by Yves Morieux
Perhaps even riskier is setting a target for yourself that requires something new to be done. Imagine if your improvement plan involves trying new approaches instead of the battle-tested solutions (for instance, selecting unknown suppliers as opposed to well-established vendors) or challenging some procedures—and you fail? The result would be to take a double hit: for not achieving your target and for not having the excuse of good compliance.
Finally, nothing bad will come of playing it safe. Quite the opposite. Performance targets become management KPIs, and KPIs determine incentives. Eventually, people will deliver more than their targets and get the maximum bonus (rewarding overperformance is common practice), while the performance improvement potentials are far from being fully exploited. In these companies, no one has an interest in being transparent about obtainable improvements, let alone those that would be a stretch.
Not only is it a rational strategy not to target the full potential improvement, each person knows that everyone else has the same strategy. This is all the more reason for exercising restraint on the forecasts. The collective dynamic is one of diminishing returns accompanied by great bonuses. The individual prospect of taking a double hit when taking a personal risk boomerangs into a double hit for the organization.
Now, what happens at the end-of-year review when you have promised a 1 percent improvement in your KPI but have actually obtained a 2 percent improvement? You explain it by saying, “We worked harder and were much cleverer than even we suspected we could be!” Your manager is not fooled. She wants to know why you got the forecast wrong. Why didn’t you set the target at 2 percent?
Then the company goes one better: a KPI and incentive are added for the accuracy of your forecast. (Unfortunately, this is not a thought experiment in the absurd; we have seen companies do this.) Some calculations are involved, because, of course, the incentive related to accuracy of forecast must translate into more bonus than what can be gained for overdelivering by 100 percent. In light of these new developments, each manager now has to calculate what his or her new optimum individual strategy is. There are new KPIs and incentives to be considered. The game has not changed, but the organization is more complicated.
This dynamic is radically changed when a manager follows rule six by asking three questions in a one-on-one discussion with each of his or her team members:
What will you do to improve performance next year and what will be the results in terms of savings, product launches, or revenues?
What are the personal risks to you in setting up this target? For example, do you have to rely on new kinds of suppliers, try different processes, or require the cooperation of one unit or another?
How can I help you get the cooperation you need from others to mitigate that risk?
Now, people are impelled to break new ground because if their answer to the second question is that they are not taking any personal risks, then the conclusion is that they are not trying anything particularly ambitious. By asking the third question, the manager acts as an integrator. It is now much more attractive for team members to be transparent and to try real innovations. In so doing, they will be able to benefit from cooperation to deliver higher performance since their answer to the third question puts their manager in the position of an integrator.
This approach changes the whole game. Taking a personal risk shifts from being a losing strategy to a winning one. In companies that do not take this approach, people put the organization and its customers at risk. In the new game, however, risk is openly discussed, shared, expressed, and known by everyone. When risks are made explicit, they can be handled through collective capabilities and managed, thanks to cooperation, allowing for greater performance improvement and more innovation. It is striking to note that the dialogue about “what personal risk are you taking in this or that endeavor” is completely absent in many organizations.
The new context makes a huge difference in the way people use their intelligence and energy; efforts to hide and to protect themselves from others make way for sharing, innovating, and acting collectively to mitigate risks. Before, they used intelligence to keep performance below its potential, while triggering work-on-work (reporting, control, modifications, verifications and the like added on top of actual work) to supposedly counter this misbehavior. Now they use intelligence to push and exploit potential, and there is no need for work-on-work.
We have observed this behavior of “keeping reserves” in companies because it is the intelligent thing to do, given the way the management dialogue usually goes. People’s rational behaviors adjust so effectively to the managerial dialogue that changing the terms of this dialogue over performance improvement processes will usually have a fundamental effect on company results. Remember that organizations have so many problems, not because people are stupid, but because they adjust very effectively and intelligently to the counterproductive context that management unwittingly creates. And if managers create such a counterproductive context, it is because of the ineffectiveness of the hard and soft solutions in the managerial toolbox.
Avoid the Influence of Vested Interests
Managers must always ensure that they set the terms for the best group result overall, not just when it relates to performance management. In a multinational company comprising ten major units and functions, the CEO wanted to evolve the organizational design. He had some ideas about how to reconfigure it, but also wanted to gather ideas and insights from his management team. However, there was a complication. Each member of his team headed up one of the units or functions that would inevitably be affected by an organizational change. So, because of these vested interests, the CEO worried they would have a difficult time making unbiased recommendations. How could he structure the process of organization design such that he could harness the intelligence of his management group and also ensure that the new organization would serve the interests of the overall company rather than the interests of one function or another?
The CEO gathered his management team and, in a nutshell, said, “You know our strategic challenges. You know the limitations of the ten building blocks of our organization. I would like each of you to have a go at defining what the role and decision rights of each of these ten components should be. You may also revise the blueprint and bundle together or split apart existing building blocks.” Then came the most interesting part, “No matter what you recommend, each of you will remain on the management team, but I will decide later which unit or function you will be in charge of.”
This is an approach very similar to what philosopher John Rawls calls making decisions behind a “veil of ignorance,” to ensure that individual members contribute in the best interests of the entire group.2 If the outcome of the choices can disadvantage any unit, then any executive could be the one to suffer the consequences. If it is made impossible to game the process to advantage your own unit’s interests, then the only criterion you can use in your choice is the best interests of the group overall.
At this ten-unit multinational company, the top executives had specific knowledge of the unit they were managing and also had a good sense of how the other units operated. By creating a veil of ignorance—in this case, each executive was ignorant of where he or she would end up—the CEO got the executives to use their full knowledge with as little bias as possible.
Refuse Escalation
The idea of greater transparency in performance and richer conversations with teams about what can be improved may make some managers’ hearts sink. That is because they suffer from endless escalations of decisions—that is, they spend a great deal of their time on decisions that their teams have delegated upward for arbitration. But in almost all these cases, the decision will have been escalated to these managers because the people who are doing the work have failed to cooperate in making decisions.
To avoid this problem, and indeed it is a problem, we advise an approach that may at first seem a little simplistic: refuse escalation. Rather than accept the role of
arbitrator, senior managers must require that the people who failed to cooperate in the first place find a solution.
The effect of escalation can be pernicious. As decisions are escalated to higher and higher levels, the decision makers are farther from the concrete reality of the work situation and more deprived of rich and fresh information. So whenever arbitration takes place at a level above that of the real action, the decisions are bound to be of lower quality than that which could have been achieved through the direct cooperation of the people directly involved.
As a top manager, you should refuse to arbitrate. Instead, round up those who need to cooperate, put them in a room, and close the door. Let them out only once they have reached a satisