,also:Reframethetaskfrombeingoneofmerelyfindingalltheproblemsorpitfallsforaparticularcourseofactiontooneinwhichthetaskisnotonlytouncoverproblemsbutalsotosolvethem.Thisreframingtransformstalkabouthowsomethingthatmaybeusefulandnecessarycan’tbedoneintotalkabouthowtodoit.Anexampleillustratestheprocess.

AcolleagueworkedatSRIinthe1970sbeforefoundinghisownstrategyconsultingfirm.HedescribedworkthatSRIdidforMerrillLynchindevelopingtheconceptofthecashmanagementaccount(CMA),anaccountthatlinkedcheckwriting,creditcards,moneymarketfunds,andtraditionalbrokerageservices.Althoughthesecombinedorlinkedaccountsarenowcommon,inthe1970stheywereatremendousinnovationandpromisedMerrillLynchacompetitiveadvantageifitcouldbefirstintothemarketplace.DonaldReganwastheCEOofMerrillLynchatthetime.OurcolleaguedescribedwhathappenedaftertheSRIpresentationontheproduct,strategy,andthecompetitiveadvantagetobeobtainedfromitsintroduction:

Reganwentaroundtheroomgettingcommentsfromtheotherseniorexecutives.Theyallsawproblems.Theoperationsvicepresidentnotedthatitnowcostthefirmmanydollarstoprocessatransaction.Thatwasfinewhenthetransactionsweresecuritiespurchasesandsales,inwhichthecommissionswerelarge.Whenthetransactionsweredepositsinmoneymarketaccounts,checkwritingonsuchaccounts,andsimilarthings,theywouldhavetobeabletoprocessthemforonlycentspertransaction.Thesystemssimplywerenotabletohandlethetask.Thelegalvicepresidentnotedthecashmanagementaccountideaswouldineffectturnthefirmintoabank,makingitsubjecttomuchmorestringentregulation….Itwouldhavetogetcharters,regulatoryapprovals,andsoforth,andthiswouldbedifficult,giventheresistanceofpotentialcompetitors.ThemarketingvicepresidentnotedthatbankswerecurrentlysomeofMerrillLynch’sbestcustomers.Theywouldcertainlybeoffendedifthefirmbecameacompetitor…andmighttakemuchoftheirbusinesstoothersecuritiesfirms.Andsoitwentaroundthetable,eachseniorexecutivestatingvalidandsensibleconcerns.40

Regandidnotdismisstheproblems.Afterall,theyweregenuineanddifficultbarrierstoimplementation.Buthealsodidnotsay,“Theseareallrealproblems,sowewon’tproceed.”Rather,hereframedtheissue,notingthathehaddecidedtoproceedbecauseoftheimportanceoftheproducttothecompany.“Sothequestionnowbecomes,howdoyousolvetheproblemsyoudescribedsoarticulately?”41Withtheissuenowframedasnotwhetherornotthefirmwasgoingtointroducetheproduct,buthowtoaccomplishitgiventherealobstaclesitfaced,thesamevicepresidentsbegantothinkofwaysaroundtheobstaclestheyhadidentified.

Organizationsthatsuccessfullyturnknowledgeintoactionhaveanurgencytodoso.Theydon’ttakeproblemsorobstaclesasreasonsnottodosomething.Rather,theyframeissuesashowtogetthingsaccomplished.Insodoing,theyactonwisdomthatotherorganizations,seeingtheprosandcons,thepitfallsanddifficulties,talkthemselvesoutofevenattempting.

Talkinorganizationscanmobilizeorsubstituteforaction,dependingonthenatureofthelanguageandhowitisused.Talk,andtherelatedactivitiesofplanning,presentations,andmeetings,alsohelpstoestablishprecedentandan

planning,presentations,andmeetings,alsohelpstoestablishprecedentandanidentityfortheorganization.Thishistoryandtheidentityitcreatescanalsoinhibitactionsthatturnperformanceknowledgeintoorganizationalaction.Weexaminehowthisoccurs,andwhatsomefirmsdotoavoidthisproblem,inthenextchapter.

3 WhenMemoryIsaSubstituteforThinking

ORGANIZATIONSTHATFAILtoimplementperformanceknowledgeoftenbehaveasifthepresentwereaperfectimitationofthepast.And,althoughexecutivesinsuchorganizationsmaydenyit,thewaysthatpeoplearehired,socialized,promoted,andrewardedmeansthatwhennewcomersjointhefirm,theysoonactlikeimitationsofthosewhocamebeforethem.Peopleinorganizationsthatusememoryasasubstituteforthinkingoftendowhathasalwaysbeendonewithoutreflecting.Evenwhentheyrealizethatanewproblemconfrontstheorganization,problemsolvingmeansfindingpracticesfromtheorganization’spastthatseemrightforsolvingthepresentproblem.Theorganization’smemory,embodiedinprecedents,customsofoftenunknownorigin,storiesabouthowthingshavealwaysbeenandusedtobe,andstandardoperatingprocedures,becomesusedasasubstitutefortakingwiseaction.Wehavealsobeenamazedbyhowrapidlysuchprecedentsareestablished.Experimentsbybehavioralscientistsshowthatwhenpeopledosomethingevenasingletime,thispastactionoftenbecomesanautomatic,ormindless,guideforfutureaction,evenwhentheactionunderminesaperson’sperformance.1Justlikeintheseexperiments,inmanycompanieswestudied,doingsomething,evenifonlyonetimeandregardlessofwhetheritwaseffectiveornot,madethatwayofoperatingautomaticallylegitimateandacceptable.

Thisalmostmindlessrelianceonhowthingshavebeendoneinthepastmeansthattranslatingknowledgeintoaction,totheextentthisinvolvesanychange,isdifficult.Excessiverelianceontheorganization’smemorymeansthat

existingpracticesarerarelythoughtabout,letalonequestionedorexaminedtoseeiftheymakesenseinthecontextofwhatmanagersknowandaretryingtoaccomplish.Evenwhenpeopleknowthatexistingwaysofdoingthingsareflawed,theyareoftenafraidtoraiseobjectionsortosuggestnewwaysofworking.Forexample,MitelCorporation,ahigh-technologyCanadiancompanymanufacturingprivatebranchexchanges(PBXs),almostwentbrokebyclingingtopastwaysofdoingthings.StephenQuesnelle,thecompany’sheadofqualityprograms,stated:“Sacredcowsarethebarriersthateverybodyknowsaboutbutthatnobodytalksabout….They’rethepoliciesandproceduresthathaveoutlivedtheirusefulness—butthatnoonedarestouch.”2

Andevenwhenpeoplearecourageousenoughtoquestionoldwaysofdoingthings,andprovidegoodreasonswhythesepracticesshouldbediscardedandreplaced,theyareoftenignoredorrebuked.Forexample,about15yearsago,ayoungmanageratanelectronicsfirmproposedthatthecorporatepolicyofgivinghigh-rankingexecutivesanewcompanycareveryyearbechangedsothattheyweregivenanewcarevery18monthsor2years.Themanagerdidacarefulanalysis,takingintoaccountthecostsavingsofbuyingnewcarslessfrequentlyversusthelowertrade-invalueoftheoldercars.Hediscoveredthathundredsofthousandsofdollarscouldbesavedjustbykeepingthecarsanother6months,andevenmorecouldbesavedifthecarswerekeptafulladditionalyear.Whenhepresentedhisanalysistohisbossandmentor,hisbossrefusedtosupporttheideabecauseitmeant“messingwithasacredcow.”Thebossadvisedtheyoungmanagernottomentionthisideatoanyoneelse,becausehewouldbeaskingfortrouble.Fifteenyearslater,theyoungmanagerisnowmuchmoreseniorandpowerful.Whenaskedabouttheidearecently,hesaid,“IstillthinkIwasrightandIbelievethatwecouldstillsavealotofmoneybylookingintothisprogram.But,I’vebeenherelongenoughtorealizethatnoonehereisgoingtoletmekillthatsacredcownomatterhowmuchmoneywearewastingonit.”

Thepowerofprecedenttoguideaction,evenwhentheorganizationknowsitisdoingthewrongthing,isalsoillustratedbywhathappenedfollowingthemergerofLockheedCorporationwithMartinMarietta.Themergedcompany,Lockheed-Martin,collapsedthreeseparatesitesintooneatacostof$700millioninordertosave$3.5billionincostsoverfiveyears.Butacasestudyoftheconsolidationfoundthatneitherthecivilspacedivisionnorthecommercialsatellitedivisionhadwonasinglecontractaftertheconsolidation.Why?“Companypolicycallsforbiddingbasedonafiveyearhistoryofsimilar

contracts,butnewcostsarelower….Thisadherencetocompanypolicycausedbidstobeuncompetitive.”3Becauseofthepolicyofrelyingonhistoricalcostsinpreparingbids,andthecompany’scontinuedadherencetothispolicyevenwhenitmadenosensebecausethefirmhadchangedthecoststructure,Lockheed-Martincouldnottakeadvantageofthecostreductionsithadachieved—afterincurring$700millioninexpense.

So,managementpracticespersist,eveniftheyaren’tparticularlyusefulandeveniftheirineffectivenessisacknowledgedbyorganizationalleaders.Inthischapter,weshowwhymemoryservesasasubstituteforthinkingandhowastrongorganizationalmemorycanbeadouble-edgedswordthatcanbothproduceandundermineperformance.Wethenshowhoworganizationscananddoavoidexcessiverelianceonthepast.

PrecedentinAction

ConventionalWisdomandPressureforConsistencyPrecedentsubstitutesforthoughtinsomeorganizationsbecausetheircompetitorsusethesamepracticesandbecausethereispressuretojustifypastactionsasreasonableones.Theseforces,combinedwiththefactthatitiseasier(atleastintheshortterm)torelyonprecedentthantolearnsomethingnew,causemanyorganizationstoavoidadoptingnewpracticesevenwhenmanagersrealizetheyaredoingthewrongthing.ConsiderthisexampleofanoutstandingpediatrichospitallocatedinsouthernCalifornia.Thehospitalhadstruggledinitsfundraisingeffortsformanyyearsuntilanewexecutiveorganizedaseparatefundraisingfoundation,signalingthatfundraisingwouldreceivemoreattentionandemphasis.Excellentresults,intermsofincreasingdonations,followed.Butoneproblemplaguedthenewlyrevitalizedfundraisingefforts.Recruitingandtrainingeffortswereinconsistentwithwhatexecutivesknewwasneededforthefoundation’slong-termsuccess.Thisdiscrepancybetweenknowinganddoingwasrecognizedbyallthepartiesinvolved.

Atthetimeofitsinception,thefoundationhadhiredexperiencedfundraisers,typicallywithahistoryofworkingatothernonprofitorganizationswheretheyhadproventrackrecords.Thesenewcomers“possessedspecificjobskillssuchasgrantwritingorestateplanningthatenabledthemtohaveimmediateimpactwhentheyjoined.”4Theproblemwasthatmanyofthemdidnotfitwellinthis

particularorganization.Somelacked“thepersonalcharacteristicsthatwouldhavemadethemsuccessful….Some…havenotfullyunderstoodorembracedthemissionofthehospital.Stillothershavefeltuncomfortableinthestartupenvironment,whereofficersneedtobeflexibleandplayavarietyofroles.”5Asameasureoftheseverityoftheproblemofculturalfit,thiscomparativelysmallorganizationhadlost19peopleinjustthreeyears.Suchahighlevelofturnoverwasexpensive,disruptive,andinterferedwitheffortstobuildastrongfundraisinggroup.

Executivesallagreedthattheirstrategyofhiringfundraisingstarsandhopingthattheywouldultimatelyfittheorganizationwasfailing.Theybelievedthat“developingpeopleinternallyisthebestwaytoproducehigh-qualityfundraisersandbuildasuccessfulfoundationinthelongterm….Managersbelieveinthe‘buildfromwithin’strategy,yettheorganizationdoesnothirelessskilled,highpotentialemployees.”6Eventhoughleadersknewwhattodoandwhytheyshoulddoit,theorganizationdidnothirepeoplewhocoulddevelopintosuccessfulfundraisersandwhowouldalsostayintheorganizationbecausetheyfititsculture.

Whydidtheorganizationpersistindoingwhatitsexecutivesknewitshouldn’t?Whenthenewexecutivetookover,hehadlimitedfundraisingexperience.TheexecutiveandothermanagersunwittinglyfellvictimtoapairofpowerfulforcesdescribedbyRobertCialdini,asocialpsychologist.7Thefirstis“socialproof.”Whenpeopleareunsureabouthowthey,ortheirorganizations,shouldact,theyautomaticallyimitatewhatothersdo.Theyareespeciallylikelytoimitatepeopleororganizationssimilartothem.So,confrontedwithuncertaintyabouthowtodevelophisownpractices,theexecutivenaturallylookedtowhatother,similarorganizationsweredoing,andforthemostpart,theseorganizationswerefollowingconventionalwisdomandhiringforskillsandexperienceratherthanforfit.

Thepressureforconsistencywasasecondpsychologicalforcethatreinforcedtheineffectivepractice.Peoplewhobehaveinconsistentlyareviewedbyothersasconfused,indecisive,andeventwo-faced,sowealllearntoattempttoappearconsistenttoothers.Peoplealsobehaveinwaysconsistentwiththeirpastactionsbecauseitismoreefficient.Theydon’thavetocollectnewinformationandweightheadvantagesanddisadvantagesofeachcourseofaction.8Inthishospital,oncethepracticeofhiringacertaintypeofpersonhadbegun,ittookonthepowerofprecedent,becomingacceptedas“thewaythings

aredonehere.”Evenwithlittleorganizationalhistory,precedentwasthemainreasongivenforcontinuingthisdysfunctionalpractice:“Wehadalwaysdoneitthisway,”andbesides,otherorganizationsweredoingthesamething.Itdidn’tmatterifotherorganizationswereexperiencingsimilarproblemsoffit,turnover,andintegratingfundraisingintotherestoftheoperations.Thecombinedpowerofsocialproof(“thisishowourcompetitorsdoit”)andconsistency(“thisishowwehavealwaysdoneit”)providedanautomatic,almostmindlessjustificationsopowerfulthatitoverwhelmedthehospitalmanagers’morerationalandmindfulawarenessofwhythispracticewasharmfulandneededtobechanged.

Precedentposesadilemmaformanagers.Itisobviouslyimpossibletorevisiteverypolicyandpracticecontinually.Relyingonprecedent,thememoryofhowthingshavebeendoneinthepast,economizesondecisiontimeandeffortand,whenoldwaysaretherightways,enhancesefficiencyandperformance.Thealternativetorelyingonprecedentandmemory—eachdayrevisitingeveryorganizationaldecision,suchaswhatproductsorservicestooffer,howtopricethem,whatmanagementpracticestoimplement—isinfeasible.Weallrelyonthepastandonwhatothersdoasusefulandessentialshortcutstomakecomplexanduncertainsituationsmanageable.Afterall,importanthumaninventionsrangingfromtheabacustothecomputerhavehelpedpeoplebecomemoreefficientbyreducingtheamountofconsciousthoughtrequiredtoexecuteroutinetasks.AsphilosopherAlfredNorthWhiteheadputit,“Civilizationadvancesbyextendingthenumberofoperationswecanperformwithoutthinkingofthem.”9

Thedilemma,ofcourse,isthatalthoughremakingeverydecisionallthetimeisbothunwiseandinfeasible,thealternative,relyingstrictlyonwhatwasdoneinthepast,canalsogetpeopleandorganizationsintotroubleifthesituationchangesorifthepastactionshaveproducedpoorresults.Inthecaseofthefundraisersforthepediatrichospital,relyingonthepasthiringpracticessavedthetroubleofthinkingaboutwhatskillswereneededtobesuccessfulinthisorganizationandsurelysavedmoneyontraining,becausebyhiringexperiencedpeople,lesstrainingwasrequired.Butrelyingonthepastalsoassuredcontinuedhighturnoverbecausepeoplecameinwhohadgreatfundraisingskillsbutwhohadlittleidentificationwithorloyaltytotheorganizationandlackedfitwiththerestofthestaffandtheculture.

AStrongCultureasaDouble-EdgedSword

AStrongCultureasaDouble-EdgedSwordAtitsbest,doingthingsinthesamewayprovidescontinuityandhelpsdefineandestablishanorganization’scultureandvalues.Cultureandvalues,bydefinition,requiresubstantialcontinuityovertime.Doingthingsacertainwayconstitutesanorganization’ssocialidentityandmakesitunique.Afirm’scultureisembodiedinitsvariouspractices,includingmanagementpracticesandtraditions,thatassumeataken-for-grantedquality.Challengestodoingthings“thewaytheyaredonehere”canconstituteanattackontheveryidentityandvaluesofthefirm.

Forinstance,Hewlett-Packard,foundedin1939,has,fromtheoutset,operatedaccordingtothe“HPWay,”asetofprinciplesandvaluesthathaveprovidedcontinuity,stability,andasenseofmeaningandpurposetotheorganizationanditspeople.Anumberofobservers10haveattributedmuchofthecompany’ssuccesstoitsdevelopmentofastrongcultureandconsistentadherencetoasetofvaluesthatarevirtuallyunchangedsincetheywerefirstwrittendownin1957:

Highlevelofachievementandcontribution

Conductingbusinesswithuncompromisingintegrity

Achievingcommonobjectivesthroughteamwork

Flexibilityandinnovation11

Hewlett-PackardhasevenrecentlyreaffirmedthatitwilloperatebytheHPWayeverywhereitdoesbusiness,eschewinganearlierinitiativetotrytomodifyitsmanagementprinciplesandpracticestofitlocalenvironments.Specifically,HPhadthoughtaboutoperatinginadifferentfashioninChinaandinSoutheastAsia.Now,however,aseniorHPexecutivetoldusthatnotonlyhasthecompanydecidedtomaintainaconsistentculturethroughouttheworld,butfurthermore,thatthebiggestculturalissuesanddifferencestendedtoariseacrossfunctionsanddivisionsinthecompany,notacrosscountries.

Inasimilarfashion,otherorganizationswithstrongcultures,suchasSouthwestAirlines,AES,TheMen’sWear-house,SASInstitute,andStarbucks,operateaccordingtoasetofphilosophies,principles,andvaluesthatarefairlyconstantovertimeandconsistentlyimplementedacrossdifferentgeographicsettings.Precedentprovidesagluethatholdstogetherthesefirms,someofwhicharequitegeographicallydispersedwithaveryheterogeneousworkforce(forexample,only8percentofAESpeoplehaveEnglishastheirfirstlanguage).

(forexample,only8percentofAESpeoplehaveEnglishastheirfirstlanguage).Thetaken-for-grantedwayofdoingthingspermitstheorganizationstocoordinatebehaviorandfacilitateinterdependentinteractionthroughsharedvalues,goals,andbeliefs,ratherthanthroughformal,morebureaucraticmechanisms.

Butprecedentalsointerfereswithdoingnewthingsortranslatingnewknowledgeintoaction.AtHewlett-Packarditself,anefforttobringmoreofacustomerfocustotheSantaClarainstrumentdivisionranintoanentrenched,engineering-dominatedculture.Oneengineercommented:

Thelongeryou’vebeenhere,theharderitwillbetochangebecausethat’snotthewayweweretaughttothinkrightfromcollege.Iwastechnologydriven….That’swhySDBS[thedivision’snewstrategyofsell,design,build,andsupport]isgoingtobesohardtoimplement.We’vedoneittheoldwaysolong.12

Precedent,wheninappropriatelyapplied,caninterferewithboththeprocessoflearningandofapplyingknowledgetoenhanceorganizationalperformance.Perhapsthemostseriousproblemwithprecedentisthatitisusedautomatically,almostwithoutthought.Scholarswhostudythiskindofthinkingandtheactionsassociatedwithithavedescribeditusingtermssuchas“habitsofmind,”“performanceprograms,”“programmedbehavior,”“automaticprocessing,”“topoftheheadphenomena,”and“mindlessness.”13EllenLanger,apsychologistwhohasdonethemostworkinthisarea,describedmindlessnessassituationsinwhichpeopleactwithoutpayingattentiontowhattheyaredoing.“Theindividualbecomesmindlesslytrappedbycategoriesthatwerepreviouslycreatedwhenthepersonwasinamindfulmode.”14Whenpeopleinanorganizationengageinmindlessactsbasedonprecedent,suchbehaviorprecludesthemfromevenconsideringwhetherpracticesneedtobereexamined.

RigidityasaReactiontotheThreatofChangeSofar,wehaveshownthatprecedentandhistorycanforestallanorganization’sabilitytolearn,letalonetoactuallyimplementthatknowledgeinactionsanddecisions.Theproblemisoftenmagnifiedinthoseorganizationsthatmostneedtobreakfromtheirpasts.Thethreatofchangecausespeoplewithinthesefirms

toclingevenmoretightlytooldwaysofdoingthings,asthefollowingexampleillustrates.TheFreshChoicecompanyoperatesachainofbuffet-stylesaladrestaurants,primarilylocatedinCalifornia,Washington,andTexas.Thecompanyrecentlyhassufferedfinancialproblems,withitsstockpriceplummetingfromabout$32in1994to$3in1998andprofitsdecliningprecipitouslyaswell.Aspartofacorporateturnaroundeffort,thefirmacquiredthreeoffourunitsofacompetingchaincalledZoopa,locatedintheSeattle,Washington,area.Inadditiontoacquiringsomegoodrestaurantlocationsatafavorableprice,FreshChoiceexecutiveswantedtoincorporatesomeofZoopa’s“guestfirst,”moreservice-orientedandoperations-orientedcultureintothefirm.TheyalsowantedtoimportsomeelementsoftheZoopadesignandmarketingconceptintoFreshChoicerestaurants.Oneexecutivewhohelpednegotiatetheacquisitionandpresentittotheboardofdirectorsstatedthatanimportantgoalwas“topickoffthebest,themostimportantelementsinZoopaandtrytoincorporatethemintoourexistingprocessofplanninganddesigning.”15ZoopahadmuchtoteachFreshChoice,asoneFreshChoiceexecutivestated:

IdobelievethatZoopawasastepupasfarastheconceptgoes.Theiroperationwasmoreservice-orientedthanFreshChoice,whichgaveusarealopportunitytolearnfromthem….ThepeopleImetupthereweresharpfolksandhadaclearunderstandingofhowserviceistobedone—andnotjusthowit’stobeexecuted,buthowit’stobecommunicatedtothecrew.Andthatstartswithhowyourecruit,howyouhire,howyoutrain,andonlythen,howyoukeepastoreuptoyourstandardofservice.16

ButourcasestudyshowedthatFreshChoicefailedtolearnnearlyasmuchasitcouldfromtheZoopaacquisition.AlloftheZoopageneralmanagersleftwithinfourmonthsoftheacquisition.Turnoverintheacquiredrestaurantsincreasedandsalesdecreasedcomparedwiththeperiodpriortotheirpurchase.Withinamonthofthecompletionoftheacquisition,seniorFreshChoiceexecutivesstoppedtalkingaboutlearningfromZoopaasanimportantreasonfordoingtheacquisition.PartoftheproblemwasthatFreshChoicesimplyinstalledmanyofitsmanagementpoliciesandpracticesintheZoopaunits.Thisactiondidnotresultfromdeliberatethinkingaboutwhetherthiswasagooddecision,butsimplyautomatically,aspartofa“that’showwedothings”attitude.The

executivewhowasheadofbusinessdevelopmentandhadthemostinterestinthebuildingandtransferofintellectualcapitalwasmovedtootherprojectsaftertheacquisition.Asaone-time,specialevent,thepurchasedidnotcauseanyrevisitingofthebasicoperationalandbusinessroutines.

Manyoftheseroutinesinvolvedreportingrelationshipsandtheamountofdiscretionstoremanagerswerepermittedinmakingvariousdecisions.OurstudyfoundthatFreshChoicerequireditsstorestoreportbothsalesandcustomercountsonadailybasis;incontrast,Zoopahadrequiredsuchreportingonlyweekly.FreshChoicerequiredallraisesover$.25anhourforcrewmemberstobeapprovedbytheregionalmanager.Zoopahadtreatedthegeneralmanagersmoreasowners,responsibleformeetingfinancialtargetsbutgivenconsiderablelatitudeinhowtoreachthosegoals.FreshChoicecentralizedpurchasingdecisionsandselectedsupplierslargelyonthebasisofprice,ratherthandevelopingthelong-term,collaborativesupplyrelationshipsthatcharacterizedZoopa.17FreshChoicemanagementacknowledgedtousthatthepracticesitwasimplementinghadnotbeenconsciouslychosen,butratherhadsimplyevolvedandwerenowbeingcarriedforwardintonewsituations,evenanacquisitionofacompanythatwas,insomerespects,doingabetterjob.TheregionalmanagerfortheSeattleareanoted,“FreshChoicehasreally—whetherornotitwasthiswayalwaysbutseemstobethewaythatit’sevolved—hasreallybecomesomewhatofatopdownmanagementstyle.FreshChoicehasalwayshammereddownpoliciesandprocedures.”18ThisautomaticfollowingofwhathadbeendoneinthepasthinderedFreshChoice’sabilitytoacquiretheintellectualcapitalthathadbeenoneofthemainrationalesforacquiringZoopainthefirstplace.

Unfortunately,thefinancialproblemsfacedbyFreshChoiceprobablymadeitevenmoredifficultforexecutivesinthefirmtoactontheirintentionstolearnfromZoopa.ProfessorBarryStawfromtheU.C.BerkeleyBusinessSchoolhasshownthat,atleastinitially,peopleandorganizationsrespondtoproblemsbyclingingevenmoretightlytowhattheyknowhowtodobestandhavedoneinthepast.Atthesametime,theseexternalthreatscausepeopletoresisttryingnewthings;evenwhentheydotry,theiranxietymakesitdifficultforthemtolearn.Stawcallsthisthe“threat-rigidityeffect,”asthreatsanddifficultiescausepeopleandfirmstodowhattheyhavedonerepeatedlyinthepastand,therefore,toengageinevenmore“mindless”behaviorthanusual.19

Asanexampleofthiseffect,astudyofthefinancialcollapseoftheAtari

Corporationfoundthatwhendemandforthecompany’sproductsdeclinedandcompetitionincreasedintheearly1980s,thefirmrespondedbyfocusingondevelopingoutdatedvideogamecomputerhardwareandsoftwareandceasingworkonsuperior,newerproducts.AlthoughAtarihadaworkingprototypemadewithinexpensivepartsin1982,thecompanystoppeddevelopingapersonalcomputerthat,accordingtobothengineersandexecutivesweinterviewed,wasmuchlikethewildlysuccessfulAppleMacintoshnotintroduceduntil1984.Atariabandonedthisprojecteventhoughexecutivestoldoneanotheratthetimethattheywouldprobablybesorryfordoingso.20Hunkeringdownandfocusingonwhatthefirmhasdoneinthepastiswisewhentheorganizationhasdonetherightthing,doneitwell,andthepresentismuchlikethepast.Butthehumantendencytoreacttoproblems,atleastatfirst,byusingoldandingrainedpracticesandabandoningnewanduntriedideasmakesitdifficulttotrynewthingsevenwhenpeopleknowtheyshoulddoso.

Saturn:HelpedandTrappedbyItsHistory

Thereisperhapsnobetterexampleofhoworganizationsareatoncehelpedandhinderedbytheirhistoryandtheidentitycreatedbythathistory,andbythedesiretobringthathistoryintothefutureandtherebyrelyonprecedent,thantheSaturndivisionofGeneralMotors(GM).SaturnwasestablishedasaseparatedivisioninGeneralMotorsinthemid-1980stofindawaytodevelopandmanufactureasmallcarprofitablyintheUnitedStates.TheJapaneseweredominatingthesmall-carsegmentofthemarketandtakingmarketsharefromtheU.S.manufacturersatthattime.TheSaturnphilosophyandwayofoperatingwascreatedbyacommitteeof99people(originallytherewere100,equallydividedbetweenunionandmanagementpeople,butonequit).Oneofthefirstthingsthecommitteedidwastotravelaroundstudyingwhatothersuccessfulcompaniesinvariousindustriesdid,includingwhatmanagementpracticestheyimplemented.Thecommitteewas,inlargemeasure,aconsequenceofthevisionofDonaldEphlin,aUnitedAutoWorkersofficialwhowasconvincedthat,despiteahistoryofdeepanimosity,GMmanagementandtheunioncouldcooperatetobuildaworkplacethatwasbothproductiveandbetterfortheemployees.TheSaturndivisionwasestablishedinGeneralMotorsin1985,anditsplantinSpringHill,Tennessee,madeitsfirstcarin1990.Theinterimperiodwasusedtorecruitandtrainaworkforce,buildthemanufacturingfacilityin

wasusedtorecruitandtrainaworkforce,buildthemanufacturingfacilityinTennessee,designandengineeracar,andestablishadealernetwork.

Saturndevelopedaunique(withinGeneralMotorsatthattime)missionandphilosophy.Themissionstatement,whichincludedtheimportanceoftransferringknowledgetotherestofthecompany,was“MarketvehiclesdevelopedandmanufacturedintheUnitedStatesthatareworldleadersinquality,costandcustomerenthusiasmthroughtheintegrationofpeople,technologyandbusinesssystemsandtoexchangeknowledge,technologyandexperiencethroughoutGeneralMotors.”

Almost100percentofSaturn’sworkforcewasrecruitedfromwithinGeneralMotors:peoplewhoworkedinotherplantsandotherpartsoftheorganization,ofteninplantsthatwerebeingclosed.ThedivisionboretheexpenseofmovingthesepeopletoTennessee.ButSaturn’srecruitingandselectionpracticesensuredthatpeoplewhojoinedthenewdivisionwouldhaveastrongculturalfitwiththephilosophy,values,andwayofoperating.Candidatesforbothbluecollarandwhitecollarjobsweretypicallyinterviewedbytwomanagementandtwounionpeople,andtherecruitsoftencouldn’tdiscernwhichwaswhich.Culturalfitwasanimportantpartoftheselectionprocess:

Mostofourearlytimewasspentaroundacoupleofdifferentthings….Thefirstonewastheculture.What’sitliketobeaSaturnemployee?Itwasabigpartoftherecruitingstrategy….Wewerehuntingforpeoplethatoptedinandoptedout….Wewereprettysurethatpeoplewithverylargeegosweregoingtohavealotoftrouble…becausemostofthetrappingsweregone.Thebigofficesweregone.Theprivateparkingisgone.Thediningroomsaregone.21

CandidatesweretaughtthattheyhadtosacrificesomethingstoworkatSaturnandthatitwouldbeadifferentkindofautomobileplant:

Thewholerecruitingprocess,inmyopinion,wasvery,verywelldone.Wemadeplantvisits[toexistingGMplants]andsaid,“Youknow,there’sthisthingcalledSaturn.Thecompensationsystem,it’sgoingtobedifferent.You’regoingtobeinsideateamenvironment.That’snotoptional.”…Wetookthemthroughaseriesofscreens….Andattheendofthosemeetings,they

understoodthatifyoucometoSaturn,you’regoingtosignaquitformwhenyouleaveyourplant….Seniority[atGM]hadnomeaningintheSaturnenvironment.So,nomatterhowlongyouhadworkedforGeneralMotors,itwasasharethepain,sharethegain,andeverybodywasgoingtoworkthesameworkinghours.Theyknewtherewouldberotationalshifts….Theapplicationwasaneight-pagedocumentthatwaseverybitasdetailedasacollegeapplicationwouldbe….Wedidpaperandpenciltesting.Wedidgroupskillsassessment….Theywentthroughatwo-dayscreeningprocess,attheendofwhichtheygotajoboffer,ortheydidn’t.22

Saturn’semphasisoncarefulrecruitmentforculturalfit,andasubstantialinvestmentintraining,includingfiveandahalfdaysofawarenessandorientationtraining,hasledtoaworld-classrecordinemployeeretention.Communicationwithpeopleisalsoemphasized,andtheplantshutsdownwhenteammeetingsareconducted.

Inlargemeasure,Saturncametobecomposedofpeoplewhowererebelsandrisktakerswithinthecompany,especiallyinthemanagementranks.ThesewerepeoplewhohadseenpocketsofoperationalexcellencewithinGMovertheyears.TheywantedSaturntobeaplacewheretheycouldimplementwhattheyhadlearnedandwheretheycouldfeelenthusiasticaboutwheretheyworked.AnnaKretz,nowaseniorvehiclelineexecutiveinthelarge-carline,describedthekindofpersonwhoendedupatSaturn:

Youhadtolikerisk,becauseasanewemployee,theycouldn’tmakeanyassurancesaboutyourjobsecurity.So,youhadtobewillingtogointoanewunitthatpotentiallyinthreemonthswoulddisappear.Theycouldn’ttellyouhowtheyweregoingtopayyou….Sofromapersonalstandpoint,youhadtosay,“Allright,we’llworkonit.It’snotimportant.Andifitdoesn’twork,I’llfindanotherjob.”…Andbecauseyouhadthatattitude,youalsohadadesiretomakeachange.So,youputthosetwotogetherandyougetalotofrebels,becauseyouwerenowsurroundedbyagroupofpeoplewhoknewthat’swhattheywantedtodo.23

Bymanymeasures,Saturnhasbeenremarkablysuccessful,inlargepartbecauseofthedistinctivecultureandtraditionsthatwerecreatedbythe

becauseofthedistinctivecultureandtraditionsthatwerecreatedbytheprocesseswejustdescribed.Saturnwasstartedbypeoplewhowerewillingtotakerisksandwho,overtime,cametoshareaphilosophyandperspectivethathaveremainedremarkablyconstantovertheyears.ThegoodnewsaboutSaturnisthatitreallyisverydifferentfromotherpartsoftheautomobileindustry,particularlyGM.Ithasenjoyed,untiltherecentdeclineinthesmall-carmarket,goodsalessuccess,anexcellentreputationforqualityasassessedbyvariousmeasures,andawonderfulfeelingandspirit.Ithashadgoodrelationswiththeunion,lowturnover,andaconstructive,action-oriented,andproudculture.

ThebadnewsisthatSaturnisalsotrappedbyitsuniquepastanddistinctsocialidentityandfacestremendousobstaclesasaresult.ItisimportanttorecognizethatSaturnisnotanindependentcarcompany,itisadivisionofGeneralMotors.PartoftheoriginalSaturnmissionwastotransferwhattheylearnedtotherestofthecorporation,aresponsibilitythatwassupposedtobesharedbypeoplewithinSaturnandinotherpartsofGM.Asadivisioninalargercompany,Saturncannotdetermine,onitsown,itsproductofferingsortechnologystrategy.And,itisexpectedtofitintoandbepartofanincreasinglyintegratedNorthAmericanoperationsproductionstrategythatispursuingeconomiesofscalebydevelopingspecializedfactoriestomakepartsformultiplecarmodels.EffortstointegrateSaturn’speopleandpracticesintotherestofGM,apartoftheprocessofbenefitingfromtheirlearning,havebeenhamperedbythedivision’shistoryofindependence.

ManypeopleweinterviewedreportedthatGeneralMotorshaslearnedlittlefromSaturn.Forinstance,AnnaKretz,nowbackinamoretraditionalandintegratedpartofGM,commented:

IrememberwhenIleftSaturn,probablywithinthefirstsixmonths,someonecalledme,andsaid,“Well,whathaveyoubeenabletoimplementinyournewjobthatyoulearnedatSaturn?”AndI’llneverforgetthatquestionbecausetheanswerwas,“Nothing.”…Thereneedstobeenoughpeoplesufficienttocausemomentum….Therearesomefundamentalbeliefsyouhavetosharewithagroupofpeople.Andifyoudon’thavethosefundamentalbeliefs,thentherestofthestuff—thelittlethings—havenothingtohangonto,sotheydon’tbecomeasmeaningfultoimplementonanindividualbasis.24

Theproblem,however,isnotjustdifferencesinphilosophyoroperatingprinciples,althoughtheseareimportant.AndtheproblemisnotjustthatGMdoesnotwanttolearnfromSaturn,ordoesnotknowhowtodoso.TheproblemisthatmanypeopleatSaturn,becauseofitsownhistory,arenotespeciallyinterestedinbeingpartofGM.OurinterviewsatSaturnindicatedthatmanagers,unionleaders,andemployeeswhohadalonghistoryatSaturnoftenviewedthemselvesasbeingpartofacompanythatwasdifferentandbetterthantherestofGM.ThislackofidentificationwithGMwasdramaticallyillustratedbyalong-timeSaturnemployeewhobroughtustoGMheadquartersinDetroittomeetwithsomeotherpeople.ThereceptionistaskedhimifheworkedforGeneralMotors.Hisfirstanswerwas,“No,IworkforSaturn.”Hecorrectedhimselfafewmomentslater,buthisfirstresponseshowedhowhethoughtofhissocialidentity.

Becauseofthedifferencesincultureandhistory,andnowtheissueofdistrustbecausepeopleinSaturndonotthinkGMhaskeptitscommitmentstodevelopthedivision,thepossibilitiesofmutuallearningandofimplementingknowledgehavediminished.Recently,SaturnpeoplevotedtoauthorizeastrikeagainstthecompanybecauseGMisplanningtobuildanothercarintheSaturndivisionatadifferentplantinDelaware.MikeBennett,thehighest-rankingUnitedAutomobileWorkersofficialintheSpringHill,Tennessee,plant,expressedthefeelingofmanySaturnpeople,includingsomeinmanagement:

ProductandprocessdecisionsarenowbeingmadenotbySaturn.They’rebeingmadebyGMnow…NorthAmericanOperations,totheglobalagenda….Itlimitsusintermsofwhatwecouldbebuilding.Weonlygotthisonesmallcar.Butthecommitmentwasmadetous,“Ifyousucceed,we’llgiveyoutherestofthecapitaltofinishtheproductline.”Andwesucceeded,andtheydidn’tgiveusthecapital.Theyputitupthere[inDelaware].25

AlthoughSaturnusesmanyeffectivepractices,ithasnotimplementedmanyelementsofleanorflexiblemanufacturing.PeopleatGMheadquartersinDetroitsaidthatwasbecauseSaturnfeltitwasspecialanddidnotwanttodoanythingthatmightbreakwithitspastwayofdoingthings.TomLasorda,chargedwithimplementingleanmanufacturingprinciplesthroughoutNorthAmericanoperationsandenhancingmanufacturingefficiencies,abigissueatGeneralMotors,commented:

GeneralMotors,commented:

TheexperienceI’vehadwiththemhasbeenmore,I’llsay,onthesidelinesbecausethey’vebeenaveryindependentorganization….TheissuewithSaturnistheyhavethebestteamconceptandpeopleengagementprocessaround.It’soutstanding….TheissuethatIwouldhavewiththemishowefficientreallyarethey?Ifyouwalkthroughthefactory,there’sroomtogetpeoplemoreengagedintakingwasteoutofthesystem.Therealityofthebusinessissettingin.Howdotheyrespondtothat?26

ThelessonofSaturnisthatthesamedistinctivehistoryandculturethathavemadeSaturnasuccesshavealsocontributedtoitsproblemswithbecomingasflexibleandefficientasitmightpossiblybe,evenwhilemaintainingitsphilosophyofemployeeinvolvementintheprocess,andwithtransferringitsskillsinteam-basedmanagementtotherestofGeneralMotors.WeadmireallthatthepeopleatSaturnhaveaccomplishedandhavevisitedfewothermanufacturingorganizationswherepeoplearesodedicatedtotheirworkortooneanother.Butourvisittotheplantandourconversationssuggestedthattheywouldresistalmostanythingtheysawasafundamentalchange,forinstance,inmanufacturingprocesses,becauseitis“nottheSaturnway.”Itisobviouslypossible,albeitdifficult,tobuildstrongculturesfoundedonprinciplesandphilosophythatalsocaninnovateandchange.Butdoingsorequiresmuchthoughtandattention.Otherwise,firmsarereadilytrappedbytheirhistory,evenif,orparticularlyif,thathistoryhasmanypositiveelementsinit,asSaturn’sdoes.

OtherHumanFrailtiesThatCauseOrganizationstoGetStuckinthePast

Whydofirmsrelyonprecedentinsteadoffreshthinkingandanalysis?Wehavealreadysuggestedanumberofforcesthatcontributetoavenerationofhistoryattheexpenseoftryingtoimplementrelevantknowledgeaboutenhancingorganizationalperformance.Commitmenttopastdecisionssignalsconsistencyandpersistence.Theseareoftenconsideredtobedesirabletraits.And

commitmenttopastdecisionsensuresthatthosepastdecisionsarenoteasilyquestioned.Commitmenttothepastalsoreaffirmsthecompany’ssocialidentity.Bycarryingthepastintothefuture,managersreaffirmthevalueofthathistoryand,byimplication,theworthandtheculturalvaluesthatareembeddedinthathistory.Inaddition,thethreatofchangemayactuallycauseorganizationstoclingevenmoretightlytooldwaysofdoingthings.Therearealsotwootherfactorswehavenotyetdiscussed,aspectsofthewaythatallhumanbeingsprocess,store,andreacttoinformation,thatarealsoimportantforunderstandingwhyorganizationalmemorysubstitutesforactivethinking.Thefirstistheuniversalhumanneedforcognitiveclosure;thesecondisthatpeopleoftenhavestrong,butimplicitandunexamined,assumptionsabouttheforcesthatdrivebehaviorinorganizations.

TheNeedforCognitiveClosureAccordingtosocialpsychologists,the“needforcognitiveclosurereferstoanindividual’sdesireforafirmanswertoaquestionandanaversiontowardambiguity.”27Oneconsequenceoftheneedforclosurethathasbeenidentifiedinexperimentsisthe“permanencetendency”:theinclinationofmosthumanbeingstoseekclosure,tofreezeonpastknowledgeandavoidevidencethatdisconfirmswhattheybelieve.Peopleareespeciallylikelytofreezeonpastknowledgewhen(1)theyfeelpressurefromdeadlines,theneedtomakeadecision,orothertimepressures;(2)theyarefatigued,thuslackingenergytoprocessnewinformation;(3)theyareinanyotherconditionthatmakesitdifficulttoprocessinformation,likefeelingphysicaldiscomfortorfear;and(4)“whenclosureisvaluedbysignificantothers.”28

Thefactorsthataffectthemotivationforcognitiveclosure—fear,deadlinesanddecisionpressure,stressandfatigue,andvaluingcertaintybyimportantothers—highlightorganizationalfactors,includingthebehaviorofleaders,thatwehavealreadyseenandwillseeinsubsequentchaptersascontributingtotheknowing-doinggap.Inthatsense,ourfield-basedresearchproducedinsightsthatparallelinimportantrespectsthefindingsofalargeliteratureinexperimentalsocialpsychology.

UnexaminedandMisguidedAssumptionsaboutHumanBehaviorAsecondfactorthatproducesmindlessandalmostunconsciousbehaviorisbeingrootedinasetoftheoreticalassumptionsaboutorganizationsandpeople

beingrootedinasetoftheoreticalassumptionsaboutorganizationsandpeoplethatareimplicitand,asaconsequence,notdirectlyexaminedorquestioned.Forinstance,considerthefollowingexampleabouttheuseofincentivepayinschools.InJanuary1998,NewYorkCityschoolsembracedaprogrambyoneofthecity’slargestbusinessgroupstopay$30milliontosuperintendents,principals,andteachersifstudents’testscoresimproved.Thearticleannouncingtheprogramnotedthat,althoughthisapproachhadnotyetbeentriedinNewYorkCity,ithadbeenimplementedelsewhere,withpoorresults:

ButinKentucky,whichhashadabonusprogramforthreeyears,disputeshavebrokenout…andschoolshaveinflatedgrades.TheproblemsthereandwithasimilarprograminTexasraisedquestionsyesterdayaboutwhetherlessonslearnedfromprofitsandstockpricescanbesoeasilytransferredtotestscoresandgraduationrates.29

AnarticlethepreviousfallhadnotedthatKentucky’suseofincentivepayhad“spawnedlawsuits,infightingbetweenteachersandstaff,angeramongparents,widespreadgradeinflation—andnumerousinstancesofcheatingbyteacherstobooststudentscores.”30

Whatisinterestingisthattheuseofincentivepayinschoolswasnotnew,andneitherweretheproblems.AnarticleintheWallStreetJournalmorethan15yearspriortotheseincidentsdetailedproblemswithimplementingincentivepayplansforteachers.Forinstance,inPennManor,aschooldistrictoutsideofPittsburgh,Pennsylvania,thathadimplementedincentivepayintheearly1980s,“mostofthelosersandmanyofthewinnersaren’thappyabouttheselectionprocess.PennManoradministratorsandschoolboardmembersstillaren’tsurewhetherthepaymentsdomoreharmthangood.”31

Whatisclearfromthesearticlesisthatalmostnothinghadbeenadaptedonthebasisofpreviousexperience,eitheraboutwhattodoorhowtodoit,eventhoughthatexperiencewaswellknown.NewYorkCityapparentlylearnedlittlefromKentucky,andKentuckylearnedlittlefromtheearlierexperiences,eitheraboutthefundamentalbehavioralpremisesoftheseprogramsorevenaboutdetailsofimplementation.Hereistheknowing-doingproblemwithavengeance.Whenweusethisexampleinourteaching,wehaveourstudentsdescribe,insomedetail,allofthevariousassumptionsaboutthemotivationofteachersandstudentsandtheimplicittheoryofstudentandschoolperformanceinherentin

studentsandtheimplicittheoryofstudentandschoolperformanceinherentintheseplans.Someoftheassumptionsarepatentlyfalse,othersmerelyquestionable.Thenweaskwhatassumptionswouldhavetobetruetomaketheseincentiveprograms,astheyarecurrentlydesignedandimplemented,makesense.Theassumptionsthatemergefromthispartoftheexerciseareactuallyquiteconsistentwithasimplistic,economistictheoryofhumanbehavior:Performanceistheresultofaseriesofindividualdecisionsbystudentsandteachers,amongothers;thesedecisionsarelargelymotivatedbyextrinsicrewards,includingmoneyandrecognition;studentandteacherperformanceislargelyafunctionofmotivationasopposedtoendowmentsorabilities,includingtheresourcesavailabletotheschoolsystem;andsimilartypesofbehavioralassumptions.

Whatisimportantisthatthetheoryofbehaviorthatformsthefoundationforthisparticularinterventionisalmostcompletelyimplicitandfoundedmoreonideologythanoneitherthoughtorsocialscience.Assoonastheimplicitassumptionsthatformthefoundationofthesepracticesarebroughttothesurface,insightsaboutwhattodotobetterdesigntheprogramstomakethemmoreeffectiveareimmediatelyobvious.Sincethisisnotabookaboutschoolsorlearning,wewon’tpursuethisexamplefurther.Buttheimplicationsareclear.Peopleandtheorganizationsinwhichtheyworkareoftentrappedbyimplicittheoriesofbehaviorthatguidetheirdecisionsandactions.Becausethetheoriesarenotsurfacedorconscious,theycan’tberefutedwithdataorlogic.Infact,peoplemaynotevenbeconsciousofhowthetheoriesaredirectingtheirbehavior.Buttheyareinfluencingactions.So,precedentbecomesimportantinaffectingmanagementpracticesbecauseprecedentembodiessomeunstated,untestedassumptionsaboutindividualandorganizationalbehaviorthatgetautomaticallycarriedintonewsituations.

You’reLikelytoFindOrganizationsTrappedbyTheirHistoryWhen

Thecompanyhassuchastrongidentitythatanythingnewisviewedasbeing“inconsistentwithwhoweare”Therearepressurestobeconsistentwithpastdecisions,toavoidadmittingmistakes,andtoshowperseverancePeoplehavestrongneedsforcognitiveclosureandavoidingany

ambiguityDecisionsaremadebasedonimplicit,untested,andinaccuratemodelsofbehaviorandperformancePeoplecarryexpectationsfromthepastaboutwhatisandisn’tpossible,andwhatcanandcan’tbedone,intothefuture

Theexampleabovealsoillustratesoneofthemostpowerfulinterventionswehaveuncoveredtofreepeoplefromtheunconsciouspowerofimplicittheory:makingpeoplethinkcarefullyabouttheassumptionsimplicitinthepracticesandinterventionstheyareadvocating.Wehavetriedthisexercisewithnumerousorganizationalandpublicpolicypracticesanddecisions,andwehavefoundittobeveryeffective.Bybringingtothesurfaceassumptionsthatareotherwiseunconscious,interventionsanddecisionsbecomemuchmoremindfulandincorporatewhatpeopleknow.Wehavelearnedthatfreeingourselvesandourorganizationsfromthetyrannyofmindlessprecedentrequiresthatwesurfacethefrequentlyimplicit,theoreticalfoundationsofthatprecedent,includingthebehavioralassumptionsonwhichpastdecisionsrest.Oncewedoso,itispossibletodesigndifferentandbetterpracticesthatreflectourconscious,mindfulknowledge.

HowOrganizationsAvoidUsingMemoryasaSubstituteforThinking

Notallorganizationsaretrappedinthepast,doomedtorepeatthesameerrorssimplybecausetheyweredonebefore,orconstrainedbytheirhistoryfromlearningnewthingsorapplyingwhattheyknow.Therearethreemainwaysthatorganizationsavoidrelyingonthepastasamindlessguidetoaction.First,peoplecanstartaneworganizationornewsubunit,onethatisdesignedtohaveadistinctivecharacterandtobefreeoftheconstraintsandhistoryoftheparentcorporation.Thepracticesusedbyneworganizationsmightbeinventedbytheirfoundersor,likeSaturn,beanoriginalblendofpracticesfromanarrayofotherorganizations.Second,organizationshamperedbyexcessiverelianceonthepastcan,sometimesthroughdramaticmeans,makepeoplemindfulofproblemswith

doingthingsinoldways,makeitdifficulttousetheoldways,andcreateandimplementnewwaysofdoingthings.Third,andmostrarelyseen,organizationscanbebuiltandmanagedsothattheirpeopleconstantlyquestionprecedentandresistdevelopingautomaticrelianceonoldwaysofdoingthings.Weshowhoweachoftheseapproachestoavoidingusinghistoryasasubstituteforthinkinghasbeenimplemented.

BuildingaNewOrganizationStartinganeworganizationoraneworganizationaldivisionorsubunitisexpensiveandrequiresgreattimeandeffort.Butitisprobablythemostreliableway,andonethatisfrequentlyused,toensurethat,atleastforawhile,peoplewilluseactivethinkingratherthanprecedentasabasisforaction.Ifthereisnohistoryorexistingprocedures,guidesforactionanddecisionsmustbemadedenovo.Theactivethinkingdoneinneworganizationsisonereasonwhyhigh-technologyindustriesarefrequentlydominatedbynewcompanies.Forexample,theROLMcorporationwasasuccessfulSiliconValleystartupthatpioneeredcomputer-controlledphonesystems.Itwasknownasbeingafun,informal,andhumaneplacetoworkbeforeitwaspurchasedbyInternationalBusinessMachines(IBM)in1984.32Co-founderBobMaxfield(the“M”inROLM)oncetoldushowheandtheotherco-foundersmostlylearnedbytrialanderrorbecausetheydidn’tknowhowabusinesswas“supposedtoberun”anddidn’tknow“whatthetechnologywassupposedtodo.”Hesaidtheymadelotsofmistakes,buttheyalsoinventednewwaysofmanagingpeopleandmadetechnicaldiscoveriestheywouldneverhavemade“ifwehadknownbetter.”

OneofthereasonsthatSaturncouldinnovatewasthatitwasanewdivision,mindfullydesignedtodosomethingdifferentandbetter.TheSaturnfactorywasbuiltfarfromGMheadquarters,sothatitwasmoredifficultforpeopleatGMwhodidnotsharetheSaturnvisiontoimposeingrainedwaysofdoingthingsonthenewdivision.Thispatternofcreatingphysical,structural,andpsychologicalbarriersthatmakeitdifficultforpeopletoactonthebasisofhistoryanddifficultforoutsiderstocreatepressureforfollowingprecedent,isahallmarkofneworganizationsthatarenotboundbyhistory.Manyoftheorganizationsthathavebeenbestabletoimplementhigh-involvementorhigh-performanceworkarrangementssimilartothoseusedatSaturnareingreen-fieldlocations.Asnewstartupsawayfromotherplants,theyhaveanopportunitytoinnovateandsurmounthistory,toimplementtheirknowledgeabouthowtobuildhigh-

performanceworkarrangementswithoutfacingasmanyquestionsorconstraintsasolderorganizations.Implementingthisknowledgeinestablishedorganizationsthataretrappedbytheirhistoryismuchmoredifficult.33

DickHackborn,theexecutivewhosuccessfullyledHewlett-Packard’sprinterbusinessintotheconsumermarket,believedthatitwasimportantthathisgroupbelocatedinBoise,Idaho,awayfromHPheadquartersinPaloAlto,California.AlthoughHPgivesbusinessmanagersgreatautonomy,HackbornbelievedthatHP’straditionalfocusonhigh-margin,low-volumeproductsthatengineersfrequentlydesignedforoneanothermeanttherewerenumerousingrainedprecedentsinthecompanythatwouldmakeithardforhimtodevelopandselllow-marginprintersinthefiercelycompetitiveconsumermarket.HackborniscreditedwithbringingaboutradicalchangesinhowmuchofHPdoesbusiness,buthehadtofightmanyinternalbattlestodoso.Hisgroup’sdistancefromheadquartersmadetheiractionsharderforothersinthecompanytoseeortochange.OneHPexecutive,whowetalkedtoseveralyearsbeforeHackbornretiredin1994,describedhimas“thatguywhohidesoutinBoise,changingthewholewaythecompanydoesbusiness,andmakingusrich.”34

Startinganeworganizationdoesnot,however,alwaysensurethatabreakfromthepastwilloccur.Whenthisnewunitarisesinalargerorganization,thereistheriskthatpeoplemaybringexistingwaysofdoingthingswiththem.Thatiswhy,astheSaturnexampleillustrates,recruitingtherightpeopleintothenewsubunitisessentialifthenewdivisionisgoingtooperatedifferently.Andevencompletelynewfirmsmaysimplyembodyamindlessrelianceonwhathasbeendoneinthepastinothersuccessfulfirms.AsuccessfulSiliconValleyventurecapitalistrecentlytoldusthatheworriesthatheandhisotherpartnersseemtoautomaticallyfundpeopleandtechnologiesthataresimilartooneanotherandtothosefundedbyotherventurecapitalists.Hedescribedthisasa“monkeysee,monkeydosituation.”Hewentontosaythatafterhisfirmfundsastartup,theyputpressureonthemanagementtousestructuresandpracticesthataremuchlikeeveryotherfirmtheyhavefunded,eventhough“wedon’treallyknowifwearemakingthemdotherightthing.Wearejustmakingthemdowhatwealwaysmakethemdo.”So,althoughstartinganewunitorneworganizationcanhelp,itisnoguaranteeoftheabilitytobreakwithprecedent.

BreakingfromthePastinanExistingOrganizationItisnotalwayseitherpossibleordesirabletostartaneworganizationorevenanewdivisiontobreakfromthepast.And,astheSaturnexampleshows,new

newdivisiontobreakfromthepast.And,astheSaturnexampleshows,neworganizationssoonstarttheirownprecedents.Everytimetheworldchangessothatthepresentisnotanimitationofthepast,peopleinorganizationsthatonceusedeventhebestofpracticesneedtoengageincarefulthoughtaboutwhichpracticestokeep,whichtoinvent,andwhichtoborrowfromotherorganizations.Aswedocumentedearlierinthischapter,overcomingtheseingrainedbehaviorscanbedifficult.Butitisn’timpossible.

Therearemanywell-documentedcasesoforganizationsthathavebeenfreedfromtheirrelianceonactionsthatarenolonger,orperhapsneverwere,effective.Mitel,facingsubstantialcompetitiveandfinancialchallengesintheprivatebranchexchangemarketplace,attackedprecedentwithaseriesofworkshopsdesignedtoridthefirmofthe“sacredcows”wetalkedaboutattheoutsetofthischapter:

R&Demployeesspentthreedaysidentifyingrules,rituals,andattitudesthatstoodinthewayofdoinggreatthingsfast….The450-personR&Ddepartmentgatheredinfiveseparategroupsandproducedalistofsacredcowsthatfilled71pages….SomanysignatureswereneededtoapproveabusinesstripthatR&Dpeoplerarelyvisitedcustomerstodiscusstheirneeds;andengineersresponsibleforspendinghundredsofthousandsofdollarshadtosignabunchofformsbeforetheycouldeventakehomealaptop[computer]….Thesessionsweren’tjustaboutfindingcows.Theywereaboutkillingthemaswell.Everyparticipanthadtoidentifytwo“personalcows”andtodeviseaplanforattackingthemthefollowingMondaymorning.35

Theseworkshopsongettingridofpastpracticesthatweren’tuseful“endedwithacelebratorybeefbarbecue—completewithbeef,ofcourse.”36

Thetransformationthatoccurredinthelate1980satMagmaCopper(priortoitsmergerwithBHPin1996)isoneofthebestexamplesweknowofanorganizationthatfreeditselffromadysfunctionalpast.MagmawasspunoffasapubliccompanyfromNewmontin1987.Ithadahighdebtburden,inefficientmineswithlow-gradeorebodies,andaculturecharacterizedbyacrimonybetweenmanagementanditsunionizedworkforce.Thefirmachievedaremarkableturnaround.Between1988and1995,thestockpricewentupby400

percent,productivityincreasedby86percent,andtheamountoforeminedbyMagmaincreasedby70percent.37

BurgessWinter,theCEOatthetime,andMarshCampbell,theheadofhumanresources,hadmuchprecedenttoovercome.Peoplehadbecomeaccustomedtoanautocraticmanagementstyle.Supervisorshadgrownaccustomedtogivingordersandbeingresponsibleforwhathappenedinthemines.Employeeswereaccustomedtoresistingordersandessentiallyleavingtheirbrainsattheplantgate.Peoplehadbecomeacclimatedtohighlevelsofdestructiveconflict.ShortlyafterassumingtheCEOpositionandmovingtoTucson,Winterengagedinprotracted,conflict-riddennegotiationswiththeunions.Duringthatperiod,someonefiredashotatWinter’shomeonenight.

ThepeopleatMagmaalsotookforgrantedthat,becauseofthelow-gradeoreanddepthofthereserves,Magmawasdoomedtobeahigh-costproducerthatwasalwaysonthebrinkoffinancialdisaster.Giventhetechnologyofcoppermining,peoplebelievedthatnothingcouldbedoneaboutthecosts.Peoplehadworkedandtriedhardinthepast;whyshouldtherebeanythingaboutthefuturethatwouldbedifferent?

Weseethisattitudeallthetime.Organizationscarrymanagementpracticesfromthepastintothefuture.Similarly,thepeopleinthem,fromtoptobottom,carryexpectationsaboutwhatispossible—inperformance,profits,innovation,andculture—fromthepastintothefuture.Sheddingtheseworstaspectsofhistoryisaskillthatallorganizationswoulddowelltocultivate.Somespecificactionsofleadersarecriticalingettingbeyondprecedentandhistory.WhatBurgessWinterandhiscolleaguesatMagmadidwasatoncedeceptivelysimpleanddifficulttodo.WinterdemandedthatthepeopleatMagmaleavethepastbehindandcollectivelyforgeanewfuture:

Theusualplacetostandisintheexistingsetofconstraints,issues,andopportunitiesthatconfronttheorganization….Usingthisapproach,managerstypicallyconductafinancialandorganizationalanalysis,identifywhatopportunitiesandthreatsexist,whatstrengthsandweaknessestheorganizationhas,andthenformulateastrategythatisintendedtoexploittheopportunitiesandminimizeoreliminatethethreats….Theboatispatchedbutitisstillthesameboatandmostlikelywillonlycontinueontheoldcourseataboutthesamevelocityoralittlefaster….

Ourrecommendedapproachistostandinafuturethatisnotdirectlyderivedfrompresentconditionsandcircumstances….Althoughthefutureisinformedbythepast,itisas“past-free”aspossible….WhenIsaythefutureis“past-free,”Imeanthatthefutureshouldnotbeanextrapolation,extension,ormodificationofthepast.38

LettinggoofthepastatMagma,whileretainingthesameorebodies,thesameunions,andthesamepeople,meantchangingrelationshipsandchangingwhattheorganizationthoughtwaspossible:

Wehavestoppedcomplainingaboutthequalityofourorebodiesandeachotherandinsteadhavefocusedonwhatcanbedonetomakeourcoreoperationsproductiveandprofitable.Wegaveupourattachmentstoconversationsregardingtransgressionsandeventsofthepast,andcommittedourselvestothefulfillmentofafuturewhichweinventedtogether.39

Winterwasdeterminedtoofferpeopletrainingandmanyopportunitiestochange.Butifandwhentheydidn’t,heshowedthathewasseriousaboutleavingthepastbehind.AtthePintoValleymine,Winterfiredfourmanagers,includingthegeneralmanagerofthemine,onasingledaywhen,afteroneyear,themanagerswerestilleitherresistingorsabotagingthechanges.TheMagmacaseillustratestheneedtoberesoluteanddeterminedtogetbeyondthepast,aswellasaninterestingapproachofhavingpeoplecometogethertojointlyinventanewfuture.

AnequallydramaticandeffectiveefforttobreakfreefromthepastwasledbyAnnetteKylewhileshewasmanagerofBayportTerminalinSeabrook,Texas,forthethenChemicalgroupofHoechstCelaneseCorporation.40Throughputoftheterminalhadmorethandoubledsinceitbeganoperationin1974tothreebillionpoundsofchemicalsperyearloadedontotrucks,barges,andshipsbythetimeKyletookoverin1994.Shesoondiscoveredmostofthepracticeswerethesameastheyhadalwaysbeen,eventhoughthevolumeshandledandthecomplexityofthesitehadchangeddramaticallyover20years.Facilitieswereverytight,asnearly230shipsperyearwereloadedorunloaded

attheterminal’sonedock,nearlyathousandtruckswereloadedattheterminal’sonetruckrack,severalhundredbargeswereloadedorunloadedattwodocks,andnearly1,500railcarswereunloaded.Verylittleplanningwasdoneand,asaresult,theoperationwasinefficient.Forexample,astandardpracticeinthemarineindustryisthatwhenashiparrivestobeloadedorunloadedandneedstowaitbecausethecustomerisrunninglate,thecustomerpaysawaitingfeecalleddemurragecharges,whichareoften$10,000perhour.In1994,theterminalwaspayingabout$2.5millionayearinsuchcharges.Kylewasalsotroubledtofindmanyotherinefficiencies.Forexample,ittookpeopleattheterminalanaverageofthreehourstoloadatruck,eventhoughtheindustryaveragewaslessthanonehour.

Theterminalhadatraditionalstructureinwhichfoursupervisorswatchedandcloselymanagedworkdoneby“operators”whodidtheloadingandunloading.Kyleandothermembersofthemanagementteamrecognizedthatthesupervisorsandafewoftheoperatorswereextremelycomfortablewiththewaysofthepast20yearsandresistedchangessuggestedbythestaff.HoechstCelaneseterminologyof“rootguards”wasappropriate,asthesepeopleheldontothedeeplyrootedcultureofthepastandguardedagainstchange,evenwhentheseoldwayshamperedthespeedandqualityofthework.MostofthemanagersprecedingKylehadlimitedcontactwiththesupervisorsandtheoperators.ItwasajobmanagersheldforafewyearsbeforetheyweretransferredtoanotherjobatCelanese.Mostmanagerscametoworkinasuitandplayedlittleroleintheday-to-dayoperations.Kyleusedadifferentapproach.Sheworeflame-retardantcoverallsjustliketheoperatorsandspentalotoftimewatchingandhelpingthemworkinordertounderstandtheworkconditions,theworkflowissues,andtosuggestwaystomaketheworkmoreefficient.Shebroughtinnewtools,institutedtraining,andtriedtoimplementdozensofsmallchangesintheproceduresusedattheterminal.

Butbylate1995,Kyleandhermanagementstaffhaddecidedthatincrementalchangeswerenotworking.ThegroupwasinspiredtomakerapidanddramaticchangesatBayportafterattendingaseminarbymanagementguruTomPeterson“ThePursuitofWow.”KyleandherstaffwereenergizedbyPeters’assertionsthatsuddenandmassivechangescouldandshouldbemadeinorganizations.ButtheyalsofoundthatPeters’speechandhisbookon“Wow”41gavethemfew,ifany,specificideastheycouldusetoactuallyimplementradicalchangesintheirorganization.So,KyleandherstaffgeneratedtheirownideasfortransformingBayport.

TheBayportmanagementteamspentabouttwomonthsplanningasweeping

TheBayportmanagementteamspentabouttwomonthsplanningasweepingrevolutionattheBayportterminal.OnthemorningofJanuary3,1996,theterminalwasclosedforthefirsttimeinitshistoryand,eventhoughthiswasa24-houroperationwithfourshifts,allemployeeswhoworkedatthesitewererequiredtoattendameeting.Thechangesthatsheannouncedandimmediatelyimplementedincludedthefollowing:

1. Theshiftsupervisorpositionwaseliminated.Thepeoplewhohadpreviouslyheldthesejobswerecalled“marineplanners,”withthenewjobofplanningtheflowofmaterialsforshipsandbarges.

2. Operatorswerenowself-managingandworkedwithoutimmediatesupervisors.Kyledesignateddistinctworkareas,andeachoperatorworkedseveraldaysateacharea,rotatingamongtheareasonasetschedule.Theoperatorsweregivensubstantialresponsibilityandauthoritytoplantheflowoftheirwork.

3. Kyleinstitutedameasurementsystemforeachmajorarea.Schedules,andcurrentinformationabouthowwelltheywerebeingmet,weredisplayedonalargeboardthateveryoneintheterminalcouldcheckatanytime.

4. Toreinforcethemessagethatmanagersshouldnothideintheiroffices,andthatthereshouldbeno“cornerofficementality,”Kyle’scornerofficeandtheofficesoftheshiftsupervisorsweredemolishedwhilethemeetingwasoccurring.Kyleauctionedherbiggreendeskfor$60onthespotbecause“Ishouldn’tbesittingbehindabigdesk.Ishouldbecontributingtoourteamgoalshoweverpossible.”

5. Kylehad“nowhining”patches(littleroundpatcheswitharedlinethroughtheword“whining”)sewnoneveryuniform.

Toemphasizethatthepastwasdead,Kyleobtainedacoffin,apinebox,inwhichsheputvariousitemssymbolizingthepast,likethe“ShipsHappen”signfromtheshiftsupervisor’soldcorneroffice,whichreflectedtheoldphilosophythatthearrivalofashipwassomethingthatwasnotplannedforinadvance.

Forthenextseveralmonths,Kyleandherteamwereonhandduringeveryshifttoensurethatthenewmethodswerebeingusedandtoresolveproblemsthataroseonthespot.Thepositiveeffectsoftherevolutionwereevidentalmostimmediately.Forexample,demurragefeesdroppedfromover$1,000,000inthe

firsthalfof1995tolessthan$10,000inthefirsthalfof1996.Morethan90percentofthetruckswereloadedwithinanhouroftheirarrival.Thereweredozensofotherindicatorsshowingthatefficiencyhadincreased.Althoughthesupervisorsandoperatorswereshockedatfirst,theysoondevelopedpositivereactionstothenewwaysofworking.Interviewsandemployeeattitudesurveysbyindependentresearchersindicatedthatpeopleweresatisfiedwithandmotivatedbythechange.

ThechangeatCelaneseillustratesthreeprinciplesweseeinotherorganizations,suchasMagmaandMitel,thathavebeenabletogetbeyondhistoryintheireffortstoturnknowledgeintoaction.First,thereisasharpinterruptioninwhatpeoplearedoing,thinking,andfeeling.Somethingoccurstogettheirattentionandtoconveythatrelianceonprecedentisdoingharm.Second,somethingoccursthatmakesitdifficultorimpossibletogobacktotheoldwaysofdoingthings.Thisbreakhastohappen,becauseotherwisethestressofasharpinterruptioncancausepeopletoclingevenmoretightlytowhattheyhavedoneinthepast.Third,clear,feasiblenewwaysofactingaredeveloped,communicated,andimplemented.Peoplereceivetheinformation,emotionalandtangiblesupport,andtrainingandotherresourcesrequiredtousethenewandmoreeffectivepractices.

Anotherthemethatrunsthroughthecasesoffirmsthatovercomeprecedentisleaderswhotakethetimetounderstandtheworkthatpeopledoandtakeactionstoreducestatusdifferencesbetweenthemselvesandothersintheorganization.BurgessWinterhelpedleavethepastbehindatMagmaCopperbycreatingamoreegalitarianculture.HewouldgototheunionhallafterworkandhaveabeerortwowithMagmapeople.Similarly,afterAnnetteKylespentayearonthedockswiththeoperatorsandsupervisors,helpingandwatchingthemwork,shehadthecredibilityandpersonalrelationshipstogetthemtoleavethepastbehind.

Afinalthemethatweseeinthosefirmsthatwereabletoovercomeprecedentiscreatingafeelingofsharedfate.So,atMagmaCopper,BurgessWintercreateda“140personcross-sectionoftheentirecompanyof5,000people,whichwecalledtheVoiceofMagma,tojoininaconversationthatwouldsetforthwhatcouldbepossibleforMagmaasanorganization.OutofthiselevendaydialoguecametheMagmaCharter,whichisadeclarationofwhoweareasanorganization.”42

BuildinganOrganizationThatResistsMindlessAction

BuildinganOrganizationThatResistsMindlessActionOvercomingprecedentandhistoryisonething.Preventingthebuildupofunproductiverituals,rules,andpracticesinthefirstplaceisevenbetter,andevenmoredifficulttodo.AES,theglobalindependentpowerproducer,hasconsciouslypursuedasetofmanagementpracticesdesignedtoensurethatprecedentneverbecomesoverlyimportantinthefirmandthatpeoplearecontinuouslyencouragedtolearnandtrynewthings.Onepolicythatencouragesdevelopingandapplyingknowledgeisradicaldecentralization.Thecompanyhasonlyfivelevelseventoday,eventhoughitoperatesnearly100powerplantsin17countriesandhascloseto40,000peopleworkingforiteitherdirectlyorforjointventuresinwhichitisinvolved.Decentralizationofdecisionmakingencouragespeopletolearnbecausetheyknowtheywillhavetheopportunityand,indeed,theresponsibilitytousetheirknowledgeintheirdailyactivities.Thedecentralizationalsofacilitatestheactualuseofknowledgebecauseitisthepeopleonthefrontlineswhogettomakethedecisions.

Thecompany’s1993stockofferingprospectusdescribesthedecentralization:

MostoftheCompany’splantsoperatewithoutshiftsupervisors.Theprojectsubsidiariesareresponsibleforallmajorfacility-specificbusinessfunctions,includingfinancingandcapitalexpenditures….EveryAESpersonhasbeenencouragedtoparticipateinstrategicplanningandnewplantdesignfortheCompany.43

Apassagefromthe1997annualreportdetailstheconsequencesofthispolicyforthefirm:

Oneofthedelightfulsideeffectsofafunworkplacewhereindividualsclosesttotheactionmakebusinessdecisionsisrapidlearning.IntheAES“university”individualsareencouragedtoseekadvice….Theirresponsibilityistogetthemselveseducatedbeforemakingadecision….Oneresultisillustratedbythefirstpeoplewhojoinedthen-PlantManagerDaveMcMillenatthestartupoftheAESThamesplantin1988.Ofthe23peoplewhostayedlongerthanafewmonths,twoareAESVice-Presidents-GroupManagers,sevenarePresidentsofindividualAESbusinesses,and

eightareplantleaders.44

Perhapsthecompany’smostimportantmanagementpracticeistofrequentlygivepeopletheopportunitytotakeontotallynewactivities,eventasksforwhichtheyhavelittleornoformalpreparation.Thispracticeisencouragedbythefirmhavingvirtuallynocentralstaff—nohumanresourcespeopleeveninthedivisions,nocentralstrategicplanningorenvironmentaldepartment,onlyaminusculelegalgroup,andacentralfinancefunctionthatseesitsroleasbeingasmuchaboutteachingandfacilitatingthecapital-raisingactivitiesofothersasaboutdoingthejobitself.“Hardasitistoimagine,CFO[Barry]Sharphasraisedlessthan$300millionoftheapproximately$3.5billionoffundingforAES’s10powerplants.Themultidisciplinaryprojectteamworkingoneachnewplantischargedwiththattask,eveniftheteamhaslittlefinanceexperience.”45AttheAESplantinThames,Connecticut,ataskforceoffrontlinepeopleinvesttheplant’sdebtreserves.

AsDennisBakke,AES’sCEO,hassaid,thebetterandmorecompetentcentralstafffunctionsare,theworseitisfortheorganization.Aparticularlyskilledandcompetentcentralstaffencouragespeopletoturnoverissuessuchaspublicrelations,strategyformulationandimplementation,quality,safety,andsoforthtothecentralofficedepartmentsresponsibleforthoseactivities.Ifthestaffpeopleweren’ttoocompetent,peopleinthefieldwouldnottrustthemandwouldwanttobeinvolvedthemselves.So,ironically,thebetterthecentralstaff,themoretherestoftheorganizationcomestodependonthosepeople.Andthemorecentralizedknowledgeandskillbecomes,thelessresponsibilitypeopleclosesttowheretheworkisdonetakeforthatwork.

Specialization,ofcourse,alsoprovidesbenefits,includingthefactthatpeopledon’thavetocontinuallylearnhowtodothingstheyhaven’tdonebefore.AEShascarefullyconsideredthecostsofeschewingprecedentandhavingpeoplelearnnewthings,whichcertainlydoestakemoretime,againstthecostofbeingtrappedbythepastandnotlearningasmuch.Giventhefirm’sbusinessstrategyandapproach,whichemphasizethecompetitiveadvantagesofspeedandhavingpeoplewillingandabletodowhateverittakestogetthejobdone,AEShasoptedforacultureinwhichprecedentreceiveslittlestatusandinwhichpeopleareencouragedtocontinuallylearnandthinkofnewwaysofdoingthings.PaulBurdick,anAESperson,commentedonsomeoftheadvantagesofafirminwhichjobdescriptionsdon’texistandinwhichcross-trainingandmovingtonewactivitiesisencouraged:

trainingandmovingtonewactivitiesisencouraged:

Mytask,whenIfirstcame,wasto“gosignupabilliondollarsworthofcoal.”Ihadn’tdonethatbefore…butIknewenoughtoask….So,youspendthreeweeksmakingphonecalls.Inasense,you’renotgettingyourjobdone,butyou’relearningwhatittakestogetthejobdone….

Andthevalue,Ithink,isthatyougivepeopletheabilitytoinnovatealittlebitmoreifyouleavethemthatlatitude.Imean,theminuteyousystematizesomething,yousuckthelifeoutofit.Youimposeasetofrulesorproceduresfordoingsomething,andnobodyasksquestionsanymore—questionssuchas,“Whyisitdonethisway?”…Thehumanspiritneedssomevarietytomaintainitsvitality.46

Finally,AES,whichhashadfarlessprecedenttoovercomethanmostcompanies,alsocontinuallytriestodothingstosignalitsbreakwithconventioninwaysconsistentwithitsvalues.Forinstance:

Oneofouroutrageousgoalsrelatedtomaximizingfunanddignityintheworkplaceistoeliminatehourlycompensation.Inmostmajorbusinessesso-called“important”peoplegetpaidsalaries,areeligibleforbonusesandstockoptions,andhavethefreedomtocontrolmorefullytheirworklifethatgoeswithsuchcompensationschemes.Otherpeoplegetpaidforhowmanyhourstheyphysicallyspendintheworkplaceplusovertime….Wewanttogivepeopleworldwidetheoptiontochoosebetweenthesetwoapproaches….Intwoyears,thenumberofAESpeoplecompensatedhourlyhasdecreasedfrom90%to50%.Wethink“allowingeverypersontobeabusinessperson”requiresasalariedapproachtocompensation.47

Thoseorganizationsthatuseprecedentwiselyandaren’ttrappedbytheirmemoriesofhowthingsusedtobe,orthe“goodolddays,”sharethetraitofbeingconsciousofthecostsandbenefitsofprecedentandmemory.TheirleadersunderstandthewisdomwesawinDavidKelleyoftheproductdesign

firmIDEO,whointroducedanewstructuretothefirmthisway:“Thisisthebestwecanthinkofrightnow.ButtheonlythingIamsureofisthatit[thestructure]istemporaryanditiswrong.Wejusthavetokeepexperimentingsoitkeepsgettingbetterallthetime.”Thiswillingnesstothoughtfullydecidewhentheexperienceofthepastismoreaburdenthanablessingrequiressubstantialeffortandconstantvigilance,butithastremendouspayoff.Thepayoff,asProfessorsPaulNystromandWilliamStarbuckremindus,comesbecausethewillingnesstoforgomindlessrelianceonprecedenthelpsorganizationsavoidtheproblemofinertiaandthetrapofsuccess:

Organizationslearn.Thentheyencasetheirlearninginprogramsandstandardoperatingproceduresthatmembersexecuteroutinely.Theseprogramsandproceduresgenerateinertia…Astheirsuccessesaccumulate,organizations…growcomplacentandlearntoolittle.48

Itiseasiertoencouragequestioningbehavior,tohavepeopletakeonnewassignmentstheyhaveneverdonebefore,andtocreatedramaticbreakswiththepast,includingstartingnewunits,inanatmosphereoftrustandsafety.Conversely,fearisanenemyoftheabilitytoquestionthepastorbreakfreefromprecedent.Thatiswhywehavedevotedthenextchaptertothetopicoffearasitcontributestotheknowing-doinggap.Gettingbeyondprecedentrequireshavingcourage,anddrivingfearoutoftheorganizationhelpstoencouragecourageousbehavior.

4 WhenFearPreventsActingonKnowledge

INORGANIZATIONAFTERORGANIZATIONthatfailedtotranslateknowledgeintoaction,wesawapervasiveatmosphereoffearanddistrust.WecametoappreciatethewisdomofqualityguruW.E.Deming’sprescriptionforsuccess:Driveoutfear.1Unfortunately,thereissomeskepticismthatfearanditsfirstcousin,distrust,remainpervasiveproblemsintoday’ssupposedlyenlightenedworkplaces.Therearealsostillmanypeople,includingstockanalystsandbusinessreporters,whoadmire“tough,”“hard-nosed,”orevenmean-spiritedbosses.Wehavenevermetanyonewhoactuallywantstoworkforoneofthesepeople.ButthestoriesthatFortunemagazineoccasionallyrunsonthe“toughestbosses”suggesttherearestillpeoplewhobelievethatwhenbossesarefearedorevendistrustedbecauseoftheirmercurialandunpredictablenature,thentheyaredoingagoodjob.

Thischapterhastwopurposes.First,weshowthatfearanddistrustofmanagementremainproblemseventodayinmanyworkplaces.Thereisfarmoretalkthanactionaboutusingenlightenedandhumanemanagementtechniques.Second,wewillshowhowfearanddistrustundermineorganizationalperformanceand,morespecifically,theabilitytoturnknowledgeintoaction.Fearhelpscreateknowing-doinggapsbecauseactingonone’sknowledgerequiresthatapersonbelieveheorshewillnotbepunishedfordoingso—thattakingrisksbasedonnewinformationandinsightwillberewarded,notpunished.Whenpeoplefearfortheirjobs,theirfutures,orevenfortheirself-esteem,itisunlikelythattheywillfeelsecureenoughtodoanythingbutwhat

theyhavedoneinthepast.Fearwillcausethemtorepeatpastmistakesandre-createpastproblems,evenwhentheyknowbetterwaysofdoingthework.

FearasaDeliberateManagementTechnique

Businessbest-sellerssuchasMeanBusiness,AlbertDunlap’staleofthevirtuesofdownsizingashepracticeditatScottPaperandSunbeam,andOnlytheParanoidSurvive,AndrewGroveofIntel’sdescriptionofhismanagementphilosophyandtheIntelculture,demonstratethattherearestillleadersandfirmsthatviewfear,distrust,andmeannessasdesirablemanagementtechniques.Thefactthatthesebooksaresosuccessfulinthemarketplaceforideassuggeststhatmanyothersagreewiththem.

“ChainsawAl”Dunlapwas,foratime,seenbyWallStreetasamanagementgenius.OnthedayhewasappointedCEOofSunbeam,thestockrose49percent.2Inthefirstquarterafterhewasappointed,Sunbeam’sstockappreciated63percent.3Thebusinesspresslovedhimforhisoutspokenwaysandhisapparentdevotiontoshareholderinterests.Thebusinesseducationalestablishment,wherefuturebusinessleadersaretrainedandsocialized,alsolovedhim.Hegavetalksatmanymajorbusinessschools,includingChicago,Northwestern,Harvard,Wharton,Florida,andFloridaState.4DunlapwasnamedasabusinessstrategisttowatchbytheJournalofBusinessStrategy.

Dunlap’smanagementapproachwasdesignedtoinspirefearintheworkforce.TheWallStreetJournalreportedthat“Mr.Dunlapwasnotoriousforbellowingatsubordinateswhobroughthimnewshedidn’twanttohear.”5AthistalkattheUniversityofChicago,“hedrewbiglaughsfromanaudienceof400-plusGraduateSchoolofBusinessstudentswhenhedescribedthepleasurehetookinfiringa‘moraleofficer’atonetroubledcompanyheheaded,and10ofSunbeam’s11management-committeemembers.”6Dunlaphimselftalksopenlyabouttheefficacyoffearandintimidationintheworkplace.Hesummarizedhisturnaroundstrategyasfollows:

Howdoesanoutsiderwrestcontrolofaresistantorganization?…Idon’tstartwiththeoldfoundation….Itearthewholethingdownandstartover.Irarelyseeanygoodinwhatcamebefore.Ifitwas

anygood,theywouldn’tneedme….AtScott,Ireleased70percentofthemanagementteam.7

DunlapalsoseemsproudofhowhehumiliatedanexecutiveatScottPaper:

InmyfirstweekatScottPaper,Icalledameetingofalltheseniormanagers….Iwantedtoseefront-linemanagement.Imadeeverybodystandupandsaywhattheyweregoingtodoforthecompany.

Oneguystoodupandstartedtalkingaboutwhathehadalreadydoneforthecompany.

“Idon’tcarewhatyouhavedone,”Isaid,makinganexampleofhim.“Iwanttoknowwhatyouaregoingtodoforme,nowandinthefuture!”

Helookedatme,dumbfounded.“I’mnotpreparedtotalkaboutthat,”hesaid.“Thensitdown,”Isaid.8

DunlapisnowwidelydiscreditedbecauseoftheaccountingandperformanceproblemsatSunbeamthatdroveitsstockpricedownbymorethan80percent.“Mr.Dunlap’stwo-yeartenureleftthecompany[Sunbeam]intatters,withaSecurityandExchangeCommissioninvestigation,aslewofshareholderlawsuitsand1997financialresultsthatnobodycanagreeon.”9

AswediscussedinChapter3withexamplessuchasBurgessWinteratMagmaCopperandAnnetteKyleattheBayportTerminal,dramaticchangesareoftenneededinorganizationsthatmindlesslyrelyonoldandineffectivewaysofdoingthings.ButexecutivessuchasChainsawAluseanequallymindlessapproach,assumingthateverythingfromthepastisbadandinstillingsomuchfearinothersthatpeopleareafraidtosuggestortrynewthings.WhenthebusinesspressandstockmarketanalystslikePaineWebber’sAndrewShorewerestillpraisingDunlap’sabilityandhisaccomplishmentsatSunbeam,10managementwriterTomPeters,whooftenadvocatedtearingdownbureaucracy,wascallinghima“retrogradeoldSOB”whowasdestroyingpeople’slivesandthecompany:

Letmemakeitperfectlyclear,IamnotpraisingtheAlDunlapsofthisworld,whotearthingsdown,takeabigchunkoftheresultingprofits,andmoveontothenextvictim.AlDunlapisafirst-classjerk,andIwishyouwouldquotemeonthatandthrowinafewfour-letterwords.WhatIamadvocatingistheideaofdestroyingsomethinginordertocreatesomethingbetter.11

AlthoughDunlaphasbeendiscredited,AndrewGrove,thechairmanoftheboardandformerCEOofIntel,remainsamanagementicon,veneratedbythebusinesspressandbusinessschools.So,itisinstructivetoseewhathesaysabouttheroleoffearandpressureintheworkplace:

Thequalityguru,W.EdwardsDeming,advocatedstampingoutfear….Ihavetroublewiththesimplemindednessofthisdictum.Themostimportantroleofmanagersistocreateanenvironmentinwhichpeoplearepassionatelydedicatedtowinninginthemarketplace.Fearplaysamajorroleincreatingandmaintainingsuchpassion.12

Beingtoughand“motivating”peoplethroughafearoffailureseemtobepartandparceloftheIntelmanagementapproach.Thecompanyhastreatedsomanypeople,particularlysomewhoareolder,soharshlythatagroup,FACE-Intel,hasarisenwithitsownwebsite,createdbycurrentaswellasformeremployeesofthefirm,todocumentIntel’smanagementtransgressions.13IntelhasthesiteblockedfromallofitscorporatePCs,andemployeesfearterminationiftheyarecaughtviewingthesite.

Thereisevidencethat,confrontedwithashortageofemployees,someorganizationsarenow“makingnice”withtheirpeople.Theseeffortsrepresentanattempttoundoalegacyinwhichpeopleweretaughttheyweredisposableandshouldlookoutforthemselves.Wequestionhowsincereorlong-lastingsuchchangesinapproachwillprovetobe.Oncethelaborshortageeases,wesuspectthatmanyfirmswillreturntotheirold,mean-spiritedways.Itis,unfortunately,stillthecaseinmanyorganizationsthattakingcareoftheirpeople,puttingthemfirst,isconsideredsoft-headedandnotverybusinesslike.

ThePervasivenessofFear-BasedManagement

Buthowpervasivearefearanddistrustintheworkplace,really?Afewexamplesdon’tdemonstratethatthisisapervasiveproblem.Arethesejustisolatedinstances?Apparentlynot.Ourviewthattheproblemisdeepandwidespreadisalsosupportedbyseverallarge-scalestudies.Thefirstisanationallyrepresentative1994surveyofmorethan2,400employedadultsconductedbyPrincetonSurveyResearchAssociates.AnumberoffindingsfromthisstudyshowthatfearanddistrustareimportantworkplaceissuesconfrontingU.S.organizations:

Intoday’senvironmentofcorporatedownsizing,manyworkersmayconsiderthemselvesprivilegedjusttohaveajob.Onlyaminority(38%)areveryconfidentoftheirabilitytoquicklyfindnewemployment.14

Thesurveyfindsasizeablegapbetweentheamountofloyaltyworkersfeeltowardtheiremployerandthedegreetowhichworkersfeeltheycantrusttheiremployertokeepitspromisestoemployees….Fewerthanfourinten(38%)placealotoftrustinthecompanytokeepitspromises.15

Oneinsixworkers(16%)claimtohavewithheldasuggestionaboutimprovingworkefficiencyoutoffearthatitwouldcostsomeonetheirjob.16

Americanworkersdemonstratelittleknowledgeoflaborlawsandregulationsregardingworkplacerights.Mostworkersassumetheyhavemorelegalprotectionthanactuallyexists,butsaytheywantstillmoreprotectioninsomeareas.Inanenvironmentofcorporatedownsizingandrestructuring,workerdemandishighestformorelawstoprotectthemfrombeingfiredatwill,replacedbypart-timeemployeesandhavingtheirjobseliminatedthroughlayoffsorplantclosings.17

OtherrecentsurveysfromtheUnitedStatesandtheUnitedKingdompresentasimilarpicture.Asurveyof1970BucknellUniversitygraduatesreportedthat91percentfeltthatfirmshavebecomelessloyaltotheiremployees,60percent

believedthattheworkingatmospherehasbecomeangrier,and“three-quartersoftherespondentshadeitherbeenlaidofforknewofarelativeorfriendwhohadbeenso.”18ApollbytheObserverintheUnitedKingdomfoundsimilarresults:“Nearlyhalfthoseinthesurveyhadlostajob,wereworkinglongerhours,hadtakenanewjobatlowerpayorwereonshort-termcontracts.Onlyathirdbelievedfindinganewjobatthesamesalarywouldbeeasy.”19

Additionaldatafromsurveysintwoorganizationsduring1997furtherillustratethepervasivenessoffearanddistrust.Twopointsareimportanttoknowaboutthesedata.First,bothsurveyswereconductedbytheorganizations(oroutsidefirmsthattheyemployed)fortheirownuseinassessingemployeeattitudes.Althoughwehadaccesstothesurveyresults,wedidnotconductthemourselvestoproveanythingabouttheworkplaceclimate.Evenmoreimportant,neitherorganizationisconsideredparticularlynotoriousforrampantfearanddistrust.Onefirmisalargeindustrialcompanywithloyalandlong-termemployeesandseniormanagerswhohaveareputation—andaself-image—ofbeingattentivetoemployeemotivationandattitudes.Thecompanyhasinvestedheavilyintrainingandmanagementdevelopment,attemptingtobecomeahigh-performanceworkplace.Thesecondorganizationisalargequasi-governmentalinternationalfinancialinstitutionwithastaffassociation(thatconductedthesurvey)andwithemploymentregulationsthatarecivilservice-likeintheprotectionstheyprovidetostaffmembers.Thissecondorganizationdoesuseanumberofcontractemployeesandhasfacedstrongpressuresforchange.Butcomparedwithprivate-sectorfirmsinmanyindustriesintheUnitedStates,onewouldthinkthattheworkforce,whichislargelyprofessionalandhighlyeducated,withmanyholdingadvanceddegreesineconomicsandsimilardisciplines,wouldberelativelysecure.

Figure4-1presentsthesurveyresultsfortheprivatecorporation,comparingtheproportionoffavorableresponsesinthisparticularcompanyonanumberofrelevantitemswithnormsforasetofhigh-performingorganizationsprovidedbythefirmthatconductedthesurvey.Thedataarestriking.Onlyslightlymorethanhalfofthepeopleprovidedafavorableresponsetothequestionofwhether“thecompanyoperateswithintegrityinitsinternaldealings.”Fewerthanhalfofthepeoplerespondedfavorablytoquestionsaboutbeingtreatedwithrespectandchallengingtraditionalwaysofdoingthings.Onlyslightlymorethanathirdagreedthat“innovativeideascanfailwithoutpenaltytotheoriginatingpersonorworkunit.”Eventhenationalnormsinhigh-performingfirms,althoughhigher

thanthescoresforthisparticularfirm,demonstratedsubstantialdistrustandfear.Theparticularpatternofresultsfromthiscompanyseemstoshowaremarkablelevelofinsecurityanddistrust,eveninalarge,successful,generallywell-regarded,andcertainlycomparativelyhumanefirm.

Figure4-1PercentageofFavorableResponsestoQuestionsMeasuringTrustandSecurityinaLargeU.S.Firm

Thedatafromthelarge,quasi-publicorgovernmentalinternationalfinancialinstitutionwereequallytelling(seeTable4-1).Lessthanaquarterofthehighlyeducatedstaffinthisprestigiousorganizationfelttherewasmutualtrustandconfidencebetweenseniormanagementandthestaff.Fewthoughtthatsenior

managementcaredaboutthestaff;manyoftheemployeesfeltpressure,includingpressuretocutcornersandcompromisequality;and,again,onlyabouthalfofthepeoplefeltcomfortabletakinginformedrisksindoingtheirwork.

Table4-1

PercentageofFavorableResponsestoSurveyQuestionsfromaLarge,Quasi-governmentalInternationalFinancialInstitution

Item PercentageofFavorableResponses

Ifeelencouragedtofindnewandbetterwaysofdoingthings 57Ifeelfreetotakeinformedrisksindoingmywork 50Iexperiencepressurefrommymanagerstocutcornersandcompromisequality 47Bestpracticesarewidelysharedamongcolleagues 37Theinstitutionsupportshonestyandtruthfulnessintheworkplace 30Whatprioritydoyouthinktheinstitution’smanagementgivestothesatisfactionandwell-beingofitsstaff? 25Howmuchmutualtrustandconfidencedoyoufeelthereisintherelationshipbetweenseniormanagementandstaff? 21Howmuchpressuredoyoufeelinyourjob? 18

Itisunlikelythattherecanbemuchsharingandblendingofwhatdifferentpeopleknoworevenmuchindividuallearninginfirmswithsuchwidespreaddistrustandmutualsuspicion,andinwhichthereissolittleemphasisonlearningfromoneanotherorfromtrialanderror.Theseorganizationswerenotselectedbecausetheywereextremecases.Infact,theyarelikelytobebetterthanmost.Yetthepicturethatemergesfromthesestudiesisthatthereisfarmorefearanddistrustintheworkplacethanisbeneficialorthanmanyobserverswouldexpect.

HowFearandDistrustCreateKnowingDoingGaps

Itmayseemobviousthatfearanddistrustnotonlypervadetoomanyworkplaces,butalsothatthesenastyfeelingsarecounterproductive.Again,however,wefrequentlyencountermanagerswhoareskepticalofthisargument.Afterall,theysay,ifsomeparanoia,somepressure,somefear,isagoodthing,maybemoreisevenbetter.Downsizingandplacingpeople’sjobsatrisksshould“keepthemontheirtoes”andforestallshirkingonthejob.Theimplicittheoryofmotivationseemstobethatwithoutsomepressure,peoplewilljusttakeiteasyandnotdoverymuch.Becauseit’sacompetitiveworldoutthere,peoplecan’taffordtobecomplacent.Thereareevenprominenteconomicmodelsofincentivesinorganizationsthatproposethatthefearofbeingfiredensuresdiligentandcontinuedeffort,20althoughtheyprovidenoactualevidencetosupportthisclaim.

Fear-basedapproachestomanagementpresumethatunlesspeopleareunderpressureandfearfulfortheirfutures,theywon’tworkdiligentlysimplybecausetheywanttheirorganizationtoperformwell,becausetheywanttohelpothersintheirworkgroup,orbecausetheirworkisintrinsicallyfunandinteresting.Manymanagementsystemsalsopresumethatpeoplecannotbetrustedandthatmonitoringforcompliancetoorganizationalrequirements,andpunishmentforviolatingthoserequirements,isimportantforkeepingorganizationsundercontrol.Theseapproachestomanagingandmotivationarepervasiveenoughtohaveassumedataken-for-granted,unquestionedquality,althoughtheevidencefortheirvalidityisremarkablymeagerandthereisfarmoreevidencethatmonitoringandpunishmentundermineperformance.21Afear-orsanction-basedapproachtomanagementalsohassomeauraofsocialapproval.Thebusiness

pressoftenhasanattractiontomeanandtough,evenfearsome,managers.Let’sconsidersomeevidenceabouthowfearanddistrustintheworkplaceaffectorganizationalperformance.

AninstructiveexamplecomesfromacarefulstudyofAnalogDevices.Thisstudy,whichfollowedthecompanyovertime,showedhowfear,producedbylayoffs,underminedaoncesuccessfulTotalQualityManagement(TQM)program.In1987,thecompany,amanufacturerofintegratedcircuits,institutedaTQMprogramthat,withinthreeyears,producedremarkableresults:

Defectsinproductshippedplummetedfrom500to50PPM[partspermillion],on-timedelivery…rosefrom70percentto96percent,averageyieldsoaredfrom26percentto51percent,andcycletimefellfrom15to8weeks.22

Becausetheprogramdidnothaveasrapidoraspronouncedeffectsonproductdevelopmenttime,andbecauseofsomemistakesinpricing,marginsfellandtheextraproductivitycouldnotbeimmediatelytranslatedintohighersales.Asaconsequence,in1990thecompanyreducedemploymentbyabout12percent.Theeffectswere,unfortunately,predictable:

TheselayoffswereAnalog’sfirst.Despiteextensiveoutplacementassistance…moralesuffered….AdivisionalTQMmanagernoted,“alotof[employeesinaparticularplant]wereworkingtheirtailsoffforTQM…andtheirrewardwastheir[operation]wasmovedtothePhilippinesinsearchoflowercostlabor.So[TQM]wasanotherpathtoalayoff.”…“Afterthelayoff,TQMstalled.Peopledidn’twanttoimprovesomuchtheirjobwouldbeeliminated.”23

Aplantthat,in1989,hadbeennumberoneinHewlett-Packard’slistoftenbestsuppliershad,by1991followingthelayoffs,becomenumbertwoonHP’slistoftenworstsuppliers.24

AstudyofaworkplacechangeeffortatHewlett-Packard’sRosevillesurfacemountmanufacturingfacility,whichassemblesprintedcircuitboards,demonstratedsimilaradverseeffectsoffear,producedthroughemploymentinsecurity,ontheabilitytoimplementchangesthatdrawonemployees’

knowledgeandinsights.Hewlett-Packardhadundertakentheredesignofthisdivisiontoaddresspressingproblemsofcompetitiveness.Somechangeshadoccurred.Forinstance,theproductionlinehadbeenreconfiguredandtrainingclasseshadbeenestablished.Overall,however,aneffortthatbeganwithenthusiasmandinsighthadboggeddown.AnanalysisbyDeoneZellforherbookaboutmanagingchangeatHPfoundthat“noneoftheplannedchangesdesignedtosupportself-managingteams,suchaschangestothecenter’sperformance,selection,evaluation,orrankingsystems,hadoccurred.”25Thereasonwasfear:

Theimpendingdownsizingcurtailedanyremainingefforttoimplementself-managingteamsbecauseemployeesbecamemoreconcernedabouttheirjobsthanaboutredesigningthecenter.Oneproductionoperatorexplained,“uppermostinmostpeople’smindsisnotredesignorwhattheylearned….It’sfindingajob.Peoplewanttoknowifthey’regoingtobeheretomorrow….”DennisEarly,thecenter’sproductionmanager,[said],“Welearneditdoesn’tworkverywelltoaskateamtoredesignitselfintoamuchsmallerconfiguration.”26

Thishappenedinacompany,Hewlett-Packard,thatvaluespeople,wherepeopleaddresseachotherbytheirfirstnames,andwherelayoffsareavoidedifatallpossible.Whenworkforcereductionshavebeennecessary,thecompanyhasusuallybeenabletoavoidlayoffsbytransferstootherHPunits,retrainingemployeesinnewskills,offeringenhancedincentivesforearlyretirement,andcuttingtravelandotherdiscretionaryexpenses.Eveninthisunusuallyenlightenedcorporatesetting,however,thethreatofjoblosshinderedorganizationalimprovementefforts.

Fearofjoblosshasalsobeenidentifiedasoneofthemainreasonsforthewidespreadfailureofso-calledbusinessprocessreengineeringefforts.Theoriginalproponentsofreengineeringclaimedthattheirmethodsformakingworkprocessesmoreefficientneednotentaildownsizing.But,themanagementconsultingcompanymostassociatedwithreengineering,CSCIndex,itselfreportedthatin73percentofallcompaniestheysurveyed,reengineeringwasbeingusedtoeliminatejobs.27WhileU.S.firmspaidconsultantsmorethan$7billionin1994forreengineeringhelp,evidenceindicatedthatreengineering

effortshadfailureratesashighas70percent,andonesourceestimatedthat85percentofreengineeringprojectsfailed.28“Partofreengineering’sfailurewasitsassociationwithlayoffs,”29andthefearandresistancethatsuchanassociationengendered.Employeeswhofearedtheywouldbelaidoffasaconsequenceofstreamlinedworkprocesseshadgoodreasontoundermineeffortstomakeworkmoreefficientandequallygoodreasonsforrefusingtooffersuggestionsthatmightcostthemtheirjobs.

Fearalsoinhibitstheabilitytoturnknowledgeintoactionbecausepeoplearesoafraidoftheirbossesthattheydoeverythingtheycantoavoidbeingtheonedeliveringbadnewsaboutthecompany,eveniftheyarenottoblame.PsychologistshaveidentifiedsomethingtheycalltheMUMeffect,whichmeansthatpeopletrytodistancethemselvesfrombadnews.Peopledon’twanttodeliverbadnewstoothersbecausetheyfeartheywillbeblamedbyassociation,aworrythatnumerouspsychologicalexperimentsdemonstrateiswellfounded.Unlessmanagersactivelyencouragethesurfacingofbadnews,theMUMeffectmeansthatthepeoplearoundthemwillavoidbringingnegativeinformationtolight,evenifsuchinformationisessentialforturningknowledgeintoaction.Theeffectalsomeansthatpeoplewillavoidmakingsuggestionsforimprovementifdoingsofirstmeansimplyingthatsomethingiswrong.30

TheexecutiveassistantforoneCEOtoldusshedoesallshecantoavoiddeliveringnewstoherbossthatwillupsethimbecauseherjobislesspleasantandmoredifficulttodowhenthebossisinabadmood.TokeeptheCEOinagoodmood,sheavoidsschedulingappointmentswithpeoplewhowilldeliverbadnewstohimabouthowthingsaregoinginthecompany.Thistendencyforgatekeeperstoscreenoutnegativeinformationmeansthatleadersoftendevelopremarkablyinaccurateimagesoftheirorganizations,believingthatnoactionisneededeventhoughthereisknowledgethroughoutmuchoftheorganizationabouttheneedforchangeandwhatneedstobedone.Forinstance,NASAadministratorsdevelopedinaccurateimagesaboutthefailureofthespaceshuttle.TheNobelPrize–winningphysicistRichardFeynmanservedontheRogersCommissioninvestigatingtheexplosionoftheChallengerspaceshuttle.Feynmanaskedagroupofengineerstoestimatetheprobabilitythattheshuttle’smainenginewouldfail.Theirestimatesrangedfrom1in200to1in300.WhenFeynmanaskedtheirbosstomakethesameestimate,heproposedafailurerateof1in100,000.FeynmanassertedthatthiswasjustoneofthemanyillustrationsthatmanagerialisolationfromrealitywasrampantthroughoutNASA.31

Thisisnotanunusualobservation.Weencounterednumerousfirmsinwhichtopmanagementhadanexcessivelyrosyviewofthingssuchasquality,clientsatisfaction,employeeattitudes,andevenobjectivedatasuchasemployeeturnoverandsalesbecausethepeoplearoundthemwereafraidtotellthembadnewsortoprovokewrathbydisagreeingwithinaccuratebeliefs.Theambivalencethatleadersfeelaboutsubordinateswhobringthemnewstheydon’twanttohearisevidentinahalf-jokingcommentbySamuelGoldwyn,theHollywoodstudiohead:“Idon’twantyes-menaroundme.Iwanteveryonetotellmethetruth—eventhoughitcostshimhisjob.”32

Peoplewhofeartheirbossesdomorethanhidebadnewstoavoidguiltbyassociation.Theyhaveconsiderableincentivetolieabouthowthingsaregoing.Fear,createdbymanagerswhodemandresultsnomatterwhat,leadstofalsificationofinformationandtheinabilitytolearn,letaloneapplythatknowledgetoimprovingtheorganization’soperations.EvenAndrewGroveofIntelrecognizedthisdysfunctionalconsequenceofworkplacefearandparanoia:

Fearthatmightkeepyoufromvoicingyourrealthoughtsispoison.Almostnothingcouldbemoredetrimentaltothewell-beingofthecompany….Onceanenvironmentoffeartakesover,itwillleadtoparalysisthroughouttheorganizationandcutofftheflowofbadnewsfromtheperiphery.33

Asweconductedinterviewsatalargefinancialinstitution,weencounteredoverandoveragaintalesoffearintheworkplacethathadhinderedthefirm’sabilitytodevelopknowledgeandtranslatethatknowledgeintoaction.

ForyearsweusedbankcardsintheU.S.asbeingaMeccaofquality….Littledidweknowthatatthetopofthisorganizationwasthecancer,thebiggestcancerIwastalkingabout.Demandingcontrol.Ifyouhaveamistakewithyournumberstoday,orsomefailureinyourindicators,youwillfindthaterrorandfixitandknowaboutittomorrowmorningateighto’clock.Oryouaredead.Talkaboutfearinanorganization….Seethathill,he’dsay.YoutakethathillandIdon’tcarehowmanyoftheenemyorourownpeoplegetkilled.Iwantthathill,andIwantitbyeighto’clockanddon’tcomebacktellingmeit’snottaken.Thepeoplewerescaredtodoanything.Andpeoplebegantocheatandmanagethenumbers

todoanything.Andpeoplebegantocheatandmanagethenumbersinordertomeetthegoals.Theyweredoingsurveys—customersurveysonphonecalls,phonecenters,simpleonepagers.Onthephonecallitself,questionssuchashowwasit,wereyousatisfiedwiththecall,theperson?Theyhadagoalof95%forthetoptwoboxesofsatisfaction.Thatwasthegoal,andifyoudidn’tmakeit,youwouldlosethings,suchaspartsofyourbody.Sothisiswhattheydid.Thepeoplejustfilledintheboxestomeetthenumbers,regardlessoftheanswers.Andthepeoplerationalizedwhattheyweredoing.

Thebusinessmanagerlostvaluablefeedbackbecausethesurveysofactualresponsesjustwentintothewastepaperbasketbecausetheydidn’tcountthem.Horriblethingswenton.

ThetopmanagementwassofooledintobelievingthatthispartofthefirmwasgivingoutstandingcustomerservicethattheyactuallyappliedfortheMalcolmBaldrigeAward.Theorganizationdidn’tevenreceiveasitevisit,becauseitwascleartotheexaminersevenatadistancethattherewasnoemployeeinvolvementandlittleevidenceofthekindofleadershipthatdrivesoutfear,whichthequalitymovementvalues.

Fearhastwootherperniciouseffectsinorganizations.First,fearcausesafocusontheshortterm,oftencreatingproblemsinthelongerrun.Forinstance,intheHewlett-PackardRosevilleplant,recallhowthefearofjoblossinhibitedachangeeffortdesignedtoimprovetheplant’sperformance.Thisresistanceoccurredeventhough,inthelongrun,performanceimprovementwasperhapstheonlywaytoprotectboththeorganizationandtheirjobs.Nonetheless,andweseethisoften,feardrivesoutconsiderationofthelongerrun.Onlytheimmediate,frighteningprospectsofjobloss,paycuts,demotions,andunwantedtransfersloominpeople’sminds.Consequently,effortstoimplementknowledgethatmightactuallyreducethethreatinthelongtermfounderonshort-termfearsoftheconsequencesoftheirimplementation.ThisiswhyDeming,asanadvocateoftotalqualityandthechangethatthisrepresentedinmanyfirms,wassoadamantaboutdrivingoutfear.

ConsiderwhatfinallyhappenedtoAlDunlapatSunbeam.HewasfiredwhenSunbeam’sfinancialresultswerequestioned.Inanefforttoboostshort-termresults,thecompanyshippedalotofbarbecuegrillstoretailersduringthewinter,offeringthemtheopportunitytonotactuallypayforthegrillsuntiltheseasonand,ofcourse,toreturnanytheydidn’twant.Butthecompanybooked

seasonand,ofcourse,toreturnanytheydidn’twant.Butthecompanybookedrevenueasthegrillswereshipped.Notmanybarbecuesaresoldinthewinter,butintheshortterm,thisboostedthecompany’sfinancialresults.Bookingbusinessthatwasn’trealwasalsoaproblemduringthemid-1990satInformix,adatabasesoftwarecompany,andatOracle,anotherdatabasemanagementsoftwarecompany,intheearly1990s.Inbothinstances,thecompaniesreportedasactualsalesanyproductshippedtodistributorsforresale,eventhoughsaleswerenotcompleteduntilthesoftwarewasactuallysoldtoendusers.Informixhadtowriteoffliterallyhundredsofmillionsinphantomrevenue—muchofthefirm’sprofits—whenthephantomsaleswereuncovered.ThescandalatOraclewassmallerinsize,butofthesameform.

AtSunbeam,Dunlapfirstclaimedthattherehadn’tbeenanyfinancialshenanigansandthenthathehadn’tauthorizedanyofthisbehavior.Buthedidn’thavetoexplicitlytellpeopletodosomethingillegal.Itprobablywouldnothavematteredifhehadtoldthemtoscrupulouslyadheretoallfinancialreportingregulations.FacedwiththefearofwhatwouldbefallthemifChainsawAlDunlapdidn’tgethisresults,peopleatSunbeamactedtoensuretheirshort-termsurvival—andifthatrequireddoingsomethingstocookthebooks,sobeit.Thefactthatsuchfinancialgameplayingwouldlikelycometolightinthelongerterm,whichmakestheshort-termbehaviorseemirrational,mayneverbeconsideredbypeoplewhoaredesperatelytryingtosurviveintheshortterm.Fearmakestheshorttermalmosttheonlythingthatpeopleseeorfocuson.Youcanbetthatcompaniesthathaveengagedinvariouskindsoffinancialmisrepresentationstomakethenumbersintheshortrunarethosewherefearreigns.Peopleintheseplacesareafraidtoadmitanyproblems,hopingthatsomehowtheywillgetbyorthattomorrowwillnevercome.

Theotherproblemisthatthiskindoffearcreatesafocusontheindividualratherthanthecollective.Youknowtheoldstoryaboutthetigerchasingtwopeople:Theonewhosurvivesdoesn’thavetobefast,justfaster.Similarly,inorganizationswherethereisfearofbeingblamedforshort-termproblems,peoplewillfocusonindividualself-preservationratherthanthecollectivegood.ExecutivesatSunbeamknewthatDunlaphadreleased70percentofhisexecutiveteamatScottPaper.TheyalsoknewthatDunlapbelievedthat“Irarelyseeanygoodinwhatcamebefore.”Iftheywantedtokeeptheirjobs,theyhadeveryreasontoblameotherexecutivesforproblemsandnoincentiveforhelpingotherstosucceedorforadmittingmistakesinanefforttohelpothersavoidsucherrorsinthefuture.

Similarly,atthelargefinancialinstitutionwediscussedearlier,peopleareheldtoshort-termfinancialmeasuresandarepunishedandblamedfornotmeetingtheirnumbers.Asaresult,themanagersweinterviewedoftenseemedobsessedwithtakingcreditfortheirowngoodperformanceandblamingothersforpoorperformance,aswellasbelittlingothersinsimilarpositionstomakethemselveslookbetter.Onebranchmanagerweinterviewed,forexample,focusedonlyonhisindividualperformancethroughoutourconversation,emphasizingthereasonshedeservedmorecreditthanhewasgetting.Heneveroncedescribedanythinghehaddonetohelpanotherbranchmanager,ordescribedanythingthatanothermanagerhaddonetohelphim.Healsoexplainedhowhewasunderpressurefromhisbosstodrivemorefearintohisbrancheventhoughhethoughtitwasamongthemostprofitableinthefirm.Buthewasonlyratedasbeingaverageasapeoplemanagerbecause“[shewantsmeto]pushthemalittlebitharderandgetmoreoutofthem.”

Inorganizationssuchasthesethemanagementphilosophyisthatpeoplewillworkhardestiftheyaretryingtoavoidpunishment.Avoidingpunishmentforyourselfmeansfindingwaystoblameandpunishothers.Insuchasetting,thereisnoreasonforpeopletoworktogetherforcollectivebenefit,andlotsofreasonsforthemtoundermineeachother’sworkandreputations.

HowSomeOrganizationsDriveOutFear

Anumberoforganizationshave,inanintentionalfashion,developedpracticestodriveoutfear.Bydoingthis,thefirmshavebuilthealthycompanieswhereknowledgeisreadilydevelopedandshared.OnesuchorganizationisPSS/WorldMedical,acompanythatbeganinthehighlycompetitivebusinessofsellingmedicalsuppliestophysiciansinFlorida.PSS/WorldMedicalhassinceexpandeditsbusinessnationwideand,morerecently,intoEuropeandexpandeditsscopetoselldiagnosticimagingequipment.Thecompanyhasgrownatarateofalmost60percentperyearsinceitwasfoundedin1983,becominga$1billionbusinessin15years.Onesecrettoitssuccessinmanagingthisrapidgrowthandgeographicexpansion,oftenaccomplishedthroughacquisition,isencouragingopenandfreecommunicationthroughoutthefirm,sothatnohiddenproblemsorissuesfester.“Therighttocommunicatewithanyone,anywhere,withoutfearofretributionisoneofthecorevaluesatPSS.”34The

companyhasanopen-doorpolicyandencouragespeopletogoovertheirboss’sheads.ThisextendseventotheCEO,PatrickKelly,whoencouragesboardmemberstointeractwithothersinthecompanysothattheydon’thavetorelysolelyonhimorotherseniormanagementfortheirinformation.

Anotherkeytothefirm’ssuccess,andtothesuccessofmanyofthefirmsthatturnknowledgeintoaction,isdecentralizeddecisionmaking.Thispracticeencouragespeopletolearnthingsandtoactuallyimplementtheirknowledge.Butthereisalwaysaconcernaboutdecentralizeddecisionmaking—whatifsomeonemakesamistake?(Itisinterestingthattheunstatedassumptionisthatthehigheryouareintheorganization,somehowthefewermistakesyouwillmake.)Ifmistakes,whichareinevitable,arepunished,peoplewillbefearfuloftakingindependentaction.AtPSS,thefirmgoesoutofitswaytoensurethathonestmistakesarenotpunished:

Mostcompaniesgetsomething…backward,too.Theythinkthatholdingpeopleaccountablemeanspunishingthemfortheirmistakes.ThiswasthekindofthinkingChris[anemployeewhohadacceptedreturnedmerchandise]wasexpecting.

Well,Chrishadn’tmadeamistake.Butwhatifhehad?Peopledo.Andthemoredecisionsyouexpectthemtomake,themoreoftenthey’llscrewup.Infact,iftheyaren’tmakingmistakes,theyprobablyaren’tmakingdecisions.

…Goaheadandmakeadecision.Ifyoumakethewrongone,acknowledgeyourmistakeandlearnfromit.Thenmoveon.NobodyatPSSwillpunishyou.35

PSS/WorldMedicalpromotesfromwithinandhasencouragedpeopletotakeonbigresponsibilitiesatayoungage.Noteveryoneisexpectedtobeabletomeetthesenewchallenges.Butpeopleareoftenwillingtotryanewjobwithgreaterresponsibilitiesbecausetheyknowthatiftheyfail,theywillhavea“softlanding”:

It’snocrimetofailatPSS.Ifyoudon’tworkoutinanewjobaftergivingityourbestshot,youcanhaveyouroldjobback….Thisiswhatwecalloursoftlanding.It’stheexactoppositeoftheup-or-outapproachtocareers….Wewantpeopletostaywithus.We

wantthemtogoasfarintheorganizationastheypossiblycan.Andwewillneverpunishthemfortakingonajobthatturnsouttobebeyondtheirabilities.36

SASInstituteusesasimilarapproachinthesoftwareindustry,whichisotherwiseinfamousforpunishingfailure.DavidRusso,SASInstitute’svicepresidentofhumanresources,hassaid,“Wepunishnothing.Werewardcreativity.VerymuchlikeMariaMontessori[thefamouseducator],webelievecreativityshouldbefollowed,notled.”37Thecompanyiswillingtoletsoftwaredeveloperstrynewthings.Thisishowitenteredtheeducationalsoftwareandvideogamebusinesses,areasthatarefarafieldfromthecompany’sprincipalfocusonstatisticalanalysis,decisionsupport,anddatabasemanagement.Moreover,thesenewlinesofbusinesshavecomenotthroughacquisitionsbutfrominternaldevelopment.Notallofthenewventuresornewprojectscanbesuccessful:

Haveyoueverheardustalkabouttheholes?He[JamesGoodnight,oneoftheco-foundersandtheCEO]saysthathe’sdugalotofholes.Theonlysmartthingisknowingwhentoquitdigging….Wedon’tknowifit’sgoingtomakealotofmoneyforthecompany,ornot.Butthetechnologyoutthereisexcitinganditmightturnintosomething.Goforit.38

Thenthere’sTheMen’sWearhouse,thesuccessfulretaileroftailoredmen’sclothing.Thetopmanagersofthisfirmdeeplybelieveindrivingoutfear.Thecompanywilloftennotfireemployeesthefirsttimetheyarecaughtshoplifting.Andsometimes,noteventhesecondtime.Ifthisseemsstrange,considerthefollowing.GeorgeZimmer,thechairmanandfounder,hassaid,“We’reinthepeoplebusiness,notthesuitbusiness.”39Retailingisarelativelylow-wageindustry.CharlieBresler,thefirm’sexecutivevicepresidentforhumandevelopment,hasnotedthatmanypeoplesellingonthefrontlinesintheretailingindustryhavetroubledbackgrounds—problemsinschool,careerproblems,personalproblems,andotherthingsthathavecausedthemtobeconfinedtoacomparativelylow-wageand,inmanyfirms,low-skilledoccupation.TheMen’sWearhouseseesitstaskasdevelopingthesepeople,

raisingtheirskills,theirself-esteem,andtheirlevelofsuccess.Bygivingpeopleasecondchance,thecompanyinspiresgratitudeand

loyalty.Mostofthesepeoplehaven’tbeengivenasecondchance,orevenmuchofafirstchance,before.Thenormofreciprocity,virtuallyuniversallyheldandobserved,requiresthatthefavoroftheextrachanceberepaid.Inaddition,asCharlieBreslerexplains,thefirmhasalreadyselectedthepeopleasbestitcanandinvestedintheirtraining.Ifitsimplyfiresthematthefirstsignoftrouble,itwillhavetogobacktothesamelaborpoolandhireagain.Whataretheoddsthatitwilldosignificantlybetter?Breslerbelievesitisfarmoresensibletodevelopthosepeoplealreadyinthefirmratherthantogetridofthem,gobackintothesamelabormarket,andstartalloverwithpeoplewhomaynotbebetterandcould,infact,beworse.

Drivingoutfearstartsatthetop—justasparanoiadoes.HerbKelleherofSouthwestAirlinesagreedtoappearinAmericanExpressadvertisementsbecausehelostsomanycreditcards—somethingheadmittedopenlyasawayofshowinghe,too,mademistakes.DennisBakke,theCEOofAES,tellseveryonethatin1997hemadeonlyonedecision,asawayofillustratingthatthecompanytrulydoesdecentralizedecisionmakingandthattheCEOisnotomnipotent.InAES’sannualreport,thecompanyopenlyadmitsmistakesandproblemstoshowthateveninatremendouslysuccessfulyearinaverysuccessfulcompany,noteverythinggoesperfectly,anditisfinetoadmitthisinpublic:

Noteverythingwetouchedin1997turnedtogoldorevencopper.Welostnumerousbids….TheacquisitionofDestec’sinternationalgenerationassetshasbeenthemostdisappointingeconomically.Atthispoint,itlookslikereturnswillbelowerthanexpected.40

Ourpeoplewantanddeserveasafeplacetowork.LastyearthecorporatebonuswasreducedbasedonadvicefromanoverwhelmingnumberofAESpeoplethatoursafetyrecordwasn’tgoodenough.Thisyearwasbetter,butwestillhadmorelosttimeaccidentsthanreasonable….However,eveninthegreatestyearwehaveeverhadbyallothermeasures,wehaveagainadjustedourcorporatebonusesdownwardtoacknowledgetheunsatisfactorysafetyrecord.41

Thereisnolearningwithouterror.BenjaminZander,conductoroftheBostonPhilharmonic,isafrequentspeakeronleadership.Heunderstandsthatinanorchestra,theconductoristheonepersonwhoisnotphysicallymakingmusic,sothatpersonreallydoesaccomplishsomethingonlythroughtheeffortsandcooperationofothers.Zanderhasarguedthatweshouldcelebrateourmistakes.Heillustratesthisprinciplebyplayingasimpletuneinvariousways.Thefirstway,thatofthebeginner,hitsnowrongnotesbutisalsodeadlydull.Zandernotesthatitisonlywhentheperformerliftshisorhersightsfromsimplynotplayingawrongnotetosomethingmorethatbeautifulmusiccanoccur.Anditisonlybyriskinghittingwrongnotesthatlearningresults.Healsotrainshismusicianstoreacttotheirmistakesbyexclaiming“Howfascinating!”

CompaniesthatencouragepeopletoactontheirknowledgehaveleaderslikeBenjaminZanderwhopraisepeoplewhethertheysucceedorfailandwhoviewtheonlytruefailuresasthefailuretotakeactionandtotrysomethingnew.DesignersatIDEOProductDevelopment,anindustrialdesignfirmthathaswonnumerousawardsforitswork,liketosaythattosucceedinthelongrun,youneedto“failearlyandfailoften.”Thedesignersdon’twanttofail,buttheybelievethatthebestproductsandthebestorganizationalpracticesresultfromconstantlytryingnewideasandlearningfromsuccessesandfailures.

Thecostoffailinginproductdesignistrivialcomparedwithmakingmistakesduringsurgery.Butresearchonsurgeonsshowsthat,althoughtheyareperfectionists,theyrecognizethateveryonemakestechnicalerrorsandthatthereareconstructivewaysofdealingwiththesefailures.CharlesBosk,inan18-monthintensivestudy,foundthatsurgeonsarevehementintheirexpectationsthatmistakesshouldbeadmittedanddiscussedwithothersurgeons.42Tryingtohideanerrorordenyingonehasmadeitareviewedasunforgivable,becausesuchbehaviormakesithardertohelpthepatient.Boskobservedthatinthehospitalwherehedidhisstudy,theexpectationwasthatwhensurgeonsmadeerrors,theyshould“forgiveandremember.”Byrememberingthefailuresthatareinevitableinlife,peoplecanlearnmeansforavoidingwell-knownerrorsinthefuture.

HowtoDriveFearandInactionOutofOrganizations

Praise,pay,andpromotepeoplewhodeliverbadnewstotheirbosses.

Treatfailuretoactastheonlytruefailure;punishinaction,notunsuccessfulactions.

Encourageleaderstotalkabouttheirfailures,especiallywhattheyhavelearnedfromthem.

Encourageopencommunication.

Givepeoplesecond(andthird)chances.

Banishpeople—especiallyleaders—whohumiliateothers.

Learnfrom,andevencelebrate,mistakes,particularlytryingsomethingnew.

Don’tpunishpeoplefortryingnewthings.

Bosk’sresearchsuggeststhatifsurgeons—orpeopleinanyotherorganization—punishoneanotherforadmittingmistakes,theresultingfearwouldmakeconstructiveoutcomes,suchaslearningtoavoiderrorsinthefutureandmakingnecessarychangesinpractices,impossible.Tolearnfromothers,onemustbewillingtoadmitthatonehassomethingtolearn.Inanorganizationfulloffear,thatisgoingtobedifficultifnotimpossible.Toturnnewknowledgeintoaction,onemustbewillingtotrysomethingdifferent,andsuchbehaviorriskserror.Therewon’tbemuchexperimentation,muchinnovation,muchlearning,ormuchturningofknowledgeintoactioninclimatesoffearanddistrust.Thereisalmostnothingmoreimportantthatorganizationsandtheirleaderscandotoenhanceperformanceinthelongtermthantodriveoutfear.Whatashameitisthatsomanydotheopposite.

DrivingOutFearduringHardTimes

Manyofthecompaniesthatwehavementionedasdrivingoutfearhavehadtheluxuryofstrongfinancialperformance,althougheachhasoftenconfrontedchallengesattimesduringitsgrowth.Itwillstrikemanyreadersasbeingfar

easierforleadersto“driveoutfear,”toembracefailure,torewardemployeesforcontributingtothecollectivegood,andtogenerallyactlikefinehumanbeingswhenthecompanyissuccessful.Thetruetestiswhentimesgettough.Itisnotalwayspossibletoavoidlayoffs,payreductions,plantclosings,andotherunwantedandunpleasantchanges.Butthedurationandamountoffearthatsuchchangesprovokecanbegreatlyreduced—ormagnified—byhowthesituationismanaged.

ConsiderthedifferenceinhowtwolargeU.S.corporations,LeviStraussandCitibank,announcedandimplementedlarge-scaleworkforcereductionsinlate1997.InOctoberofthatyear,Citibankannouncedthatitwoulddismiss9,000ofits90,000employeestocutcostsandimprovetheefficiencyofitsback-officeoperations.43InNovember,LeviStraussannounceditwouldclose11manufacturingplantsandlayoff6,395people,whichwas34percentofitsmanufacturingworkforceintheUnitedStatesandCanada.44Bothfirmsprovideddisplacedemployeeswithgenerousseverancepackages.Buttherewereimportantdifferencesinhowthelayoffsweredone.Thesedifferencesillustratefourimportantguidelinesforimplementingstressful,negativechangesinwaysthatreducethefearthatemployeesfeelandtheamountoffearintheorganization.Thekeytodrivingoutfearevenduringdifficulttimesistoprovidepeopleasmuchprediction,understanding,control,andcompassionaspossible.45

Onthedaythatlayoffswereannounced,LeviStraussmadeclearexactlywhichemployeeswouldbedismissed,exactlyhowmuchseverancepaytheywouldreceive(threeweeksforeachyearservedplussixmonthspayaftertheclosingannouncement,eveniftheyfoundanotherjob),andwhatotherbenefitstheywouldreceive.CEORobertHaasexplainedthatexcesscapacitymadetheclosingsnecessaryandthatnojobswouldbemovedoverseas.Bycontrast,atthetimeoftheCitibanklayoffannouncement,nogivenemployeecouldknewifheorshewouldloseajob.Thislackofpredictabilitymeantthatthousandsofpeopleinthefirmhadreasontofearjobloss,eventhoughtheirjobswouldeventuallybespared.Althoughemployeesinbothfirmscouldunderstandthefinancialpressuresthatledtothelayoffs,Levi’semployeeswereprovidedmoredetailedandcomprehensibleexplanationsofwhyitwasnecessarytoeliminatetheirparticularjobs.

Levi’semployees,laidoffornot,hadagoodideaofwhatstepstheywouldneedtotaketocontroltheirowndestiny.Thoselaidoffknewwhatbenefitsthey

wouldreceiveandwhen.Incontrast,peopleatCitibankwhocontinuedworkingforthefirmhadalessclearpathforretainingcontrol.Specifically,itwasunclearifpeopleshouldinvesttimeandeffortintodoingtheirjobseffectivelyorintolookingforanotherjob.And,therewasamarkeddifferenceinexpressedcompassionbetweenthetwofirms.Levi’smanagementconveyed,inmanydifferentways,thattheyrealizedthatharmwasbeingdonetohumanbeingsandtried,inwords,emotionaltone,andactions,tomitigatethatharm.Incontrast,wecouldfindnotevenasingleacknowledgmentfromaCiticorpexecutiveinanypublicpronouncementthathumanbeingswerebeinghurt.Wecouldonlyfindtalkaboutreductionin“positions”and“jobs.”AlthoughbothLeviStraussandCiticorpspentafortuneonseverancebenefits,Levi’sdemonstratedhowgivingpeopleasmuchprediction,understanding,control,andcompassionaspossiblecanreducethenumberofpeoplewhofeelafraid,andhowdeeplyandhowlongtheyexperiencesuchfear.46

Thelessonfromthisexample,aswellasfromastudyconductedbyJeraldGreenbergonimplementingpayreductionsintwomanufacturingplants,47isthatitishowthingsaredone,notjustwhatisdone,thatmatters.Evenunderadversecircumstances,firmscantakeactionsthatincreaseorreducefearintheirorganizations.Theideathat“circumstancesmademedoit”haslittlevalidity.

Wehaveseeninthischapterthatfearisnotsomethingfromthedistantpast,butispresentinmanyorganizations.Andwehaveseenthatfear,whateveritsothervirtuesandvicesasamanagementapproach,isalmostcertainlygoingtomaketheknowing-doinggapworse.Variousexamplesdocumentedhowtodrivefearoutoftheworkplace,forleaderswhowanttodoso.AswesawinChapter3,people’stheoriesoforganizationsandindividualmotivation,oftenunconsciousorimplicit,matteralotinaffectingmanagementpractices.Althoughmanypeopleapparentlybelievethatstressandfearareproductivemanagementapproaches,thereissurprisinglylittleevidenceconsistentwiththisview.

DrivingOutFearduringHardTimes

Prediction:Givepeopleasmuchinformationaspossibleaboutwhatwillhappentothemandwhenitwillhappen.

Understanding:Givepeopledetailedinformationaboutwhyactions,especiallyactionsthatupsetandharmthem,weretaken.

Control:Givepeopleasmuchinfluenceaspossibleoverwhathappens,whenthingshappen,andthewaythingshappentothem;letthemmakeasmanydecisionsabouttheirownfateaspossible.

Compassion:Conveysympathyandconcernforthedisruption,emotionaldistress,andfinancialburdensthatpeopleface.

Thereisoneotherimportantpoint.If,allotherthingsbeingequal,organizationsthathavemean-spirited,fear-inducingmanagementpracticesarenomoreorlesseffectivethanthosethattreattheirpeoplewithdignityandrespect,thenthereisnoexcusefornottreatingpeoplewell.Indeed,eveniffirmsthattreatedtheirpeoplewelldid,onaverage,slightlyworsethanthosethatmanagedthroughfearandintimidation,thereisstillastrongethicalormoralargumentfortreatingpeoplewell.Thetrade-offbetweensomesacrificeinfinancialperformanceandtheenhancedwelfareoftheworkforcewouldbeworthit.But,theevidenceisquitecompelling:Managingthroughfearandbuildingorganizationsthatarefilledwithdistrustisnotonlyinhumane,itisbadbusiness.

5 WhenMeasurementObstructsGoodJudgment

MEASURESANDTHEMEASUREMENTprocess,especiallybadlydesignedorunnecessarilycomplexmeasurementsystems,areamongthebiggestbarrierstoturningknowledgeintoaction.Inourfieldresearch,weencounteredexampleafterexampleofmeasurementprocessesthatfueleddestructivebehaviorinsideorganizations.Whatisevenmorestriking,however,isthatwhenweencounteredcounterproductivemeasurementpractices,managersoftenrecognizedandcomplainedbitterlyaboutthemanddescribedtouswhyandhowtheyshouldbechanged.Yettheuseofsuchunproductivemeasurespersisted.

Thischapterhasthreeobjectives.First,wedocumenttheproblemsthatmeasurementscreateinturningknowledgeintoaction.Second,weshowreasonswhyorganizationspersistinusingflawedmeasurementpractices,evenwhentheirleadersareawareofdoingso,andwhatthisfactimpliesaboutclosingthegapbetweenknowinganddoing.Third,wepresentexamplesoforganizationsthathaveusedmeasurementsthatproduceintelligentbehavior,andfromtheseexamplesinfersomegeneralprinciplesthatdistinguishmeasurementsthatcauseproblemsfromthosethathelporganizationssolveproblems.Itiscleartousthatmerelyknowingwhatmeasurementpracticesshouldbeuseddoesnot,byitself,causeleaderstoimplementmeasuresthatproduceintelligent,mindful,learningbehaviorratherthanthereverse.

MeasuresThatCreateProblems

Everyoneknowsthatmeasuresfocusattentiononwhatismeasured.Everyonealsoknowsthatbecausewhatismeasuredispresumedtobeimportant,measuresaffectwhatpeopledo,aswellaswhattheynoticeandignore.Asaconsequence,everyoneknowsthatwhatgetsmeasuredgetsdone,andwhatisnotmeasuredtendstobeignored.Theimportanceofmeasurementisnewstovirtuallynoone.Moreover,thereisevidencethatmeasureshavepowerfuleffectsonbehaviorevenwhentheyarenotcoupledwithrewards.Peoplewanttodowellondimensionsthatareimportanttotheirorganizations,evenifthereisnoimmediateconsequence,otherthansocialstatus,thataccruesasaresultofscoringwellonthemeasures.1

Youmightthink,giventhiscommonknowledge,thatfirmswouldroutinelyusemeasurementsystemsthatcausetheirpeopletopayattentiontoissuesthattopmanagerssay,andknow,areimportantforperformancegiventheirspecificbusinessstrategy.Youmightthinkthattheywouldfocustheirmeasurementsonelementsofmanagementpractice,businessstrategy,andfirmculturethattrulymatterforlong-termperformance.And,youmightthinkthatfirmswouldrecognizethecommonsensewisdomexpressedinalinefromOtisRedding’ssong“SittingbytheDockoftheBay”ontheneedforfewer,focusedmeasurements:“Can’tdowhattenpeopletellmetodo,soIguessI’llremainthesame.”Yet,firmafterfirmfailstoimplementthesewell-knownandcommonsenseprinciples.

Toillustrate,recruitingandretainingpeoplewiththerighttechnicalskillsiscriticalforhigh-technologyfirms.Peoplecostsarealargeproportionoftotalcostsintheseknowledge-intensivebusinesses.Topexecutivesinthecomputersoftwareandhardwareindustriesregularlycomplainaboutthescarcityoftalentandtheshortageofskilledpeople.Youmightthinkthat,giventhesebusinessrealitiesandtheshortageofknowledgeworkers,therewouldbewell-developedmeasuresofthecosts,benefits,andconsequencesofturnover,training,andotheremploymentpractices.ButastudyofworkforcemanagementpracticesintheSiliconValleybyA.T.Kearneyfoundthat“mostemployersdonotunderstandtheirtotalcostofemployment.”Moreover,“mostemployersdonotspecificallytracktheirtrainingorrecruitmentcosts.”2Eventhoughskills,training,andemploymentarecriticaltobusinesssuccess,mostfirmshavevirtuallyno

measuresrelevanttotheirperformanceonthesedimensions.Whyisthisneglectofmeasurement,orfailingtomeasuretherightthingsintherightways,sopervasive?FrederickReichheld,aBainconsultantwhowroteTheLoyaltyEffect,saidthisaboutwhyfirmsneglectthesemeasurementissuesandabouttheproblemsthisneglectcreates:

Themostaggressivemindsinanorganizationrarelyfocusonmeasurementsystems….Leaders,theyfeel,shouldconcentrateonimportant,excitingthingslikevisionandstrategy,andletthepeoplewiththegreeneyeshadesworryaboutmeasurement.Thetroublewiththisattitudeisthatmeasurementliesattheveryheartofbothvisionandstrategy….Mostexecutivestodayworkwithinheritedmeasurementsystemsthatdistorttheirbusinessstrategies.3

Whatfollowsisasmallsetofexamplesillustratingcommonmeasurementproblems.Thesecaseshelpusunderstandhowmeasurementsystemsandpracticescontributetothecreationandpersistenceofknowing-doingproblems.Weseeintheseexamplesthatmeasurementpracticescausedtheseorganizationsnotonlytohavegapsbetweenknowledgeandaction,butalsotoactinwaysthatwerethereverseofwhattheirexecutivesbelievedshouldbedone.

FocusonShort-TermFinancialPerformance:ProblemsatHewlett-PackardThereisanongoingstruggleforthesoulofHewlett-Packard.Ontheonehand,thefirmwasfoundedandhasflourishedonthebasisofstrongvalues,theHPWay,andhaslongbeenrecognizedforitsstrongculture.ManymanagementbookshavecitedHewlett-PackardasanoutstandingorganizationandarguedthattheHPculturewasanimportantsourceofthefirm’ssuccess.4Thecompanyisstillrankedquitehighinsurveysofthebestplacestowork5andenjoysturnovermuchsmallerthanthenormintheSiliconValley.Ontheotherhand,Hewlett-PackardhasrecentlyhaddifficultyinmaintainingitsgrowthandinmeetingWallStreet’searningsexpectations.Infact,thecompanyrecentlyannounceditwassplittingupintotwoparts.Manyofitsbusinesses,suchascomputersandprinters,havebecomeincreasinglypricecompetitive,andthe

firmhasbeenunderpressuretoincreaseitsmargins.Theresultisthatthefirmisbeingtornbetweenitsvaluesandbeliefsandasetofshort-termfinancialpressures,maderealbyasetofmeasurementpracticesthatemphasizeresultsinthepresentattheexpenseofbeingpreparedforthefuture.

IntheverycompetitivelabormarketforengineersintheSiliconValley,theabilitytoattractandretaintalentiscrucialtoHP.Moreover,becauseHPisoperatinginverycompetitive,high-technologyindustrieswithshrinkingproductlifecycles,intellectualcapitalandtalentarecriticaltothefirm’scontinuingsuccess.So,thefirmknowsthat“moralegovernsmotivationwhichiskeytotimelyproductdevelopment;strongculturefostersahealthyworkenvironment”andthat“employeesneedrewardsforkeycontributionsandsuccesses.”6

Yet,thereispervasiveevidencethatthefirm’scommitmenttoactingonthebasisofwhatitknowshasbeensorelytestedandthatthecompany’smeasurementpracticeshaveinducedpressuresinconsistentwithitscultureandwithdoingwhatitneedstodoforlong-termsuccess.NumerousseniormanagersinHewlett-Packardhavearguedthatthecompanyhasdriftedawayfromsomeofthepracticesandprinciplesthatmadeitagreatfirmandagreatplacetowork.Asurveyinonedivisionassessingemployeemoraleonafive-pointscale(inwhich5ishigh)showedadeclineof1.2points,oralmost25percent,forbothengineersandmanagersovera12-monthperiod.Thesamesurveyrevealedthat59percentoftheengineersand75percentofthemanagersthoughtthatadvancementopportunitieshaddecreasedinthelastyear,76percentoftheengineersand50percentofthemanagersthoughtadherencetotheHPWayhaddecreased,and76percentoftheengineersand75percentofthemanagersfeltthatrewardshaddecreased.7

Themeasurementprocess,inwhichachievingtargetedbudgetresultsinordertomeetthequarterlyexpectationsofWallStreetisparamount,hascontributedtothecompany’sdoinganumberofthingsthatarepotentiallyinimicaltoitslong-termbusinesshealth.Forinstance,inthedivisionthatwasthesourceofthedataonmorale,theprecedingtwoyearshadseentwolaboratory-widereorganizations,a40percentreductioninthemanufacturingworkforce,impositionofstringentexpensecontrols,andthevirtualeliminationofemployeecelebrationsandrewards.PeopleinthedivisionclaimedthatHPwasmoreconcernedwiththefinancialsthanwiththepeople.Butinalabormarketthatofferedmanyoptions,lessrewardforaccomplishmentandlowermoraleincreasedturnoveranddecreasedworkperformance,makingthe

division’sprospectsevenworse.8SomeofHewlett-Packard’sothercurrentmanagementpractices,promoted

byitsmeasurementsystem,havealsohadnegativeeffects.Thesepracticesincludeusingalotofoutsourcing,includingcontractingoutmanufacturingandsoftwareprogramming,usingtemporaryworkers,andnotrecruitingfortalentfarenoughinadvancetoensurethecompanyisabletoattractthebestpeople.Weshouldbeclearthatthesepracticesare,infact,inconsistentwithbasicelementsofthefirm’scultureandvalues.Thecompanyexplicitlytalksaboutitstraditionofnotusingcontractandtemporaryhelp.Forinstance,duringahalf-dayseminaronthecompany,itsculture,anditsfounders,onesummerintern“learnedaboutHP’shistoricavoidanceofusingtemporaryworkers(outsidecontractors).”Thesameinternheardasimilaraccountfromlong-timeemployees:Thecompanyhadtypicallyavoidedhiringtemporaryemployeesinareascentraltoitsbusiness.Therewasabusinesscase,notjustculturalvalues,forthispolicy:

They[HewlettandPackard]firmlybelievedthatifacompanyprovidedagreatworkenvironment,trusteditsemployees,andgaveemployeestheauthoritytomakedecisions,thenthecompany’semployeeswouldvaluethiscommitmentanddeveloployaltytothecompanyresultinginhighermoraleandmoreproductivitythancouldbeaccomplishedbyothercompanies.9

Recently,however,thecompanyhasoutsourcedmoreandmoreofitsmanufacturingactivitiesandhascometorelymoreontemporaryemployeesandcontractprogrammers.Atonepoint,intheearly1990s,thecompanywasfeaturedona60Minutestelevisionprogramforitsuseofillegalaliensfurnishedbyaso-calledbodyshop.Hewlett-PackardhasbeeninvestigatedbytheU.S.ImmigrationandNaturalizationServiceandtheLaborDepartmentbecauseofitsuseofcontractworkersfromIndia.

What’swrongwithoutsourcingmanufacturingandusingtemporaryhelpandcontractlabor(whotypicallyearnmuchlessanddonotreceivebenefits)inordertomakebudgetnumbers?Inthefirstplace,“outsourcingimportantelectroniccomponents”meansthat“HPnolongerhasamanufacturingfeedbackmechanismin-housefromwhichitcangaininformationaboutthequalityofitshardwaredesigningcapabilitiesintermsofmanufacturability,quality,defectsandcosts.”10Outsourcingmanufacturingcanintheendinhibittheabilityto

learnaboutproductdesignbecauseoftheseparationofdesignfrommanufacturingacrossorganizationalboundaries.Perhapsevenmoreimportant,asacasestudyconcluded,thispracticesendssomeimportantsymbolicmessages:

Anothercostofincreasingtheuseofoutsourcing…isthatitsendsasubtlemessagetodivisionmanagersthroughoutthecompanythatcosts,revenues,andefficiencymetricsaremoreimportantthanpreservingemploymentopportunitieswithinthecompany.Italsomeansthatshorttermplanningbecomesmoreimportantthanlongtermplanning….Decidingtooutsource…becauseofshortruninadequaciesincomparisonwithoutsidevendors…necessarilyimpliesthattheseinadequacieswillneverbe…addressedinternally.Inadoptingashorttermbusinessview,thistypeofmentalitylendsitselftohiringtemporaryworkerstofillshorttermdemandfluctuations….Temporaryworkersbecomemoreimportantwhendivisionmanagersbegintofocusmoreonmeetingshorttermfinancialandproductiongoalsthanonlongtermplanningonhowtoutilizepermanentemployees….Thefocusbecomesmoretacticalandlessstrategic.11

Thefocusonmakingthebudgetnumbersnotonlyproducesbehaviorthatisinimicaltodevelopinglong-termcapabilitiesandcontrarytothehistoryandcultureofthecompany,butalsosomebehaviorthatisalmostunethical.Forinstance,thecasestudyalsofound:

Thereisalotofcounterproductivebudgetarygamingbehaviorthatoccurstomakethenumbersseembetterthantheyotherwisewould.Anexample…wasonemanager“parking”fundswithanoutsidevendorduringonequartertobespentonprojectsinafuturequarter.Thepurposeofdoingthiswastoevenoutthecostsfromquartertoquarter,butwhatitamountedtowasprepayinganoutsidevendorthreetofourmonthsaheadoftime….Managerswill[also]usetemporaryworkersindefinitely,rotatingnewpeopleineverysooften,ratherthanhiringapermanentemployeeandblowingtheheadcountbudget.12

ThelessonsfromHewlett-Packardaresobering.Evenanorganizationwithastrongcultureandlongtraditionandhistoryofvaluingpeoplecangetintotroublewhenthereareintensepressuresto“makethenumbers”andameasurementsystemthatemphasizesprimarilythosenumbers.Thesepressuresarisebothoutsidethefirm,intheformofdemandsfromthecapitalmarkets,andinside,becauseofadivisionalizedstructureinwhichpeoplecompetewitheachothertomeettheirbudgettargets.Blindadherencetomakingthebudgetleadstoallkindsofgamesinsettingthebudgettargetsinthefirstplaceandthentodoingnumerousthings,someofwhichareharmfultothefirmanditsdevelopmentofcapabilitiesinthelongterm,toobtainshort-termresultsthatmeetorexceedtargetedexpectations.And,ameasurementsystemthatissostrictlyfinanciallyfocusedleadstoneglectingotheraspectsofthecompanyanditsdevelopment.Interviewswithnumerousmanagersatvariouslevelsinsidethecompanyrepeatedlycomebacktothebudgetingsystemasamajorcauseofthefirm’slossofitsculture,history,andtraditions.Fewhavemadeconvincingargumentsastowhatthecompanyhasgainedtocorrespondtotheselosses,asmanyechothesentimentsofthequotationsaboveconcerningthecompany’slossintermsoftheabilitytodevelopandbuildlong-termknowledgeandcompetence.Whatisalsostrikingishowwidespreadtheseviewsare,aswellasthepervasivesenseoftheinevitabilityofthesituation.

TheHewlett-Packardexamplealsoillustratesanotherimportantpoint:Thetimescaleofthemeasurements—howoftenthefirmassessesresults—helpstoestablishthetimehorizonthattendstogovernbehaviorintheorganization.AquarterlybudgetfocusatHPhasproducedanemphasisontheshorttermandactionsdesignedtomanageperformancethattakeashort-termperspective.Timehorizonsarenotinevitablebutare,infact,theresultoforganizationalmeasurementpractices.

OverlyComplexMeasurements:CitibankandaLargeFinancialInstitutionCitibank,alongwithmanyothercompanies,hasembracedtheideaofthebalancedscorecard,asthecompany’spublishedmaterialandcaseswrittenonthefirmmakeclear.Inprinciple,thebalancedscorecardmakesagreatdealofsense.Ratherthanjustmeasuringandevaluatingmanagersonthefinancialperformanceoftheirunits,whichlargelyreflectswhathashappenedinthepast,thescorecardemphasizesgettingreadyforthefuture.Managersareassessedon

dimensionssuchascustomersatisfaction,employeeattitudesanddevelopment,andnewproductsandservices—alldimensionsthatareimportantinaffectingthecurrentandfutureperformanceofthefirm,notjustonmeasuresofshort-termfinancialperformance.Asecondadvantageisthatthebalanced-scorecardapproachrecognizesthatafirm’smeasurementsystemreflectsthetheoryofthebusiness.Whatoughttobemeasuredarethoseelementsoforganizationaloperationsthatarethemostcrucialforperformance,reflectingthefirm’stheoryoftheultimatecausesofperformance.Whatdoesgetmeasurediswhattheorganizationattendstoinanyevent,soitbecomesthetheoryunderwhichthefirmoperates.So,themeasurementsystemeitherreflectsorbecomesthefirm’simplicittheoryofwhataffectsperformance.This,too,isenormouslysensible,becauseitiscommonsensetomeasurethoseaspectsthatarethemostconsequentialforaffectingthesuccessoftheorganization.13

Nonetheless,eventhoughitisgreatintheory,anumberofproblemsoftenemergewiththebalanced-scorecardapproach.Theseproblemsincludethefollowing:

1. Thesystemistoocomplex,withtoomanyseparatemeasures.

2. Thesystemisoftenhighlysubjectiveinitsactualimplementation.

3. Precisemetricsoftenmissimportantelementsofperformancethataremoredifficulttoquantifybutthatmaybecriticaltoorganizationalsuccessoverthelongterm.

Consider,first,theissueofcomplexity.Mostorganizationsuseatleastfourcategoriesofmeasuresandhavenumerousindicatorswithineachcategory.Asaconsequence,balanced-scorecardsystemsfrequentlybecomeenormouslycomplicated.Forinstance,aHarvardBusinessSchoolcasestudyreportedthatCaliforniabranchmanagersatCitibankfacedthefollowingscorecardmeasuresin1996:

FINANCIAL:RevenueExpenseMargin

STRATEGYIMPLEMENTATION:

TotalhouseholdsNewtobankhouseholdsLosttobankhouseholdsCross-sell,splits,mergershouseholdsRetailassetbalancesMarketshare

CUSTOMERSATISFACTION

CONTROL:AuditLegal/Regulatory

PEOPLE:PerformanceManagementTeamworkTraining/DevelopmentSelfOther

EmployeeSatisfaction

STANDARDS:LeadershipBusinessEthics/IntegrityCustomerInteraction/FocusCommunityInvolvement

ContributiontoOverallBusiness14

EachcomponentoftheScorecardwasscoredindependentlyintooneofthreeratingcategories:“belowpar,”“par,”or“abovepar.”Forthosemeasuresthatcouldbemeasuredquantitatively—financial,strategyimplementation,customersatisfaction,andcontrol—pre-definedperformancethresholdsdeterminedwhereperformancefellinthisthree-levelscale.However,ratingsrelatedtopeopleandstandardslackedanappropriateobjectiveindicator:

topeopleandstandardslackedanappropriateobjectiveindicator:inthesecases,performancewasdeterminedsubjectivelybythebranchmanager’ssuperior.

Inaddition,themanager’sbossgaveaglobalratingforeachofthesixcomponentsoftheScorecardandanoverallratingforthebranchmanager….15

AtCitibank,toensurethattheScorecardwasmeaningful,bonusesweretiedtotheratings:

…abranchmanager’sbonuswastiedtohisorherfinalPerformanceScorecardrating.A“belowpar”ratingdidnotcarryanybonus.A“par”ratinggeneratedabonusofupto15%ofthebasicsalary….An“abovepar”ratingcouldmeanasmuchas30%bonus.

Without“par”ratingsinallthecomponentsoftheScorecard,amanagercouldnotgetan“abovepar”rating.16

Notethattherearemorethan20separateindicatorsofperformanceandsixcategoriesinthebalancedscorecardasitwasimplementedatCitibank.Noristhisunusualforcompaniesusingthebalancedscorecard.MobilOil’sbalanced-scorecardsystem,usedtodeterminecompensation,hasasimilarlevelofcomplexity.Thisisalotofinformationtokeepinfocus.Also,beingratedbelowpareveninonecategorymeansthatregardlessofhowwellapersondidinothercategories,heorshecannotobtainthehighestperformancebonus.Thisisparticularlyaproblembecauseratingsinmanyofthecategoriesaresosubjective.

Inalargefinancialinstitutionwestudied,onesuccessfulbranchmanagerobjectedtothebalancedscorecard’sinherentsubjectivityevenasitappearedtobeobjective:

It’sstillverysubjective.Mybosswhodoesmyratingsitsdownandtalkstomeon[a]quarterlybasisaboutteamwork,mypeoplemanagementskills,myethics,thingslikethat.Forthefirsttwoquartersofthisyear,I’vebeenrated“par”inpeople.Butmeanwhile,I’vegivenupmysalesmanagertobeabranchmanagerinanotherbranch.I’vegivenupapersonalbankertobea

managerinanotherbranch.I’vegivenupapersonalbankertobeabranchmanagerinanotherbranch.Ijustgaveupanotherpersonalbanker.So,I’mdevelopingtalent,andpeoplearetakingmytalent,butasapeoplemanager,I’mjustpar.

[Myboss]cametothatjudgmentbecauseIhaveonepersoninmybranchthatshethinksIshouldbeprobablymanagingalittleharder…but[mybossis]notheretovisitandseewhatIdoand…doesn’treallyknowhowImanagethesepeople,becausemaybeIdon’tputthemondocumentation.

Becauseofthecomplexityofthebalanced-scorecardsystem,peoplecan’treallyfocusverywellonafewkeydimensions.Researchindicatesthathumanbeingscankeeponlyaboutseventhingsintheirheadsatanyonetime.17Havingmorethan20indicatorsofperformanceinsixcategoriesdilutestheattentionemployeescanpaytoanysingleissueorevenasmallsetofissues.Withsomanyindicatorsandmeasures,itiseasytosimplyignorethewholethingbecauseoftheimpossibilityofcomprehendingsomanydimensionsatonce.Thebehavioraleffectofthescorecardisfurtherdilutedbecauseoftheappearanceofsubjectivity.Peoplebelievetheratingsaresubjective,biased,andnotnecessarilyvalid,sotheydon’tbelievetheratingsarefullyundertheircontrol.Theyconcludethattheirperformancedoesnotnecessarilytranslateintogoodratingsbecauseofthesubjectiveaspectsofthesystem.Consequently,itis,again,easytosimplydisregardtheentiresystem.Inresponsetoaquestionabouttheeffectsofthescorecard,apersonwhohadworkedondevelopingthescorecardsystemandwhowasconsideredtobeagoodbranchmanagersaid:

Idon’tthinkit’sreallychangedpeople’sbehavior.Inthebeginning,peoplewereexcitedaboutthescorecardbecauseitseemedlikeanopportunitytomakealotmoremoney.Whenthatdidn’thappenitkindofwent:“thisisjustlikeSBL[anothermanagementchangeinitiativeatthebank].Iwasn’tgettingmoneythen,I’mnotgettingmoneynow.I’mstillgettingmy4%meritincrease.Lifegoeson.”

Ithinkthatsomepeoplearejudgeddifferentlyfromothers.Whenyouallowsomeonesubjectivity,whathappensisthattheytendtofavorcertainpeoplenotmaybeknowingallthedetails.Mybossmanagesprobably30otherpeopleandcan’tspendawholelot

oftimeinteractingwithme.We’llhaveameetingonceaweekfortwoorthreehours.Mybossdoesn’tvisitmybranchallthatmuch.Wedon’thavephoneconversations.Butyet,attheendofthequarter,[myboss]canlookatmynumberswhichishalfofmyscorecardandthentheotherhalfisall…perceptionsbasedonmaybe12hoursofinteractionduringthequarter.Idon’treallythinkthat’sfair—whetherIbenefitfromit,whichinmostcasesIdo,orwhetherthere’salotofotherpeoplewhodon’tbenefitfromit.

Finally,thebalanced-scorecardexamplesillustrateanotherphenomenonwefrequentlyobserved:Hardmeasuresdriveoutthesoft,andprecisemetricscanmissimportantelementsofperformance.Forinstance,thebranchmanagerquotedabovewasapparentlyreasonablysuccessfulinidentifyinganddevelopingmanagerialtalent,sincepeoplefromhisbranchwereoftenpromotedtopositionsinotherlocations.Thisisanimportantpartofbeingagoodleader—beingsuccessfulinthepeopledevelopmentprocess.Buthedidn’tgetmuchcreditforthissuccess.Itwouldbepossible,ofcourse,tojustaddanotherquantitativeindicatortothesystem,forinstance,thenumberorproportionofpeoplefromone’sdirectreportspromotedtohigherpositions.Butthatwouldmakethesystemevenmorecomplexand,inanyevent,missesthepoint.Itisoftendifficulttospecifyinadvanceeverydimensionandeveryaspectofmanagerialperformance.Tryingtoobtainprecisemetricsofperformancecanmisscritical,subtleelementsofperformance,elementsthatvaryacrosspeopleandthatcannotalwaysbedefinedinadvance,letaloneobjectivelyandpreciselymeasured.

Thelessonsfromseveralfinancialinstitutions’experiencewiththebalancedscorecardarethat,attheendoftheday,effectivemeasurementsystemsthatwilldrivebehaviorneedtobesimpleenoughtofocusattentiononkeyelementsandfairenoughsothatpeoplebelievetheycanaffectthemeasures.Also,themeasurementsystemscannotbesopowerfulindirectingpeoplethatimportantelementsofbehaviorandperformancethatarenot,andcannotbe,fullycapturedinthemeasuresreceivetoolittleornoattentionbecauseoftheunrelentingemphasisjustonthequantitativemeasuresincorporatedinthesystem.Nomeasurementsystemisgoingtoperfectlycapturealloftheimportantelementsofperformanceorallofthebehaviorsthatpeopleneedtodofortheorganizationtobesuccessful.So,measurementsshouldbeguides,helpingtodirectbehavior,butnotsopowerfulintheirimplementationthattheysubstituteforthejudgment

butnotsopowerfulintheirimplementationthattheysubstituteforthejudgmentandwisdomthatissonecessarytoacquireknowledgeandturnitintoaction.This“lighttouch”intheimplementationofmeasuresisparticularlyimportantbecausesuchsystemsareinvariablygoingtobechangedmuchlessfrequentlythantherateatwhichnewcircumstancesariseandnewknowledgeofhowtoenhanceorganizationalperformancedevelops.Giventhisdifferenceincycletimes,firmsneedmeasurementsystemsthatdon’trestrictorinhibitthedevelopmentandimplementationofperformanceknowledge.

Althoughimplementedinmanycompanieswiththebestofintentions,thebalancedscorecardoftenfailsonthesedimensions.Importantelementsofperformanceknowledgenotcapturedintheformalmeasurementsystemgetneglected,forinstance,thepeopledevelopmentprocess.Measurescometofocusattentiontosuchadegreethatintuitivewisdomandtacitknowledgecannotbereadilyimplemented.Atthatpoint,thegoodintentionsdon’tmatter.Eitherbehaviorislargelyunaffected,peoplearedemoralized,thewrongbehaviorisencouraged,orsomecombinationoftheseunanticipatedoutcomesoccurs.

In-ProcessversusOutcomeMeasures:GeneralMotorsWhyisitsohardtoimplementgoodmanufacturingpractices,suchasthoseembodiedinleanorflexibleproduction,eventhoughvirtuallyeveryautomobileexecutiveknowsthatsuchsystemsproducehigher-qualitycarsatlowercost?AswereportedinChapter1,astudyofthediffusionofflexiblemanufacturingsystemsoverafive-yearperiodfoundonlymodestimplementationofleanmanufacturingsystems,andinsomeplants,thesemanagementpracticeshadbeentakenout.Themeasurementsthataremade—andnotmade—byautomobilefirmscontributetotheseimplementationproblems.ManagersatGeneralMotorstoldusthatpartoftheproblemisthatthecompanyusestoomanyend-of-processmeasures—measuresthattellthemhowwelltheyhavedone—andnotenoughin-processindicatorsandcontrolsthathelpthemunderstandwhatisgoingrightandwhatisgoingwrong.So,learningatGeneralMotorsandelsewhereisinhibitedbecausecompaniesaremeasuringthewrongthingsandnotgatheringdatathatpermitthemtoreallyunderstand,manage,andcontroltheprocess.Inthatregard,budgetaryfigures,costs,andeventhebalanced-scorecardmeasuresaretoofarremovedfromprocessesinmanyinstancestoguidebehaviorandpermitknowledgetobedevelopedandturnedintoaction.

TomLasorda,aseniorexecutiveatGeneralMotorschargedwiththe

TomLasorda,aseniorexecutiveatGeneralMotorschargedwiththeresponsibilityofimprovingmanufacturingoperationsbyimplementingflexibleproductiontechniques,wasarticulateonthisissue:

WeareoutstandingatprovidingwhatIcallendofprocessmeasures.So,whatwasyourabsenteeism?Whatwasyourfirsttimequalitynumber?Whatwasyourscheduledproduction?Whatwasyourcostpercar,andallthatstuff?Nowwalkitbackfromthereandsay,“givemeyourin-processmeasures.”Andfromanindividuallevelofhowyourelatetothose,youwon’tfinditasdetailedasyouwillinothercompanies.CanIgotothisstationandfindtheSPC[statisticalprocesscontrol]chartsthatarecontrolledbytheindividual,andthestandardizedworkchartsthatarebeingcheckedbytheindividual?Ifyouhadthatlevelofdetailwhatyouwillfindisafarmorerobustorganizationwithfewermeasures,Imightadd,attheendoftheprocess.Becausethecompanythatisnotincontrolhasfarmoremeasuresbecausethey’renotchangingthebasicmanagementsystemsthatareinplace.

We’vegottoshrinkthenumberofmeasures,gettheorganizationfocusedonthem,andthenbuildapyramidthatsays,“theseareprimarymeasures,progressmeasures,andinprocessmeasures,”soeverybodycanlinktheirjobtotheoverallmeasures.18

Theironyisthattheend-of-processmeasurescausethosesubjectedtothemtofeelagreatdealofpressure,tofeeltightlycontrolled.Theproblemisthattheyarenotbeingmeasuredorcontrolledonthethingsthatreallymatterandthingsthattheycandirectlyaffect—theirspecificbehaviorsandactionsonthejob.So,peopleatGeneralMotorsmayfeelmoretightlycontrolledthanthoseatToyota,forinstance,eventhoughtheprocessisactuallymuchlessundercontrolatGMandeventhoughthereismuchmorecontroloverspecificworkpracticesatToyota.Thelessonisthatmeasuringpeopleonoutcomesandnotgivingthemin-processmeasurementcanhelpcreatestressandfrustration,butoftendoesnotresultinamorecontrolledoreffectiveoperationsprocess.

LasordahadaspecificplantoovercomethemeasurementprobleminthemanufacturingpartofNorthAmericanoperations:

It’sasetofmeasuresthatismuchmorerefinedsothateverybodyunderstandshowheorshelinkstothem….Anycompanyhasanenormousnumberofmeasures.Theonesyoumightseearetheendofbusinessmeasures.Whatdidyoudoonprofitability?Godowntoeachleveloftheorganizationandsay,“Canyoushowmeyourmeasures?”WhatI’vetypicallyseenis15to18measures.Andthenyou’dsaytothem,“Whatarewedoingin-process?”Andtherewouldbenothing.

SohereiswhatIhavesaidtotheorganization.We’vedevelopedwhatwecalltheBusinessPlanDeploymentStrategy,whichsayswhatarethekeybusinessplanmeasuresthataregoingtoaffecttheviabilityoftheenterprise.Let’sfocusonthoseandhowyoudrivethoseintotheorganization.Andhowdoyouengagepeopleinbusinessissuesandworkontryingtoimproveperformanceagainstthegoals….Allofasudden,youstartengagingpeopleinthebusinesswherebeforetheyreallydidn’tunderstandthemeasuresandhowtheyrelatedtothem.19

TheGeneralMotorsexampleteachesusthatrealcontroldoesnotcomesimplyfromhavingaplethoraofoutcomemeasures.Controlandimprovementcomefrommeasuresthatprovideinformationaboutprocesses,measuresthatgivepeopleimmediateandunderstandableinformationabouthowtheyneedtoact.Inthisinstance,theselessonsseemtohavebeenlearnedandarebeingimplemented.Butthelearningcamewithdifficulty.Lasordaandothersfirstneededtoovercomethebeliefthatthebestmeasurementsystemsassessmostlyend-of-processoutcomes—aperspectivethatfailstotakeintoaccountthatmeasurementsareonlyusefulwhentheycanactuallyguidebehavior.

WhyPoorMeasurementPracticesPersist

Thenegativeconsequencesofthemeasurementsystemswedescribedabovewerewidelyknownandunderstoodbypeopleineachofthesefirms,includingtopmanagement.Similarly,indozensofothercasesthatweneednotrepeathere,thestoryisthesame:Numerouspeopleintheorganizationunderstandandareabletoexplaininarticulatedetailthattheyareusingaflawedsetof

measurementpractices.So,thequestionbecomes,Ifmeasurementscreateproblemsindevelopingandimplementingknowledge,ifsomemeasurementpracticesmaketheknowing-doinggapworse,andifpeopleinthefirmsinvolvedknowthis,whydotheseineffectivemeasurementpracticespersist?

Therearenoeasyanswerstothisquestion.Butourconclusionfromdoingourownresearchandfromreadingpertinentworkbyothersisthattherearethreeinterrelatedprocessesthatexplainwhytheseflawedmeasurementpracticespersist:

1. Manycompaniesoperateusinganoversimplifiedorincorrectmodelofhumanbehavior.

2. Becausethatmodelofbehavioriswidelyshared,ithasbecomeinstitutionalizedincertaintypesofmeasuresandmeasurementsystems,whichhaveassumedataken-for-grantedquality,havebecomeasignalofcompetentmanagement(eveniftheyareactuallytheopposite),andaresowidelydiffusedthatfirmsarereluctantnottofollowthem.

3. Theprimacyofthecapitalmarketsandshareholderconcernscreatespressuresformeasurementpracticesthatarerelevanttoshareholders’interestsbutmaybeirrelevantorevencounterproductivefortheultimatesuccessofthebusiness.

Themodelofbehaviorimplicitinthemeasurementsystemsusedbymostfirmsisthatindividualsareatomisticandeconomic,ratherthansocial,creatures.Theatomisticviewiscapturedinhavingmeasuresforeachindividual.Thisprocedurepresumesthat(1)individualresultsaretheconsequencesofindividualdecisionsandactionsandthat(2)individualoutcomesandindividualbehaviorsareunderthecontrolanddiscretionoftheseindividuals,sothatresultsanddecisionscanbereasonablyreliablyattributedtoindividuals.ThinkbacktotheCitibankbalanced-scorecardsystemanditsassociatedbonusplan.Eachindividualinamanagerialrolereceiveshisorherownscorecardmeasures.Thatpresumesthatperformance,asassessedbythescorecardor,forthatmatter,byanyothermeasurementsystem,resultsfromindividualdecisionsandbehaviors—whichiswhyindividualincentivesaretiedtothemeasures.Forthismeasurementandincentiveschemetobesensible,itisalsoimplicitlyassumedthatitispossibletomakevalidjudgmentsaboutperformanceusingdimensionsofthescorecard.Inotherwords,theprocessassumesthatperformancecanbe

assessedandassignedtoindividuals.Butifthereisonethingthatweknowforcertain,itisthatorganizationsare

systemsinwhichbehaviorisinterdependent.Whatyouareabletoaccomplish,andindeed,whatyouchoosetodoandhowyoubehave,isnotsolelyunderyourindividualcontrol.Rather,yourbehaviorandperformanceareinfluencedbytheactions,attitudes,andbehaviorsofmanyothersintheimmediateenvironment.ConsidertheCitibankbalanced-scorecardexample.Isteamwork,onedimensionalongwhichpeopleareevaluated,justundertheinfluenceofthebranchmanager?Oristeamworkalsoaconsequenceofmanyorganizationalmanagementpractices,includingrewardsandmeasurements,thatthebranchmanagercan’taffectverymuch?Howmucheffectdoesthatperson,byhimselforherself,haveoncustomersatisfaction?Customersatisfactionistheresultofinteractionswithnumerousotherpeopleandofdecisionsthatthebranchmanagerdoesn’tevenfullycontrol.Onebranchmanager,incommentingontheGallupsurveyresultsusedtoassesscustomersatisfaction,noted:

Theydon’ttellyouthequestionsbuttheytellyoutheanswers,andevenwhentheytellyoutheanswers,it’snotveryspecific.They’llsay,thelinesweretoolong.Well,thelinesweretoolongatwhattime?Maybethere’sareason.TodayifyoutoldmemylinesweretoolongthisafternoonI’dunderstandwhy.ItisbecauseIhadtosendtwopeoplehomesick.So,ifacustomercameinandthatcustomeractuallygotpolled,andit’ssomeonewhohappenedtocomeintoday,thepersonisgoingtosaythatthelinesweretoolong.

Thefictioninmostmeasurementsystemsisthatindividualperformancemeasuresassignedtoindividualspresumablyreflecttheeffortandskillthosepeopleusedindoingtheirjobs.Butindividualperformanceinaninterdependentsystemwillalwaysbedifficultorimpossibletomeasure.Individualperformanceandbehavior,eveniftheycouldbeaccuratelyassessed,aretheresultofmanythingsoverwhichthepersonhaslittleornocontrol,astheaboveexamplenicelyillustrates.

Measurementpracticesareheavilyinstitutionalized,whichmeansthattheyaretakenforgrantedandusedinamindlessway.Thereisaprofession,calledaccounting,thathasmadeabusinessofdevelopingandinstitutionalizingcertainmeasures,eveniftheyarethewrongones.Considerthefollowing.Howmuch

variationdoyouseeincompanies’businessstrategies?Alot.Howmuchvariationdoyouseeinorganizationalcultures?Alot.Howmuchvariationdoyouseeevenincompanyincentivesystems?Again,agreatdeal.Nowconsider,howmuchvariationdoyousee,notjustinpublicfinancialreporting,buteveninmanagementaccountingmeasuresandpractices?Notmuch.Doesthatmakesensetoyou?Doesitseemsensiblethatfirmsthatvarydramaticallyintheirstrategies,theircultures,theirincentiveschemes,andsoforth,shouldallhaveanduseessentiallysimilarmanagerialmeasurementandreportingsystems?Aslongasaccountantshavecontrolofinternalmeasurements,notmuchwillchange.Wehavenothingagainstaccountants,butaresimplynotingthattheyarepursuingadifferentsetofgoals.Specifically,wehaveseenfewaccountantsorcontrollerswhoworryabouttheeffectofmeasurementsystemsonturningknowledgeintoactionorontheorganization’sabilitytodevelopandtransferskillandcompetence.

Andthisbringsustoourlast,interrelatedsourceoftheproblem—theprimacyofcapitalmarketinterests.Publicaccountingisfirstandforemostdesignedtoensurethatinvestorshaveaccurateandconsistentfinancialinformationonwhichtobasetheirdecisions.Ofcourse,managementaccountingispresumablyseparateanddistinctfrompublicfinancialreporting,andinformationsystemsandmeasurescould,intheory,bedesignedtoaccomplishanythingthatmanagerswanted.Butpubliccompanieshaveanauditcommittee,andthepublicaccountingfirmshavetoassuretheauditcommitteethatthecompany’sfinancialcontrolsaresound.Soeveninternalauditsandfinancialcontrolssoonbecomefocusedonthepublic,capitalmarketaspectsoffinancialreportingasdevelopedandenforcedbypublicaccountingfirms.Forgoodorforill,thiscapitalmarketinfluencefurtherensuresuniformityofpractices.Sincethereismuchlessuniformityofbusinessconditions,culture,andstrategy,thisuniformityinmeasurementpracticesalmostguaranteesmeasurementsthathavelittleconnectiontotheparticularbusinessproblemsandissuesconfrontingaspecificorganization.Buteveninthefaceofinstitutionalizedpressuresandgenerallysharedmodelsofbehavior,somefirmshavebeenbetterabletogettheirmeasuresright.Thesituationisn’thopeless.Let’sconsidersomeexamples.

UsingMeasurestoEnhancetheDevelopmentandUseofKnowledge

Wefoundthatasimpleprinciplewasappliedinfirmsinwhichthemeasurementsystemshelped—ratherthanundermined—theabilitytoturnknowledgeintoaction.Suchfirmsmeasuredthingsthatwerecoretotheircultureandvaluesandintimatelytiedtotheirbasicbusinessmodelandstrategy,andusedthesemeasurestomakebusinessprocessesvisibletoallemployees.Forexample,atWainwrightIndustries,aprivatelyownedmanufacturingcompanythatwontheBaldrigeAwardin1994,“measuresaresimple,visualindicatorsystemstooperationalizethegoalssoeveryonecantellateverymomentwhetherornottheiractionsareproducingthedesiredresults.”20Also,inmostinstancesthemeasuresusedwereaggregate,measuringtheresultsatagroup,subunit,ororganizationallevelratherthanattemptingtodotheimpossiblebyassessingtheperformanceandcontributionsofindividualsworkingininterdependentsystems.

Inasense,theunderlyingpremiseofthebalancedscorecardisright—measuresshouldembodyatheoryoforganizationalperformance.AtWainwrightIndustries,thefivekeyindicatorsare,inorderofimportance,(1)safety,(2)measuresofemployee(internalcustomer)satisfactionandcontinuousimprovement,(3)customersatisfaction,(4)quality,and(5)financialperformance.Therelativeimportanceofthevariousmeasuresreflectsleaders’beliefsabouthowthecompanyanditsbusinessworks.Qualityiscomparativelylowinimportancebecause“atWainwright,qualityisanautomaticresultofemployeesatisfaction,trainingandinvolvement.”Similarlyforfinancialperformance:“Strongbusinessperformanceresultsfromemployeesatisfaction,training,involvement,customersatisfaction,andhighestproductquality.”21Therearetwokeydifferencesbetweenwhatthesefirmsdidandthebalanced-scorecardapproach:(1)Themeasurementsystemsarefarsimplerandunderstandable,and(2)theytookmindfulactionstobuildmeasuresthatsuitedtheirneedsratherthanmindlesslyadoptingmeasuresthatwerewellinstitutionalizedinaccountingfirms.Theseorganizationsrecognizedthetradeoffbetweenhavingameasurementsystemthatcapturedthefullcomplexityofthesourcesofperformanceandhavingasystemthatfocusedattentiononfewer,butthemostcritical,aspectsofoperationsandculture.

MeasuresLinkedtoCulturalValuesandPhilosophy:TheMen’sWearhouseTounderstandthewisdomofacompany’smeasurementsystem,itisfirst

necessarytoknowsomethingaboutitsbusinessmodelandculture.TheMen’sWearhouseseesitssalespeopleasprofessionals—whichiswhyitspendssomuchtimeandefforttrainingthem—whosegoalistodevelopanunderstandingofcustomers’wardrobeneedsandtocultivateahigh-servicerelationshipsothatthecompanybecomesthesourcetofillthoseneeds.Theirsalesphilosophyisdescribedintheirtrainingmaterials:

TheMen’sWearhousesalesphilosophyisconsistentwiththeCompany’sgoalofcreatingWin-Win-Winsituationsforourcustomers,wardrobeconsultants,andtheCompany…

Thecustomerwinsbecausewehaveconsultants.Asteam-oriented,professionalconsultants,weseektocreateaqualityrelationshipwiththecustomer….Unlikeotherstoreswith“clerks,”TheMen’sWearhouseisabletoshowandassistagentlemanwithanentirewardrobeconcept.Thishelpshimtolookandfeelbetter,whilesavingtimeandmoney.

Sinceyouhavemetthecustomer’sclothingneedswellbeyondthoseheinitiallyidentified,youhavemadeagreatsaleandacustomerforlife….TheMen’sWearhousewinswitheverycustomerthatisdelightedbythequalityofservice,thevalueoftheclothingandtheuniqueshoppingexperience.22

CharlieBresler,oneofthemostseniorexecutivesatthecompany,inhisorientationtalkatSuitsUniversity,emphasizestheimportanceofteamsellingandpersonalrelationshipswithotherpeopleinthecompany:

Mymostimportantjobisreallymaintaininganenvironmentinourstoreswhichisapositiveworkenvironment….Asawardrobeconsultant,youareexpectedtodefineyoursuccessinpartasonlyachievedwhenyourteammates,thesalesassociates,thetailors,andotherwardrobeconsultantsandmanagementpeopleinthestorearealsosuccessful…andthatyouwill,overtime,defineyoursuccessnotonlyintermsofyourowngoals,butalsothegoalsandaspirationsoftheotherpeopleinyourstore.Andthatyouwillcometoreallycareaboutthemashumanbeingsandaspeoplewhofinallyrealizetheirpotential,too.23

Thecompanyhasover400storesthroughouttheUnitedStates.Maintainingthiscultureandphilosophyisachallenge.Butthefirmhasdevelopedmeasuresthathelpthemaccomplishthistask.TositwithCharlieBreslerandlookatsalesfiguresforwardrobeconsultantsineachstoreistolearnhowthemeasurementsystemhelpsthecompanyenforceandtrackitsculture.Oneimportantmeasureheandtheotherleadersuseisthenumberoftransactionsforeachwardrobeconsultantinthestore.Thisnumbershouldbeapproximatelythesameforallofthepeopleinagivenstore.Ifitisnot,itmeansthatsomeoneisnotsharingwalk-inbusinessequallywiththeotherpeople.Tohogcustomersistonotdisplaytheproperteamspirit,andpeoplewhopersistinthisbehaviorgetfired,eveniftheirsalesvolumesarehigh.Thesecondnumberistheaveragesizeoftheticket,orsale.Thecompanyactuallyhasahighercommissionfortransactionsover$500becauseofthebeliefthatwardrobeconsultants,notclerks,areabletolearnaboutanindividual’swardrobeneedsandfillmoreofthoseneeds,particularlybysellingaccessoriessuchasshoes,ties,andshirts.Thisabilityto“accessorize,”measuredfromthesalestickets,helpsmanagersassesstrainingneedsandthesuccessoftheireffortstoproducesalesprofessionalswhotrulyarewardrobeconsultants.

Toreinforcetheculturalvalues,thefirm’sperformanceappraisalsystemisfocusedonspecificbehaviors—behaviorsthatcanbecoachedandlearned.Forinstance,inadditiontospecificsalesfiguresandmeasuresthatindicatehowmuchcross-sellingofmerchandisethepersonisdoing,someoftheotherdimensionsontheappraisalinclude“Participatesinteamselling;ensuresproperalterationrevenuecollection;treatscustomersinawarmandcaringmanner;contributestostoremaintenanceandstockwork;isfamiliarwithmerchandisecarriedatlocalcompetitors;greets,interviews,andtapesallcustomersproperly;andcontributestostoremaintenanceandstockwork.”24

TheMen’sWearhousehasdevelopedquantitativeandmorequalitativebutstillbehaviorallyspecificindicatorsthatcloselymatchitsintendedculture,values,andbusinessmodel.Thequantitativemeasuresareproducedroutinelybythefirm’smanagementinformationsystemandareusedtoidentifyproblemsandtorecognizesuccesses.Bymakingthemeasuresbehaviorallyspecific,thecompanyhascomeclosertoactuallyhavingin-processmeasuresthatcanbetaught,learned,andimplemented,ascontrastedwiththemoretypicaloutcomeorend-of-processmeasures.

Few,SimpleMeasures:SASInstitute

Few,SimpleMeasures:SASInstituteSASInstitute,asoftwarefirmprovidingstatisticalanalysis,datamining,datawarehousing,anddecisionsupportsoftware,hasabusinessmodelthatemphasizesrelationships.“Ratherthansellingaproductandthensellingupgradesonaregularbasis,SASoffersanannuallicensingarrangementafterathirty-dayfreetrialperiodthatprovidesforfreeupgradesandcustomersupport….Overtime,revenuesfromagivencustomerwillbehigher,aslongasthecustomerrenewsthelicensingagreement[emphasisadded].”25Itisalsoinanindustryinwhichknowledgeandintellectualcapitalarecritical.Itsmeasurementpracticesreflectboththesebusinessimperativesandthephilosophyofthefirm,asexpressedbyJamesGoodnight,oneoftheco-foundersandcurrentlytheCEO:“Whatwetriedtodowastotreatpeoplewhojoinedthecompanyasweourselveswantedtobetreated….Ifyoutakecareofyourpeople,theywilltakecareofthecompany.”26

SASInstitutebelievesthatpeopleshouldworkataplacebecausetheyenjoytheworkandthepeopletheyworkwith—financialincentivesarelessimportant.Consequently,thecompanyoffersnoonestockoptionsorphantomstock.Peoplearepaidgood,competitivesalaries,andattheendoftheyearthereistypicallyasmallbonus(lessthan10percentofsalary).Meritraisesaregivenonceayear.Therearenoshort-termindividualincentivepayschemes—nosalescommissionsforaccountexecutives,forinstance.Thecompanydeemphasizesindividualcompetitionbynotpostingcomparativesalesdatabyname.BarrettJoyner,vicepresidentofNorthAmericansalesandmarketing,hadthistosayaboutincentiveschemesandtheirassociatedmeasures:

Wehavesalestargets,butmostlyasawayofkeepingscore….We’rebigonalong-termapproach.I’mnotsmartenoughtoincentonaformula.Peopleareconstantlyfindingholesinincentiveplans….Alotofincentiveplansrepresentwaysofsignallingtopeoplewhattheyweresupposedtodoandtoemphasize….Here,wejusttellpeoplewhatwewantthemtodoandwhatweexpect.27

Thefirmhasdoneawaywithitsperformanceappraisalforms.DavidRusso,thevicepresidentofhumanresources,commented:

Iftherewereagoodperformanceappraisalprocess,everybody

wouldbeusingit….Idon’tthinkyoucanreallymanagesomeone’sperformance.Ithinkyoucanobservetheresults.Ithinkyoucangivethemthetools.Ithinkyoucansetshortandlong-termgoals.Andyoucansitbackandseeifithappensoritdoesn’thappen….Ourideaistohaveperformancemanagementbebasedonconversationinsteadofdocumentation.28

Althoughapparentlyaradicalidea,anumberofothercompanies—includingtheGMPowertrainGroupandGlenroy,Inc.,aprivatelyheldmanufacturerofpackagingmaterials—haveeliminatedtheannualperformancereviewmeasurementwithgoodsuccess:

Toomanyleadersconfusefeedbackwithpaperwork.“Fillingoutaformisinspection,notfeedback,”saysKellyAllan…“Historyhastaughtusthatrelyingoninspectionsiscostly,improvesnothingforverylong,andmakestheorganizationlesscompetitive.”29

JimGoodnightofSASseesasimpleone-pagefinancialreporteachmonth.Managersareevaluatedprimarilyontheirabilitytoattractandretainpeople.Thecompanymonitorsturnoververycarefully,andin1997hadvoluntaryturnoverofonly3percent—afractionofwhatistypicalforthesoftwareindustry.Thecompanyalsotriestoensurethatitisagreatplacetowork,andtakestheresultsofsurveysandstudiessuchasFortune’slistofthe100bestplacestoworkinAmerica(itrankedthird)veryseriously.

Inarelationship-orientedbusinessbasedprimarilyonintellectualtalent,SASencourageslong-termrelationshipbehaviorthroughitsmeasurementsandthroughwhatitchoosesnottomeasureandmakepublic.Inaplaceinwhichtheattractionandretentionoftalentiskey,turnoverandfactorsrelatedtothebuildingoftalentarewhatthefirmmeasures.Theemphasis,eveninageographicallydispersedorganizationof5,000people,remainsoninterpersonalcommunication—anemphasisconsistentwiththerelationship-orientedbusinessmodelandphilosophy.Youhaverelationshipswithpeople,notwithreportsornumbers.

UsingMeasurestoMaintainFocusonWhat’sImportant:Intuit

Intuitisalargefirmthatdevelopsandsellsfinancialplanningsoftwareforbothindividualsandsmallbusinesses—thebest-knowntitlesareTurboTax,Quicken,andQuickBooks—implementedinitiallyinboththeMacintoshandPCenvironmentsandnowontheInternetaswell.30Thefirmtodayhasabout$600millioninannualrevenueand3,000employees.Thecompanyhasasetofoperatingvaluesthatincludethefollowing:

IntegritywithoutcompromiseDorightbyallourcustomersIt’sthepeopleSeekthebestContinuallyimproveprocessesSpeak,listen,respondTeamsworkCustomersdefinequalityThinkfast,movefastWecareandgiveback

In1998,three-quartersoftheemployeesrespondingtothefirm’sannualemployeesurveyagreedwiththestatement“Intuitlivesuptothecorporateoperatingvalues.”

Thecompanyhasfacednumerouschallenges,includingincreasingproductmarketcompetition,thedevelopmentofInternet-basedfinancialplanningservices,anattemptbyMicrosofttobuythecompanythatwasstoppedbyantitrustconcerns,andthedemandsofrecruitingandretainingatalentedworkforceintheSiliconValley.Thecompanyispubliclytradedandoffersstockoptionsasarecruitmentandretentionstrategy,andsoisconcernedaboutitsstockprice.Itwouldbeeasytogetdivertedfromdoingwhatitknowsitshould.HowhasIntuitstayedfocused?Mostlythroughitsemployeesurvey.Employeesknowthesurveymatters,sotheresponserateisquitehigh—73percentin1998.And,thecompanyusesthesurveyresultstoguideitsbehavior.Between1995and1998,theproportionofpeopleagreeingwiththestatement“Wecareandgiveback”doubledto77percent.Ofcourse,thesurveybyitselfisoflittlevalue.Manycompanieshavesurveysanddon’tdoanythingwiththeresults.Intuitpeopleandthefirm’sculturalvaluesarewhatmakethesurveyswork.Atthesametime,generalizedculturalvaluesandintentionstobeacertainway,withoutmeasurestoassesshowwellthefirmisdoing,couldeasilybecome

merelygoodintentionsthatdonotdriveaction.Thevalues,culture,andqualityofthepeopleprovidetheknowledgeandintentions,andthesurveyshelpturnthatknowledgeandvaluesintoaction.

In1995employeemoralewasnotwhereIntuitwantedittobe,sothecompanyrefocusedonitspeople.Intuitmovesaroundvaluableemployees,evenatthecostofshort-termefficiency,toreinforceitscommitmenttocareerdevelopmentforitspeople.Movingpeopletodifferentunitsalsohelpstoreinforcetheteamculturebycausingindividualstoidentifymorewiththecompanyasawholethanwithjustsmallunits.Whenanemployeecomplainedaboutnotgettingaraise,hereceivedoneafewdayslaterafterathoroughreviewbymanagement.Thecompanyreemphasizeditssocialactivitiesandcelebrations,anddidnotletfinancialchallengesdivertitsfocusfrombuildingmoraleandspirit.

Intuitusesbothitsformalemployeesurveyandinformalfeedbacktoquicklyidentifygapsbetweenitsaspirations,embodiedinitscoreoperatingprinciples,andwhatitisdoing.Then,leadersmovequicklytoaddressthesegaps.ThemeasurementsystematIntuitprovidesanongoingcheckonhowthecompanyislivinguptoitsvalues—valuesthatreflectwhatmanagersknowtoberelatedtothefirm’sultimatefinancialsuccess.Themeasurement,nothingmorethananemployeesurvey,butonethatistakenveryseriously,affordsawayoffocusingmanagerialeffortonthosedimensionsoftheculturethatmostneedattentionatagivenmoment.AtIntuit,themeasurementsystemhelpstoreinforceandbuildthecultureandtoimplementpracticesthatleadersknowarevitaltothefirm’ssuccess.

MeasuresThatProduceChange:SearsOneresponseweoftenhearwhenwetalkaboutfirmsthathavefewerknowing-doinggapsis,Theexamplesyouhavegivenarecompaniesthathavedonethingscorrectlyfromthebeginning.Canfirmseverchange?How?ThesequestionsmaketheSearsstoryparticularlyinteresting,becauseSearsconfronteddifficultiesthatweresurmountedinlargepartthroughchangesinmeasurementpractices.Butbeforewegettothiscase,weneedtoalsoconfrontapotentialmisperception:Theexampleswehaveprovided,suchasSASInstitute,Intuit,andTheMen’sWearhouse,didnotimplementtherightmeasurementpracticesfromthebeginning.Ineachinstancetherewas,andis,ongoinglearningaboutwhatworkedandwhatdidn’t.Inallthesecases,mistakesoccurredandwereusedasinformationaboutchangesthatneededtobemade,notasbadnewsthat

usedasinformationaboutchangesthatneededtobemade,notasbadnewsthatshouldbesweptundertherugorusedasareasontoblameorpunishindividuals.So,ratherthanbeingusedtoinstillfearintheseorganizations,boththeprocessofdevelopingthemeasurementsystemsandthemeasurementpracticesthemselvesareusedtosupportlearningandtodriveoutfear.Measurementpracticesandmeasuresevolvedastheorganizationsdevelopedabetterunderstandingoftheirbusinessmodel,abetter-definedculture,andmoreclarityconcerningtheirguidingphilosophy.Whatdistinguishestheseexamplesfrommanyothersisnotthattheydidthingsperfectlyfromthebeginningbuttheirwillingnesstofocusmeasurementpracticesontheimportanttaskofturningknowledgeintoaction.And,theleadersofthesefirmswerewillingtobreakwithconventionandplacelessemphasisonwhateveryoneelsewasdoingandmeasuring.

InthecaseofSears,thereinventionofmeasurementpracticesresultedfromafinancialcrisis.In1992,Searshadrevenuesof$52billion,“nearly9%lowerthan1991revenuesof$57billion,andlowerthanannualrevenuesineachofthethreeprecedingyears.Searsgeneratedanetlossfromcontinuingoperationsof$1.8billionandatotalnetlossof$3.9billion.”31Thefinancialproblemswere,inlargemeasure,theresultofSears’failuretoputknowledgeofsuccessfulretailpracticesintoaction.Asfortheknowledgeofretailingpart,AnthonyRucci,thecompany’sheadofhumanresources,noted:

Thebasicelementsofanemployee-customer-profitmodelarenotdifficulttograsp.Anypersonwithevenalittleexperienceinretailingunderstandsintuitivelythatthereisachainofcauseandeffectrunningfromemployeebehaviortocustomerbehaviortoprofits,andit’snothardtoseethatbehaviordependsprimarilyonattitude.32

Theproblemwasthatascompetition,fromWal-Mart,Kmart,andTarget,amongothers,hadintensifiedovertheprecedingyears,Searshadmadechangesinresponsetocompetitivepressureanddecliningprofitsthatwereinconsistentwiththisknowledgeofhowretailingworked.Thesechangescreatedacontinuingcycleofpoorperformanceandineffectiveresponses:

Inthe1960sand1970s,youcouldfeelsuccessasyouwalkedthroughthestores.Managersandemployeeswereloyal,

energetic….Employeesweremostlyfulltimeandtheyreallyknewtheirproduct….Thencamethecompetitionandprofitabilitydeclined….Everyonedowntohourly-paidsupervisors…hadbeenonincentives,butovertimethoseincentiveswereeliminated….Corporatealsoreducedthenumberofcentraladministrativesupportgroups….Thestoresgotlesssupport.Theyalsoeliminatedseveralpositionsinthestore.Asaresult,therewerefewerknowledgeablesalespeopleoutonthefloor,andstoremanagersendedupdoinglessmerchandisingandemployeecoachingandmorepaperworkandlogistics.33

Sears’problems,manifestedinan“intenseinternalfocus,”34weremagnifiedbyameasurementsystemthatwasalsointernallyfocusedandfocusedonthepast.Thetraditionalcostaccountingandfinancialmeasurementsystemassessedcostsandprofitmarginsthathadalreadybeenachieved,butdidnotregisterthediminishinglevelsofbothemployeeandcustomersatisfaction.35So,themeasurementsystemcouldnotassessthedamagebeingdonetothefirm’slong-termviabilitybyactionsbeingtakentoincreaseprofitmarginsanddecreasecostsintheshortrun,actionsthatincludedputtingmorepart-timeandless-experienced—butcheaper—peopleonthefloortoservecustomers.Mostimportant,themeasurementsystemdidnotreflecttheessentialretailingbusinessmodelofthelinkbetweenemployees,customers,andprofits.Asaresult,measurementpracticeshinderedtheimplementationofwhatSearsknewabouthowtoenhanceitsperformance.

ArthurMartinezarrivedinthefallof1992andledaremarkabletransformationatSearsthatdroveupbothoperatingresultsanditsstockprice.Martineztookalotofshort-termmeasurestoenhanceservice,suchasemphasizingtraining,puttingthebestpeopleinthestoresduringeveningsandweekendswhenthebestcustomerswereshopping,offeringSundaydeliveries,andsimilarsteps.Martinezalsosetinplaceastrategyofculturaltransformation,basedonachangeinmeasurementpractices,thatwouldensurethatthechangesatSearswouldlast.Thecompanydevelopedavisioncalledthe3Csorthe“threecompellings”:Searswastobeacompellingplacetoshop,acompellingplacetowork,andacompellingplacetoinvest.Theseobjectivesweretranslatedintospecificmetrics.Acompellingplacetoshopwasmeasuredbyoverallcustomersatisfactionandcustomerretention.Acompellingplacetoworkwasmeasured

byattitudesaboutthejobandthecompany.Andacompellingplacetoinvestwasmeasuredbyrevenuegrowth,operatingmargins,assetutilization,andindicatorsofproductivityimprovement.36Sears’measurementpracticeswerebasedonthedesiretodevelopleading,notlagging,indicatorsofperformance.Themeasureswerevalidatedineconometricstudiesthatquantifiedexactlyhowmucheffectimprovementsinvariousdimensionshadonotherindicators.

Refinementofthemeasurementsandthemodelpredictingperformanceispartofanongoingprocessthatcontinuestothepresent.Measureschangeasmoreknowledgebecomesavailable.LikeIntuit,Searsbegantopaymoreattentiontoemployeesurveys,partlybecausethecompanywantedtoretainandmotivategoodpeopleandpartlybecauseofthedemonstrationoftheempiricalconnectionbetweenemployeeattitudes,customerattitudes,andstoreperformance.ExecutivesinSearsbelievethatthechangesinmeasurementpracticeswerecrucialtothefirm’sturnaround:

Thepointisthatweknowvastlymorethanweoncedid,thatallthatinformationhelpsusrunthecompany,andthatsomeofithasgivenusadecidedcompetitiveedge….Ourmodelshowsthata5pointimprovementinemployeeattitudeswilldrivea1.3pointimprovementincustomersatisfaction,whichinturnwilldrivea0.5%improvementinrevenuegrowth….ThesenumbersareasrigorousasanyothersweworkwithatSears.Everyyear,ouraccountingfirmauditsthemascloselyasitauditsourfinancials.37

ThechangesinthemeasuresatSearspermittedthefirmtorecaptureandimplementwhatitonceknew—theconnectionsbetweenmanagementactions,employeeattitudes,customerattitudesandloyalty,andprofits.Inacompanythathadforyearstakenmeasuresofemployeeattitudesbecauseofacommitmenttotheimportanceofitspeople,managers,withthehelpofthenewmeasurementmodel,reaffirmedtheimportanceofSears’peopletothefirm’ssuccess.Asoneresult,frontlinepeoplereceivedmuchmoretraininginunderstandingthebusiness,thefirm’sstrategy,andthecompetitiveenvironment.And,employeesweregivenmoresayandauthorityinhelpingthecompanyregainitscompetitivefooting.Justasonesetofaccountingmeasureshaddriventhecompanyoffcourse,adifferentsetofmeasures,moreembeddedintheactualbusinessmodelandoperatingprocessesoftheretailbusiness,

helpedthefirmrecover.

MeasurementThatTurnsKnowledgeintoAction

Basedontheexamplesofbothgoodandbadpracticeswehaveseeninthischapter,wecanconcludethatmeasurementpracticesthathelporganizationsdevelopknowledgeandturnthatknowledgeintoactiontypicallyhavethefollowingproperties:

Themeasurementsarerelativelyglobalintheirscope,focusinglessontryingtoassessindividualperformance,whichisalwaysdifficultininterdependentsystems,andmoreonfocusingattentiononfactorscriticaltoorganizationalsuccess.

Themeasuresareoftenfocusedmoreonprocessesandmeanstoends,andlessonend-of-processorfinaloutcomes.Thisfocusresultsinmeasuresthatfacilitatelearningandprovidedatathatcanbetterguideactionanddecisionmaking.

Theyaretiedtoandreflectthebusinessmodel,culture,andphilosophyofthefirm.Asaresult,measurementpracticesvaryfromonefirmtotheotherasthebusinessimperatives,cultures,andphilosophiesvary.And,inmeasuringthingssuchasadherencetovalues,recruitmentandretention,andworkingcooperativelywithothers,themeasuresdepartfromconventionalaccounting-basedindicators.

Themeasuresresultfromamindful,ongoingprocessoflearningfromexperienceandexperimentation.Thereisnotthesensethatthesystemisevercompleted.Rather,thereistheviewthatthemeasurementsystemcanalwaysbeimprovedand,becausethebusinessenvironmentislikelytochange,practicesthatareeffectivenowmaybeineffectiveinthefuture.Measuresevolvetoserveafundamentalcorebusinessandoperatingphilosophyorstrategythatismoreconstant.

Themeasurementprocessusescomparativelyfewmetrics.Althoughthesefirmsmaycollectalargeamountofdata,theyemphasizeandattendtoasmallsetofmeasuresthatarebelievedtobeespeciallycrucial

forsupportingthecompany’sbusinessmodel,philosophy,andculture.Afocusoncriticalissuesandprocessesisemphasizedattheexpenseofcomprehensivenessandcomplexity—thingsthatdiluteattentionandthatmixtheimportantwiththetrivial.

Atitsbest,measurementclosestheloop,auditingandassessingwhattheorganizationisdoing,therebyensuring,asinthecaseofIntuit,thatthefirmdoeswhatitknows.

Unfortunately,justknowingtheseguidelinesfordesigningbettermeasurementpracticesdoesnotensurethattheywillbeimplemented.Wehaveshownthattherearesubstantialbarrierstoimplementingtheseprinciples,regardlessoftheirwisdomorvalidity,nottheleastofwhichistheaccountingindustryandconventionalaccountingandmeasurementpractices.Butthereissomecauseforoptimism.Someofthefirmsinwhichwehaveseenthemosteffectivemeasurementpracticesarepubliclytraded.So,acompanyneednotbeprivateorevenowner-controlledtoimplementmeasurementsthathelpitbuildandimplementknowledge.AtTheMen’sWearhouseandSASInstitute,leadersaremindfulthattheirphilosophiesandbusinessmodelsruncontrarytotheconventionalwisdomintheirindustries,andbelievethatafocussolelyontheshorttermwillunderminelong-termperformanceaswellassacrificeothervaluesthesefirmsholddear.InthecaseofSears,afinancialcrisisgaveleadersanopportunitytobreakwiththeimmediatepastandtodevelopameasurementsystemthatsupportedtheirbusinessmodel.Inotherinstances,themeasurementapproacharosefromaparticularbusinessphilosophyandculturethatwouldn’ttolerateeitherrampantshort-termismormeasuringthingsthatdidn’tmatter.Ineachoftheinstancesinwhicheffectivemeasurementpracticeswereused,knowingwhattodo,whyitneededtobedone,andhavingthepersistenceandcouragetodoithelpedleadersturnknowledgeabouthowtoenhanceperformanceintoorganizationalaction.

6 WhenInternalCompetitionTurnsFriendsintoEnemies

THEDEGREEOFCOMPETITIONinanysocietyorcompanyislargelya

matterofchoice,nottheinevitableresultofsomepropertyofhumannature.1Companiesandsocietiesvarydramaticallyinhowmuchtheyusecompetitiontoorganizewhatpeopledo.Somecompaniesandcultureshavelesscompetitionandinsteademphasizecooperation.Others,particularlyintheUnitedStates,emphasizecompetitionasanorganizingprinciple.MostAmericansbelievethatcompetitionisgoodfornationaleconomicsystems,producinginnovationandtheefficientallocationofresources.“Competition…isbelievedtoinspiresuperiorperformanceandtobetheenginethatdrivestheeconomyandaccountsforthesuccessofcapitalism.”2CompetitionfitstheculturalemphasisonindividualismintheUnitedStates,whereaPuritantraditionmaintainsthatsufferingisredeemingandaSocialDarwinistphilosophyemphasizesthemanybenefitsfromasurvival-of-the-fittestcontest.

Inananalogousfashion,competitioninsidefirmsisalsowidelythoughttopromoteinnovation,efficiency,andhigherlevelsoforganizationalperformance.TheLincolnElectricCompanyisjustlyfamousforitssuccessfulindividualpiece-rateincentivesystem.TheHarvardBusinessSchoolcaseonLincolnisamongthemostwidelyusedinmanagementeducation.JamesF.Lincolnandhisbrother,JohnC.Lincoln,foundedandledthefirmtogetherfrom1895to1972,andJameswrotenumerousmanagementarticlesandbooksthatproclaimedthe

virtuesofcompetitionandindividualachievement.Forexample,heasserted:

Competitionwillmeanthedisappearanceofthelazyandincompetent,betheyworkers,industrialists,ordistributors.Competitionpromotesprogress.Competitiondetermineswhowillbetheleader….Itisahardtaskmaster….Ifsomewaycouldbefoundsothatcompetitioncouldbeeliminatedfromlife,theresultwouldbedisastrous.Anynationandanypeopledisappeariflifebecomestooeasy.Thereisnodangerfromahardlifeasallhistoryshows.3

AndrewGrove,pastCEOandcurrentchairmanofIntel,appearstobeamodernincarnationofJamesLincoln.Grovehasledoneofthemostsuccessfulcorporationsofhiseraandishighlyregarded,atleastbythebusinesspress,forhismanagementacumen.GroveisalsolikeJamesLincolninthathehaswrittenpopularmanagementbooksandarticlesthatproclaimandreinforcewidelyheldbeliefsaboutthevirtuesofcompetition.In1983,hewroteinHighOutputManagement:

Elicitingpeakperformancemeansgoingupagainstsomethingorsomebody….ForyearstheperformanceoftheIntelfacilitiesmaintenancegroup,whichisresponsibleforkeepingourbuildingscleanandneat,wasmediocre,andnoamountofpressureorinducementseemedtodoanygood.Wetheninitiatedaprograminwhicheachbuilding’supkeepwasperiodicallyscoredbyaresidentseniormanager….Thescorewasthencomparedwiththosegiventheotherbuildings.Theconditionofallofthemdramaticallyimprovedalmostimmediately.Nothingelsewasdone….Whattheydidgetwasaracetrack,anarenaofcompetition….Conversely,ofcourse,whenthecompetitionisremoved,motivationassociatedwithitvanishes.4

Grove’sexampleillustratestheessenceofcompetition:mutuallyexclusivegoalattainment,asituationinwhichoneperson’s(orfirm’s)successrequiresthefailureofanother.5Onthe“racetrack,”onlyonepersonorgroupcanwinthe

race.Thesebeliefsinthebenefitsofcompetitionarelargelytakenforgrantedin

U.S.businessculture.Fewdistinctionsaremadebetweencompetitionwithincompaniesandacrossthem,andanalogiesarecasuallydrawnbetweenthebenefitsofcompetitionatthelevelofnationaleconomicsystemsandatthelevelofindividualsandunitswithinfirms.Thebeliefsaboutcompetitionaresoingrainedthattheyserveasmindless,automatic,butpowerfulprinciplesfororganizingandmanagingindividualbehavior.Asaconsequence,firmsdoallkindsofthingstoencouragecompetition,whetherthatcompetitionisfocusedonexternalcompetitorsorinternallyonother,similarunitswithinthefirm.Organizationsacttocreatea“racetrack”whereonlyoneperson,group,division,orsubunitcanwin.

Managementpracticesthatproduceinternalcompetitionaresocommonthattheyseemunexceptional.Examplesofsuchpracticesinclude(1)forceddistributionsofperformanceevaluations,sothatonlysomefractionofpeoplecanearnthehighestevaluation;(2)recognitionawardsgiventoindividuals,suchasemployeeofthemonthoryearprograms;(3)forceddistributionsofindividualmeritraisebudgets,sowhatonepersonreceivesanothercannot;(4)contestsbetweendepartmentsordivisions,units,shifts,orevenindividualswithinunitsforvariousmonetaryandnonmonetaryprizes;and(5)publishedrankingsofunitorindividualperformance.Eachofthesepracticescreatesazero-sumcontestinwhichthesuccessorrewardsofonepersonordepartmentmustcomeattheexpenseofanother.Therecanbeonlyonetop-rankedpersonorunit,soforsomeonetobefirst,othersmustberankedfartherdown,includinglast.

Thereisnodoubtthatthesezero-sumgamescaninspirepeopletoworkhard,andtheindividualwinnersoftheseinternalcompetitionsbenefitfromtheirvictories.Inourresearch,however,weuncoveredcaseaftercaseinwhichthecostsofsuchindividualvictorieswerebornebythosepeople,groups,andunitsthatlostthecontests.And,theseinternalcompetitionsdidn’tjustharmthe“losers.”Thecompetitionharmedeveryonewhohadastakeintheseorganizations,becausethesepracticesunderminedtheoverallabilityofthecompaniestoturnknowledgeintoaction.Inthischapter,wefirstdescribesomedifferentwaysthatinternalcompetitioncreatesknowing-doinggaps.Wethenexaminewhy,inspiteoftheseproblemsfororganizationallearningandorganizationalaction,internalcompetitionremainssopervasiveasamanagementapproach.Finally,weillustratehowsomeorganizationsavoidthe

negativeeffectsofinternalcompetitivedynamicsthatturnfriendsintoenemies.

HowInternalCompetitiveDynamicsCreateKnowingDoingGaps

UnderminingOrganizationalLoyalty:CreatingTurnoverinInvestmentBankingInvestmentbankingisanindustrythatdependsheavilyontheknowledgeandskillofitspeople.Itisanindustryinwhichtheassetswalkoutthedooreachnight,andinwhichafirm’ssuccessdependsontheknowledge,skill,contacts,andreputationsofitspeople.Investmentbankingisalsoanindustrycharacterizedbyhighturnoverand,whentimesaregood,averycompetitiverecruitingenvironment.Turnoverisexpensive.Newemployeesoftendemandandreceiveguaranteedpaymentsforayearortwo,regardlessoftheirproduction,andfrequentlyobtainlargesigningbonusesaswell.Thechurninpersonnelhampersperformanceonanytaskthatrequiresinteractionwithothers,becauseeveryinvestmentbankerconstantlystrugglestokeeppacewiththeconstantinfluxofnewnamesandfaces,nottomentiontolearnwhateachnewcomerknowsandwhichskillseachhasandlacks.Knowledge,includingtechnicalknowledge,understandingofthefirm’sculture,andinformationaboutthefirm’scustomers,departseachtimeanotherinvestmentbankerleaves.

Topexecutivesinvirtuallyeveryinvestmentbankrecognizeallthesefacts,claimtovaluetheirpeople,andsaytheywanttoreduceturnover.Themeansrequiredtoreduceturnoverareneithermagicalnorsecret.Suchinformationiseasytofind,isalreadyknowntomostoftheseexecutives,and,asperformanceknowledgegoes,isnotespeciallydifficulttoimplement.Butsuchknowledgeisnotturnedintoaction.Andoneofthemainreasonsisthatanindividualisticandcompetitiveculturecharacterizesalmostallofthesefirms,interferingwitheffortstobuildstrongorganizationalculturesandretainindividualemployees.

Investmentbanksfrequentlyarethescenesofrude,evenabusivebehavior,asthefollowingexamplefromacasestudyillustrates:

Anextremeexampleofabusivebehavioroccurredrecentlyataregionalofficeofanationalbrokeragechain.Ayoungtraineewassystematicallyridiculedandinsultedformonthsbymostofthe

seniorpeopleinhisoffice.Somepeopleatthefirmevenmadeafilmaboutthisandshoweditasajokeatanationalsalesmeetingofthefirm.Thetraineewaseventuallyfiredandhasfiledalawsuitagainstthecompany….Firmssendamessagetotheiremployeesthataslongasanemployeebringsinrevenue,he[sic]willbewellpaidregardlessofhisbehaviortowardothersortowardthefirmitself.6

Thisbehaviorwastoleratedbecauseofthecompetitive,individualisticculturetypicalinthesecompanies.Theonlythingthatmattersisindividualperformance,beingnearthetopofthepeckingorder,nottheeffectofanygivenindividualandhisorherbehavioronothersinthefirmorevenonthefirm’soverallculture.Thisisobviouslynotanenvironmentthatinducespeopletoremain.

Asecondcasestudyanalyzedturnoverandwhyitpersisted,evenasleadersclaimedtheywantedtoreducethelossofpeople,atBear,Stearns&Company,anotherinvestmentbank:

EvenbyWallStreetstandards,BearStearns’cultureishighlycompetitive,independent,andentrepreneurial….Becauseseniorbankersarepaidbasedonthetransactionstheyattractandexecute,manycometoregardsuccessastheirsalone[,]…dissuadingloyalty….Thisculturedoeslittletopromotethedevelopmentofasolidcoreofjuniorbankersbyseniormanagers,excepttotheextenttheyareimmediatelyuseful.Manyworkerscometofeellikemercenarieswhoarediscardedaftereachuseonaspecifictransaction,andconsequentlyveryfewjuniorbankersdevelopanyloyaltytothefirm.7

Forthosewhoclaimthatthisissimplythenatureofthisindustry,aninevitableconsequenceoftheparticularbusinessandtechnology,therearecounterexamplesoffirmsthatoperatedifferently.Goldman,Sachsisnotonlyoneofthemostconsistentlyprofitablefirmsintheindustry,butitisalsoonethathasaverystrong,team-basedculture.And,firmsintheinvestmentormoneymanagementindustry,suchasBarclaysGlobalInvestors,discussedindetailinthenextchapter,alsotypicallyhavelessinternallycompetitivecultures.

Firmswithteam-basedculturesorthatuseothermeanstodampeninternal,zero-sumcompetitiondonotsufferfromtheadverseconsequencesofasystemthatturnspeopleagainstoneanother,withbehaviorthatsometimesgetsoutofhand.Theseteam-orientedfirmsdon’tasquicklyoremphaticallylabelsomeemployeesaslosersandwinners,anddon’tkeepresortingemployeessothatlosersquicklyleaveorarefiredwhilethewinnersaretemptedtoleaveforbetteroffersatotherfirms.Nothingincompetitiveenvironmentsbuildsanyattachmentbetweenpeopleandtheircompanies.Theresultisthatinvestmentbankersoperatemuchlikefreeagentsinsports,oftenobtainingsalariesthataresohighastocausetheirfirmstoearnlowreturnsoncapitaland,onoccasion,tolosemoney.

UnderminingTeamworkandCreatingSoftwareBugsatMicrosoftAstudyofaMicrosoftbusinessunituncoveredwhyteamworkisespeciallyimportanttothegiantsoftwarefirm:“Asdesktopapplicationsincreaseincomplexity,itbecomesimpossibleforanyonepersontounderstandeverythingaboutwhatthesoftwareshoulddo,howthesoftwarefunctions,andwhatthesoftwareactuallydoes.Inordertodeveloptheseapplications,employeeswithdifferentbackgroundsandskillsmustworktogethertoproduceanintegratedproduct.”8ThiscasestudyfoundthatMicrosoftmanagersknew,andrepeatedlysaid,thatdevelopingsoftwaredependedon“sharinginformationaboutwhatothersaredoing,sharinginformationabouthowothersaredoingit,andpromotingproductivitywithinateamsetting.”Yettheseknown,superiorpracticeswerenotimplementedintheunitbecause“theallocationofrewardsbasedonindividualperformancedownplaystheimportanceofunselfishteamworkandpromotescompetition…[that]createsbarrierstotheefficientsharingofinformationandskills.”9AsoneMicrosoftengineerputit:

Thereareinstanceswhereasingleindividualmayreallybecrankinganddoingsomeexcellentwork,butnotcommunicating…andworkingwithintheteamtowardimplementation.Thesefolksmaybeviewedashighratedbytopmanagement….Aslongastheindividualisbonusedhighlyfortheirinnovationandgutsyrisk-takingonly,andnotonhowwelltheteamaccomplishesthegoal,therecanbearealdisconnectandtheindividualneverreallygetsthemessagethatyoushouldkeepdoinggreatthingsbutsharethem

withtheteamsoyoudon’tsurprisethem.10

Thecasestudyfoundthatthecompanyprovidedlowbasesalariesincombinationwithbonusesthatweredistributedacrossteamsandunitsinaforced-curve,zero-sumdistribution.Thisstructurecausedpeopletoresisthelpingoneanother.Itwasn’tjustthathelpingacolleaguetooktimeawayfromsomeone’sownwork.Theforcedcurvemeant“Helpingyourfellowworkerbecomemoreproductivecanactuallyhurtyourchancesofgettingahigherbonus.”11Thiscompetitionalsoledtoinformationhoarding,becauseeveryonewantedtobeanexpertandbeseenasmoreknowledgeablethaninternalcompetitors.Hoardinginformationobviouslyrestrictslearningaboutwhatothersaredoingandhowtheyaredoingit.

Microsoftisnotoriousforreleasingsoftwarewithlargenumbersofbugs.Thiscasestudysuggeststhatthefirm’scompetitiveandindividualisticculturefuelsthisproblem.Becauseperceivedindividualexpertiseleadstohighsalaryandbonus,thereisanincentiveforpreventingothersfromuncoveringyourdeficiencies.Theheadofqualityassuranceinterviewedforthecasestudysaidsheencouragedteammemberstoswappositionsoccasionallybecause“fresheyes”areusefulforuncoveringbugs.Butsheadmittedthatthecompetitivedynamicsoftenmeantthisdidn’thappenbecauseprogrammersdidn’twantotherpeopletofindtheirbugs.

EventhoughMicrosoftmanagersunderstoodtheadvantagesofteamwork,thiscasestudyshowedthattherewardsystemandculturemadeitmuchhardertoturnknowledgeabouttheadvantagesofteamsintoaction,atleastinonebusinessunit.Furthermore,reportsfromnumerousothersourcesindicatethatthiscontinuestobeawidespreadproblematMicrosoft.Thesedifficultieswillpersistuntilthecompanyeliminatesmanagementpracticesthatencourageindividualisticbehaviorandthatlimitinternallearningandemployeecommitmenttotheenterprisebasedonanythingotherthanmoney.

UnderminingKnowledgeSharing:WhyFreshChoiceDidn’tLearnfromZoopaInternalcompetitivedynamicscanalsomakelearningfromothersinsidethefirmmoredifficult.Thisproblemoftenoccursinfirmswhereparallelunitsthatperformatvaryinglevelsareexpectedtolearnfromeachother,sothatbestpracticesaresharedandtheworse-performingunitslearnfromthosethatdobetter.Thisisacaseinwhichthereisknowledgeinthefirmabouthowtowork

better.Thisisacaseinwhichthereisknowledgeinthefirmabouthowtoworkmoreeffectively,andthegoalistospreadthisknowledgetoallunitssothatitsoverallperformanceincreases.Thisisalsoaninstanceinwhichnewbehaviorsandmanagementpracticesneedtobeacquired—learninghastohappensothatpeoplecanreplaceold,inferiorpracticeswithnew,superiorways.Whenlearningfromothersinsideanorganizationisdesired,competition—especiallywhenrewardsandstatusarebasedonforcedrankings—islikelytoundermineknowledgesharingbetweenparallelunits.ThatispreciselywhatweobservedintheFreshChoicerestaurantchain.

InMay1997,theFreshChoicecompany,operatinginthesaladbuffetrestaurantbusiness,purchasedacompetitorinSeattle,calledZoopa,inparttocapturesomeofZoopa’sspiritandoperationalexcellence.Butwithinafewmonthsoftheacquisition,allofthegeneralmanagersofthethreepurchasedZoopaunitshadleft,salesinthestoresweredeclining,andturnoverinotherpositionsincreased.InoneoftheZoopaunits,employeesweresoupsetthattheywalkedoutduringashifteventhoughitwasanonunionworkplace.Ironically,althoughlearningfromZoopaonceitwaspartofFreshChoicewasdifficult,therewasmuchevidencethatearlier,whenthetwofirmswerecompetitors,thereweremanysuccessfuleffortstocopyZoopa’spractices,suchasitsstoredesign,“guestfirstphilosophy,”andevensomeofitsrecipes.12Thereareanumberofreasonswhylearningfromotherunitsinsidethefirmcanbemoredifficultthanlearningfromexternalcompetitors,andinternalstatuscompetitionisoneimportantexplanation.

Therearedifferentconsequencesforstatusdependingonwhereamanagergetsnewideas.Ifthemanagerlearnsfromacompetitor,sheorhehasengagedinthehigh-statusactivityofcompetitivebenchmarking,intheprocessacquiringuniqueandvaluable(becauseitwasdifficulttoobtain)information.Ifthemanagercopiessomeoneoutsidethefirm,heorshedoesnothavetoworryabouttheconsequencesofdemonstratingthatanotherpersonissuperiorbecausethetwoarenotindirectcompetitioninsidethefirm.Incontrast,borrowingfromaninternalcompetitorsignalstoeveryoneinsidethecompanythatthereissomeoneelsewhoisbetter,atleastonsomedimensions.Therefore,copyingothersinsidethefirmcanhavenegativecareerconsequences.Asaconsequence,thereislittleinternallearningbecausecompetitionforstatusandmanagementattentioninterfereswiththetransferofbetterwaysofdoingthings.

ThissituationisexactlywhatwefoundatFreshChoice.Thecompanyhadnotperformedwellintherecentpastandwasunderconsiderablefinancial

pressure.TherehadbeenfourCEOsinabouttwoyears.Jobinsecuritywasrampant.Insidethecompany,newseniormanagementdidnothavemuchconfidenceinthequalityofFreshChoicepersonnel,especiallythequalityofmanagersinrestaurants.ButtheywereimpressedwithZoopa’speople,especiallywithitsmanagers.OneFreshChoicevicepresidentcommented,“They[Zoopa]broughtpeopleintothegeneralmanagerroleatthestoreswhowereatleastatthelevelofourregionalmanagers.ThepeoplethatImetuptherewerereallysharpfolksandreallyhadaclearunderstandingofhowserviceistobedone.”13

FreshChoiceboughtthiscompetitorpartlyforthequalityofitspeople.FreshChoiceseniormanagementalsoacknowledgedthesuperiorityofatleastsomeaspectsofZoopa’soperations.Whatbehaviordidthisprovoke?Inacompetitiveenvironmentwherepeopleareinsecureandfightingfortheirsurvival,whatitwillproduceisnotlearningfromthenewpeoplebutrathereffortstoderogatethemanddiminishtheircompetence.TheFreshChoiceregionalmanageroverseeingthethreerestaurantsdownplayedthecompetenceofthegeneralmanagers:

RestaurantsUnlimited[Zoopa’spreviousparentcompany]tookoutsomemanagersandputineitherlessexperiencedmanagersornomanagersatallinsomeofthelocations….I’vegottotellyouinsomeofthesecasestheirbuildingswerenotgreatbyanymeans,norwasthequalityofoperations.14

OurinterviewswithFreshChoicepeoplerevealedthattheydiscountedtheperformanceandskillofZoopapeople.Theymadenegativecommentsaboutstoreoperations,asinthequoteabove,aswellasdisparagingcommentsaboutZoopa’sfinancialcontrols,themotivationofZoopapeople(onegeneralmanagerwascalled“burntout”),andtheirlackofcontroloveroperations.Intheinternalcompetitionoverstatusandvisibility,thereseemedtobeatleastasmuchinterestinwinningbypullingdownthecompetitorasinwinningbyachievingsuperioritythroughenhancingone’sownperformance.“FreshChoicemanagerscametoseetheZoopapeopleasnotthatskilled,afeelingthatwasreciprocated.”15

UnderminingtheSpreadof“BestPractices”withinGeneralMotors:

UnderminingtheSpreadof“BestPractices”withinGeneralMotors:IdentifyingwiththeUnitRatherthantheOrganizationInChapter3,weshowedthatwhenpeoplerespondtonewordifferentwaysofdoingthingsbysaying,“That’snothowthingsaredonehere,”itisasignthathistoryandprecedentarebeingusedassubstitutesforthinking.Peopleoftentalkthiswaybecausetheyidentifystronglywiththeirgroup,havingdevelopedaself-imagedefinedbysharedandvehementlyheldviewsintheirgroupabouthowtheyoughttothink,feel,andact.Astrongsocialidentitybindspeopletogetherandtotheunit,creatingloyalty,teamwork,andmutualcommitment.Butastrongsocialidentityalsocausespeopletoreadilyrejectknowledgeandpracticesthataredifferentfromhowpeopleintheirgroupthinkandact—eventhough,whentheystoptoreflect,theyagreewiththeideasandaccepttheevidencethatunderliessuchknowledge.

Internalcompetitionmakesitevenmoredifficultforpeopletoputknowledgeintoactionandtolearnfromeachother.Competitioncausespeopletoseemoredistinctionsbetweenunitsthanactuallyexistandtospendtimethinkingandtalkingabouttheseminororevenimagineddifferences.Assuch,competitionmakesitmorelikelythatideasfromotherunitsinthefirmwillberejectedbecausetheyareinconsistentwiththesocialidentityofsomeothergrouporsubunit.Furthermore,competitionmakesitevenmorelikelythatknowledgefromotherpartsofthefirmwillberejectedbecauseofthethreatstostatusfromadmittingthatothers,elsewhere,havesomethingtoteach.

Wesawthisprocess—internalcompetitionleadingtoheightenedboundariesanddistinctsocialidentitiesthatlimitedtheabilitytolearnfromotherunitswithinthefirm—occurincaseaftercase.OneofthemoststrikingwastherelationshipamongdivisionsinGeneralMotors.Aswediscussedearlier,thesamephysicalseparationthatmadetheinnovationsattheSaturndivisionpossiblealsocreateddistinctandoftencompetitivesocialidentitieswithinGManditsNorthAmericanoperations.ThesecompetitivesocialidentitieshamperedknowledgetransferbetweenGMunits,andoftenmeantthateventhoughmanagementinagivenunitknewaboutbetterpracticesbeingusedinotherunitsandhadtheresourcesandskilltoimplementsuchknowledgeintheirownunits,theyelectednottoturnthisknowledgeintoaction.OneGMmanagerweinterviewedrecognizedthedual-edgednatureofidentifyingwithadivisionwithinthetotalcorporation,anidentificationthatwasencouragedbythedecentralizedmultidivisionalstructureandthecompetitionbetweenthedivisions:

IworkedforGeneralMotorsbutIworkedforPontiac,andmyidentitywastentimesstrongeraroundPontiacthanitwasGeneralMotors….SoIthinktheverythingthatwasourperceivedstrengthatthispointintimestartedtoeatyoualive.Becausewe’dgetthisveryproudgroupofpeople,andthensomebodycomesinfromoutsideandsays,“Icomefromthe[particulardivision]andwedogreatstuff.”WeareprobablymorereceptivetosomebodythatcomesinfromtheoutsidethatwehireandsharesideaswithusthansomebodywhocomesinfromanotherunitwithinGMtoshareideas.Yousay,“Whatthehellwereyouguyssogoodabout?Whatgivesyoutherighttogiveusadvice?”

ThisdynamichappenedwithevenmoreforceatNUMMI,theToyota-GMjointventureinCalifornia.TheNUMMIplantwasviewedasaninternalcompetitorbypeoplewithinGM,andmostGMmanagersfoundthepeopleatNUMMIevenhardertoidentifywithbecausetheseniorleadershipofNUMMIwasfromJapan.Itwasthuseveneasierforthefirmtoclaimthatithadnothingtolearnbecauseofculturalandnationaldifferences.Theirony,ofcourse,isthatbothSaturnandNUMMIwereinitiatedpreciselysothatGMcouldlearn.Butthedistinctidentitiesthatpermitteddifferentmanagementpracticestodevelopmadelearningmoredifficult.ThiseffectwasexacerbatedbythefinancialandperformanceproblemsGMwasexperiencing.Theseproblemsintensifiedinternalcompetitionandheightenedthedistinctionbetweeninsidersandoutsiders.OneofthebarrierstothediffusionofbettermanagementpracticesoftencitedbyGMmanagersweinterviewedwastheinternalcompetitionforstatus.Nomanagerwantedtoadmitthatheorshehadanythingtolearnfromanyoneelse,becausetheywereincompetitionwitheachother.

WhyOrganizationsContinuetoFosterDysfunctionalInternalCompetition

Thecaseswereviewedabove,andnumerousothersweencounteredinourresearch,suggestthatinternalcompetitionoftenunderminestheabilityofcompaniestoturnknowledgeintoaction.Yetmanagementpracticesthatfosterinternalcompetitioncontinuetobewidelyused.Whyisthisso?Partofthe

answeristhat,aswesawinChapter3,whenpeoplehavestronglyheldbutunexaminedbeliefs,theyactonthosebeliefswithouteversurfacingtheunderlyingassumptionsandaskingif,indeed,theirbeliefsarelogicalandempiricallysound.Aswenotedatthestartofthischapter,beliefsinthevirtuesofcompetitionareamongthemostdeeplyheldandtaken-for-grantedassumptionsintheUnitedStates.Herewechallengetheunderlyinglogicforusingorganizationalpracticesthatencourageinternalcompetition,introduceadditionalevidencethatinternalcompetitionunderminesknowledgetransferandperformance,andshowwhyleadersareparticularlypronetobelieveinanduseinternalcompetitionasanorganizingprinciple.

DoingWellIsNottheSameasWinningThemostwidelyusedrationaleforemphasizingcompetitioninorganizationalrewardandevaluationsystemsisthatcompetitioninducesbetterperformance.“Competitionbringsoutthebestinus.”16Oneresearcherproposedsomereasonswhythismightbeso:

Winningandoutdoingothersareconsideredrewardsthatstimulateeffortandproductivity.Onereasonthatcompetitionhasbeenextolledisthatithasbeenequatedwithmotivation….Competitionhasalsobeenequatedwithachievement.17

Inthisquotation,winningacompetitionandperformingwellorsucceedingaretreatedasiftheywereidentical.Yet,onceyoustartthinkingaboutthisassumption,itisobviousthatdominatingothersinazero-sumcontestisjustoneformofsuccess.Othersortsofsuccesscanbeachievedwithoutsortingpeopleintogroupsofwinnersandlosers.AlfieKohn,inhisbookNoContest:TheCaseAgainstCompetition,explainedthatpeoplecanachievehighgoalsandperformanceregardlessofwhetherornottheyarecompetingagainstothers:

Successandcompetitionarenotatallthesamething….Onecansetandreachgoalswithoutevercompeting….Icansucceed…inwritingabookwithoutevertryingtomakeitbetterthanyours….Competitionneedneverenterthepictureinorderforskillstobemasteredanddisplayed,goalssetandmet.18

Kohn’sexhaustivereviewoftheresearchliteratureontheeffectsofcompetitionledhimtoconcludethat“superiorperformancenotonlydoesnotrequirecompetition;itusuallyseemstorequireitsabsence.”19Thefailureofcompetitiontoinvariablyfostersuperiorperformanceisreadilyexplained:Tryingtodowellandtryingtobeatothersaretwodifferentthings.20

Whatdoesaffectperformance,ifitisn’tcompetition?Thereisalargebodyofresearchshowingthepoweroftheself-fulfillingprophecy,alsocalledthePygmalioneffect,onperformance.Independentlyofskill,intelligence,orevenpastperformance,whenteachersbelievethattheirstudentswillperformwell,theydo.21Independentlyofotherfactors,whenleadersbelievetheirsubordinateswillperformwell,thesepositiveexpectationsleadtobetterperformance.22Mostofthesestudiesshowthattheself-fulfillingprophecyoccurswhenteachersorleadersbelieve,oractasiftheybelieve,thatarandomlyselectedsubsetofstudentsoremployeeswillperformbetterincontrasttosomeaverageorunknowngroup.

Thestudiesarecompellingbecausetheyshowittakesverylittletoconvinceleadersthattheirsubordinatescanandwillachievesuperiorperformance.InastudyinanIsraeliArmybootcamp,forexample,instructorswerejusttoldthatbasedoninformationfromabatteryoftestsonanincominggroupofsoldiers,itwaspossibletopredictwith95percentaccuracywhichone-thirdofthesoldiershadhighcommandpotential.Theothersoldiersweresaidtohaveeitherregularorunknownpotential.Thesoldierswereactuallyrandomlyassignedtothe“high,”“regular,”or“unknown”conditions,andnootherinformationwasprovidedaboutcommandpotential.Yet,attheendof15weeksinbootcamp,soldierswholeadersbelievedwouldhavehighlevelsofperformancedidfarbetteronobjectiveperformancetaskslikefiringarifle,navigation,andmultiplechoicetestsaboutcombattactics,administeredbyinstructorswhowerenotinformedabouttheexperiment.Soldierslabeledashavinghighcommandpotentialalsohadmorepositiveattitudestowardbasictrainingandreportedthattheirinstructorsweresuperiorleaders,comparedwithsoldiersintheothertwogroups.23

Fortunatelyforourargumentsthatcompetitionisnotnecessarytoproducehighlevelsofperformance,researchdoneintheIsraeliDefenseForcesshowsthatPygmalioneffectscanbecreatedwithoutinducingcontrastsbetweenhighandlowperformers.Whenplatoonleadersattrainingcampswereconvincedthatallofthesoldiersintheirclasseshadunusuallyhighcommandpotential,there

wasstillastrongPygmalioneffect.Thisresearchsuggeststhatoverallperformanceofagroupcanbeincreasedwhenleadersexpecteveryonetodowell.Thereisapparentlynoneedtosortpeopleintosubgroupsofhigh-status“winners”andlow-status“losers”inordertousethepoweroftheself-fulfillingprophecytoenhanceperformance.24

Itisagoodthingthatthereisnoneedtosortpeopleorgroupsinto“winners”and“losers”toboostperformance.Self-fulfillingpropheciesarejustaspowerfulintheireffectsintheoppositedirection.Whenaleaderbelievesthatapersonlacksskillormotivation,thesenegativeexpectationsdecreaseperformance.Theseeffectsofnegativeself-fulfillingprophecieshelpexplainwhyinternalcompetitioncanhamperperformanceoverthelongterm.Onceaperson,group,ordivisionhaslostinaperformancecontestandislabeleda“loser,”researchsuggeststhatsubsequentperformancewillbeworsebecauseleadersandotherswillunwittinglyacttofulfillthepoorperformanceexpectation.And,thelossofself-worthandmotivationfeltbythosewhoaretreatedaslosersleadstofurtherdecreasesintheirperformance.

ThatiswhyqualityguruW.EdwardsDemingwassovehementlyopposedtorelativeperformanceevaluations.Demingemphasizedthatforcedrankingsandothermeritratingsthatbreedinternalcompetitionarebadmanagementbecausetheyunderminemotivationandbreedcontemptformanagementamongpeoplewho,atleastatfirst,weredoinggoodwork.Hearguedthatthesesystemsrequireleaderstolabelmanypeopleaspoorperformerseventhoughtheirworkiswellwithintherangeofhighquality.Demingmaintainedthatwhenpeoplegettheseunfairnegativeevaluations,itcanleavethem“bitter,crushed,bruised,battered,desolate,despondent,dejected,feelinginferior,someevendepressed,unfitforworkforweeksafterreceiptoftherating,unabletocomprehendwhytheyareinferior.”25TheseinsidiouseffectsofgivingpeoplenegativelabelsarewhydirectsalesorganizationssuchasMaryKayCosmetics,Tupperware,andAvontrytopraiseeveryonetosuccess.Intheirawardsandrecognitionactivities,thesefirmsassiduouslyavoidlabelingsomepeopleasnotasgoodbecausetheydon’toutperformtheirpeers,andthusavoidhavingthesesalespeoplelosetheirmotivationandstoptrying.

InternalCompetitionMaySeemFairtoIndividuals,buttheCosttotheOrganizationIsUsuallyHighAnothercommonrationaleforrankingunitsorpeopleagainsteachotherand

therebyestablishingacompetitivedynamicisthatsuchsystemsareinherentlyfairerandmoreusefulasincentivesfordesiredbehaviorthanotheralternatives.Manyorganizationshaveadoptedsomeformofrelativeperformanceevaluationinadministeringbothperformancemanagementandcompensationsystems.Thetheorybehindrelativeperformanceevaluationatfirstseemscorrect.26Ifyou,asasalesperson,areoncommissionorareevaluatedbasedonyourabsolutesalesvolume,youcanbepunishedinyourperformanceifthecompanyhasproductqualityproblemsorislagginginproductdesignandinnovation.Thiscanoccureventhoughyouhavenothingtodowiththoseproblemsthatoccurredinanotherareaofthecompany.

Incontrast,byassessingyourperformanceincomparisontoothersimilarlysituatedsalespeople,theseextraneous,uncontrollablefactorsaretakenintoaccountbecausepeoplearerankedwithrespecttoeachother.Evenifthecompanyhasproductormanufacturingproblems,presumablythoseproblemsaffectallsalespeopleequally.So,ifeveryonerankedinthetop10percentofallcomputersalespeoplereceivesabonusregardlessofhowmuchequipmentissold,nooneispunishedforfactorsoutsideofhisorhercontrol.Aslongasyouperformbetterthanyourpeers,youscorewellontherelativeperformanceevaluationandwillberewardedandevaluatedaccordingly.Controllabilityisgenerallyacceptedasbeingsomethingdesirableinincentiveschemes.Thislogicleadstorecommendationstouserelativeperformanceevaluation.

Yetthestrengthofthesystem—itsapparentfairnessinthefaceofexternalfactorsoverwhichpeoplehavenocontrol—isalsoitsweakness.Becausepeopleareconcernedprimarilyabouttheirrelativeranking,thereareincentivesforthemtoavoidhelpingtheirpeerstoimprovetheirperformanceand,atworst,toundermineorsabotagetheirpeers’performance.AsDemingdescribedit,whenthesekindsofperformanceratingsareused,“Everyonepropelshimselfforward,ortriesto,forhisowngood,onhisownlifepreserver.Theorganizationistheloser.”27Wesawthisinthecasestudiesofinvestmentbanks,Microsoft,FreshChoice,andGeneralMotors.Thesesystemsalsoleavepeoplelargelyunconcernedaboutthewelfareofthewholebecausetheirrewardsdependontheirrelativestanding,notonhowwelltheentireenterprisefares.IBMsufferedasimilarproblem.Operatingunitswererankedfrombesttoworst,aprocessthatintroducedcompetitivedynamics.AseniorIBMexecutivemadeapresentationtotheseniormanagementteamarguingthattheinternalcompetitionwasadverselyaffectingthefirm’scompetitivecapabilities:“Wedon’ttalktothe

peopleintheotheroperations.Theyhavebecomethecompetition.Thereisnosharingofinformationandlimitedcooperation.”28

ManagementEntailsMostlyNovelIntellectualTasks,NotRoutinePhysicalWorkTheconfusionbetweenwhatittakestodowellinroutinetasks,especiallyphysicaltasks,versusnovelintellectualtasksisanotherreasonthatpeopledevelopmisguidedbeliefsaboutthepositiveeffectsofcompetitiononperformance.Peopleinbusiness,particularlymen,oftendrawonanalogiesfromphysicalcompetitionssuchasvarioussportstoguidetheirthinkingabouthowworkshouldbeorganizedandrewarded.Andindeed,forsomephysicaltaskssuchasraces,thereisevidencethatpeople,individuallyandinteams,performbetterwhenracingagainstanopponentthanwhenracingagainstaclock.Buttreatingsportsasanalogoustobusiness,whichofteninvolvesnovelandcomplexintellectualratherthanroutinephysicaltasks,ismisguided.Hundredsofstudiesshowthatintellectualtasksthatrequirelearningandinventingnewwaysofdoingthingsarebestperformedunderdrasticallydifferentconditionsthantasksthathavebeendoneoverandoveragaininthepast.

Peoplearebetteratlearningnewthings,beingcreative,anddoingintellectualtasksofallkindswhentheydon’tworkunderclosescrutiny,theydon’tfeelasiftheyareconstantlybeingassessedandevaluated,andtheyaren’tworkinginthepresenceofdirectcompetitors.Thereis,forexample,avastamountofevidencethatworkingaroundothers,especiallyoutsiderswhoarethoughttobejudgingone’swork,enhancesperformancefortasksthatarewelllearnedandthatdonotrequiretheacquisitionofnewskillsornovelresponses.Thisiscalledthesocialfacilitationeffect.29Butthesesameconditionsleadtoworseperformanceontasksthatrequirecomplexmentalprocessesandattention,theso-calledsocialinhibitioneffectthatmakesithardertolearnnewthingsorgeneratenewideas.30Relatedresearchstronglysuggeststhatcompetitioninhibitslearningandcreativitybecauseratherthanfocusingonthetaskathand,inconditionsofcompetitionpeoplefocustheirattentiontooheavilyonwhatcompetitorsaredoing,onhowwelltheyareperformingincomparison,andonthereactionsofthirdpartiessuchasleadersandpeerswhoaretheaudienceforthecontest.Moreover,whenataskisdifficultenoughorcomplexenoughthatitrequireshelpandsharingideaswithothers,internalcompetitionisespeciallydestructive.

Interdependence,NotIndependence,IstheFactofOrganizationalLifeInterdependenceisanotherimportantwaythattasksdiffer.Intheracinganalogythatissocommonlyemployed,aperson’sspeedisalmostcompletelyafunctionofthatindividual’sownconditioning,ability,stamina,andmentalattitude.Unlesstheopponentactuallyinterfereswithone’srunning,performanceisentirelyunderthecontrolofthesingleindividualrunningtherace.Manyofthesportsanalogiesthatarealsousedindiscussionsofthebenefitsofcompetitionlikewisehavelittleornointerdependence.Butinterdependenceiswhatorganizationsareabout.Productivity,performance,andinnovationresultfromjointaction,notjustindividualeffortsandbehavior.ChesterBarnard,anearlymanagementwriterwhohadbeenaseniortelephonecompanyexecutive,“characterizedorganizationsascooperativesystemsthatdependonthecoordinatedactivitiesofnumerousinterdependentactors….Thewillingnessofindividualstocooperatewithothermembersofanorganizationisoneofthemajordeterminantsoforganizationaleffectivenessandefficiency.”31

Thisfactoforganizationallifemakesusingindividualincentiveawardsforwinningsomeinternalcompetitionofquestionablevalue.HerbertSimon,aNobelPrizewinnerineconomics,perceptivelynoted:

Ingeneral,thegreatertheinterdependenceamongvariousmembersoftheorganization,themoredifficultitistomeasuretheirseparatecontributions….Butofcourse,intenseinterdependenceispreciselywhatmakesitadvantageoustoorganizepeopleinsteadofdependingwhollyonmarkettransactions.32

RecalltheIntelexamplefromAndyGrove’sbookdiscussedattheoutsetofthischapter,inwhichheclaimedthatcompetitionledtoenhancedperformance.Thetaskhedescribedwasbuildingmaintenance,anactivitythatwaslikelywelllearnedbythepeopledoingitandonethatdidnotrequiretheconstantacquisitionofnewskillsorknowledge.Andthefacilitiesthatwereputintocompetitionwitheachotherwerelargelyindependentintermsofthemaintenanceactivity,withlittleinterdependenceamongthebuildingmaintenanceactivitiesacrossfacilities.Competitionislikelytobemostusefulforthiskindoftaskbecausenotmuchnewlearningisrequiredandthereislowinterdependencebetweenunits.

Whenevenmodestlevelsoflearningarerequiredandsomeinterdependenceexists,individualincentivesandinternalcompetitiondiscourageneededknowledgesharing,cooperation,andmutualassistance.EvenLincolnElectric,widelyknownforitsindividualpiece-ratesystems,dependsheavilyonincentivesforcooperationthathavebeenbuiltintothesystemfromthebeginning.Theseincentivesforcooperationincludeaprofit-sharingsysteminwhichapproximately50percentofanemployee’spaydependsontheoverallsuccessoftheenterpriseandaperformanceevaluationsysteminwhichcooperationisoneofthefourdimensionsthatsupervisorsusetoassessemployees.So,whileJamesF.Lincolnglorifiedtheindividualandespousedthevirtuesofcompetition,healsounderstoodthattherewasconsiderableinterdependenceamongworkersandthatteamworkshouldbeencouraged.33

Learningandbuildingandleveragingintellectualcapitalrequiredevelopinga“sharingculture.”Althoughlearningfromothersinsidethefirmcanbeenhancedthroughformalmechanisms,buildingaclimateinwhichpeopletalkandinteractcomfortably,inpartbecausetheyaren’tcompetingwitheachother,iscrucialtothedevelopmentandtransferofskillandwisdom.AsLarryPrusak,fromtheIBMConsultingGroup,hasnoted:

Givingpeopletheroomandspacetotalktoeachotherisalsoimportant,becauselearningisthesocializationofknowledge.Peopleliketotellotherswhattheyarelearningbuttheydonothavethetimeforit.Companiesspendallthismoneyhiringsmartpeopleandthenoverburdenthemanddonotallowthemtosharetheirknowledge.34

Notonlydon’tpeoplehavethetime,butalsoinmanyinstancesacompetitiveculturemakesthesharingofinformationandthemutualdevelopmentofskillextremelyunlikelybecauseitissocountertoindividualself-interest.

LeadersAreOftenTrainedandRewardedforValuingInternalCompetitionThefinalreasonthatsomanyorganizationsestablishdysfunctionalinternalcompetitionisthatleadersandmanagers,evenmoresothanmostpeople,haveachievedtheirpositionsbywinningaseriesofcompetitions,bothintheircorporationsandduringtheirschooling.Asonearticlecommented:

corporationsandduringtheirschooling.Asonearticlecommented:

Forthemostpart,leadersofourcompanieshaverisentotheirpositionsbecauseoftheirabilitytocompete,aswellastheirabilitytolead.Therefore,itisnaturalformostofthemtobelievethatintroducingcompetitionintotheworkenvironmentwillincreaseperformance.35

Thetraditionalleadershipmodelisbasedonacompetitivedynamicthatemphasizeswinningacontestinwhichoneperson’ssuccessrequiresthefailureofothers.Inschool,successisdefinedintermsofclassrank—azero-sum,competitiveoutcome.Onceonthejob,theracetotriumphoverpeersismoreintenseandtheoddsofwinningareevensmallerthaninschool.Inconsultingfirmsandinvestmentbanks,onlyasmallfractionofeachcohortrisestobecomepartners.Evenoncepartnershipisachieved,partners’compensationfrequentlydependsondoingbetterthanotherpartners.Incompanies,promotionuptheladderrequireswinningatournamentcompetingagainstpeers.Andsoitgoes.Thepeopleinoursocietywhohavethegreatestinfluenceoverhowfirmsareorganized,eitherbecausetheymanagethemortheygiveadvicetothosewhomanagethem,arealsopeoplewhoarethemostheavilytrainedandrewardedtobelievethatinternalcompetitionisthebestwaytoorganizehumanactivity.Itislittlewonderthatinternalcompetitivedynamicsinfirmsaresopervasive.

InternalCompetitionIsMostLikelytoBePrevalentandHarmfulWhen

Peoplehaveincentivestoavoidhelpingothersoreventounderminetheirwork

Leadersactasifperformancecomesfromthesumofindividualactionsratherthaninterdependentbehaviorslikecooperation,knowledgesharing,andmutualassistance

Managementactsasifpeopleinthefirmarecompetingina“race”or“game”inwhichthecompetitorsarewithinthefirmandthereareonlyafewwinnersandmanylosers

Thewaythatworkismanageddistractspeoplefromthetaskathandbecausetheyfeeltheyareunderscrutiny,areconstantlybeingcomparedtoothers,andarefocusedonwhatinternalrivalsinthecompanyaredoing

Comparativeorrelative,ratherthanabsolute,evaluationsareemphasized

Leadersareselectedbecausetheyvaluecompetitionandhaveahistoryofdominatingpeersinzero-sumcontests

Littleattentionispaidtothepowerofexpectationsandtheself-fulfillingprophecy,sopeoplearelabeledas“losers”orasbeingpartofabadunitandfeelalackofself-worthandresentmenttowardthefirm

Winningacompetition,inschooloronthejob,isfrequentlyanindividualactivity,amatterofindividualabilityandperformance.But,“studiesofmanagerialperformancehavefoundthatthemostcriticalskill…andonemostoftenlackingisinterpersonalcompetence,ortheabilitytodealwith‘peopleproblems.’”36Thus,evenaswetrainanddevelopleadersinsettingsemphasizinginternalcompetition,themostimportantskillsforleadershipactuallyentailtheabilitytoworkinteams,tocollaborate,andtoempathizewithothers.Thereisastrikingdiscrepancybetweenwhatweknowaboutleadershipandwhatwedoinmanyofthesettingsinwhichleadershipispresumablytaughtandlearned.

Consider,forexample,thegapatStanfordBusinessSchoolbetweenknowingwhataneffectiveleadershipmodelisandactuallyimplementingtheseleadershippractices,describedinacasebytheMBAswhoexperiencedit.Historyshowsithasbeenverydifficulttointroduceateam-orgroup-basedleadershipprocessintothestudent-governedpublicmanagementprogramatStanford.Thisproblemrecursyearafteryeareventhoughtheadministrativedirectoroftheprogramandmanystudentsbelieveateam-basedapproachisamoreeffectiveleadershipmodelfortheprogram.Theanalysisofwhythisimplementationproblempersistedexplicitlypointstoculturalbeliefsintheimportanceofcompetitionandindividualachievementasakeybarriertointroducingamoreteam-basedwayofleadingandmanaging:

TheGSB[GraduateSchoolofBusiness]isaplacethatworshipstheentrepreneur…whoraisesventurecapitalandshipstheproduct.Businessisaboutwinning,notprocess.Shareholdervalueisamantra,andwhetherthatisachievedthroughteamworkorpersonalheroismisnotadistinctionthatismadehere….ThepeopletheGSBrecruitsandthesymbolsthatpermeatetheinstitution(theViewfromtheTopSpeakerSeriesmostprominentamongthem)reinforceacultureoftraditionalleadership.37

ExternalversusInternalCompetition

Wedon’twanttocreatetheimpressionthatcompetitionisalwaysabadthing.OrganizationssuchasSASInstitute,AES,TheMen’sWearhouse,andSouthwestAirlinesarefiercecompetitors,notlaid-backcompanies,whichisonereasontheyhavebeensosuccessful.Itisjustthattheircompetitivejuicesareaimedatexternalcompetitorsratherthanatpeoplefromotherlocations,units,ordepartmentswithinthefirm,orevenpeersinthesameunit.Peopleinfirmslikethesespendtheirtimeandenergytryingtosucceedinthemarketplace,notfightingeachotherbecausetheyarerewardedandmeasuredinwaysthatcausethemtotrytodominateoneanotherratherthantohelpeachother.

SouthwestAirlines,forinstance,hasacollectiveinternalorientation.Thecompensationsystemfeaturescollectiverewardssuchasprofitsharingandstockownership;individualmeritpayiseschewed.Theideaofhelpingoneanothertoturnplanesaround,toshareideas,andtobuildastrong,unifiedcorporatecultureisemphasized.Whencompetitorsthreatenthecompany,theemphasisisinvariablyonthethreattoallofthepeopleofSouthwestAirlines.Externalcompetitorsaredemonizedandwarlikelanguageisused,butinternally,thefirmworkstogether,asillustratedbythefollowingexcerptfromamessagefromCEOHerbKellehertohispeopleasUSAirwaysenteredtheBaltimoremarket:

In1814,attheconclusionoftheWarof1812,theBritishforcesattackingtheUnitedStateswererepelledatFortMcHenryinBaltimore,Maryland….OnJune1,1998,thesecondbattleofBaltimorewillcommence.Onthatdate,USAirwayswillbeginheavilybombardingSouthwestairlineswithanassaultbyitsnew,

lowercost-lowerfareoperatingdivision,MetroJet….MetroJetisNOTafigmentofanyone’simagination.USAirwayshassimplybeenmorediscreteinitspublicstatementsconcerningtheaggressiveinterestofMetrojetthanUnitedwaswithrespecttotheaggressiveintentoftheShuttle.

WHATISATSTAKEFORSOUTHWEST?

Thejobsecurity,profitsharing,theexpansionaryfutureandtheprideofallofourSouthwestFreedomFighters!…TheoutcomeofthelatestattackonSouthwestbyanotheroftheBigSevenCarriersisjustasimportanttoALLofusastheresultofourWestCoastwarwithShuttlebyUnited….JustasagainsttheUnitedShuttle,thecrucialelementsforvictoryarethemartialvigor,thededication,theenergy,theunityandthedevotiontowarm,hospitable,caringandlovingCustomerServiceofALLofourPeopleALLofthetimeandinEVERYplaceonoursystem….Southwest’sessentialdifferenceisnotmachinesand“things.”Ouressentialdifferenceisminds,hearts,spirits,andsouls….Iambettingonyourminds,yourhearts,yoursouls,andyourspiritstocontinueourgreatprideandourmarveloussuccess.38

HowCompaniesAvoidTurningFriendsintoEnemies

Thereareanumberofwaystoovercometheproblemsthatoccurwhenthereistoomuchinternalcompetition,notenoughtimespentsharinginformationandhelpingothers,andnotenoughfocusonenhancingtheorganization’soverallperformance.Oneofthemostpowerfulandstraightforwardistoreinforceacommonorganizationalidentityandcommongoalsandinterestsbyhighlightingexternalthreatsandenemies.ThisapproachisillustratedbySouthwestAirlines’responsefirsttotheUnitedShuttleontheWestCoastandthentoUSAirways’expansionofserviceinBaltimore.Southwestusedtheincreasedcompetitiontoenhanceinternalunity,energy,andfocusbyhighlightingacommonexternalthreatthataffectedallthepeopleinthecompany.Severalseniormanagersat

SouthwesttoldusthatthecompanybenefitedfromtheUnitedShuttle’sentryin1994intotheintra-Californiamarket.Theirairline,Southwest,hadbeenremarkablyfinanciallysuccessful.TheirCEO,HerbKelleher,hadappearedonthecoverofFortunewiththetext,“IsHeAmerica’sBestCEO?”Thecompanyhadcontinuedtopileupservicerecords,winningtheannualtriplecrown(beston-timeperformance,fewestcustomercomplaints,andfewestlostbags)yearafteryear.Twoproblemswereappearing.First,Southwestpeopleweregettingcomplacent.Butmoreimportant,asColleenBarrett,theirexecutivevicepresidentforcustomers,remarked,“Withallthissuccessandnoapparentexternalenemy,wehadbegunfightingamongourselves.TheappearanceoftheUnitedShuttleonthescenerekindledour‘warriorculture’andgotpeoplebackfocusedonfightingthecompetitioninsteadofthinkingsomuchabouteachotherandhowtheyweredoingcomparedtotheothers.”

Similarly,in1984AppleComputerusedtheexternalthreatofIBMtoprovideenergyandacommonenemy.InaspeechSteveJobsgavetonearlyeveryoneinthecompanywhenheintroducedthefirstMacintoshcomputer,JobsportrayedIBMastryingtodominatetheentirecomputerindustry,theentireinformationage,andasposingathreattothefuturefreedomoftheindustry.ThislanguagehelpedtorallyAppleemployeesinanefforttolaunchtheMacintoshcomputer.Theresearchliteraturegoingbackdecadesisquiteclear:Oneveryeffectivewaytoreduceintergroupcompetitionandconflictistoprovidethegroupsstrugglingwitheachotherwithacommongoalandacommonexternalthreatorenemy.Thisisawonderfulwayofprovidinganexternalfocusandacommonsocialidentity—usversustheoutsidecompetitorsorthreat.

Anotherwaythatfirmsreduceinternalcompetitionistosimplynottolerateitwhenitbecomesexcessiveanddestructive.TheMen’sWearhouse,thesuccessfuloff-priceretaileroftailoredmen’sclothing,payssalespeopleabasesalaryalongwithcommissionsbasedonsales.Thesecommissionsareobviouslyindividualrewardsandcouldleadtosalespeopleinastorecompetingwitheachotherforcustomers.Partofthefirm’svaluesystemandstrategy,however,emphasizesteamselling,inwhichpeoplehelpeachotherinansweringcustomerinquiriesandprovidingoutstandingcustomerservice.Thisemphasisoncollaborationisatoddswiththerestoftheindustry,wherepeopleinretailingaretraditionallypittedagainsteachotherincompetitionforsales.Turnoverisquitehighthroughouttheindustry,inpartbecausepeopleinstoresstrivetostayaheadoftheirco-workers,which,aswehaveshown,meansthereisnoincentive

forcooperation.ThepressuretoworkcollaborativelystartsduringemployeeorientationatTheMen’sWearhouseSuitsUniversity.Forinstance,aspartofthetrainingandorientationforwardrobeconsultants,CharlieBresler,theexecutivevicepresidentforhumandevelopment,tellsthem:

Youareexpectedtodefineyoursuccessinpartasonlyachievedwhenyourteammates,thesalesassociates,thetailors,andotherwardrobeconsultantsandmanagementpeopleinthestorearealsosuccessful….Youwill,overtime,defineyoursuccessnotonlyintermsofyourowngoals,butalsothegoalsandaspirationsoftheotherpeopleinyourstore.Andthatyouwillcometoreallycareaboutthemashumanbeingsandaspeoplewhofinallyrealizetheirpotential,too.Thatiswhatwemeanwhenwetalkaboutbeinga…highqualityteammateinthestore.39

Thistalkisbackedwithaction.AtTheMen’sWearhouse,datafromtheinformationsystemshowthenumberoftickets,ortransactions,eachwardrobeconsultantwritesinamonth,aswellastheaveragesales,indollars,pertransaction.Ifsomeoneiswritingalotmoresalesthanothercolleaguesinastore,say25percentmore,thisistakenasasignalthatthepersonisprobablynotsharingwalk-intrafficbutratherishoggingbusiness.Particularlyifthatpersonisalsonotwritinghighvolumesofbusinesspertransaction,heorsheisremindedaboutteamsellingandtheexpectationthatinthecompany,successonlycomeswheneveryoneinthestoreissuccessful.Ifthebehaviorpersists,thecompanywillfirethatindividual.

Forexample,oneofthefirm’smostsuccessfulsalespeople,measuredbydollarsoftotalsales,wasfiredwhenherefusedtoconformtothefirm’sculturalvalues,includingthevalueofdefininghisownsuccessinpartbythesuccessofhispeersandhisstore.Thispersontookmorethanhisshareofcustomersinthestore,bad-mouthedthefirm’strainingandculture,anddisdainedtheideaofworkingtohelphisfellowemployees.Thefiringshowedthatthecompanywasseriousaboutitsvalues,particularlyvaluesabouthowpeoplerelatetoandinteractwitheachother.Inadditiontopreservingtheculture,thisfiringresultedinfinancialbenefits.Thetotalsalesvolumeinthestoresubsequentlyincreasedsignificantly.Nosinglewardrobeconsultantsoldasmuchasthepersonwhohadbeenfired,butthestoredidbettercollectively.Theinternalcompetitivedynamicstriggeredbythisperson’sbehaviorhadbroughtalloftheotherpeople

dynamicstriggeredbythisperson’sbehaviorhadbroughtalloftheotherpeopleinthestoredown.Withhimremoved,theotherwardrobeconsultantsfeltbetteraboutthemselvesandthestore,helpedeachothermore,learnedfromeachother,andasaconsequence,enjoyedbettercollectivesuccess.

SASInstitute,thelargeandsuccessfulsoftwarefirm,alsohasaculturethatemphasizesinternalcooperationandiswillingtoletpeoplegowhodon’tfitthatstyle.BarretJoyner,vicepresidentofNorthAmericansalesandmarketing,encourageshispeopletothinkaboutwhattheyreallywantoutoftheirjobsandtobeopenaboutit.Herelatedthefollowingincident:

Inthinkingaboutthisquestion,[one]employeesaid,“Iwanttobeabletohaveperformancethatpermits[me]todowhateverIwant.WhenIwalkdownthehall,Iwanttofeellike‘I’mtheman.’”[I]toldhimthatthissoundedlikeawonderfulgoal,andthat[I]wouldworkhardtofindhimaplaceofemployment—notatSASInstitute—wherehecouldrealizethegoal.40

Firmsthatareseriousaboutbuildingacooperativeinternalculturetakestepsconsistentwiththatgoal.Thatincludesbeingwillingtofire,nothire,orencouragetoleavepeoplewhomayhavetalentbutwhosegoalsandbehaviorsaretoocompetitiveandindividuallyorientedtofit.Thisrequiresmakingtoughjudgmentsandbeingwillingtoactonthosejudgments.

Firmscanalsoreduceinternalcompetitivedynamicsbynotusingmeasuresandcompensationsystemsthatemphasizesuccessattheexpenseofothers.WillametteIndustriesisoneofthemostsuccessfulforestproducts,buildingmaterials,andpapercompaniesasmeasuredbyreturnonequity,returnonsales,orshareholderreturnscomparedwithotherfirmsintheindustry.Asafullyintegratedcompany,cooperationacrossunitsisimportantforthefirm’ssuccess.Toencouragesuchcooperation,Willametteusesnoshort-termperformancebonuses.Thecompany’sleadersbelievethatinanintegrated,interdependentfirm,suchbonusessetupdysfunctionalcompetitivedynamics.DaveMorthland,thevicepresidentforhumanresources,explainedthefirm’scompensationphilosophyanditsrelationshiptoitsinterdependentstructure:

Wecontrolthetreeliterallyfromthetimeit’splantedtothetimeourfinishedproductleavestheshippingdock.Thatmeanswe’vegotalotofinternalcustomerrelationships….Whatkindof

messagedoesitsendinanintegratedcompanywhereyouwantandneedgoodteamworkifonesideofthebusinessisdoingreallywellbecausetheirpriceshappentobehighandyou’repayingthembigbonusesandthepersonontheothersideoftheaisleisinthedowncyclepartofthebusiness,butthatpersonmaybeworkinghardertokeephiscostsdownandhe’sgettingnorewardforit?41

Theeffectofzero-sumcompensationschemesonbehaviorisnothypothetical.MickOnustock,anexecutivevicepresidentatWillamette,hadcometothecompanyfromacompetitorthathadusedindividualperformancebonusesparceledoutinazero-sumfashionthatcreatedinternalcompetitivedynamics.Hedescribedtheadverseeffectsofsuchasystem,includingthetimewastedoninternalbattlesandtheneedforseniorleadershiptocontinuallyresolveconflicts:

Whereitgottobesomeviciousbattleswasthecompetitionthatthebonussystemcreatedwithinthecompany.Youfoundyourselfcompetingagainstothersinthecompanyasopposedtopullingtogetherandgettingthingsdone.Forexample,settingatransferprice—thesimplestthingintheworld—betweenapapermillandaconvertingplant.Althoughtheywerebothownedbythesamecompany,awarwentonoverthat.Theguyintheconvertingplantdidn’twantthemilltoscrewhimbecausehisperformancewouldlooklousyifthetransferpricewasn’tattheproperlevel….Often,theconflicthadtogoallthewayuptotheCEOtoresolveit.It’sridiculousforaCEOtohavetoresolveanissuelikethatbetweentwogroupsthatweregoingtoetotoebecauseitaffectedtheirbonuses.42

KevinGoodwin,theCEOofSonoSite,asmallcompanyspunofffromATLinthespringof1998todevelopandsellhand-heldultrasoundsystems,instituted,atthetimeofthecompany’sfounding,apaysystemmarvelousinitssimplicityandpowerfulinitseffects.AllSonoSitepeoplereceivedgenerousbasepay,andallemployeesinthecompanyreceivedstockoptions.Thatwasthecompensation.Therewerenoindividualordepartmentbonuses.Atameetingweattendeddiscussingthecompany,itsculture,anditsoperations,weheardone

engineeringmanagermakethefollowingremarkaboutthecompanyandhowitdifferedfrombothATLandotherplaceshehadworked:“There’slessconflictandbickeringhereoverschedulesandwho’sresponsibleforwhat.BecausetherewardsystemmakeseveryoneatSonoSitefeelliketheyfaceacommonfate,they’reallpartofoneteam,everyoneismorefocusedonworkingtogethertosolveissuesastheyarise.Notonlydowegetmoredonebecausewearen’talwaystryingtoassignblametoothers,butit’samuchmorepleasantplacetowork.”

Finally,somecompanieshaveovercomethebarriersthatinternalcompetitioncreatesfordevelopingandtransferringknowledgebyresortingtopowerandhierarchicalauthoritytochangetheinternaldynamics.GeneralMotorshasdecidedthatitreallywantsandneedstoimplementleanmanufacturingprinciples.So,itcreatedapositionwithinGeneralMotorsUniversity,staffedbyTomLasorda,tocollectinformationaboutwhatwasgoingon,developbetterpracticesforbothmanufacturingandteachingandlearningaboutmanufacturing,andensurethatthisknowledgewasimplemented.Lasordadescribedhisrole:

Myroleistopullallthesefolks[leadersinvariousplantsdoingleanmanufacturing]together,setupacentralteamtohelppeopleimplement,train,andcoach.Inowconductleadershiptrainingforplantmanagers.Idevelopedmyownprogrambasedonseeing50plants….I’vegotthecollegeoflean.I’mthelean,mean,dean….TherewasresistanceononeortwoinitialthemesuntilItoldthemthatthesearethefactsoflife.Youhavehadyourinput.Thisisthedecision.You’dbetterimplementit….Youjustneedsomebodywhoisthegorillaonceinawhile.Andonceyoufindthatout,I’vehadnootherissuesafterthefirsttwo.It’sprettyeasyonceyouexerciseyourauthority.43

Ifsomething,suchascooperation,iscrucialtoanorganization’ssuccess,atsomepointthefirmhastomakethatclearandtoenforcethemessage.Itcanbedoneinaniceway,buttheseriousnessoftheefforttodevelopandtransferknowledgeneedstobecommunicatedandunderstood.

WaysofOvercomingDestructiveInternalCompetition

Hire,reward,andretainpeopleinpartbasedontheirabilityandwillingnesstoworkcooperativelywithothersforthecompany’swelfare.

Fire,demote,andpunishpeoplewhoactonlyintheirindividualshort-termself-interest.

Focuspeople’sattentionandenergyondefeatingexternalcompetitivethreats,notonfightingeachother.

Avoidcompensationandperformancemeasurementsystemsthatcreateinternalcompetition.

Havemeasuresthatassesscooperation.

Buildaculturethatdefinesindividualsuccesspartlybythesuccessoftheperson’speers.

Modeltherightbehaviorvialeadersactingcollaboratively,sharinginformation,andhelpingothers.

Promotepeopletotopmanagementpositionswhohaveahistoryofbuildinggroupswherememberscooperate,shareinformation,andprovideeachothermutualassistance.

Usepowerandauthoritytogetpeopleandunitstoshareinformation,tolearnfromeachother,andtoworkcollaborativelytoenhanceoverallperformance.

Wehaveseeninthischapterthatcompetition—forstatus,forrewards,forrecognition—canhampereffortstoturnknowledgeintoaction.Itisimportantforleaderstocarefullyconsidertheadvantagesandthedisadvantagesofinternalcompetitivedynamics.Competitionismoreusefulunderconditionsoflessinterdependenceandforactivitiesthatdonotrequiremuchlearningbecausetheskillsrequiredarealreadywellhoned.AsDeanTjosvold,aresearcherandwriteronthesubjectofcompetitionandcooperation,noted,“Competitionstimulates,

excites,andisusefulinsomecircumstances,butthosesituationsdonotoccurfrequentlyinorganizations,andthewidespreaduseofcompetitioncannotbejustified.”44

7 FirmsThatSurmounttheKnowingDoingGap

THROUGHOUTTHISBOOKwehavenotonlyidentifiedcausesoftheknowing-doingproblem,buthavealsoprovidedexamplesfromourresearchthatshowhowthesecausescanbeovercomeoratleastameliorated.Thischapterprovidesmoredetailedcaseinformationonthreefirms—BritishPetroleum,BarclaysGlobalInvestors,andtheNewZealandPost—thathavebeensuccessfulateitheravoidingtheknowing-doinggaportranscendingbarrierstoturningknowledgeintoaction.Eachofthesemorecomprehensivecasesshowstheconstellationoffactorsthatcreateproblemsinturningknowledgeintoactionaswellastheactionsandpracticesthathelpfirmsacquireandimplementperformanceknowledge.Theorganizationsareofdifferentsizes,fromdifferentcountries,operateindifferentindustries,andconfronteddifferentchallenges.Thisrangeofexperienceaffordsanexcellentopportunitytolearnasweconsiderthesimilaritiesanddifferencesacrosscompanies.

BritishPetroleum

Inthemid-1990s,BritishPetroleum(BP)wasthefourthlargestoilcompanyintheworldandthelargestcompanyinGreatBritain,with1995revenuesof$57billion.1Thelate1980sandearly1990shadbeendifficultforthecompany.

Fallingoilpricesandanextremelydiversifiedsetofbusinessesthatmadethecompanyalmostaconglomeratehadcontributedtodecliningprofits.In1992,thecompanylost$811million,itsfirstfinanciallossineightdecades.2Butjustfiveyearslater,thecompanywasenjoyingexcellentresults,eventhoughoilpriceshadremainedlowbyhistoricalstandards.In1997,thecompanyearned$4.62billionontotalrevenuesof$71.27billion3andwasreceivingnumerousfavorablementionsinthebusinesspressforitsmanagementability.

Howhadthecompanyfallenonsuchhardtimes,andwhatdiditdototurnaround?Thecompanywasold,withagreathistoryandtradition,havingbeenfoundedin1909.Originallyowned,andthenpartlyowned,bythegovernment,thecompanywasthefirsttodeveloptheoilreservesoftheMiddleEastandwasaleadingoilproducerintheNorthSeaandAlaska.Describedas“acuriousmixofdashingadventurersandstiflingbureaucracy,”4thefirmwasexperiencedinfinding,producing,andsellingoilandoilproductsallovertheworld,andasalargefirminEngland,wasabletoattractoutstandingtalent.Theproblemwas,touseourlanguage,thatBritishPetroleumwassingularlyincapableoftransferringknowledgeacrossitsvariousinternalunitsorusingitsexpertiseanditshumanandphysicalassets.In1989,

Turfbattles,buck-passingandbureaucracywererampant,anddecisionmakingwasslowandcumbersome.Headofficealonehad86committees,andeachofthesixmanagingdirectorsattendedover100boardorothermajormeetingsannually.Financialproposalsrequiredfifteensignaturesbeforetheycouldbeaccepted….[The]headofBPOildescribedtheproblem:“Controlhadgonewrongbecauseallofushaveconcentratedtoomuchondetail.Peoplefeeltheyneedtoknowtheanswertoeverypossiblequestionjustincasesomeoneasksit.We’dlostourway.”5

Committees,reviews,andmeasuresprovidedtheappearancebutnottherealityofeffectiveplanningandoversight.MuchasattheAustralianfirmBHP,anothernaturalresourcescompany,talksubstitutedforaction.Internalcompetitionfurtherhinderedtheabilitytoturnknowledgeintoaction.

Managementsuccession,triggeredbythefirm’spoorfinancialperformance,atfirstonlymadetheproblemsworse.RobertHortonassumedthechief

executivepositioninthespringof1990andimmediatelybegantodownsizethecompanyandslashcapitalspending.Unfortunately,thedownsizing“wasaccompaniedbya‘proclamationofvalues,suchasopenness,care,teamwork,empowerment,andtrust,’6thatwascommunicatedthroughanextensiveworkshopandtrainingprogram.”7Wesay“unfortunately”becausethejuxtapositionofdownsizingwiththeemphasisonvaluessuchascareandtrustmadenosenseatall.Thistransparentclashbetweenwhattopmanagementsaidandwhattheydidprovokedcynicism,skepticism,andangerthroughoutthefirm.Moreover,Hortonhadamanagerialstylethatinspiredfearratherthanaffectionorrespect:“Hortontreatedeverybodyasthoughtheywereheadgardener.Peoplecouldnotbeartohaveanymoresandpaperrubbedoverthem.”8

Horton’sapproachattackedthesymptoms—toomanypeople,resultinginoperatinginefficiencies—butnottheculturalissuesthatproducedtheproblemsinthefirstplace.Moreover,anabrasive,almostabusivemanagementstyleinspiredfearintheorganization,anemotionnotlikelytomotivatepeopletodotheirbestortoturnknowledgeintoaction.Hortonwasfiredtwoyearsafterhisappointment,onJune25,1992.9Overthesucceedingyears,thecompanywasrunfirstbyDavidSimonandthenbyJohnBrowne.Althoughdownsizingcontinued,thecompanybegantodosomethingstoincreaseitsabilitytobothcaptureknowledgethatwasbeinggeneratedinternallyandtomoreeffectivelyturnthatknowledgeintopractice.

JohnBrownebelievedthat“acriticaldeterminantofhiscompany’sabilitytocompete…wastheextenttowhichitcouldactivelyfosterlearningacrossunits.”10Henoted:

Asabigcompany,wehavemoreexperiencesthansmallercompanies….Sothequestionis“Whatdowedowiththatexperience?Howdowefindit?Howdoweinterpretit?Howdoweapplyit?”…Wecangetleverageprovidedweunderstandhowtousetheexperiencewehave….IfyoustepbackandlookatwhatBPdoes,it’sjustafewthings,repeatedthousandsandthousandsandthousandsoftimes.11

BritishPetroleumtookanumberofactionstoensurethatknowledgeand

experiencewouldbecapturedandtransferredwithinthecompany.First,they“developedawholelanguageandmethodologyforpost-projectappraisal”12tolearnasmuchastheycouldfromalloftheiractivities,suchasdrillingwells,developingnewoilreserves(whichtheycall“assets”),andrecoveringandtransportingoil.Perhapsmoreimportant,thefirmimplementedfourmechanismstoensurethatthebusinessunitssharedinformationamongthemselvesandimplementedwhattheyknew:peerassists,peergroups,otherfederalorganizations,andpersonneltransfers.13

“Apeerassistwasasmallprojectinwhichoneorseveralbusinessunitslentmembersoftheirstafftoanotherbusinessunitinordertohelpthatbusinessunitsolveaparticularproblem,”14mostfrequentlysometechnologicalproblem.Thepracticehadseveralpositivebenefits.Firstandperhapsmostimportant,knowledgewastransferredbyandthroughactualpeoplewhohadnotonlytheexplicitbutalsothetacitknowledgeandskillrequiredtosolvecomplexproblems.Thiswasnotjustsomeintranetinwhichtechnicalskillswouldbeposted,butawayofactuallyinvolvingpeopleintheknowledgetransferprocess.Second,bydirectlymovingpeoplewhohadexperiencetothelocalewheretheexperiencewasneeded,peerassists“cutthroughthemanageriallayersbetweenthebusinessunitleaderandthetechnicalpeopleperformingtheactualwork.”15

Theobviousquestioniswhymanagersofthesebusinessunitspermittedandevenencouragedkeypeoplefromtheirunitstogotootherunitstosolveproblems.ThissharingoftalentwasparticularlyunlikelytooccuratfirstglancegiventhatBP’sfinancialrewardsystemswerefocusedonbusinessunitperformance.Sharingtalentedpeoplewithotherunitsmighthelpthefirmasawholebutcouldnegativelyaffecttheshort-termperformanceoftheunitthathadtemporarilylosttheseskilledindividuals.Theamountoftalentbeingsharedwassubstantial.Insomeinstances,“alargepercentageoftheworkforce…couldbeoffsiteatanytime.”16Oneanswertowhytheunitsweresowillingtohelpothers,evenatapossibleshort-termcosttothemselves,wasprovidedbyaBPexecutive:

I’veneverturneddownanyone,becauseofthebenefits.First,thereisthebenefitofgoodwill,whichissignificant.Onedayyou’llneedthesame.Second,thereisthebenefitthattheycomebackbetterpeople.Theyknowmorethanwhentheyleft.17

Peergroupsinvolvedestablishing“confederationsofbusinessunitsthatfacedsimilartechnologicalandstrategicquestions.”18ThegroupsmetquarterlywiththeexecutivecommitteeofBritishPetroleumExploration.Thesequarterlymeetingsfacilitatedotherinteractionsduringthequarterbecausepeoplehadbeentogetherregularlyandhadcometoknoweachotherandbetterunderstandthebusinessandtechnologicalissueseachunitwasconfronting.Inthepeergroups,“theleaderofabusinessunitwouldpresenthisorherproposedgoalsforthecomingyeartotheothermembers….Thememberswouldcritiquetheplan,offeringinformationandadvice.”19Normsofreciprocityagaindictatedthatallmembersparticipateactively.Andtheveryestablishmentofthesegroupshelpedtobuildacommonsocialidentitythatreducedthetendencyfortheunitstovieweachotherasonlycompetitors.

Whenunitsfacedsimilaroperationalorstrategicissuesthatcutacrosspeergroups,BritishPetroleumputtogetherafederalgrouptofocusonthecommonissues.Betweenthepeergroupsandthefederalgroups,asignificantamountofmanagerialtimewasdevotedtoworkingcollaborativelyacrossunitstosolveproblems,intheprocessbothdevelopingandtransferringexpertise.“JohnLeggate,amanagerofthegasfieldsinthesouthernareasoftheNorthSea,estimatedthatroughly50%ofhistimewasdevotedtoparticipationinthepeergroupandtheseotherassetgroups,whereastheother50%wasdevotedtoactuallyrunninghisownasset.”20

AnotherexampleofhoweffortstoencourageknowledgesharingwereimplementedisseeninthepilottestfortheVirtualTeamworkProgram.Theinitiativewasdesignedtobuildanetworkofknowledgeablepeoplewhocouldworktogethertolearnandsolveactualproblemsinrealtimeastheyhappened.Theexperimentalprogramwasimplementedinfivegroupsoveran18-monthperiodinBPExplorationbetween1994and1996.Theprogrammadeheavyuseofmoderninformationtechnologysuchasdesktopvideoconferencingequipment,multimediae-mail,sharedelectronicchalkboards,scanners,andawebbrowser.Thesetechnologiesallowedrichreal-timecommunicationandthejointsolvingofproblemsbygeographicallydispersedpeople.Buttheprogram’sdesignersdidnotmakethecommonmistakeoftreatingknowledgeasa“thing”storedawayforlateruse.Rather,thegoaloftheprogramwasto“buildanetworkofpeople”acrossdifferentpartsofBPand“toletknowledgeablepeopletalktoeachother,nottotrytocaptureortabulatetheirexpertise.”21Theprojectteamalsoencouragedusingtechnologiesthatwouldcreaterich

communicationbetweenpeopleinordertoduplicate“asmuchaspossiblethenuances,variety,andhumandimensionofface-to-facecommunication”becausethesedesigners“understoodthatthevalueofindividualexpertiseresideslargelyinjustthosesubtletiesandintuitions,whichwordsalonecannotconvey.”22

Theprogramwassupportedbyagroupof“coaches”ona“knowledgemanagementteam.”Thesecoacheswereexpectedtospendonly20percentoftheirtimetrainingpeoplehowtousethetechnicalsystems.Theywereexpectedtospendtherestofthetimeworkingwithpeopletodiscoverhowtheinformationtechnologycouldbeusedtohelpthemdotheirworkinfaster,better,andlessexpensiveways.Thelevelofuse,participantenthusiasm,andsavingsintimeandmoneyindicatedthatthisprogramwassuccessfulinfourofthefivegroupswhereitwastried.Thegroupwhereitfailedwastheonlyonethatdidnotspendthemoneytohirecoaches.ThesuccessofthepilotprogramledBPexecutivestoapproveplansforexpandingtheprogramtootherpartsofthecompanyin1996andtoweaveitintoothereffortstocreaterealknowledgesharingamongunits.

ThefollowingincidentillustrateshowthesystemsusedbypeopleintheVirtualTeamworkProgramenabledthemtoshareknowledgebetweendifferentpartsoftheorganizationthatenabledBPtosavetimeandmoney:

WhenequipmentfailurebroughtoperationstoahaltonaNorthSeamobiledrillingshiponedayin1995,theship’sdrillingengineershauledthefaultyhardwareinfrontofatinyvideocameraconnectedtooneofBritishPetroleum’sVirtualTeamworkstations….TheydialeduptheAberdeenofficeofadrillingequipmentexpertwhoexaminedthemalfunctioningpartvisuallywhiletalkingtotheshipboardengineers.Hequicklydiagnosedtheproblemandguidedthemthroughthenecessaryrepairs.Inthepast,ashutdownofthiskindwouldhavenecessitatedflyinganexpertoutbyhelicopterorsendingtheship(leasedatacostof$150,000aday)backtoport….Theshutdownonlylastedafewhours.23

WithintheexplorationdivisionofBritishPetroleum,therewasalsoanemphasisonmovingpersonnelgeographicallytofacilitateknowledgedevelopmentandthetransferofwisdom.Aswithpeerassists,thecompanyrecognizedthatitwasnotlikelytobeinanybusinessunitmanager’sshort-term

intereststomovecompetentpersonneltootherunits.Thiswastrueevenifsuchmovementbenefitedotherunits,enabledpeoplewhomovedtolearnandtransfernewknowledge,andhelpedthefirmasawholebecauseperformanceknowledgewasspreadmorequicklyandcompletelyamongbusinessunits.So,thefirmestablishedsomeformalmechanismstoensuregeographicmobilityofpeople.“Onceayear,businessunitleadersmetataworldwideforumtohelpfacilitatethegeographicmobilityofengineers.Atthisforum,individualpeopleandindividualjobswerediscussed.”24Themeetingforcedmanagementtocollectivelyassumeresponsibilityforpersonnelmovementandensuredthatsuchmovementandtheresultingpeopledevelopmentandknowledgesharingactuallyoccurred.

AlloftheseformalmechanismsrequiredpeopleatBPtodevelopasenseofsharedsocialidentityandaspiritofcooperationratherthanunrestrainedrivalry,particularlytheunitmanagers.Theseniorleadershipwasconsciousofthisrequirementandtookstepstobuildamorecooperativeculturethatrecognizedtheinterdependenceamongthevariousunitsandtheirleaders.NickButler,policyadvisortothechiefexecutive,putitthisway:

Insomanyorganizationsthereisatendencyforindividualstohoardknowledgeandtothinktheyaremakingthemselvesmorepowerfulbydoingso.Ouraimhasbeentochangethismentalmodelbyencouragingpeopletoseethatiftheyareopen—bothreceptivetonewideasandwillingtosharetheirownknowledge—theywillberecognizedandrewarded.25

TheBritishPetroleumexperienceshowsthatknowledgetransferandknowledgeusecanbeimportanttoafirm’sfinancialperformance.Italsodemonstratestheimportanceofusingformalmechanismsforencouragingsuchtransfer,andtheneedforknowledgetobecarriedbypeople,notjustbyandinmanagementinformationsystems.AndtheBPcaseshowstheimportanceofactionsbyseniorleaders.Thoseactionsandwhatleaderssaidhelpedestablishculturalnormsthatfavoredcooperationandasetofrecognitionandrewardpracticesthatreinforcedcooperativebehavior.Seniormanagement’swillingnesstotrynewideasliketheVirtualTeamworkProgramalsoreinforcedthemessagethat,tomovetowardacultureofknowledgesharing,peoplewereexpectedtoexperimentwithnewwaysofworking,tofailsometimes,andtokeeplearning

fromsuchtrialsanderrors.TheverydifferentBPexperiencesunderRobertHortonandJohnBrownealsoshowthatleaderswhoprovokefearandexhibitabusivebehaviorcreateorganizationalsituationsinwhichpeoplefocusonavoidingblameandpunishmentandconcentrateontheirownindividualsurvivalratherthanthecollectivegood.Leaderswhoinducefeardiscouragetheirpeoplefromturningknowledgeintoactionandinsteadcreateorganizationsinwhichpeoplelearnitisbettertodonothingortokeepdoingthingsinlesseffectivewaysthantoturntheirperformanceknowledgeintoorganizationalaction.

BarclaysGlobalInvestors

BarclaysGlobalInvestors(BGI)facedadifferentsetofchallengesthanBritishPetroleum.Ratherthantryingtoovercomeknowing-doinggapsthatwerefuelingdecliningperformance,BGIfacedchallengesthatweredue,inlargepart,tothefirm’simpressivefinancialperformanceandrapidgrowththroughouttheworld.

BarclaysGlobalInvestorsisthelargestmanageroftax-exemptinvestmentsintheworld,withmorethan$550billionundermanagement.Thefirmwasfoundedintheearly1970saspartofWellsFargoBank’strustdepartment.Theintentwastoapplyquantitativetechniquesandmodernportfoliotheory,beingdevelopedinuniversities,tothemoneymanagementbusiness.TheunitlaterbecameawhollyownedsubsidiaryandprofitcenterofWellsFargo,andthenwasownedbyajointventurebetweenWellsFargoandtheJapanesesecuritiesfirmNikko.In1996,whatwasthencalledWellsFargoNikkoInvestmentAdvisorswaspurchasedbyBarclays,thelargeUnitedKingdombank,forapriceinexcessof$400million.Thecompanyhasmaintaineditsstrongrootsinacademicfinanceandquantitativefinancialanalysis.Asamatterofideology,peopleatBarclaysdonotbelieveinpickingindividualstocks,whichoneexecutivedescribedas“getahunch,buyabunch,gotolunch.”

BarclaysGlobalInvestorsfacedthreemajormanagementchallengesinthe1990s:(1)significantandrapidgrowth,fromabout350peoplein1993toabout1,400peoplein1997;(2)theneedtobecomeatrulyglobalfirm,integratingsignificantoperationsinJapan,theUnitedKingdom,Australia,andCanadawhiletryingtobuildandmaintaina“onefirmfirm”cultureandorientation;and(3)achangeincorporateownershipfromajointventurebetweenWellsFargoBankandNikkoSecuritiestoBarclaysBank.Mostsignificantly,BGIwasinvolvedintakingovertheinvestmentmanagementactivitiesofthefirmthat

involvedintakingovertheinvestmentmanagementactivitiesofthefirmthathadboughtthem—sometimesreferredtoasareversetakeover.ThemeansthatBGIusedtomeetthesechallengesprovideseveralkeylessonsabouthowotherfirmscanusetheiraccumulatedwisdomandexperienceandturnknowledgeintoaction.

TheheartofBGI’sbusinessisturningknowledgeintoaction.FredGrauerspentalmost20yearsinthecompany,includingmanyyearsaseitherchairmanorco-chair.HedefinedBGI’scoreactivitiesinthisway:

Investmentperformanceisactuallynotonlyaboutknowledge,it’saboutaction.It’stheabilitytoacquiretheideasandtranslatethemintoformsthatdeliverinvestmentperformance….Whatyoubuyandsellispartoftheprocess….They[thepensionfundmanagers]haveaneedtoexplaintootherswhatyouhavedoneontheirbehalf….Andifyoufalldowninanypart,thereisaninferencethatyoumayfalldowninotherpartsandputyourentirerelationshipatrisk.Allofthatisbywayofsayingthatwhetherit’sknowledgeoraction,whetheritisaninvestmentreturnortheserviceproposition,allofitisgovernedbypeople.Ourjobwastoveryrapidlycreateanattitudethatenabledpeopletogainknowledgeandconvertknowledgeintoactionwithapurposeofhavingourclientsreallyfeelasthoughtheyhadexperiencedfirst-rateinvestmentperformance,notjusttheplussigninfrontoftheinvestmentreturn.26

TwoofthethreechallengesBGIfaced,theglobalexpansionandgrowthinpersonnel,hadsimilarconsequencesforthefirm:Itwasbecomingmoredifficulttotransactbusinessonthebasisoflong-standingpersonalrelationshipsthatweremediatedlargelybyface-to-faceinteraction.JanetCampagna,agroupleaderintheassetallocationgroup,commented:

Thebiggeryougrowandthefasteryougrow,withalltheattendantstructuralchangesthatoccur,themoredifficultitistomaintainthekindsofrelationshipsthatallowyoutofindyourwaythroughthemaze.Andwiththegrowthalsocamethelossofpeopleandthatmakesmaintainingrelationshipsmuchharder.Becauseifyoulose

twoorthreeofyourkeyrelationshipsandyou’renowinthismuchbiggerplace,youlosealotofyoursupportsystem.Andwiththeattendantgrowththattendstokeepyouvery,verybusy,it’shardertoreachoutandestablishrelationships.Tryingtoestablishthoserelationshipsandhavethemworkwiththedistanceandtheculturaldifferenceshasitsownuniquechallenges.

Commentingonthechallengeofoperatingasaglobalfirm,GarrettBouton,headofBGI’shumanresourcesfunctionaswellasabusinessunitmanagerandmemberofthemanagementcommittee,noted:

JustshortlyafterIarrived[inOctober1996]itbecamecleartoallofusinthetopmanagement…thatweweren’torganizedlikeaglobalfirmneededtobeorganized.WewerestillrunasaU.S.business,andarelativelysmallU.S.business….WewereverymuchU.S.-centered.ThemergerwithBarclaysrequiredthatwesuddenlythinkquitedifferently.

BGIwasandcontinuestobecommittedtooperatingaccordingtoasetofcommonvaluesaswellasacoresetofprinciplesthatgoverntheirinvestmentwork.Thisgoaltobea“onefirmfirm”madethetaskofquicklyintegratingnewpeopleessential.DianeLumley,thechiefofstaff,commented:“Wewouldn’tbewhoweareifwesaidit’sokaytohaveaconfederationofdifferentinvestmentmanagerswithdifferentphilosophiesanddifferentprinciples,becausethat’snotus.”

Thechangeinownershipcompoundedtheproblemsofgrowthandoperatingonaglobalbasis.ThischangewaslargelyinitiatedbyBGIbecauseitstopmanagementbelieveditneededadifferentcorporateparenttosucceedinthefuture.FredGrauerargued:

We’dgottentothepointwherewhatWellsFargocouldrealisticallycontributetothebusinessandwhatwecouldrealisticallycontributetoWellswasverymodest.There’snofundamentalreasonwhyweneededeachother….Thecompetitiveenvironmentwasdefinitelychangingfrombeinganationalbusinesstobeingaglobalbusiness.Andwehadaparentthatdidn’t

haveaglobalperspectiveorglobalmotivationoraglobalculture….Therewasaneedtofindourselves.

AlthoughBarclaysBank,theparentcompany,wasglobal,operatingin16countriesaroundtheworld,thisLondon-basedbankhadaverydifferentculturefromtheentrepreneurialspiritofBGI.BarclayswasquitebureaucraticandhadneverhadamajorsubsidiarywithitsheadquartersoutsideofEngland.Thecompanywasrunbycommitteesandhadlotsofmeetings.Mostimportant,thepeopleatBarclays’headquartersinEnglandfeltasiftheyshouldbeincontrol,sincetheyhadbeentheacquirers.Butthatwasnothowitwastobe.FredGrauerandPattieDunn,theco-chairsofWellsFargoNikko,wereputinchargeofthecombinedentity,anditsheadquartersremainedinSanFrancisco.AlthoughsomepeoplefromBarclays’assetmanagementgroupbecamemanagingdirectorsinthenew,combinedentity,mostofthemanagingdirectorscamefromtheoriginalWellsFargoNikkobecauseitwasmuchmoresuccessfulintheinvestmentmanagementbusiness,waslarger,andhadalongerhistoryinthatbusiness.So,thechangeinownership,accompaniedbytherequirementtointegratetheinvestmentmanagementpartofBarclayswithwhathadbeenWellsFargoNikko,broughttheissuesofglobalizationandbuildingasinglefirmculturetothefore.GarrettBoutonstated:

Therewasdefinitelyan“usandthem”feelingaroundtheworld.TheBritishandtheAmericansdefinitelywereinkindofastandoff….AndthatwascomplicatedbythefactthattheBritishhadcomeintothisastheacquirers.Andtheyhadassumedthattheyweregoingtotelluswhattodo….SuddenlytheAmericanshadbeenempoweredtotellthemwhattodo…soitwasdoublyhardtotake.

BGIhadanumberofunderlyingcharacteristicsthathelpeditmeetthesevariouschallenges,andthefirmalsotookanumberofexplicit,plannedstepsthathelpedthemfurther.Oneattributethecompanyhadinitsfavorwasalongcultureandtraditionofactionorientationandself-reliance.Forinstance,wheninthepastthehumanresourcesfunctiondidn’thavethecapacitytodevelopanddeliversomebadlyneededtraining,“peopletooktrainingintotheirownhands,”saidDianeLumley.“Itbecame,let’sgetpeopletogetherfromdifferentareasandhavethemputonpresentationsforpeopleandwalkthemthroughtheinvestment

havethemputonpresentationsforpeopleandwalkthemthroughtheinvestmentprocess,ratherthanwaitingforsomebodyelsetodoitforyou.Peoplestartedtoorganizeontheirown.”DescribingtheintegrationofBarclays’assetmanagementbusiness,FredGrauernoted,“Alotofbusinessesfindthemselvesinsomesensebeingmoldedbythesequenceofevents.Theyarereactingtoeventsasopposedtodrivingevents.Andwewantedtocometogripswithourfuturebydrivingeventsasopposedtobeingdrivenbythem.”DianeLumleyconcurred,“It’slike,‘we’vegottoknowit,we’vegottodoit,it’sgottobedonebyFebruary.’So,youhadtochargeahead.”

Thisactionorientation,thisculturalcharacteristicofnotallowingtalktosubstituteforaction,helpedBGItoaddressissuesassoonastheyemerged.Becausepeoplewereusedtoactingandtakingresponsibility,theywerebetterabletomeetnewchallenges.Thiscultureofactionmeantthatpeopledidnotsitaroundwaitingtobetoldwhattodo,denyingthatissuesexistedorhopingthattheissueswouldsomehowdisappear.Thisactionorientationalsohadcosts.SeveralBGIpeopletoldusthatthedriveforactioncausedoccasionalproblemswhenpeopleworkedatcross-purposesordidnotcoordinatesufficiently.Butthiswasasmallpricetopayfortheabilitytoquicklyidentifyandaddressissues.

Anotherpartofthefirm’sculturalheritagethatserveditingoodsteadwasatraditionofexcellence.PeopleatalllevelsofBGIhadalwaysexpectedthehighestlevelsofeffortandperformancefromoneanother.Peopletalkedabouthavingtorecommitperiodicallytotheperformancedemandsofthecompany.Thisemphasisonexcellencewasaccompaniedbyclearviewsaboutthekindsofpeoplethefirmwantedtohireanddevelop.Thisclarityaboutwhatindividualqualitieswereimportant,whichincludedtheabilitytoworkcollaboratively,ledBGItohireforbothtechnicalskillsandculturalfit.WhenpeoplecametothefirmthroughanacquisitionortheBarclaysownershipchange,theyhadnotnecessarilysignedontotheculture,orthefirmtothem.So,BGIwas,inthewordsofBGIco-chairPattieDunn,“ruthless”inweedingoutpeoplewhowouldnotsignupforthecompany’svaluesandbusinessprinciples.GarrettBoutondescribedthefirm’scommitmenttoitscorevaluesandprinciplesandhowthataffecteditspersonneldecisions:

Oneofthethingswediscoveredwasthattherearecertainbasicthings—values,vision,thecultureofthefirm—thatarenotupfordiscussion.Youcandiscussitinthesenseofexplainingitandunderstandingit,butit’snotsomethingthatisgoingtobechanged.It’simportantforpeopletounderstandthat.WhenyoubecomepartofBGI,thisiswhatyouaresigningupfor….Andquitefrankly,

ofBGI,thisiswhatyouaresigningupfor….Andquitefrankly,we’vestillgotasmallhardcoreofourmanagingdirectorsthatstillarequestioningit….Soweareatthepointofsayingtothem,“Well,maybeit’sbestthatyougosomeplaceelse,becausethesethingsaren’tupfordiscussion.”

BGI’sclarityonvaluesandprincipleshelpedthecompanysortfairlyrapidlythroughpeoplewhofitandwhodidn’t.Itmadebothhiringandretentiondecisionseasier.Thisemphasisonvaluesandprincipleshadexistedforalongtime,soBGIhadgroomedalargeandinfluentialcoregroupwhosharedasetofinvestmentbusinessprinciples.Thesecorevaluescouldbetransmittedtoothersbecausetheywerewellunderstoodandhadstoodthetestoftime,helpedbindthegeographicallydispersedfirmtogether,andprovidedafoundationforthetaskofbuildingasingle,unified,globalfirm.Theculturalvaluesandsharedbusinessideasalsohelpedpeopledecidewhatwasimportantandwhatwasnot.

Anotherpositiveattributeofthefirmthathelpeditmeetthevariouschallengeswasthatitsleaderswereheldtothesamestandardsaseveryoneelse.BGI’sleadersconsciouslytriedtomodelbehaviorsthattheywereencouragingotherstodoandthattheybelievedwerecentraltothefirm’sculture.Thewelfareofthefirmcamefirst,beforeconsiderationsofegoorinternalcompetition.FredGrauer,whenhewaschairmanofthefirm,elevatedPatriciaDunntothepositionofco-chair.Thiswasdonevoluntarily,tostrengthentheseniorleadershipstructure,notbecauseofsomepressurefromthecorporateparent.Alltheevidencesuggeststhattheco-leadershipstructureworkedquitewell,asthetwoindividualshadcomplementaryskillsaswellasagreatdealofmutualrespectforeachother.

Thefirm’sleadershipwasalsocommittedtobuildingasenseofsecurityaswellashighperformanceexpectations.BGI’sleadersbelievedthatdrivingoutfear,especiallythefearoffailure,wascrucialtothecompany’slong-termsuccess.FredGrauerexplained:

Onehastobepreparedtoacceptcriticism….Onehastobeproactiveingettingattheproblems….Vulnerabilityispartofthetoolkitofleadership….Modelingthatbehaviorisimportant.It’sOKtobevulnerable.It’sOKtomakemistakes,anditstartsatthetop.Nobodygetsfiredaroundhereforbeingvulnerable.Itmakesyouapproachable.Thereislesspretenseinthewayinwhichpeopleinteract.Hopefully,thetimerequiredtogettotherealissue

peopleinteract.Hopefully,thetimerequiredtogettotherealissueisreduced.

Besideshavingsomeexistingcharacteristicsthathelpedit,seniorBGIexecutivesalsotookanumberofspecificactionstoleveragethecompany’scorecultureandcapabilitiestoproactivelyattackthethreechallengesthefirmfaced.Onethingtheydidwastoreducethenumberofjobtitles,changingfromalonglistoftitlessuchasseniorvicepresident,vicepresident,deputymanager,andseniordeputymanagertojustthreecorporatetitles:managingdirector,principal,andassociate.DianeLumley,thefirm’schiefofstaff,said,“Therewasalotofdebateaboutthis.Doyouhaveseniorprincipal,juniorprincipal,seniorassociate,andsoforth?Andwesaidwedidn’twanttomakethelinesbetweenpeoplemoreapparentthantheyalreadyare,andthosearethethreetitlesandpositions.”Byreducingthedistinctionsamongpeopleandhavingasfewstatuscategoriesaspossible,competitionforstatuswasdownplayedandthestructureemphasizedbuildingasharedidentitywithinthefirm.Peoplefelttheyhadasharedfate,thattheywereinittogether,andtherewaslessofafeelingofdifferenceacrossclassesorcategoriesofpeople.

Anotheractionthefirmtookwastobuildaglobalintranet,withahomepageforthetwoco-chairsofthefirm.Thiswasawayofsharinginformationacrosslargedistancesquickly.Thefirmalsostartedaquarterlynewsletter.BGIhadalwayshadmeetingstobringpeopletogether.Now,thefirmchangedthenumber,composition,andmostimportant,thecontentofwhatwasdiscussedinthemeetings.Allthemanagingdirectorscometogethertwiceayear.Therehadpreviouslybeenmanagingdirectormeetings,butthefocusofthediscussionchanged.GarrettBoutonstated,“Previously,weweretalkingaboutnewinvestmentideasandtalkingaboutwheretheindustryintheU.S.washeadedandthosetypesofthings.Now,we’retalkingaboutamuchdifferenttypeoftopic,organizationalandmanagementissues,organizationalculture,andwhatconstitutesgoodmanagement.”Managementissues,includingthecoreactivityofturningknowledgeintoaction,receivedmuchmorefocusattheseniorleadershiplevels.

BGIalsoformedamanagementcommitteeinJanuary1997.Thecommitteeisaglobalteam,withpeoplefromBGIofficesthroughouttheworld,thatmeetsinpersononceeachmonth.Theface-to-faceinteractionhashelpedtobuildrelationshipsandtodevelopastrongerfirmculture.Tofurtherencouragecommunicationthroughoutthefirm,GarrettBoutonsaid,“Weaskedthateachof

themembersofthemanagementcommitteehaveanexecutivecommitteeoftheirdirectreports.Andthatthosecommitteesmeetonaregularbasis,andthattheywoulddiscussthecriticalissuesfortheirbusinessorglobalfunctionsinawaythatempoweredthepeopleatthatleveltofeelasthoughtheywerereallypartofthemanagementteam.”Thisstructuralinnovationhelpedtoinvolvemorepeopleinthedecision-makingprocess.Itwascriticalforgettingpeoplethroughoutthefirmtorecognizeandacceptresponsibilityforsolvingthefirm’smanagementchallenges.

Finally,BGIhiredanoutsideconsultant,DavidZenoff,torunaseriesofworkshopstitled“ReachingforNumberOne.”Theworkshopsweredesignedtobringpeopletogetheraroundacommonlearningexperience,creatinganopportunityforthemtoconsiderotherbusinessexamplesandmodelsandalsotofocusonBGImanagementandleadershipissues.Thisexperiencewasremarkablysuccessfulinassistingintheorganizationaldevelopmentofthefirm.GarrettBouton,whosuggestedthiscourseofactioninthefirstplace,describedthevariousoutcomes:

Weneededtobringtheseniorteamtogether,asateam,asquicklyaspossible,tocreateafeelingofleadershipthroughoutthemanagementcommittee.Onceourmanagingdirectorshadcompletedthatcourse,theyweresayingthingslike“Thiswasalife-changingexperienceformeandIthinkitchangedmywholeattitudetowardsBGI.”

Therewereacoupleofcommonthreadsintheircomments.Onewasthatthemanagingdirectorshadn’treallyacceptedthattheywerethetopmanagementofthisfirm.Therewasstillanattitudethatifthingsweren’tgoingright,youlookforsomebodytoblame….AndIthinkthatwasoneofthemostimportantthingsthatcameoutofthis.Peopleatthetopofthefirmrealizedthat,infact,therewasnooneelsetopointat.Theyweretheoneswhowereresponsible,andtheyhadtomakeitwork….

Thesecondthingthatwasreallyimportantwasthat…weforcedanintegrationofpeoplefromaroundtheworld.Forthefirsttime,themanagementgroupbegantoreallyappreciateeachother’sviews,andtheywereforcedtositthereandlistentowhattheotherpeoplebelieved….Sowemanagedtocometogetherasaglobalteaminawaythatwasn’thappeningpreviously.

Thefirmthenimplementedasimilartypeofprogramfor160midlevelmanagersthefollowingyear.Animportantfeatureofthissecondprogramwasthemixingofpeoplefromdifferentoffices.Themodelwasatrainingprogramintwoparts,thefirstpartoccurringintheperson’shomecountryandthesecondinoneothercountryaroundtheworld.ThissenttheimportantsymbolicmessagethatallofficeswereimportantandthatBGIwasaglobal,notaU.S.-centric,firm.

BGIhasdoneanumberofotherthingstofacilitatetheintegrationofthedifferentofficesandtohelpbuildastrong,unifiedculture:

Thereisoneglobalbottomlineandoneglobalbonuspool.Peoplethereforehaveaneconomicinterestinhelpingtheentirefirmsucceedandinlearningenoughaboutotherofficesandotherdepartmentstodososuccessfully.

Thereisonereviewprocessusingthesamecriteriaandthesametimeframeforallpeoplearoundtheworld.

BGImovespeoplearoundalottootheroffices.Thisbeganalmostimmediatelyaftertheacquisitionandhascontinuedsincethattime.Thispracticehelpsbuildbetternetworksandsocialrelationsacrossthevariousoffices.

TheavailableevidencesuggeststhattheBGIinterventionswerequitesuccessful.Atthemostbasiclevel,BGIwasvaluedatmorethan$1.3billionwithinthreeyearsafterBarclayspurchaseditfor$400million,anextraordinaryreturn.Assignificant,voluntaryturnoverinthehighlycompetitiveassetmanagementbusinessactuallydeclined.Relationswiththevariousofficesaroundtheworldimproved.PeoplefromBarclayswereintegratedintoBGI,andBarclaysBankdevelopedagoodworkingrelationshipwiththeseniorleadership.TheBGIstoryisaboutbuildingaonefirmfirmandatrulyglobal,integratedbusiness.Itentailedbringingleaderstogethertodevelopacommonunderstandingofthebusinessasawhole,withtheintentofenablingpeopleinvariousfunctionsandofficestoworktogethermoreeffectively.Someeventsin1998illustratethesuccessofthiseffortandprovideconcreteevidenceofeffectiveintegrationofofficesandfunctions.

In1998,BGIspentsevenmonthspreparingfortheintroductionofthenewEuropeancurrency,theeuro,onJanuary1,1999.Thiswasalargeandimportantchallenge.JenniferCampbell,headoftheEuropeanEconomicandMonetary

challenge.JenniferCampbell,headoftheEuropeanEconomicandMonetaryUnion(EMU)teaminTokyo,notedthattheshifttotheeuroaffectedeverythingBGIdoes.“Whenyoulookattheassetsaffectedandtheinvestmentprocess,andcarrythroughtotakingtheorderfromtheclient,tothebroker,totradeoperations,totrustaccounting,toportfolioaccounting…it’sthefullinvestmentprocessonceyouanalyzewhereitreaches.”IntheSanFranciscoofficealone,theconversionprojectinvolved167funds,99clients,morethan900accounts,andaffected30systemapplicationsandmorethan15operationaldepartmentsthathadtomodifytheirprocedures.

Whentheconversiondatecame,itwas,accordingtoDianeLumley,“anon-event.Everythingworkedperfectly.Infact,wearealreadypreparedfortherestofthecurrencyconversionthatwilloccuroverthenextthreeyears.”Lumleynotedthatinthepast,thefirmhadfailedatlarge-scaleprojects.Shemaintainedthatthetremendoussuccessofthisprojectreflectedtheabilityofnumerousfunctionsandofficesofthefirmtoworktogethereffectively.Thiswasaconcreteindicatorofthesuccessofthetraining,themeetings,thecommunication,andalltheotherthingsthathadoccurredtoknitthefirmtogether.

Asecondeventthatdemonstratedtheeffectiveintegrationofthefirmoccurredduringtheearlyfallof1998.AstheAsianmarketsfell,alargeEuropeanclientofthefirmwantedtomove$500millionoutofJapanesemarketsandintoCanadaandAustralia.ThisactivityinvolvedstaffinLondon,Tokyo,SanFrancisco,Sydney,andToronto,workingacrossfivedifferenttimezonesandusingmultiplecomputersystems.“IttookabsoluteteamworkandpeoplewhoarealldedicatedtomakingBGIaglobalcompanytopullthisoff,”accordingtoSigneCurtis,seniorcontractofficerinSanFrancisco.Commentingonthistransaction,DianeLumleysaid,“Itneverwouldhavehappenedaseffectivelybefore,withoutadoubt.”Asyetanotherexample,thefirmdevelopedinvestmentproductsthatoutperformvariousindexesinthecountriesinwhichthefirminvests.Althoughoperatedoutofdifferentoffices,theproductsallusethesameinvestmentmodel.Again,peopleatBGIsaidthiswouldnothavebeenpossibleinthepast.

PerhapsthemostimportantindicatorofsuccessinmeetingthevariouschallengesBGIhadfacedwasthis:FredGrauer,aleaderinthefirmforyears,someonewhohadsopersonifiedthefirmthatanarticleaboutitinFortunehadfeaturedhispictureonthecover,resignedinthesummerof1998.Thefirmcontinuedwithoutmissingabeat,althoughpeoplewereobviouslysorrytoseehimstepdown.Theorganization’sabilitytoreadilyhandleanimportant

successionprovidesadditionalevidenceofthestrengthofitsmanagementpracticesanditsculture,builtthroughtheactionswehavedescribed.

TheBGIexampleis,firstofall,verymuchconcernedaboutturningknowledgeintoaction.Thefundamentalbusinessinvolvesturninginvestmentknowledgeintoproductsandservicesthataresoldinthemarketplace,turningknowledgeoftheoreticalfinanceintoinvestmentproductdevelopmentactions.Andthecaseillustrateshowmeetingchallengesreallyentailstheabilitytoactonknowledgeaboutwhattodo.Thechallengesfacingthefirmwere,atsomelevel,notunusualorarcane—growth,globalintegration,combiningtwodifferentfirmssuccessfully.Yetmanyfirmsfailatthesebasictasks.Howmanyfirmshavefailedatmanagingrapidgrowth?Howmanyfirmshavefailedtobuildaglobalorganization?Howmanyfirmshavefailedatmergerintegration?Unfortunately,probablymanymorehavefailedthanhavesucceeded.Thesefailurescomenotsomuchfromnotknowingwhattodothanfromnotdoingit.

ThinkaboutwhatBGIdid.Havingmeetingsandoffsitetraining,settingupbothstructuralandothermechanismstoenhancecommunication,beingclearaboutvaluesandprinciples,holdinghighperformanceexpectationsandadmittingmistakes,encouragingauthenticityandvulnerabilityininterpersonalinteractions—noneofthisisrocketscience.ThelessonsfromBGIarethatthesestraightforwardactionsareeffectiveandprovidetremendousleverageinbuildinganorganizationinwhichknowledgedevelopsandistransformedintoaction.ThespecificsofBGI’sactionsarenolessimportantbecausetheyappeartobesosimpleandstraightforward.Theyworked,andforgoodreasons.

TheNewZealandPost

BritishPetroleumfoundwaystoincreaseitsabilitytoleveragelearningandputknowledgeintoactionthroughoutageographicallydispersedfirm.BarclaysGlobalInvestorsuseditsaction-orientedcultureanditsskilledpeopletomeetsomedemandingchallenges.TheNewZealandPost,ourthirdcase,facedperhapsthegreatestchallengeofall—reinventingitselfasanessentiallyneworganizationwithmostlythesamepeoplewhohadbeenpartoftheoldorganization.Inthisprocess,thePosttookstepsthatofferadditionallessonsonhoworganizationscanturnknowledgeintoaction.Perhapsthemostimportantlesson,fromboththePostandBritishPetroleum,isthatyoudon’thavetonecessarilygetitrightfromthestart.Theseexamplesbothshowthatitis

possible,evenforlargeandratherbureaucraticorganizations,tomakebroadanddeepchangesinhowpeoplethinkandactdespitedauntingobstacles.

In1986,whenitwasstillagovernmentdepartment,theNewZealandpostalsystemlostabout$38million(thisandallsubsequentfiguresareinNewZealanddollars)andfacedtheprospectofcontinuinglossesintotheindefinitefuture.ThePostdeliveredonlyabout80percentofthemailwithinthetargeteddeliverytime.Asagovernmentdepartmentandanemployeroflastresort,thispostalsystemhadtoomanypeople,arcaneworkrules,acivilservicementality,andpoorrelationswithitscustomersanditsemployees.InApril1987,thePostbecameastate-ownedenterprise.Thischangemeantthatitwasnolongeragovernmentdepartmentbutwasacorporation,expectedtooperateefficientlyandtoearnmoneyforitsshareholders,inthisinstance,theNewZealandgovernment.

ThePost’stransformationinoperatingresultsisremarkableandprovidesadramaticbackdropasweconsiderwhatthefirmdidtoachievethissubstantialchange.Thestoryalsosuggeststhatprofoundorganizationaltransformationsneednottakealongtimetoaccomplish.In1991,justfouryearsafterbecomingastate-ownedenterpriseandbeginningtheprocessofchange,theNewZealandPostwasnamed“GovernmentEnterpriseoftheYear.”In1994,itwasnamedbytheDeloitte&ToucheaccountingandmanagementconsultingfirmandManagementmagazineasthe“CompanyoftheYear,”themostprestigiousbusinessrecognitionawardinNewZealand.Theseplauditsreflectedsubstantialimprovementsinnearlyeveryaspectofthefirm’soperations.

Bythemid-1990s,between97percentand99percentofthemail(dependingonthetypeofmail)wasdeliveredbythePostontime.Thisresultedinsome86percentofrespondentsinaquarterlysurveyreportingthattheyweresatisfiedwiththeservicetheyreceived.Inthemid-1990s,thecompanyimplementeda“QualityServicestandardthatrequiresatleast95%ofcustomerstowaitnolongerthantwominutesbeforebeingserved.”27Thecompanymeasuresperformanceonthisstandardandhasmostlyachieveditineverytransaction.

ThePost’sfinancialandoperatingresultswereequallyimpressive.Between1987and1995,thecompanydelivered30percentmoremail,hadachieveda30-percentreductioninrealunitcosts,andhadimproveditslaborproductivityby100percent.Thegainsinproductivitywereachievedinpartbyeliminatingpositionsthatweren’tneeded.Employmentwascutfromabout12,500atthetimeofthechangeinthegovernancestructureto8,700peopleinthemid-1990s.Thecompanybecameprofitablealmostimmediately,earning$72millioninits

firstyear.In1995,thecompanyearnedapproximately16percentontotalassetsandinexcessof30percentonshareholder’sequity.AndthePostaccomplishedtheseoutstandingfinancialresultswhiledecreasingthepriceofastampandbecomingamongthemostefficientpostalsystemsintheworld.Forinstance,in1994itcost45NewZealandcentstomailastandardfirst-classletterinNewZealand.Comparablefigures(inNewZealandcurrency)were52centsintheUnitedStates,57centsinAustralia,65centsintheUnitedKingdom,70centsinFrance,and105centsinJapan.28Sincethattimethecomparisonswithotherpostalsystemshavegrownmorefavorable,asNewZealandhasnotraisedpostageratesintheinterim.

TheoperatingprinciplesusedbythePostduringitstransformationincludedasimultaneousfocusoncommonsenseandsimplicityandnotrelyingonprecedent,orevenwhatotherpostalsystemsdid,whenthoseactionscontradictedcommonsenseandsimplicity.Forexample,almosteverypostalsystemintheworldpricesmailbyweight,andsodidtheoldNewZealandpostalservice.TheNewZealandPostanalyzedthispracticeandfoundthat(1)ifaletterdidnothaveenoughpostage,thecompanycouldeitherreturnittothesenderortrytocollectthepostagedue,butbothoftheseactivitieswerecostly;and(2)thebiggestdeterminantofthecostsoftransportingaletterwasnottheweightoftheletterbutthesizeoftheenvelope—bulkwasamorecriticalcostfactorthanweight.SothePosteliminatedweight-basedchargesandinsteadintroducedthreepostalratesbasedonthesizeoftheletterorpackage.

ThePostalsodefiedconventionalwisdomandcommonpracticebytakingovernearlyallofitstransportationinfrastructure,includingplanesandtrucks.Virtuallyeveryotherpostalsystemintheworldcontractsoutatleastsomepart,andinsomeinstancesalmostall,ofthedeliverytask,suchascarryingmailbyplane.NewZealandisacountrythathasmanyplacesthataredifficulttoreachandthatfrequentlyhasstormyweather.ThePostfoundthatwhenitsmailwascarriedoncommercialflights,suchflightswereoftenlateandoccasionallycancelledduringpoorweather.Lateflightsmadeschedulingmailcenteroperationsdifficult,andcancelledflightsmeantdelaysindeliveringthemail,especiallyexpressmail.SothePost’sexecutivesdecidedthattomeetitsservicecommitments,thecompanywouldbuilditsowntransportationsystem.In1994,thefirmhad600vans,100trucks,andinajointventurewithAirworkNewZealand,ownedthreeMetrolinersandtwoFriendshipF-27aircraftandleasedtwootherplanes.29Thisinvestmentinbuildingitsowntransportation

infrastructurenotonlyhelpedthePostmeetitsservicedeliverytargets,butalsodemonstratedtoitsunionthatevenatatimeofemploymentretrenchment,thePostwoulddothingstogrowemploymentwhenthoseactivitiesmadesenseinlightofthefirm’smission.

ThePostmademanyotherchangesinitsoperations.Itinstituteda“clearfloor”policyandredesignedpostalstationsandmailsortingcenterssothatleftovermailwouldbevisibletoallemployees.Thepolicystatedthatattheendofashift,allofthemailshouldbesortedordelivered—inotherwords,thatnothingshouldbelefttobedonebythenextshift.Itchangedtheschedulingofpeopletoputthemonfixed,ascontrastedwithrotating,shifts.Thischangehelpedemployeeretentionandlaborrelations,becauserotatingshiftsmakeadjustingone’slifestyletoaccommodateworkingdifferenthoursalmostimpossible.ThePostimplementedwhatwereessentiallyleanmanufacturingoperationspractices,reducingbuffersandemphasizinginvolvingpeopleinenhancingoperationsefficiency.Thecompanycontinuallysoughtwaystorationalizetheprocessofprovidingpostalservicetoreduceitscosts,allthewhilemaintainingacommitmenttooutstandingcustomerservicesoitcouldbuilditsmarket.

ButperhapsthemostimportantchangesthePostmadewereinitsmanagementpractices.Inaspeechgivenin1989,HarveyParker,thePost’smanagingdirectoratthetime,stated:

Thetransformationfromanunprofitablegovernmentdepartmenttothecost-conscious,dynamic,customer-orientedandprofitmakingenterprisetheNewZealandPosthasbecomerequired,andcanlargelybecreditedto,significantchangesinmanagementstyleandpractices….Anewdecentralizedstyleandformofmanagementwasinstituted,vestingaccountabilityforoperationaldecisionsandresourcesatalocalmanagementlevel,attheclosestpointtothecustomer.30

ThePostiscommittedtorecruitingoutstandingtalent.Tobestaccomplishthisobjective,recruitingislocalized.Individualmanagersineachlocationgettocontrolthehiringprocess,notsomecentralhumanresourcesfunctionthatmaynotbeasfamiliareitherwiththespecificjobsorwithlocallabormarketcircumstances.Thefirmpayscompetitivelyandoffersperformance-based

incentives.Ithaspositive,collaborativerelationswithitsunion.Aspartofthatcollegialrelationship,informationaboutallaspectsofthecompany’sbusinessplansandoperationsissharedwiththeunionandwithallofthepeopleinthecompany.ThePostiscommittedtoimplementingthebestbusinesspracticesitcanandtothatendengagesinextensiveeducationalanddevelopmentalactivities,usingresourcesbothinNewZealandandthroughouttheworld.ThePostaccomplishedaradicaltransformationinashortperiodoftimewithaworkforce,includingmanagers,whoforthemostparthavespenttheirentirecareersintheorganization.Itdidthisbyrethinkingeverythingandrelyingoncommonsenseandbusinessjudgment,notonprecedentorwhatotherfirmsweredoing.HarveyParkerexplained:

Localmanagerswereveryquicklygivenauthoritytohire,promoteanddisciplinetheirownstaffandalsoclearaccountabilitiesformanaging,developingandrecognisingstaffperformanceandforcommunicatingthecompany’sbusinessdirectionstotheirteams.

IndecentralizingPersonneldecisionsitwasnotmerelyacaseofchangingtheresponsibilitylevelsofthepoliciesusedbytheNZPO….TosupportachievementofNewZealandPost’sbusinessgoalsandeffectrealchangeinitsstaffmanagementpracticesacompleterethinkwasrequired—thestartpointwasablankpage.31

Staffreductionsweremadehumanelyinwaysthatdecreasedratherthanmagnifiedfear.32Peoplecouldvolunteertoleave,andsomewhothePosthadintendedtokeepleftsothatotherscouldstay.Thecompanyofferedgenerousseverancebenefits.Peopleleftwithdignity.Therewereparties,andpeoplehadanopportunitytosaygood-bye.Mostimportant,thereductionsinforcewereaccomplishedquicklyandwithplentyofnotificationandopendiscussionaboutwhatwasoccurringandwhy,gettingthepainoverandpermittingtheorganizationtofocusonfuturegrowthanddevelopment.

ThePostalsoencourageditsmanagerstoexperimentandinnovateinbuildinghigh-performanceworkarrangements.Ithaschangeditsorganizationalstructurefrequently,bothtomakesubstantiveimprovementsandtoforestallpeoplefrombecomingentrenchedinexistingroutines.Managersfromthroughoutthefirmmeetregularlytoexchangeideas.ElmarToime,thecurrentmanagingdirector,hasencouragedopeningmoreofthefirm’smarketstoexternalcompetitionasawayofcontinuingtoencouragepeopleatthePostto

externalcompetitionasawayofcontinuingtoencouragepeopleatthePosttoimproveperformance.Inaspeechin1995,hemadethefollowingpointsaboutthePost:

Weputapremiumonhighproductivityandperformance.Itjustifiedtherestructuringwehavecarriedoutovertheyears,withalltheattendantpainpeoplehavewithstood.Wewishtokeeppricesdown,sothatwecanencouragevolumegrowth…

Oneofourchallengesiscopingwithsuccess….Ourprofitabilitythisyearwillbetterthatoflastyear,eventhoughwereducedsomepricessignificantly….Competitionwillkeepusattheleadingedge…Itisnotthatwearearrogantaboutcompetition.Wearejustfiredup.33

ThelessonsfromtheNewZealandPostcaseareconsistentwiththoseoftheothercases.Theessentialelementsforturningknowledgeintoactionarenotcomplex.Don’tgetstuckinthepast.Thiswasacompanythatmadeafreshstartandthatreexaminedeverypolicyandpracticetoseeifitmadesense.Whenitdidn’t,thePostchanged,regardlessofthepastorwhatotherpostalsystemsweredoing.Don’tbeafraidtodowhatyourmanagersthinkisbest,evenifitgoesagainstconventionalwisdom.ThePosthassoughtderegulation,eschewedoutsourcing,andactivelyinvolveditslaborunionsinthetransformationprocess—noneofthesedecisionsfittingthemold.Involvepeoplesothat,justasintheBritishPetroleumandBGIcases,thefirmgetsthebenefitofalloftheknowledgeandskillinsideitand,moreimportant,sothatpeoplearemotivatedtohelpeachother.

Noneofthesefirms,ortheotherswehavedescribedinthisbook,isperfect.Theyallhavethingstheycandobetter.Theymakemistakes.Theyfacereversalsoffortune.Theyare,afterall,human,fallibleentities.Nevertheless,thesethreeexamplesoffersomeimportantlessonsaboutturningknowledgeintoaction.And,ifnothingelse,theyshouldhelpconvinceyouthatitispossibletodoso,eveninlargeorganizationsthatmustbreakwiththepast.

8 TurningKnowledgeintoAction

WEHAVESEENTHATTHEknowing-doinggapisapervasiveandimportantproblem.Organizationalperformanceoftendependsmoreonhowskilledmanagersareatturningknowledgeintoactionthanonknowingtherightthingtodo.Knowledgeandinformationareobviouslycrucialtoperformance.Butwenowliveinaworldwhereknowledgetransferandinformationexchangearetremendouslyefficient,andwheretherearenumerousorganizationsinthebusinessofcollectingandtransferringbestpractices.So,therearefewerandsmallerdifferencesinwhatfirmsknowthanintheirabilitytoactonthatknowledge.Itiswidelyrecognizedthatmanyfirmshavegapsbetweenwhattheyknowandwhattheydo,butthecauseshavenotbeenfullyunderstood.HarlowCohen,thepresidentofaCleveland,Ohio,consultingfirm,hascalledthisgapbetweenknowinganddoingtheperformanceparadox:“Managersknowwhattodotoimproveperformance,butactuallyignoreoractincontradictiontoeithertheirstrongestinstinctsortothedataavailabletothem.”1

Ourresearch,reportedinthisbook,hasuncoveredasetofunderstandableandoftencontrollablefactorsthathelpaccountfortheknowing-doinggapandwhysomeorganizationssufferfromitmorethanothers.Recognizingthesecauses,andseeingexamplesoffirmsthatarebetterabletoimplementtheirknowledge,canhelpfirmsinwhichthereisenoughmotivationtoovercometheseproblems.But,asthefollowingexampleillustrates,knowledge—evenofwhyknowledgemaynotbeimplemented—isnotalwaysenough.

Inthesummerof1998,oneofusgaveaworkshoptoagroupofexecutivesfromtheretailindustry.Thetopicwashigh-performancemanagementpractices

fromtheretailindustry.Thetopicwashigh-performancemanagementpracticesandputtingpeoplefirst—asubjectofobviousimportanceinaserviceindustrywhereserviceisstilllargelydeliveredbypeople.Sears,inanexamplediscussedpreviouslyinthisbook,dramaticallyimproveditsfinancialresultsbyfirstdiscoveringthatemployeeattitudesinfluencedturnover,whichinturnaffectedcustomersatisfaction.Customersatisfactioncandirectlyaffectstoresalesandprofitability.ThecompanythenactedonthisunderstandingbytakingactionsthatmadeSearsamorecompellingplacetoworkandshop.Financialperformanceimprovedsubstantially.

Attheendoftheseminar,amanagerfromMacy’s,thedepartmentstorechain,cameupand,afterrecountinghowusefulshefeltthemorninghadbeen,describedalltheobstaclestoactuallyimplementinganyoftheideasshehadheard.TheCEO,shesaid,hadnointerestinorappreciationforthepeopleaspectsoftheoperation.Whenhecametothestores,allhewantedtodowastoseethemerchandiseandthedisplays.Sometimeshewouldn’tevenmeetwithmanypeopleinthestoresorsayhellotothemashewalkedthrough.And,inadditiontotheleadership’semphasisonmerchandising,alltheassessmentsandmeasurementsofthestoresandstoreperformancewerestrictlybytheaccountingnumbers.Therewasnomeasurementofemployeeattitudes,customersatisfaction,orcustomerretention.ThismanageraskedhowshecouldpossiblygetMacy’stofocusonpeople,thedatafromSearsandotherstudiesintheserviceindustrynotwithstanding?Therewasnotreallymuchtosay.Shortofachangeintopmanagementandmassivechangesincultureandworkpractices,suchachangedidnotseempossible.

Then,walkingtothecar,weencounteredagroupofexecutivesfromTraderJoe’s,aprivatelyowned,rapidlygrowing,andhighlyprofitable$1billionretaileroffooditems,particularlywineandgourmetitems.Thecompanylocatesinterestingfoodsandwines,negotiatesagoodprice,andoffersthemerchandisetothepublicthroughadvertisementsandbygettingcustomerstoreturntothestorestoseewhat’snewandtasty.TraderJoe’sislocatedprimarilyontheWestCoast,butithasrecentlybegunasignificantexpansionintheEast.Althoughthecompanyhadalreadyimplementedmanyaspectsofahigh-performanceworkenvironment,andhaddonesosinceitsfounding,fourexecutivesfromthefirmhadattendedtheseminarand,lookingveryserious,hadtakennotesandduringlunchsattogetherandtalkedtoeachother.Passingtheircar,wemadepoliteconversation.“Ihopeyouenjoyedandbenefitedfromtheday,”wesaidtooneexecutive.Thisexecutivewasstillquiteseriousashepointedtoapersontalkingonacellulartelephone.“Seehim.He’stalkingtocorporateheadquarters.

Althoughwedoalotofwhatyoutalkedabout,wehavenotdoneasgoodajobaswecaninsharinginformationwithourassociatessotheycanbetterservethecustomersandunderstandthebusiness.Duringthedaywegotsomeideasfromwhatyouweretalkingabout.He’sonthephonenowtellingpeoplewhatwelearned.ItwillbeimplementedbyMonday[thetalkwasonaTuesday].”

Sothereitis:Atoneorganization,weseeafutilestruggletoturnknowledgeintoaction,anattitudeofdefeatalmostattheoutset,andasenseofresignationthatthepastwillbecarriedintothefuture—eventhoughtherearepeopleinthefirmwhoknowwhatneedstobedone.Atanotherorganizationweseethatknowledge—newandold—isturnedintoactionwithanimmediacythatisstartling.Whichonewouldyoubeton?

EightGuidelinesforAction

Aswenotedattheoutset,therearenosimpleanalysesoreasyanswersfortheknowing-doingproblem.Theproblemisnotjustcosts,orleadership,orsomesingleorganizationalpracticethatcanbechangedtoremedytheproblem.Theknowing-doinggaparisesfromaconstellationoffactorsanditisessentialthatorganizationalleadersunderstandthemallandhowtheyinterrelate.Nonetheless,therearesomerecurringthemesthathelpusunderstandthesourceoftheproblemand,byextension,somewaysofaddressingit.

1.WhybeforeHow:PhilosophyIsImportant.WhyhasGeneralMotorsinthepasthadsomuchdifficultylearningfromSaturnorNUMMI?WhyhaveexecutivesfromsomanyfirmstouredToyota’sfacilitiesbutfailedtocomprehendtheessenceoftheToyotaProductionSystem?WhyhavesofewfirmscopiedTheMen’sWearhouse,SASInstitute,WholeFoodsMarket,AES,PSS/WorldMedical,KingstonTechnology,orthemanyothersuccessfulfirmsthatpeoplereadabout,visit,butthenfailtolearnfrom?Onereasonisthattoomanymanagerswanttolearn“how”intermsofdetailedpracticesandbehaviorsandtechniques,ratherthan“why”intermsofphilosophyandgeneralguidanceforaction.SkipLeFauvewaspresidentofSaturnformuchofitshistoryandisnowinchargeofGeneralMotorsUniversity.ThisinternaluniversityisexpectedtotakethelessonsfromSaturnandthebestpracticesandknowledgefromthroughoutthecompanyanddiffusethemthroughoutGM.LeFauvesaidthisaboutlearningthelessonsfromSaturn:

themthroughoutGM.LeFauvesaidthisaboutlearningthelessonsfromSaturn:

It’saprocess,it’snotananswer.IthinkalotofpeoplegotmisledwhentheystartedtostudySaturn.Theythoughtitwasananswer,when,infact,it’sfundamentallyaprocessyoucouldusewhetheryouaregoingtofrychickensormakecars.Theprocessisfoundedinthisfocusonpeopleandtheirneedtounderstandbeforetheycandoit.Andthethingthatcameoutofitwasthisfocusonleadershipteaching.Whenyoucameintotheorganization,thefirstthingtheleadersdidwastointroducethemselvestoeveryonewhocameintothecompany.And,theleaderstaughtthenewpeoplewhotheleadersareandwhatourphilosophiesare,whatourbackgroundwas,andwhatwehopedwewouldbeabletoachieve.Welaidthephilosophicalbase.That’sthefirstthingyougetwhenyoujoinSaturn.

Ican’ttellyouhowmanypeoplefromGeneralMotorswhocametoSaturnandsaid,“I’vebeenwithGeneralMotorsfor25yearsandIhavenevermetaplantmanager,letalonethepresidentofthecompany.”SoIwouldtellthemthattheirinputisimportant.Thattheyhavearesponsibilitytounderstand,sothatwhentheydosomething,they’llunderstandnotonlywhattodobutwhytheyaredoingit.Ifyoudon’tunderstandhowandyouaskquestions,it’sokay.Thisisalearningorganization,andtheleaderswillteach.2

Saturn,Toyota,Honda,IDEOProductDevelopment,AES,theSASInstitute,TheMen’sWearhouse,andmanyoftheotherorganizationswehavediscussedbeginnotwithspecifictechniquesorpracticesbutratherwithsomebasicprinciples—aphilosophyorsetofguidelinesabouthowtheywilloperate.AEShasasetoffourcorevalues—fun,fairness,integrity,andsocialresponsibility—thatguideitsbehavior.Italsohasasetofcoreassumptionsaboutpeoplethatittriestoimplementinitsmanagementapproach:thatpeople(1)arecreative,thinkingindividuals,capableoflearning;(2)areresponsibleandcanbeheldaccountable;(3)arefallible;(4)desiretomakepositivecontributionstosocietyandlikeachallenge;and(5)areuniqueindividuals,deservingofrespect,notnumbersormachines.3SASInstitutehasaphilosophyoftreatingeveryonefairly,equally,andwithtrustandrespect—treatingpeopleinaccordancewith

thefirm’sstatedbeliefintheirimportancetotheorganization.TheMen’sWearhousephilosophycomesfromfounderGeorgeZimmer’sbackground:“He’dgrownupinthemid-sixtiestoearlyseventies…andwasdefinitelyinterestedinalternativeformsofsocialorganization.”4Zimmerbelievesverystronglythatthereistremendousuntappedhumanpotentialandthatitishiscompany’sjobtohelppeoplerealizethatpotential.“Whatcreateslongevityinacompanyiswhetheryoulookattheassetsofyourcompanyastheuntappedhumanpotentialthatisdormantwithinthousandsofemployees,orisittheplantandequipment?…IfyouaskmehowImeasuretheresultsofmytrainingprogram,Ican’t.Ihavetodoiton…trustinthevalueofhumanpotential.”5ThatiswhyZimmerhasstatedthatthecompanyisinthepeoplebusiness,notthesuitbusiness.

Thesefirmslearnandchangeanddothingsconsistentwithimplementingtheirgeneralprinciplestoenhanceorganizationalperformance.Operatingonthebasisofageneralbusinessmodelortheoryoforganizationalperformance,asetofcorevalues,andanunderlyingphilosophypermitstheseorganizationstoavoidtheproblemofbecomingstuckinthepastormiredinineffectivewaysofdoingthingsjustbecausetheyhavedoneitthatwaybefore.Theydon’tletprecedentormemorysubstituteforthinking.Noparticularpractice,inandofitself,issacred.Whatisconstantandfundamentalaresomebasicbusinessandoperatingprinciples.Consequently,thesefirmsareabletolearnandadapt,tocommunicatewithnewcomersandacrosslargegeographicdistances,andtodosoinwaysconsistentwiththeirbasicunderstandingofwhatcreatessuccessandhighperformanceintheirparticularbusiness.

2.KnowingComesfromDoingandTeachingOthersHow.Inaworldofconceptualframeworks,fancygraphicspresentations,and,ingeneral,lotsofwords,thereismuchtoolittleappreciationforthepower,andindeedthenecessity,ofnotjusttalkingandthinkingbutofdoing—andthisincludesexplainingandteaching—asawayofknowing.RajatGupta,managingdirectorofMcKinseysince1994,hadthistosayabouttheimportanceofapprenticeshipandexperienceindevelopingleadershipwithinthefirm:“Thenotionofapprenticeshipandmentoringisthatyoulearnbyobservation,learnfromdoingtogetherwithsomeonewho’sdoneitbefore….You[also]learnalotwhenyou’rethrownintoasituationandyoudon’thavealotofhelp.”6Tom

Lasorda,aseniorexecutiveatGeneralMotors,saiditwell:

Wherewegofromanawarenessstagetoarealknowledgeiswherewehaveproblems.Weareawareofit[forinstance,standardizedworkorleanmanufacturing]butwedon’thavetheknowledgebecausewe’veneverhadtoteachitorimplementit.AndIseethat’sahugegap,wherepeopledon’tengageinthelearningprocessbyteaching.AndwherecompaniesaredoingthatIthinkweareseeingfargreaterresultsonanoperationallevel.Becausenowyouunderstandit.You’recommittedbecauseyou’reteachingit,andyou’recoachingpeopleintheimplementation.7

Teachingisawayofknowing,andsoisdoingthework,tryingdifferentthings,experimenting.AsDavidSunofKingstonTechnologysaid,“Ifyoudoit,thenyouwillknow.”Honda’semphasisonputtingpeoplewheretheycouldseetheactualpartandtheactualsituationreflectstheideathatseeingandtouching,beingcloselyinvolvedintheactualprocess,isimperativeforrealunderstandingandlearning.

Thenotionthatlearningisbestdonebytryingalotofthings,learningfromwhatworksandwhatdoesnot,thinkingaboutwhatwaslearned,andtryingagainispracticedwithreligiouszealatIDEOProductDevelopment,thelargestandmostsuccessfulproductdesignconsultingfirmintheworld.CEODavidKelleylikestosaythat“enlightenedtrialanderroroutperformstheplanningofflawlessintellects.”Asintheotheraction-orientedfirmswestudied,Kelleydoesn’tjusttalkaboutthevirtuesoflearningthroughtrialanderror.TheyliveitatIDEO.AsengineerPeterSkillmanputsit,“Rapidprototypingisourreligion.Whenwegetanidea,wemakeitrightawaysowecanseeit,tryit,andlearnfromit.”Kelley,Skillman,andmanyothersatIDEOalsoregularlyteachclassestomanagers,engineers,andartistsinwhichtheyexplaintheirphilosophyandhavestudentsenactitbydesigning,building,demonstrating,andpitchingtheirinventionstoothers.

Whatanout-of-fashionidea—beinginproximitytowhatyouarelearning,usingexperienceasateacher,learningbydoingandteaching!Weliveinaneraofdistancelearning.WehavecompaniesthatsellCD-ROMSsothatpeoplecanlearnthingsalonebyinteractingwiththeircomputers.Wehaveaplethoraofseminarsinwhichpeoplesitandlistentoideasandconcepts.Wehumanbeingscanlearnsomethingsthoseways—mostlyspecificcognitivecontent.Butmany

canlearnsomethingsthoseways—mostlyspecificcognitivecontent.Butmanythings,aboutorganizations,operations,andpeople,canonlybelearnedbyfirsthandexperience.Thetangible,physical,materialaspectsofknowledgeacquisitionandknowledgetransfer,learningbydoing,learningbycoachingandteaching,arecritical.Aseniorexecutiveinchargeofthequalityinitiativeatalargefinancialservicesinstitutiondescribedthatfirm’sevolutiontounderstandingtheimportanceoflearningthroughexperience:

Whenwestartedout,weprobablydidn’tdoourtrainingright.Wediditthewaywehadallbeentaught….Ifyouhavefactstotransmit,youstandupandtransmitfacts.Thenyousay,“whatareyourquestions,”andyoudialoguearoundthequestionsandclosethebook.Attheend,youassumepeoplewillgooffanddosomethingwithit.That’sjustdeadwrong.Andsowecombinedtheexperientiallearningwithsomeofthetextbooklearning.Andthetraininggotalittlebetter….Whatreallymattersisifyoucangetateamtogetheraroundabusinessprocessthattheythinkisreallyimportantintheirbusinessandhavethemparticipateinactivitiesthatshowthemwhatthesetools[ofthequalityprocess]areabout.

Knowingbydoingis,unfortunately,alesscost-efficientwayoftransmittingknowledge.ThereislessabilitytoleveragetheInternetortoputlotsofpeopleinalargeroomwithoneinstructor,whichare,unfortunately,themodesofinstructionatmostbusinessschoolstoday.Butboththeevidenceandthelogicseemclear:Knowingbydoingdevelopsadeeperandmoreprofoundlevelofknowledgeandvirtuallybydefinitioneliminatestheknowing-doinggap.

3.ActionCountsMoreThanElegantPlansandConcepts.Anumberofyearsago,TomPetersandRobertWatermantalkedaboutthevirtuesofa“ready,fire,aim”8approachtorunningorganizations.Wehaveseenthatthisprincipleofactingevenifyouhaven’thadthetimetofullyplantheactionhastwoadvantages.First,itcreatesopportunitiesforlearningbydoing.Withouttakingsomeaction,withoutbeingintheactualsettingandconfrontingtheactual“part,”learningismoredifficultandlessefficientbecauseitisnotgroundedinrealexperience.Second,theideaof“firing”andthen“aiming”—ordoingandthenplanning—helpstoestablishaculturaltonethatactionisvalued

andthattalkandanalysiswithoutactionareunacceptable.GregBrenneman,theCOOofContinentalAirlinesandoneofthearchitects

ofitssuccessfulturnaround,attributedtheturnaroundtoanactionorientation:“Ifyousitarounddevisingelegantandcomplexstrategiesandthentrytoexecutethemthroughaseriesofflawlessdecisions,you’redoomed.WesavedContinentalbecauseweactedandweneverlookedback.”9Inaworldwheresoundingsmarthastoooftencometosubstitutefordoingsomethingsmart,thereisatendencytoletplanning,decisionmaking,meetings,andtalkcometosubstituteforimplementation.Peopleachievestatusthroughtheirwords,nottheirdeeds.Managerscometobelievethatjustbecauseadecisionhasbeenmadeandtherewasdiscussionandanalysis,somethingwillhappen.Aswehaveseen,thatisoftennotthecase.

Althougharchitectsliveintheworldofplans,WalterGropius,oneofthetwentiethcentury’sgreatestarchitects,assertedthatbeingactionoriented,ratherthanjustenamoredwithplansandtheories,wascrucialtosuccessinhisoccupationalso:

Ihavefoundthroughoutmylifethatwords,andparticularlytheoriesnottestedbyexperience,canbemuchmoreharmfulthandeeds.WhenIcametotheU.S.A.in1937,IenjoyedthetendencyofAmericanstogostraighttoapracticaltestofeverynewbornidea,insteadofsnippingoffeveryshootbyexcessiveandprematuredebateoveritspossiblevalue.10

AwhileagoweworkedwiththeWorldBankasitwastryingtotransformitsculture.Oneoftheproblemsthebankfacedwasasetofhumanresourcepoliciesandpracticesthatclashedwiththeculturethebankthoughtitwantedandthatitneededtoimplementtofulfillitsevolvingroleintheworldeconomy.Sothebankembarkedonanefforttochangethosepractices.Butwhatthisparticularchangeeffortlargelyentailed,andthiswastrueinmanyotherinstancesofchangeinthebank,waspreparingawhitepaperlayingoutoptions,providingrationales,talkingaboutimplementationplans,andprovidingsupportingdata.Thewhitepaperonhumanresourcepracticeswasthencritiquedbyseniorofficialsandrevisedonthebasisofthosecritiques.Andtheprocesscontinued—analysis,writing,critique,andrevision.Therewasgreatconcerntoproduceanoutstandingpaperabouthumanresourcepoliciesandpractices,butmuchless

concernwithactuallymakinganychanges.Thissortofprocesscamenaturallyinanenvironmentofpeoplewithadvanceddegreeswhohadlearnedtowritejournalarticlesinpreciselythisway—write,getcomments,revise,andproduceyetanotherdraft.Butbehaviorthatmaybeusefulforwritingarticlesinscientificjournalscanbequiteunproductivefororganizationstryingtochange.Inthetimeittookthepeopleatthebanktoanalyze,document,propose,andrevisedescriptionsofpossiblechangestomanagementpractices,theycouldhaveimplementedmanyactualchanges,learnedwhatworkedandwhatdidnotandwhy,andcouldhavemaderevisionsbasedonthatexperiencenumeroustimes.

4.ThereIsNoDoingwithoutMistakes.WhatIstheCompany’sResponse?Inbuildingacultureofaction,oneofthemostcriticalelementsiswhathappenswhenthingsgowrong.Actions,eventhosethatarewellplanned,inevitablyentailtheriskofbeingwrong.Whatisthecompany’sresponse?Doesitprovide,asPSS/WorldMedicaldoes,“softlandings”?Ordoesittreatfailureanderrorsoharshlythatpeopleareencouragedtoengageinperpetualanalysis,discussion,andmeetingsbutnottodoanythingbecausetheyareafraidoffailure?

WarrenBennisandBurtNanusdefinedlearningasanextensionofthewordtryingandassertedthat“alllearninginvolvessome‘failure,’somethingfromwhichonecancontinuetolearn.”11Theyproposedageneralruleforallorganizations:“Reasonablefailureshouldneverbereceivedwithanger,”whichtheyillustratedwiththefollowingstoryaboutThomasWatsonSr.,IBM’sfounderandCEOformanydecades:

ApromisingjuniorexecutiveofIBMwasinvolvedinariskyventureforthecompanyandmanagedtoloseover$10millioninthegamble.Itwasadisaster.WhenWatsoncalledthenervousexecutiveintohisoffice,theyoungmanblurtedout,“Iguessyouwantmyresignation?”Watsonsaid,“Youcan’tbeserious.Wejustspent$10milliondollarseducatingyou!”12

AtAES,thereisacultureofforgiveness,inkeepingwiththefirm’svaluesandbeliefs.RogerSant,oneoftheco-foundersandcurrentlythechairmanofthe

company,noted,“Youwouldbeamazedathowquicklypeoplesupportandforgiveoneanotherhere.”DennisBakke,theotherco-founderandcurrentCEO,commented,“Itisokaytomakemostmistakes.Weareallhuman.It’spartofAES’svaluestoacceptmistakes,aslongaspeopleownuptothem.”13

5.FearFostersKnowingDoingGaps,SoDriveOutFear.Fearinorganizationscausesallkindsofproblems.GregBrenneman,COOofContinentalAirlines,noted:“Pressureandfearoftenmakemanagersdoerratic,inconsistent,evenirrationalthings.”14Nooneisgoingtotrysomethingnewiftherewardislikelytobeacareerdisaster.Theideaofrapidprototyping—tryingthingsouttoseeiftheyworkandthenmodifyingthemonthebasisofthatexperience—requiresacultureinwhichfailureisnotpunishedbecausefailureprovidesanopportunityforlearning.ClaytonChristensen,aprofessoratHarvardBusinessSchool,hassaid,“Whatcompaniesneedisaforgivenessframework,andnotafailureframework,toencouragerisktakingandempoweremployeestobethinkingleadersratherthanpassiveexecutives.”15Fearproducessentimentslikethefollowing,whichweoftenhearwhenweteachexecutivesabouthigh-performanceworkculturesandaskwhytheirfirmsdon’timplementtheseideas:“Wemaynotbedoingverywell,butatleastourperformanceispredictable.And,noonehasgottenfiredfordoingwhatwe’redoing.Sowhyshouldwetrysomethingnewthathasriskinvolved?”

Thatiswhyfirmsthatarebetterabletoturnknowledgeintoactiondriveoutfear.Theydon’tgoonmissionstofindwhohaserred,butratherattempttobuildculturesinwhicheventheconceptoffailureisnotparticularlyrelevant.LivioDeSimone,MinnesotaMiningandManufacturing’sCEO,commented:“Wedon’tfinditusefultolookatthingsintermsofsuccessorfailure.Evenifanideaisn’tsuccessfullyinitially,wecanlearnfromit.”16Suchfirmsputpeoplefirstandactasiftheyreallycareabouttheirpeople.Iftheyhavetoomanypeople—astheNewZealandPostdidorasContinentalAirlinesdidwhenitbeganparingbackitsroutes—thosewhoareredundantaretreatedhumanely,withdignityandrespect.AtContinental,manymanagershadcomeinunderFrankLorenzo,CEOandhostiletakeoverking.Manyofthesemanagerswerereplacedbecausetheydrovefearinratherthanoutoftheorganization,clashingwiththenewculture.Asrouteswererestructured,otherpeoplehadtoleave.But,“cleaninghouseneedn’tbeabrutalorhumiliatingexperience….Ifyoufirepeopleinhumanely,

you’llbeleftwithabunchofemployeeswhodon’ttrustthecompanyortheircoworkers.”17

Puttingpeoplefirstanddrivingoutfeararenotjustideastobeimplementedwhentimesaregood.Youcandownsize,youcanevencloseafacility,butdoitinawaythatmaintainsemployeedignityandwell-beingand,asaconsequence,productivityandperformance.ThepeopleattheNewcastleSteelworksoftheAustralianfirmBHPlearnedinApril1997thattheworkswouldhavetobeclosed.TherewasovercapacityinsteelmakingwithinBHPandthisparticularplantrequiredexcessivecapitalformodernization.Extensiveevidencesuggeststhat“atleasthalfoftheplantsfacingclosureexperiencebetweenlimitedtoextremeproductivitylosses.”18AcasestudyoftheNewcastleplant,however,revealedthatinthetimeaftertheclosingannouncement,theplantenjoyedhigherproductivity,betterquality,andbettersafety.Whydidthisoccur?Theplantmanagementdidanumberofthingsright,manyofthesamethingsthatLeviStraussdidwhenitimplementedtheplantclosingswedescribedinChapter4.Oneofthemostimportantwastomakeandkeepacommitmenttolookaftertheemployees.ThecompanyimplementedaprogramcalledPathways,“astructuredsetofinitiativesaimedatassistingemployeesbothtodecidetheirfuturedirection(path)afterleaving…andtoreceiveintensivesupporttoachieveit.”19Thatprogram,coupledwithopencommunicationandlotsofemployeeandunioninvolvement,createdanatmosphereoftrustandmutualrespect.Ifthissuccessinbothperformanceandmaintainingemployeemoraleandspiritcanbeachievedunderthedifficultanddemandingexperienceofaplantclosure,thinkwhatcanbeachievedundermorefavorablecircumstancesbyorganizationscommittedtobuildingaworkplaceinwhichpeoplearen’tafraidofthefuture.

Fearstarts,orstops,atthetop.Itisunfortunate,buttrue,thataformalhierarchygivespeopleatthetopthepowertofireorharmthecareersofpeopleatlowerlevels.Fearofjoblossreflectsnotonlytherealityofwhetherornotonecanreadilyfindanotherjob,butalsothepersonalembarrassmentthatanyformofrebukecauses.Organizationsthataresuccessfulinturningknowledgeintoactionarefrequentlycharacterizedbyleaderswhoinspirerespect,affection,oradmiration,butnotfear.JimGoodnight,CEOofSASInstitute,hasamodestandunassumingpersonalstylethatincludesdrivingastationwagontowork,sittinginanofficewiththedooropen(hehasachairinfrontofthedoor,soit’snotevenclearitcouldbeclosed),dressinginformally,andtakingeveryopportunitytospeakinformallytopeopleinthecompany.HerbKelleherofSouthwest

AirlinesisnotoriousforhisanticssuchasdressingupasElvis,EthelMerman,orCorporalKlingerfromM*A*S*H,attendingpartieswithhispeople,andtakingopportunitiestotalktoeveryoneinthecompanyhesees.DennisBakkeofAESlikestovisitpowerplantsandtalktooperatorsinthemiddleofthenight.GeorgeZimmerofTheMen’sWearhouseattendsmorethan30Christmaspartiesandalsoseizeseveryopportunitytovisitthestores,anormthatthecompanyencouragesforallofitsleadership.

Hierarchyandpowerdifferencesarereal.Butfirmscandothingstomakepowerdifferenceslessvisibleand,asaconsequence,lessfear-inducing.Thisispossiblyoneofthereasonswhyremovingstatusmarkersandothersymbolsthatreinforcethehierarchycanbesousefulandimportant.Thosesymbolsofhierarchyserveasremindersthatthosefartherdownhavetheirjobs,theirsalaries,andtheirfutureswithinthefirmmostlyatthesufferanceofthoseinsuperiorpositions.Althoughtosomeextentthisisalwaystrue,removingvisiblesignsofhierarchy—thingssuchasreservedparkingspaces,privatediningrooms,elaborate,separateoffices,differencesindress—removesphysicalremindersofadifferenceinhierarchicalpowerthatcaneasilyinspirefearamongthosenotinthehighest-levelpositions.

6.BewareofFalseAnalogies:FighttheCompetition,NotEachOther.Cooperationhassomehowdevelopedabadreputationinmanyorganizations.Collaborative,cooperativeorganizations,wherepeopleworryaboutthewelfareofeachotherandthewholeinsteadofjustthemselves,seemtoremindsomepeopleofsocialism.Yet,cooperationmeansthat“theresultistheproductofcommoneffort,thegoalisshared,andeachmember’ssuccessislinkedwitheveryother’s….Ideasandmaterials,too,willbeshared,laborwillsometimesbedivided,andeveryoneinthegroupwillberewardedforsuccessfulcompletionofthetask.”20Thereisamistakenideathatbecausecompetitionhasapparentlytriumphedasaneconomicsystem,competitionwithinorganizationsisasimilarlysuperiorwayofmanaging.Thisisnotjustasloppyuseofanalogies,buthasrealconsequencesthathurtrealpeopleandrealorganizations.Followingthissuspectlogic,firmsestablishallsortsofpracticesthatintensifyinternalrivalry:forced-curveperformancerankings,prizesandrecognitionforrelativelyfewemployees,raisesgivenoutinazero-sumfashion,andindividualrewardsandmeasurementsthatsetpeopleagainsteachother.

Wehaveshownthattheseideasandthepracticestheyproducealmostcertainlyundermineorganizationalperformanceaswellasemployeewell-being.BritishPetroleumenjoyedaturnaroundinthe1990sbecauseitencouragedbusinessunitstolearnfromeachotherandhadseniorleadersthatworkedtobuildacultureofcooperationthatmadedoingsopossible.TheMen’sWearhousehassucceededinsellingclothesbyemphasizingteamsellingandthefactthatemployeessucceedonlyastheircolleaguessucceed.“Thecustomerdoesn’tcareaboutwhogetsthecommission.Allheremembersisthestore’satmosphere.That’swhyweuse‘teamselling.’Onewardrobeconsultantcanofferthecustomeracupofcoffee;anothercanoffertopresshisclothingwhilehe’sinourdressingrooms;andanothercantakehiskidstowatchthevideoswekeepinsomeofourstores.”21OneofthereasonsthatSASInstitute’sturnoverissolowisthatpeopleactuallypreferworkinginaplacewheretheydon’thavetoalwayslookovertheirshouldertoseewhoisdoingthemin.Incontrast,learningwithinFreshChoice,particularlyfollowingtheZoopaacquisition,wasinhibitedbythecompetitionforinternalstatusandrelatedfeelingsofinsecurityandfearfulness.LearningwithinGeneralMotorswassimilarlyhamperedbyunproductiveinternalcompetitionthatleftpeoplereluctanttolearnfromeachotherortosharetheirknowledgewithinternalcompetitors.

Thereisalsomuchevidencethatpeopleprefercollaborativeandcooperativeworkarrangements.Forinstance,astudyof180peoplefromfiveorganizationsfoundthat“employeeswithcompatiblegoalshadhighexpectations,exchangedresources,andmanagedconflicts.Cooperativeinteractionsimprovedtheworkrelationship,employeemorale,andtaskcompletion.”22JohnF.Donnelly,thepresidentofDonnellyMirrors,noted:

Peoplecangetsatisfactionfromagroupeffortaswellasfromindividualeffort.Thisisagoodthingforbusiness,becauseinanindustrialorganizationit’sgroupeffortthatcounts….Youneedtalentedpeople,buttheycan’tdoitalone.Theyhavetohavehelp.23

Turningknowledgeintoactioniseasierinorganizationsthathavedrivenfearandinternalcompetitionoutoftheculture.Theideathatthestressofinternalcompetitionisnecessaryforhighlevelsofperformanceconfusesmotivationwithcompetition.Itisaperspectivethatmistakesinternalcompetitionand

conflict,accompaniedbyafocuson“winning”internalcontests,foraninterestinenhancingorganizationalperformanceandwinningthebattleinthemarketplace.

7.MeasureWhatMattersandWhatCanHelpTurnKnowledgeintoAction.“Thefoundationofanysuccessfullyrunbusinessisastrategyeveryoneunderstandscoupledwithafewkeymeasuresthatareroutinelytracked.”24Butthissimplenotionisfrequentlyignoredinpractice.Organizationsproliferatemeasures.“MarkGrahamBrown,aperformance-measurementconsultantbasedinLosAngeles,reportsworkingwithatelecommunicationscompanythatexpecteditsmanagerstoreview100to200pagesofdataaweek.”25Thereadilyavailablecomputerhardwareandsoftwarethatmakedatacaptureandanalysiseasyalsomakeithardtoresistthetemptationtoconfusedatawithinformationandtomeasuremoreandmorethings.

Thedictumthatwhatismeasurediswhatgetsdonehasledtotheapparentbeliefthatifacompanymeasuresmorethings,morewillgetdone.Butthatisnotatallthecase.SouthwestAirlinesfocusesonthecriticalmeasuresoflostbags,customercomplaints,andon-timeperformance—keystocustomersatisfactionandthereforetosuccessintheairlineindustry.AESfocusesonplantutilization(uptime),newbusinessdevelopment,andenvironmentalandsafetycompliance,thefactorsthatarecriticaltosuccessintheelectricpowergenerationbusiness.SASInstitutemeasuresemployeeretention,importantinanintellectualcapitalbusiness.Afewmeasuresthataredirectlyrelatedtothebasicbusinessmodelarebetterthanaplethoraofmeasuresthatproducealackoffocusandconfusionaboutwhatisimportantandwhatisnot.

Organizationstendtomeasurethepast.Typicalinformationsystemscantellyouwhathashappened—howmuchhasbeensold,whatcostshavebeen,howmuchhasbeeninvestedincapitalequipment—butthesystemsseldomprovideinformationthatishelpfulindeterminingwhyresultshavebeenastheyhaveorwhatisgoingtohappeninthenearfuture.Wesitintoomanymeetingsinwhichtoomuchtimeisspentdiscussingwhathasoccurredbuttoolittletimeisspentondiscussingwhyor,moreimportant,whatisgoingtobedonetocreateadifferentandbetterfuture.

Organizationstendtomeasureoutcomesinsteadofprocesses.Weknowwhatthequalityofouroutputis,butwedon’tknowwhyitissogoodorsobad.Oneoftheimportantlessonsofthequalitymovementistheimportanceofmeasuring

oftheimportantlessonsofthequalitymovementistheimportanceofmeasuringprocessessothatprocessimprovementispossible.Aswesaw,whenGeneralMotorsbecamemoreseriousaboutimplementingleanorflexiblemanufacturing,attentionswitchedtoenhancingmeasuresofintermediateoutcomesandin-processindicators.

Evenfewerorganizationsmeasureknowledgeimplementation.Typicalknowledgemanagementsystemsandprocessesfocusinsteadonthestockofknowledge,thenumberofpatents,thecompilationofskillsinventories,andknowledgecapturedonoverheadsorreportsandmadeavailableoversomeformofgroupware.Holdingasidewhetherthesesystemsevencapturethetacit,experientialknowledgethatisprobablymoreimportantthanwhatcanbeeasilywrittendown,suchsystemscertainlydon’tcapturewhetherornotthisknowledgeisactuallybeingused.Organizationsthatareseriousaboutturningknowledgeintoactionshouldmeasuretheknowing-doinggapitselfanddosomethingaboutit.

8.WhatLeadersDo,HowTheySpendTheirTimeandHowTheyAllocateResources,Matters.ThedifferencebetweenBarclaysGlobalInvestors,IDEO,orBritishPetroleuminthelate1990sandthemanyorganizationsthathavegreaterdifficultyinturningknowledgeintoactionisnotthatonesetoffirmsispopulatedbysmarter,better,ornicerpeoplethantheother.Thedifferenceisinthesystemsandtheday-to-daymanagementpracticesthatcreateandembodyaculturethatvaluesthebuildingandtransferofknowledgeand,mostimportant,actingonthatknowledge.Leadersofcompaniesthatexperiencesmallergapsbetweenwhattheyknowandwhattheydounderstandthattheirmostimportanttaskisnotnecessarilytomakestrategicdecisionsor,forthatmatter,manydecisionsatall.Theirtaskistohelpbuildsystemsofpracticethatproduceamorereliabletransformationofknowledgeintoaction.WhenDennisBakkeofAESsaysthatin1997heonlymadeonedecision,heisnotbeingcuteorfacetious.Heunderstandsthathisjobisnottoknoweverythinganddecideeverything,butrathertocreateanenvironmentinwhichtherearelotsofpeoplewhobothknowanddo.Leaderscreateenvironments,reinforcenorms,andhelpsetexpectationsthroughwhattheydo,throughtheiractionsandnotjusttheirwords.

WhenDaveHouseleftInteltobecomeCEOofBayNetworks,acompanythatwasexperiencingextremelypoorperformance,heknewhehadtochangetheexistingcultureanddosoquickly.Thecompanysufferedfromitscreation

throughamergeroftwocompetitors,SynopticsandWellfleetCommunications,twofirmsofaboutequalsize,oneheadquarteredontheEastCoastandoneontheWest.Followingthemerger,thecompanyhadtriedtotakeonthebestproductsandideasofbothcompanies,butwhathadresultedwasproductproliferationandslowdecisionmakinginarapidlymovingmarket.“Bayengineerswereworkingontwiceasmanynewproductsasthecompanyhadtheresourcestoship.”26WhatHousedidwascreateasetofcoursestoteachbusinesspracticeshebelievedcouldhelpthecompany,andHousetaughtmanyofthesessionshimself.Byactuallydeliveringthematerial,Houseshowedhewasseriousabouttheideasandaboutmakingchangehappen.LarryCrook,Bay’sdirectorofgloballogistics,describedtheimpactofHouse’strainingsessions:“Theyblewmymind….Heshowedusthathewasseriousabouthowweconductedourselves—andthatifwewantedtobesuccessful,wehadtogetdowntobasics.”27

SkipLeFauvetoldusthattheCEOofGeneralMotorsteachesinGMUniversity,reinforcingtheimportanceoftheknowledgebuildingandsharingactivity.DavidKearns,whenhewasCEOatXerox,appliedqualityprinciplestothetopmanagementteamasheencouragedtheirimplementationthroughoutthecompany.Forinstance,heandhiscolleaguesthoughtaboutwhotheircustomerswereandrealizedthattheseweremanagersoneandtwolevelsbelowwholookedtothemforadviceandforstrategicdirection.SoKearnsinstitutedpracticestogatherinformationonhowwelltheseniorleadershipwasactuallyhelpingexecutivesbelowthemtodotheirjobs.

TheremarkablesuccessoftheproductdevelopmentfirmIDEOisnotsimplybecausethefirmhassomehowbeenabletoattract“better”designers.Itssuccessisdependentinlargemeasureonasetofmanagementpracticesthatcomefromaphilosophythatvaluesan“attitudeofaction”andtheimportanceoflearningbytryingnewthings.Forinstance,DavidKelleybelievesthat,evenwhenadesignerknowsalotaboutaproduct,thereareadvantagesintryingtofeelandact“stupid.”Bypretendingtobenaïveandasking“dumb”questions,andeventryingtodesignsolutionsthatareknowntobewrong,productdesignerscanovercomethehazardsofbeingtooknowledgeable.TheabilityofproductdesignersatIDEOtothinkandactinthisfashioncomesfromthefactthatthisishowKelleyhimselfbehavesandfromhiseffortstocreateconsistentnormsformanagementbehaviorthroughoutthecompany.

KnowingabouttheKnowingDoingGapIsNotEnough

Wenowhaveabetterunderstandingofsomeoftheorganizationalprocessesandfactorsthathindereffortstoturnknowledgeintoaction.Butevenifwedounderstandsomethingmoreaboutwhyorganizationsfailtoturnknowledgeintoaction,theseinsightsareinsufficienttosolvetheproblem.Knowingabouttheknowing-doinggapisdifferentfromdoingsomethingaboutit.Understandingcausesishelpfulbecausesuchunderstandingcanguideaction.Butbyitself,thisknowingisinsufficient—actionmustoccur.

Wehaveprovidednumerousexamplesbothoftheknowing-doingproblemandofpossibleremediestoaddressitscauses.Wehaveprovidedalotoftalk.Nowitisuptoyouandyourcolleaguestoturnthisknowledgeintoaction—tonotjustread,thinkabout,anddiscusstheinterestingissuesinvolvedinthedifferencebetweenknowinganddoing,buttotakeactiontodosomethingaboutthisimportantandpervasiveproblem.Ifyoutakeactiontoturnknowledgeintoaction,youwilllearnevenmoreabouttheknowing-doinggap.Wehopeyouwillshareyourknowledgeandinsights,gainedfromexperience—alwaysthebestteacher—withusandwithothers.

Appendix:TheKnowingDoingSurvey

TheUnderlyingIdea

THEIDEABEHINDTHISsurveyissimple.Companyleadersoftenhaveanaccurateviewofwhatmanagementpracticesaremostimportantforachievingsuccess,aviewdevelopedonthebasisofexperience,reading,training,anddiscussionswithconsultantsandotherindustryparticipants.Eventhoughleadersknowwhatneedstobedonetoaffectperformance,theymayberelativelyuninformedabouttheextenttowhichthisknowledgeisactuallybeingimplementedintheactionsoccurringinthecompany.Identifyingthegapsbetweenwhatleadersknowshouldbedoneandwhatisactuallygoingoninthecompanyprovidesanagendaforaction.Infact,wemaintainthatoneofthebestwaystoevaluatetrainingeffortsistomonitorovertimetheextenttowhichthisgapbetweenknowinganddoingisreduced.Ifitisn’treduced,thenthetrainingisn’taccomplishingmuch.

Althoughthereareobviouslysurveys,suchastheGallupWorkplaceAudit,thatmeasuregeneralemployeeattitudesandopinionsandhaveresultsthatarerelatedtoperformancemeasures,suchsurveysoftenhavetwoproblems.First,theymeasureattitudesandotheroutcomesratherthanmanagementpractices,soitishardtoknowwhat,specifically,tochangetoimprovesurveyresults.Second,oneofthestrengthsofthesesurveysisalsotheirweakness:Implementedacrossawiderangeofcompaniesandindustries,theyarenecessarilyquitegeneralinthequestionsasked.

Ourrecommendationsarestraightforward:Askaboutspecificmanagement

Ourrecommendationsarestraightforward:Askaboutspecificmanagementpracticesandbehaviors,totheextentpossible,andtailorthequestionstothespecificcompanyandindustrycontexttoreflectwhatleadersbelieveisrelatedtoperformance.Askknowingquestionsofseniormanagement.Askdoingquestionsofseniormanagementandpeoplethroughoutthefirm.Thenmeasurethegapsbetween(1)whatseniorleadersknowandwhattheythinkishappening,(2)whatseniorleadersthinkishappeningandwhatpeopleintheorganizationreportisgoingon,and(3)whatseniorleadersthinkaffectsperformanceandwhatisactuallyoccurringinthecompany.Thesethreegapsarelikelytoaffectperformance—firmsthatdon’timplementwhattheyknowwillperformlesswellthanthosethatdo.

TheitemslistedbelowcomefrominterviewsintherestaurantindustryfortheresearchthatwereportedinChapter1.Althoughtheitemsalsoreflectgeneralmanagementpractices,yourcompanywillwanttoaddanddeleteitemstoreflecttheenvironmentinwhichyouoperate.Themainideaistoask(1)whatpeoplebelieveaffectsperformance,and(2)whatisactuallygoingoninthecompany.

TheSurvey

Thissurveyofrestaurantmanagerswaspartofatelephoneinterview,whichincludedcompletingaformthatcontainedknowingordoingquestionsandfaxingitbacktotheinterviewer.Wereadthefollowinginstructionstothemanagersfortheknowingsurvey:

NowIwouldlikeyoutolookatthefollowingpracticesandconsidertowhatextentyouagreeordisagreethateachoneisimportantfortheperformanceofyourrestaurant.First,pleasegothroughthelistandmarkwitha1thepracticesyoustronglydisagreewith(i.e.,thepracticeisnotatallimportantfortheperformanceofyourrestaurant).Next,pleasereviewthelistagain,thistimelabelingwitha6thepracticesyoustronglyagreeareimportanttoyourrestaurant’sperformance.Finally,pleaseusetherestofthescale(2–5)toratetheremainingpracticesaccordingtotheextenttowhichyouagreeordisagreethattheyareimportantfortheperformanceofyourrestaurant.

Wereadthefollowinginstructionstothemanagersforthedoingsurvey:

Wereadthefollowinginstructionstothemanagersforthedoingsurvey:

NowIwouldlikeyoutolookatthefollowingpracticesandconsidertowhatextentyouagreeordisagreethateachonedescribeswhatactuallyoccursinyourrestaurant.First,pleasegothroughthelistandmarkwitha1thepracticesyoustronglydisagreewith(i.e.,thepracticeisnotemployedinyourrestaurant).Next,pleasereviewthelistagain,thistimelabelingwitha6thepracticesyoustronglyagreeareusedinyourrestaurant.Finally,pleaseusetherestofthescale(2–5)toratetheremainingpracticesaccordingtotheextenttowhichyouagreeordisagreethattheyoccuratyourrestaurant.

Bothknowinganddoingquestionswereratedonthefollowingscale:

1StronglyDisagree

2Disagree

3DisagreeSomewhat

4Agree

Somewhat

5Agree

6StronglyAgree

Thefollowingitemswereratedwiththeabovescaleforboththeknowingandthedoinginterview,andwerefaxedbacktotheinterviewer:

1. Restaurantmanagementsetshighbutrealisticgoalsforemployeeperformance

2. Sharinginformationaboutyourrestaurant’sfinancialperformancewithallyouremployees

3. Managersinyourrestaurantgettinggoodideasfromotherrestaurantsinthechain

4. Trainingemployeestodoeachother’sjobs(“cross-training”)

5. Adetailedassessmentprocessforhiringnewemployees

6. Workinginteams

7. Anactivesuggestionprogram

8. Themanagersinyourrestaurantprotectitfromunproductivecorporatepracticesandpolicies

9. Postingalljobopeningsinternally

10. Devisingcontestsandotherpromotionstomotivateyouremployees

11. Reducingin-housetraininginresponsetopooreconomicconditions

12. Usingpeerevaluationsofmanagers’performance

13. Themanagersinyourrestaurantknowwhichcorporateresourcestouse—andwhichtoignore—toenhancefinancialperformance

14. Gettinggoodideasfromcustomers

15. Restaurantmanagementprovidesemployeeswithfrequentfeedback

16. Trainingemployeestounderstandthecompany’soperations

17. Managersinyourrestauranttalkopenlyaboutlearningfromtheirownmistakes

18. Payingbelowthemedianforsimilarjobsinyourarea

19. Allowingyouremployeestochangehowtheirworkisdonewithoutpriormanagementapproval

20. Managersinyourrestaurantalwaysonthefloorhelpingemployeeswhenthey’re“intheweeds”

21. Restaurantmanagementhasboththeresponsibilityforyourunit’sfinancialperformanceandtheauthoritytomakechangesdeemednecessarytoimproveit

22. Employeesinyourrestaurantgettinggoodideasfromotherrestaurantsinthechain

23. Corporateredtapehinderingrestaurantmanagementwhenittriestoimplementnewideas

24. Themanagersinyourrestaurantmakeitafunplacetowork

25. Selectingemployeesonthebasisoftheirfitwiththe[companyname]culture

Notes

Chapter1

1BlurbBuddies,FastCompany,December1998,54.2RobertG.EcclesandNitinNohria,BeyondtheHype(Boston:Harvard

BusinessSchoolPress,1992).3MarkZbaracki,“TheRhetoricandRealityofTotalQualityManagement,”

AdministrativeScienceQuarterly43(1998):602–636.4BlurbBuddies,54.5“Electra:AnElectricalUtilityNotReadyforDeregulation”(unpublished

paper,June1998).6MorganW.McCallJr.,MichaelM.Lombardo,andAnnM.Morrison,The

LessonsofExperience(Lexington,MA:LexingtonBooks,1988),19.7Ibid.8See,forinstance,JeffreyPfeffer,TheHumanEquation:BuildingProfitsby

PuttingPeopleFirst(Boston:HarvardBusinessSchoolPress,1998);DepartmentofLabor,OfficeoftheAmericanWorkplace,HighPerformanceWorkPracticesandFirmPerformance(Washington,DC,August1993);MarkA.Huselid,“TheImpactofHumanResourceManagementPracticesonTurnover,Productivity,andCorporate

FinancialPerformance,”AcademyofManagementJournal38(1995):635–672;andBrianE.BeckerandMarkA.Huselid,“HighPerformanceWorkSystemsandFirmPerformance:ASynthesisofResearchandManagerialImplications,”ResearchinPersonnelandHumanResourceManagement16(1998):53–101.

9JohnT.DunlopandDavidWeil,“DiffusionandPerformanceofHumanResourceInnovationsintheU.S.ApparelIndustry,”workingpaper,HarvardUniversity,Cambridge,MA,15December1994.SeealsoJohnT.DunlopandDavidWeil,“DiffusionandPerformanceofModularProductionintheU.S.ApparelIndustry,”IndustrialRelations35(July1996):334–355.

10See,forinstance,JohnPaulMacDuffie,“HumanResourceBundlesandManufacturingPerformance:OrganizationalLogicandFlexibleProductionSystemsintheWorldAutoIndustry,”IndustrialandLaborRelationsReview48(1995):197–221.

11FritsK.PilandJohnPaulMacDuffie,“TheAdoptionofHigh-InvolvementWorkPractices,”IndustrialRelations35(1996):434.

12Forafurtherdiscussionofthisissue,seePfeffer,HumanEquation.13“TheFastTrackIsWheretoBe,IfYouCanFindIt,”Fortune,20July

1998,152.14W.BruceChew,TimothyF.Bresnahan,andKimB.Clark,“Measurement,

Coordination,andLearninginaMulti-plantNetwork,”workingpaper,HarvardBusinessSchool,JapanManagementAssociation,Boston,MA,1986.

15RichardRicketts,“SurveyPointstoPracticesthatReduceRefineryMaintenanceSpending,”OilandGasJournal,4July1994,38.

16DeoneZell,ChangingbyDesign:OrganizationalInnovationatHewlett-Packard(Ithaca,NY:ILRPress,1997),56.

17QuotedinCarlaO’DellandC.JacksonGrayson,“IfOnlyWeKnewWhatWeKnow:IdentificationandTransferofInternalBestPractices,”CaliforniaManagementReview40(spring1998):154.

18Ibid.,155.19AndrewHargadon,“FirmsasKnowledgeBrokers,”California

ManagementReview40(spring1998):209–227.

20See,forinstance,KevinFriebergandJackieFrieberg,Nuts!SouthwestAirlines’CrazyRecipeforBusinessandPersonalSuccess(NewYork:BardPress,1996).

21LeonMann,DannySamson,andDouglasDow,“AFieldExperimentontheEffectsofBenchmarkingandGoalSettingonCompanySalesPerformance,”JournalofManagement24(1998):82.

22Ibid.,92–93.23Ibid.,93.24JohnPaulMacDuffieandSusanHelper,“CreatingLeanSuppliers:

DiffusingLeanProductionthroughtheSupplyChain,”CaliforniaManagementReview39(summer1997):118–150.

25Ibid.,138.26RobertE.Cole,“Introduction,”CaliforniaManagementReview40(spring

1998):16.27ThomasA.Stewart,“Knowledge,theAppreciatingCommodity,”Fortune,

12October1998,199.28DonCohen,“TowardaKnowledgeContext:ReportontheFirstAnnual

U.C.BerkeleyForumonKnowledgeandtheFirm,”CaliforniaManagementReview40(spring1998):23.

29DouglasHarper,WorkingKnowledge:SkillandCommunityinaSmallShop(Chicago:UniversityofChicagoPress,1987).

30“TheRealMeaningofOn-the-JobTraining,”LeadertoLeader(fall1998):61.

31TheConferenceBoard,HRExecutiveReview5,no.3(1997):3.32SamuelGreengard,“HowtoMakeKMaReality,”Workforce,October

1998,90.33SamuelGreengard,“Storing,ShapingandSharingCollectiveWisdom,”

Workforce,October1998,84.34ConferenceBoard,6.35CoreyBillington,interviewbyAndrewHargadonandRobertSutton,Palo

Alto,California,July1996.36Cohen,“TowardaKnowledgeContext,”24.

37IkujiroNonakaandNoboruKonno,“TheConceptof‘Ba’:BuildingaFoundationforKnowledgeCreation,”CaliforniaManagementReview40(summer1998):40–41.

38AlexTaylorIII,“HowToyotaDefiesGravity,”Fortune,8December1997,100–108.

39Ibid.,102.40MacDuffieandHelper,“CreatingLeanSuppliers,”123.41DavidCastelblanco,MichelKisfaludi,andGaganVerma,“DoIt,ThenYou

WillKnow”(GraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,4June1998).

42JohnPaulMacDuffie,“TheRoadto‘RootCause’:Shop-FloorProblem-SolvingatThreeAutoAssemblyPlants,”ManagementScience43(April1997):492.

43RichardPascale,“Fight.Learn.L*E*A*D,”FastCompany,August1996,65.

44McCall,Lombardo,andMorrison,LessonsofExperience,19.45See,forinstance,MelvinKonner,BecomingaDoctor:AJourneyof

InitiationinMedicalSchool(NewYork:Penguin,1984).

Chapter2

1WeheardDavidKelleysaythisataspeechhegavetoagroupofexecutivesattheGraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,inJuly1996.Hetoldusthathehasmadethisargumenttodozensofothergroupsofexecutivesinspeecheshehasmadeinthepastfewyears.

2GeorgeW.BohlanderandMarshallH.Campbell,“Problem-SolvingBargainingandWorkRedesign:MagmaCopper’sLabor-ManagementPartnership,”NationalProductivityReview12(1993):531.

3LeonardA.SchlesingerandAmyB.Johnson,“XeroxCorporation:LeadershipThroughQuality(A),”Case490-008(Boston:HarvardBusinessSchool,1989).

4Ibid.,10–11.

5Ibid.,10.6ToddD.Jick,“XeroxCorporation:LeadershipThroughQuality(B),”Case

492-045(Boston:HarvardBusinessSchool,1992),3.7Ibid.,1.8ToddD.Jick,“XeroxCorporation:LeadershipThroughQuality(C),”Case

492-046(Boston:HarvardBusinessSchool,1992),2.9See,forinstance,JamesC.CollinsandJerryI.Porras,BuilttoLast:

SuccessfulHabitsofVisionaryCompanies(NewYork:HarperBusiness,1994);CharlesA.O’ReillyandJenniferA.Chatman,“CultureasSocialControl:Corporations,Cults,andCommitment,”inResearchinOrganizationalBehavior,vol.18,ed.BarryM.StawandLarryL.Cummings(Greenwich,CT:JAIPress,1996),157–200;andChristopherKennethBartandMarkC.Baetz,“TheRelationshipBetweenMissionStatementsandFirmPerformance:AnExploratoryStudy,”JournalofManagementStudies35(November1998):823–853.

10EileenShapiro,FadSurfingintheBoardroom(Reading,MA:Addison-Wesley,1995),15.

11“CaseAnalysis:FinancialAnalystProgram”(GraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,June1998).

12MichaelSantoli,“Electrifying,”Barron’s,4January1999,23.13HenryMintzberg,TheRiseandFallofStrategicPlanning(NewYork:Free

Press,1994),134.14See,forinstance,RichardD.ArveyandJamesE.Campion,“The

EmploymentInterview:ASummaryandReviewofRecentResearch,”PersonnelPsychology35(1982):281–322;B.M.Springbett,“FactorsAffectingtheFinalDecisionintheEmploymentInterview,”CanadianJournalofPsychology12(1958):13–22;andDavidJ.Schneider,AlbertJ.Hastorf,andPhoebeC.Ellsworth,PersonPerception(Reading,MA:Addison-Wesley,1979).

15TeresaAmabile,“BrilliantbutCruel:PerceptionsofNegativeEvaluators,”JournalofExperimentalSocialPsychology19(1983):146–156.

16See,forinstance,R.F.Bales,InteractionProcessAnalysis(Cambridge,MA:Addison-Wesley,1951);andBernardM.Bass,Bassand

Stogdill’sHandbookofLeadership,3rded.(NewYork:FreePress,1990),particularlypages90–94.

17RandallCollins,“OntheMicroFoundationsofMacroSociology,”AmericanJournalofSociology86(1981):984–1013.

18GeorgeMaclayandHumphreyKnipe,ThePeckingOrderinHumanSociety(NewYork:DelacortePress,1972),97.

19RobertReid,“TheBattleforAir,”chap.5inYearOne:AnIntimateLookInsidetheHarvardBusinessSchool(NewYork:AvonBooks,1994);seealsoPeterRobinson,SnapshotsfromHell:TheMakingofanMBA(NewYork:WarnerBooks,1994).

20SteveMariucci,keynotespeechgivenatErnst&Young’sNorthernCaliforniaEntrepreneuroftheYearAwardBanquet,SanFrancisco,California,28June1998,notestakenbyauthors.

21C.WrightMills,TheSociologicalImagination(NewYork:OxfordUniversityPress),218.

22JohnPaulMacDuffieandSusanHelper,“CreatingLeanSuppliers:DiffusingLeanProductionthroughtheSupplyChain,”CaliforniaManagementReview39(summer1997):147.

23AndreMillard,EdisonandtheBusinessofInnovation(Baltimore:JohnsHopkinsUniversityPress,1990).Edisonissometimesportrayedasanineffectivemanagerbecauseahighpercentageofhislab’sinventionswerenotcommercialsuccessesandmanyofthecompaniesbasedonindividualtechnologiesdevelopedinhislaboratoriessubsequentlywentoutofbusiness.MillarddisputesthisstereotypeofEdisonbecause,overall,Edison’sinventionsmademoneyandhecontinuedtoattractnumerousinvestorstosupporthisoperations.MillardassertsthatEdison’scriticsmissthepoint—ahighfailurerate,punctuatedbyanoccasionalgreatsuccess,isendemicinorganizationsbasedonnewtechnologies.Mostoftheideasthatcomeoutofmodernresearchanddevelopmentlabsarenotcommercialized.Onlyaminorityofthefirmsfundedbyeventhemostsuccessfulventurecapitalistsarefinanciallysuccessful.AsMillardimplies,criticssometimesconfusebusinessesinwhichitisdifficulttosucceedwithoutahighfailureratewithbadmanagement.

24JeffreyPfeffer,“SASInstitute:ADifferentApproachtoIncentivesand

PeopleManagementPracticesintheSoftwareIndustry,”CaseHR-6(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998),13.

25GregBrenneman,“RightAwayandAllAtOnce:HowWeSavedContinental,”HarvardBusinessReview76(September–October1998):164.

26Ibid.,170.27RobertG.EcclesandNitinNohria,BeyondtheHype:Rediscoveringthe

EssenceofManagement(Boston:HarvardBusinessSchoolPress,1992).

28Ibid.,32.29RonaldN.AshkenasandToddD.Jick,“FromDialoguetoActioninGE

Work-Out:DevelopmentalLearninginaChangeProcess,”inResearchinOrganizationalChangeandDevelopment,vol.6,ed.WilliamA.PasmoreandRichardW.Woodman(Greenwich,CT:JAIPress,1992),269.

30JanetLowe,JackWelchSpeaks:WisdomfromtheWorld’sGreatestBusinessLeader(NewYork:JohnWiley,1998),133–134.

31Ibid.,131.32Ibid.,135.33AshkenasandJick,“FromDialoguetoAction,”274,276.34Ibid.,269–270.35Ibid.,281.36Lowe,JackWelchSpeaks,130.37AshkenasandJick,“FromDialoguetoAction,”281.38RichardPascale.“Fight.Learn.L*E*A*D,”FastCompany,August1996,<

http://www.fastcompany.com/online/04/wargames.html>.39See,forinstance,ElliotAronson,“Self-Justification,”chap.4inTheSocial

Animal(SanFrancisco:W.H.Freeman,1972);DarylBem,Beliefs,Attitudes,andHumanAffairs(Belmont,CA:Brooks/Cole,1970);andRobertB.Cialdini,“CommitmentandConsistency,”chap.3inInfluence,2ded.(Glenview,IL:Scott,Foresman,1988).

40JeffreyPfeffer,ManagingwithPower(Boston:HarvardBusinessSchoolPress,1992),204.

41Ibid.

Chapter3

1EllenJ.Langer,“MindingMatters:TheConsequencesofMindlessness-Mindfulness,”inAdvancesinExperimentalSocialPsychology,ed.LeonardBerkowitz(NewYork:AcademicPress,1989),137–173.

2DavidBeardsley,“ThisCompanyDoesn’tBrakefor(Sacred)Cows,”FastCompany,August1998,66.

3“ConfessionofaCEO”(DepartmentofIndustrialEngineering,StanfordUniversity,PaloAlto,CA,December1998).

4TreyPruittandWillieQuinn,“RecruitingandTrainingatChildren’sHospitalLosAngelesFoundation”(GraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,June1998),4.

5Ibid.6Ibid.,6.7RobertB.Cialdini,Influence:ThePsychologyofPersuasion(NewYork:

Quill),19938Ibid.9QuotedinCialdini,Influence,7.10See,forinstance,WilliamG.Ouchi,TheoryZ(Reading,MA:Addison-

Wesley,1981);andJohnKotterandJamesHeskett,CorporateCultureandPerformance(NewYork:FreePress,1992).

11ThevaluesaredescribedinnumerousHewlett-Packardinternaldocuments,includingoneentitled“TheHPWay.”Theyarealsodiscussedinwritingsaboutthecompany;forinstance,inDeoneZell,ChangingbyDesign:OrganizationalInnovationatHewlett-Packard(Ithaca,NY:ILRPress,1997),16.

12Zell,ChangingbyDesign,106.13See,forinstance,MerylReisLouisandRobertI.Sutton,“Switching

CognitiveGears:FromHabitsofMindtoActiveThinking,”Human

Relations44(1991):55–76.14Langer,“MindingMatters,”139.15JeffreyPfeffer,“TheFreshChoiceCompany:AcquiringandTransferring

Knowledge,”CaseHR-7(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998),1.

16Ibid.,6–8.17JeffreyPfeffer,TanyaMenon,andRobertI.Sutton,“KnowledgeTransfer

withinandacrosstheBoundariesofaRestaurantChain:WhyItIsSometimesEasiertoLearnfromOutsidersthanInsiders,”workingpaper,GraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,1998,p.29.

18Ibid.,30.19BarryM.Staw,LloydE.Sandelands,andJaneE.Dutton,“Threat-Rigidity

EffectsinOrganizationalBehavior:AMultilevelAnalysis,”AdministrativeScienceQuarterly26(1981):501–524.

20RobertI.Sutton,KathleenEisenhardt,andJamesV.Jucker,“ManagingOrganizationalDecline:LessonsfromAtari,”OrganizationalDynamics14(1986):17–29.

21GaryHigh,Director,HumanResourceDevelopment,PeopleSystems,SaturnCorporation,interviewbyJeffreyPfefferandRobertSutton,Detroit,Michigan,25March1998.

22Ibid.23AnnaKretz,GeneralMotors,interviewbyJeffreyPfefferandRobert

Sutton,Detroit,Michigan,25March1998.24Ibid.25MikeBennett,Saturn,interviewbyJeffreyPfefferandRobertSutton,

SpringHill,Tennessee,24March1998.26TomLasorda,GeneralMotors,interviewbyJeffreyPfefferandRobert

Sutton,Detroit,Michigan,25March1998.27ArieW.KruglanskiandDonnaM.Webster,“MotivatedClosingofthe

Mind:‘Seizing’and‘Freezing,’”PsychologicalBulletin103(1996):264.

28Ibid.

29RandyKennedy,“PrivateGroupOffersEducatorBonusPlan,”NewYorkTimes,27January1998,sec.A,p.20.

30SteveStecklow,“ApplePolishing:Kentucky’sTeachersGetBonuses,butSomeAreCaughtCheating,”WallStreetJournal,2September1997,sec.A,p.1.

31BurtSchorr,“School’sMerit-PayProgramDrawsGripesfromLosers—andWinners,”WallStreetJournal,16June1983,sec.B,p.31.

32WinslowWard,TheMakingofSiliconValley:AOneHundredYearRenaissance(PaloAlto,CA:SantaClaraHistoricalSociety,1995).

33See,forexample,EdwardW.LawlerIII,High-InvolvementManagement(SanFrancisco:Jossey-Bass,1986).

34See,forexample,MichaelBeer,“HumanResourcesatHewlett-Packard(A),”Case9-495-051(Boston:HarvardBusinessSchoolPublishing,1995).

35Beardsley,“ThisCompanyDoesn’tBrake,”66.36Ibid.37ThesefigurescomefromJ.BurgessWinter,“Magma:AHighPerformance

Company”(paperpresentedattheCopper95-Cobre95InternationalConference,Santiago,Chile,November1995),1.

38Ibid.,3.39Ibid.,1.40ThefollowingmaterialcomesfromatelephoneinterviewbyRobertSutton

withAnnetteKyleon17September1998.ThissectionalsoreliesoninformationfromatechnicalreportbyGeraldLedfordandSusanCohen,“TheWowProgramattheBayportTerminal,LosAngeles,”CenterforEffectiveOrganizations,GraduateSchoolofBusiness,UniversityofSouthernCalifornia,LosAngeles,July1996.

41TomPeters,ThePursuitofWow!EveryPerson’sGuidetoTopsy-TurvyTimes(NewYork:VintageBooks,1994).

42Winter,“Magma,”4.43JeffreyPfeffer,“HumanResourcesattheAESCorporation:TheCaseof

theMissingDepartment,”CaseSHR-3(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1997),4.

44AESCorporation,AnnualReport(Arlington,VA:1997),9.45“PowertothePeople,”CFO,March1995,41.46Pfeffer,“HumanResourcesattheAESCorporation,”15.47AES,AnnualReport,10.48PaulC.NystromandWilliamH.Starbuck,“ToAvoidOrganizational

Crises,Unlearn,”OrganizationalDynamics(spring1984):53.

Chapter4

1W.E.Deming,OutoftheCrisis(Cambridge,MA:MassachusettsInstituteofTechnology,CenterforAdvancedEngineeringStudy,1986).

2MattKrantz,“HowSweetItIs:AlDunlapGetsSunbeamDeal,”Investor’sBusinessDaily,23July1996,sec.A,p.4.

3“ForMarkets,AGoodQuarteronPaper,”Investor’sBusinessDaily,1October1996,sec.A,p.1.

4OnOctober27,1998,Dunlap,inaconversationwithPaulReistofStanfordBusinessSchool,claimedhehadspokenat14majorbusinessschools,includingtheoneslisted,inthepastyear.

5HolmanW.JenkinsJr.,“WhenCEOsCan’tAddUptheNumbers,”WallStreetJournal,19August1998,sec.A,p.19.

6“’Chainsaw’AlCutsUpforMBAs,”ChicagoTribune,12January1998,sec.C,p.3.

7AlbertJ.Dunlap,MeanBusiness(NewYork:TimesBooks,1996),169.8Ibid.,232.9EllenJoanPollockandMarthaBrannigan,“TheSunbeamShuffle,orHow

RonPerelmanWoundUpinControl,”WallStreetJournal,19August1998,sec.A,p.1.

10PatriciaSellars,“CanChainsawAlReallyBeaBuilder?”Fortune,12January1998,118–120.

11AnneFisher,“TomPeters,ProfessionalLoudmouth,”Fortune,29December1997,274.

12AndrewS.Grove,OnlytheParanoidSurvive(NewYork:Currency

Doubleday),117,emphasisadded.13Thesitecanbefoundathttp://www.igc.apc.org/faceintel/.14PrincetonSurveyResearchAssociates,WorkerRepresentationand

ParticipationSurvey:ReportontheFindings(Princeton,NJ:PrincetonSurveyResearchAssociates,1994),5.

15Ibid.,9.16Ibid.,19.17Ibid.,40.18FrancisHarris,“NastyorNice?”WorldLink,September–October1996,39.19Ibid.20Forexample,EdwardLazear’sexplanationofseniority-basedwagesystems

maintainsthatpayingpeoplelessthanwhattheyhaveproducedearlierintheircareerandmorewhentheyareoldermotivateseffortbecausetherearenowincentivesformoreseniorpeoplenottoshirk.Iftheyshirk,arecaught,andarefired,theywilllosethedeferredcompensationinherentinseniority-basedwages.Similarly,youngerworkersaremotivatednottoshirkbecauseotherwisetheywilllosetheopportunitytogetpaidmorethanthevalueofwhattheyareproducingastheybecomemoresenior.EdwardP.Lazear,“Agency,EarningsProfiles,Productivity,andHoursRestrictions,”AmericanEconomicReview71(1981):606–620.

21Forstudiesofthenegativeeffectsofmonitoring,see,forinstance,B.C.AmickandM.J.Smith,“Stress,Computer-BasedWorkMonitoringandMeasurementSystems:AConceptualOverview,”AppliedErgonomics23(1992):6–16;J.R.Aiello,“ElectronicPerformanceMonitoring,”JournalofAppliedPsychology23(1993):499–507;andR.GrantandC.Higgins,“MonitoringServiceWorkersViaComputer:TheEffectonEmployees,Productivity,andService,”NationalProductivityReview8(1989):101–112.Onthenegativeconsequencesofpunishment,seeF.LuthansandR.Kreitner,OrganizationalBehaviorModification(Glenview,IL:Scott,Foresman,1975).

22JohnD.Sterman,NelsonP.Repenning,andFredKofman,“UnanticipatedSideEffectsofSuccessfulQualityPrograms:ExploringaParadoxofOrganizationalImprovement,”ManagementScience43(April1997):

505.23Ibid.,506.24Ibid.,514.25DeoneZell,ChangingByDesign:OrganizationalInnovationatHewlett-

Packard(Ithaca,NY:ILRPress,1997),82.26Ibid.,82–83.27ThomasH.Davenport,“TheFadThatForgotPeople,”FastCompany,

November1995,71–74.28See,forinstance,“ReengineeringwithLove,”TheEconomist,9September

1995,69–70;DavidA.Garvin,“LeveragingProcessesforStrategicAdvantage,”HarvardBusinessReview(September–October1995):80–81;andJamesP.Womack,reviewofTheReengineeringRevolution:AHandbook,byMichaelHammerandStevenA.Stanton,andReengineeringManagement:TheMandateforNewLeadership,byJamesChampy,SloanManagementReview36(summer1995):99–100.

29Zell,ChangingbyDesign,23.30M.R.Leary,Self-Presentation:ImpressionManagementandInterpersonal

Behavior(Boulder,CO:Westview),30.31H.S.Schwartz,NarcissisticProcessandCorporateDecay(NewYork:

NewYorkUniversityPress),89.32JamesCharlton,TheExecutive’sQuotationBook(NewYork:St.Martin’s

Press),77.33Grove,OnlytheParanoid,118–119.34PatrickKelly,FasterCompany(NewYork:JohnWiley,1998),24.35Ibid.,96.36Ibid.,154.37CommentsfromatalkbyDavidF.RussotoaclassattheGraduateSchool

ofBusiness,StanfordUniversity,Stanford,California,5May1998.38JeffreyPfeffer,“SASInstitute:ADifferentApproachtoIncentivesand

PeopleManagementPracticesintheSoftwareIndustry,”CaseHR-6(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,

1998),4.39JeffreyPfeffer,“TheMen’sWearhouse:SuccessinaDecliningIndustry,”

CaseHR-5(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1997),1.

40AESCorporation,AnnualReport,(Arlington,VA:1997),17.41Ibid.,9.42CharlesL.Bosk,ForgiveandRemember(Chicago:UniversityofChicago

Press,1979).43StephenE.Frank,“CiticorptoLayoff9,000inRevamping,”WallStreet

Journal,22October1997,sec.A,p.3.44KathleenDesMarteau,“LeviCloses11U.S.Plants,”Bobbin,January1998,

14–16.45Foradiscussionofhowthesefactorscanreducetheharmfuleffectsof

distressingevents,seeRobertI.SuttonandRobertL.Kahn,“Prediction,Understanding,andControlasAntidotestoOrganizationalStress,”inHandbookofOrganizationalBehavior,ed.JayLorsch(EnglewoodCliffs,NJ:PrenticeHall,1987),272–285.

46Forothermaterialonhowthetwocompaniesdealtwiththeirlayoffs,seeMikeVerespej,“HowtoManageAdversity,”IndustryWeek,19January1998,24;“ACommunityAffair,”ApparelIndustryMagazine,September1998,84ff.;andStephenE.Frank,“Citicorp’sReedReceivedRaiseof15%in1997,”WallStreetJournal,9March1998,sec.B,p.10.

47JeraldGreenberg,“EmployeeTheftasaReactiontoUnderpaymentInequity:TheHiddenCostofPayCuts,”JournalofAppliedPsychology75(1990):561–568.

Chapter5

1Discussionsoftheimportanceofmeasurementanditseffectsonorganizationalbehaviorhavealonghistory.Mostoftheresearchindicatesthatmeasurementinandofitself,evenwithoutincentivesattachedtothemeasures,affectsbehavior.See,forinstance,PeterM.Blau,TheDynamicsofBureaucracy(Chicago:UniversityofChicago

Press,1955);andV.F.Ridgway,“DysfunctionalConsequencesofPerformanceMeasurements,”AdministrativeScienceQuarterly1(1956):240–247.

2A.T.Kearney,“WorkforceInitiativeDiscussionDocument”(presentationsponsoredbySiliconValleyJointVenture,25August1998),4.

3FrederickF.Reichheld,TheLoyaltyEffect(Boston:HarvardBusinessSchoolPress,1996),217.

4See,forinstance,ThomasJ.PetersandRobertH.Waterman,Jr.,InSearchofExcellence(NewYork:HarperandRow,1982);andWilliamG.Ouchi,TheoryZ(Reading,MA:Addison-Wesley,1981).

5See,forinstance,ShellyBranch,“The100BestCompaniestoWorkforinAmerica,”Fortune,11January1999,122;andRobertLeveringandMiltonMoskowitz,“The100BestCompaniestoWorkforinAmerica,”Fortune,12January1998,85.

6“HaveWeLostOur‘Way’?”(DepartmentofIndustrialEngineering,OrganizationalBehaviorandManagementKnowingDoingCaseStudy,StanfordUniversity,PaloAlto,CA,December1998).

7Ibid.8Ibid.9“FinalProjectPaper”(GraduateSchoolofBusiness,StanfordUniversity,

Stanford,CA,2June1998),2.10Ibid.,3.11Ibid.,4.12Ibid.,6.13Foracomprehensivediscussionofthebalancedscore-card,seeRobertS.

KaplanandDavidP.Norton,TheBalancedScorecard:TranslatingStrategyintoAction(Boston:HarvardBusinessSchoolPress,1996).

14RobertSimonsandAntonioDávila,“Citibank:PerformanceEvaluation,”Case198-048(Boston:HarvardBusinessSchoolPublishing,1997),7.

15Ibid.,3.16Ibid.,4.17G.A.Miller,“TheMagicalNumberSeven,PlusorMinusTwo:Some

LimitsonOurCapacityforProcessingInformation,”PsychologicalReview63(1956):81–97.

18InterviewbyJeffreyPfefferandRobertSutton,Detroit,Michigan,25March1998,emphasisadded.

19Ibid.20WainwrightIndustries,Leader’sGuide,SincereTrustandBeliefinPeople:

TheWainwrightStory(St.Louis:WainwrightIndustries,1998),7.21Ibid.,20.22QuotedinJeffreyPfeffer,“TheMen’sWearhouse:SuccessinaDeclining

Industry,”CaseHR-5(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1997),27.

23Ibid.,15.24Ibid.,20–21.25JeffreyPfeffer,“SASInstitute:ADifferentApproachtoIncentivesand

PeopleManagementPracticesintheSoftwareIndustry,”CaseHR-6(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998),3–4.

26Ibid.,5.27Ibid.,8.28Ibid.,11.29GinaImperato,“HowtoGiveGoodFeedback,”FastCompany,September

1998,147.30Thematerialinthissectionistakenfrom“Intuit:ACompanyThat

IdentifiesandAttacksGaps”(DepartmentofIndustrialEngineering,StanfordUniversity,PaloAlto,CA,December1998).

31RogerHallowell,JamesI.Cash,andShellyIbri,“Sears,RoebuckandCompany(A):Turnaround,”Case9-898-007(Boston:HarvardBusinessSchool,1997),3.

32AnthonyJ.Rucci,StevenP.Kirn,andRichardT.Quinn,“TheEmployee-Customer-ProfitChainatSears,”HarvardBusinessReview(January–February1998):84.

33Hallowell,Cash,andIbri,“Sears(A),”3.

34Ibid.35Ibid.See,forinstance,thedatafromthecustomersurveysonp.22.36Ibid.,24.37Rucci,Kirn,andQuinn,“Employee-Customer-ProfitChain,”91–94.

Chapter6

1AlfieKohn,“IsCompetitionInevitable?”chap.2inNoContest:TheCaseAgainstCompetition,rev.ed.(Boston:HoughtonMifflin,1992).

2DeanTjosvold,WorkingTogethertoGetThingsDone(Lexington,MA:D.C.Heath,1986),34.

3NormanBergandNormanFast,“TheLincolnElectricCompany,”Case376-028(Boston:HarvardBusinessSchool,1975),3.

4AndrewS.Grove,HighOutputManagement(NewYork:RandomHouse,1983),170.

5Kohn,NoContest,4.6“KnowingversusDoingonWallStreet”(GraduateSchoolofBusiness,

StanfordUniversity,Stanford,CA,June1998),3.7“EmployeeTurnoveratBear,Stearns&Co.”(GraduateSchoolofBusiness,

StanfordUniversity,Stanford,CA,June1998),3–4.8“PromotingTeamworkandCooperationwithinaCultureofIndividuals:A

CaseStudyofaMicrosoftBusinessUnit”(StanfordUniversitySchoolofEngineering,PaloAlto,CA,December1996),executivesummary.

9Ibid.10Ibid.,2.11Ibid.,4.12JeffreyPfeffer,“TheFreshChoiceCompany:AcquiringandTransferring

Knowledge,”CaseHR-7(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998).

13JeffreyPfeffer,TanyaMenon,andRobertI.Sutton,“KnowledgeTransferwithinandacrosstheBoundariesofaRestaurantChain:WhyItIsSometimesEasiertoLearnfromOutsidersthanInsiders,”working

paper,GraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,1998,37.

14InterviewbyTanyaMenon,1997.15Pfeffer,Menon,andSutton,“KnowledgeTransfer,”38.16Ibid.,45.17Tjosvold,WorkingTogether,34.18Kohn,NoContest,45–46.19Ibid.,47.20Ibid.,55.21R.RosenthalandL.Jacobson,PygmalionintheClassroom:Teacher

ExpectationsandPupils’IntellectualDevelopment(NewYork:Holt,Rinehart,andWinston,1968).

22See,forinstance,J.SterlingLivingston,“PygmalioninManagement,”HarvardBusinessReview47(1969):81–89;andDovEden,“Self-FulfillingProphecyasaManagementTool:HarnessingPygmalion,”AcademyofManagementReview9(1984):64–73.AnexcellentreviewoftheliteraturecanbefoundinDovEden,PygmalioninManagement:ProductivityasaSelf-FulfillingProphecy(Lexington,MA:LexingtonBooks,1990).

23D.EdenandA.B.Shani,“PygmalionGoestoBootCamp:Expectancy,LeadershipandTraineePerformance,”JournalofAppliedPsychology67(1982):194–199.

24DovEden,“PygmalionwithoutInterpersonalContrastEffects:WholeGroupsGainfromRaisingExpectations,”JournalofAppliedPsychology75(1990):394–398.

25W.EdwardsDeming,OutoftheCrisis(Cambridge,MA:MassachusettsInstituteofTechnologyCenterforAdvancedEngineeringStudy,1986),102.

26AnexcellentdiscussionofthebenefitsandcostsofrelativeperformanceevaluationcanbefoundinRobertGibbonsandKevinJ.Murphy,“RelativePerformanceEvaluationforChiefExecutiveOfficers,”IndustrialandLaborRelationsReview43(February1990):30-S–51-S.Theideasunderlyingtheadvantagesofrelativeperformance

evaluationcanbefoundinEdwardP.LazearandSherwinRosen,“Rank-OrderTournamentsasOptimumLaborContracts,”JournalofPoliticalEconomy89(1981):841–864.

27Deming,OutoftheCrisis,102.28RobertCrow,“InstitutionalizedCompetitionandItsEffectsonTeamwork,”

JournalforQualityandParticipation18(June1995):47.29Foradiscussionofthesocialfacilitationidea,seeRobertB.Zajonc,

“SocialFacilitation,”Science149(1965):269–274.AcomprehensivereviewofmanystudiesofthesocialfacilitationeffectcanbefoundinC.F.BondJr.andL.J.Titus,“SocialFacilitation:AMeta-Analysisof241Studies,”PsychologicalBulletin94(1983):265–292.SeealsoJohnR.AielloandCarolM.Svec,“ComputerMonitoringofWorkPerformance:ExtendingtheSocialFacilitationFrameworktoElectronicPresence,”JournalofAppliedSocialPsychology23(1993):537–548.

30Kohn,NoContest,chap.3.Forotherstudiesandreviewsoftheeffectsofcompetitionandcooperationonlearning,seeDavidW.Johnson,GeoffreyMaruyama,RogerJohnson,DeborahNelson,andLindaSkon,“EffectsofCooperative,Competitive,andIndividualisticGoalStructuresonAchievement:AMeta-Analysis,”PsychologicalBulletin89(1981):47–62;AbainehWorkie,“TheRelativeProductivityofCooperationandCompetition,”JournalofSocialPsychology92(1974):225–230;andMortonGoldman,JosephW.Stockbauer,andTimothyG.McAuliffe,“IntergroupandIntragroupCompetitionandCooperation,”JournalofExperimentalSocialPsychology13(1977):81–88.

31RoderickM.Kramer,“CooperationandOrganizationalIdentification,”inSocialPsychologyinOrganizations:AdvancesinTheoryandResearch,ed.J.KeithMurnighan(EnglewoodCliffs,NJ:Prentice-Hall,1993),245,emphasisadded.

32HerbertA.Simon,“OrganizationsandMarkets,”JournalofEconomicPerspectives5(1991):33.

33Amathematicalsimulationbyatrioofeconomistsshowedthatapiece-ratesystemlikeLincoln’swouldcauseexcessiveself-interestedbehaviorwithouttheseincentivesforcooperatingandforsupportingthefirmas

awhole.SeeGeorgeBaker,RobertGibbons,andKevinJ.Murphy,“SubjectivePerformanceMeasuresinOptimalIncentiveContracts,”QuarterlyJournalofEconomics109(1994):1125–1156.

34ConferenceBoard,“LeveragingIntellectualCapital,”HRExecutiveReview5,no.3(1997):5–6.

35Crow,“InstitutionalizedCompetition,”47.36MorganW.McCallJr.,MichaelM.Lombardo,andAnnM.Morrison,The

LessonsofExperience:HowSuccessfulExecutivesDevelopontheJob(Lexington,MA:LexingtonBooks,1988),19.

37BrianTrelstad,“GroupLeadershiporOrganizationalAnrchy:TheCaseofStanford’sPublicManagementProgram”(GraduateSchoolofBusiness,StanfordUniversity,Stanford,CA,June1998),9.

38ExcerptsfrommemorandumsentbyKellehertothepeopleofSouthwestAirlines,forwardedthroughsomeoneatUnitedAirlines.

39JeffreyPfeffer,“TheMen’sWearhouse:SuccessinaDecliningIndustry,”CaseHR-5(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1997),15.

40JeffreyPfeffer,“SASInstitute:ADifferentApproachtoIncentivesandPeopleManagementPracticesintheSoftwareIndustry,”CaseHR-6(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998),6–7.

41JeffreyPfeffer,“WillametteIndustries‘NoPayatRisk’CompensationPractices,”CaseHR-9(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998),7.

42Ibid.,8.43TomLasorda,GeneralMotors,interviewbyJeffreyPfefferandRobert

Sutton,Detroit,Michigan,25March1998.44Tjosvold,WorkingTogether,35.

Chapter7

1JoelPodolny,JohnRoberts,andAndrisBerzins,“BritishPetroleum:PerformanceandGrowth(A),”CaseS-1B-16A(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998).

2Ibid.,1.3JoelPodolny,JohnRoberts,andAndrisBerzins,“BritishPetroleum:Focus

onLearning(B),”CaseS-1B-16B(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1998),1.

4“BritishPetroleum(A),”1.5Ibid.,5–6.6“WhenToughnessIsNotEnough,”FinancialTimes,26June1992.7“BritishPetroleum(A),”8.8“BloodintheBoardroom,”SundayTelegraph,28June1992,quotedin

“BritishPetroleum(A),”8.9“BritishPetroleum(A),”9.10“BritishPetroleum(B),”1.11Ibid.,2.12Ibid.,4.13Ibid.14Ibid.15Ibid.16Ibid.,5.17Ibid.,6.18Ibid.19Ibid.20Ibid.,7.21ThomasH.DavenportandLaurencePrusak,WorkingKnowledge:How

OrganizationsManageWhatTheyKnow(Boston:HarvardBusinessSchoolPress,1998),20.

22Ibid.23Ibid.,21.24“BritishPetroleum(B),”7–8.25Ibid.,8.26AllquotationsintheBarclay’sGlobalInvestorssectioncomefrom

interviewsbyJeffreyPfeffer,SanFrancisco,California,12February1998.

27NewZealandPost,AnnualReport(Wellington,NewZealand:1994),10.28Ibid.29Ibid.,5.30HarveyParker,“NewZealandPost—UsingthePersonnelFunctionto

PromoteExcellenceinManagement”(unpublishedms,January1989),4.

31Ibid.,532JeffreyPfeffer,TheHumanEquation:BuildingProfitsbyPuttingPeople

First(Boston:HarvardBusinessSchoolPress,1998).33ElmarToime,“TheCaseforPostalDeregulation”(paperpresentedatthe

UtilityMarketsSummit,Wellington,NewZealand,27April1995),4,6.

Chapter8

1HarlowB.Cohen,“ThePerformanceParadox,”AcademyofManagementExecutives12(1998):30.

2SkipLeFauve,interviewbyJeffreyPfefferandRobertSutton,Detroit,Michigan,25March1998.

3JeffreyPfeffer,“HumanResourcesattheAESCorporation:TheCaseoftheMissingDepartment,”CaseSHR-3(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1997),3–4.

4JeffreyPfeffer,“TheMen’sWearhouse:SuccessinaDecliningIndustry,”CaseHR-5(Stanford,CA:GraduateSchoolofBusiness,StanfordUniversity,1997),2.

5Ibid.,4.6“McKinsey’sValueChain,”WorldLink,September–October1998,30–32.7TomLasorda,interviewbyJeffreyPfefferandRobertSutton,Detroit,

Michigan,25March1998.8ThomasJ.PetersandRobertH.Waterman,Jr.,InSearchofExcellence:

LessonsfromAmerica’sBest-RunCompanies(NewYork:Harperand

Row,1982).9GregBrenneman,“RightAwayandAllAtOnce:HowWeSaved

Continental,”HarvardBusinessReview76(September–October1998):164.

10WalterGropius,ScopeofTotalArchitecture(NewYork:Macmillan,1970).11WarrenBennisandBurtNanus,Leaders:StrategiesforTakingCharge

(NewYork:HarperBusiness,1997),60.12Ibid.,70.13SuzyWetlaufer,“OrganizingforEmpowerment:AnInterviewwithAES’s

RogerSantandDennisBakke,”HarvardBusinessReview77(January–February1999):119.

14Brenneman,“RightAway,”166.15“ForgiveDon’tForget,”WorldLink,September–October1998,47.16“Interview,”WorldLink,September–October1998,49.17Ibid.,170.18“ManagingMajorOrganizationalChange:TransitiontoClosureat

NewcastleSteelworks,”BHPNewcastleSteelworksCaseStudy(Melbourne,Australia:BrokenHillProprietary,1998),6.SeealsoCoopersandLybrand,ClosingPlants:PlanningandImplementationStrategies(Morristown,NJ:FinancialExecutiveResearchFoundation,1986).

19Ibid.,26–27.20AlfieKohn,NoContest:TheCaseAgainstCompetition(Boston:Houghton

Mifflin,1992),50–51.21EricRansdell,“TheySellSuitswithSoul,”FastCompany,October1998,

68.22DeanTjosvold,WorkingTogethertoGetThingsDone(Lexington,MA:

D.C.Heath,1986),26.SeealsoDeanTjosvold,“TestingGoalLinkageTheoryinOrganizations,”JournalofOccupationalBehavior7(1986):77–88.

23QuotedinTjosvold,WorkingTogether,11.24Brenneman,“RightAway,”166.

25“UsingMeasurementtoBoostYourUnit’sPerformance,”HarvardManagementUpdate3(October1998):1.

26MichaelWarshaw,“HaveYouBeenHouse-Trained?”FastCompany,October1998,48.

27Ibid.,46.

AbouttheAuthors

JeffreyPfefferistheThomasD.DeeProfessorofOrganizationalBehaviorintheGraduateSchoolofBusiness,StanfordUniversity,wherehehastaughtsince1979.HereceivedhisB.S.andM.S.fromCarnegie-MellonUniversityandhisPh.D.inbusinessfromStanford.

Dr.PfefferhasservedonthefacultiesattheUniversityofIllinois,theUniversityofCaliforniaatBerkeley,andasa

visitingprofessorattheHarvardBusinessSchool.Hehastaughtexecutiveseminarsin22countriesthroughouttheworldand

wasDirectorofExecutiveEducationatStanfordfrom1994to1996.HeservesontheboardofdirectorsofPortolaPackaging,

Resumix,andSonoSite,aswellasonnumerouseditorialboardsofscholarlyjournals.HeistheauthorofTheHumanEquation,NewDirectionsforOrganizationTheory,CompetitiveAdvantagethroughPeople,ManagingwithPower,OrganizationsandOrganizationTheory,PowerinOrganizations,andOrganizationalDesign,andco-authorofTheExternalControlofOrganizations,aswellasmorethan100articlesandbookchapters.

RobertI.SuttonisProfessorofOrganizationalBehaviorintheStanfordEngineeringSchool,whereheisCo-DirectoroftheCenterforWork,Technology,andOrganizationandResearchDirectoroftheStanfordTechnologyVenturesProgram.HereceivedhisPh.D.inorganizational

psychologyfromTheUniversityofMichiganandhasservedontheStanfordfaculty

since1983.Dr.SuttonhasalsotaughtatU.C.Berkeley’sHaasBusinessSchoolandhasbeenaFellowattheCenterforAdvancedStudyintheBehavioralSciences.Hehasgivenmany

executiveseminars,consultedtonumerouscorporations,andcurrentlydirectstheManagementofInnovationexecutiveprogram

fortheStanfordAlumniAssociation.HehasreceivedhonorsincludingtheawardforthebestpaperpublishedintheAcademyofManagementJournal,theEugeneL.GrantAwardforExcellenceinTeaching,andtheMcCulloughFacultyScholarChairfromtheStanfordEngineeringSchool.HehasservedasaneditorandeditorialboardmemberofnumerousscholarlypublicationsandcurrentlyservesasCo-EditorofResearchinOrganizationalBehavior.Hehaspublishedmorethan60articlesandchaptersinscholarlyandappliedpublications.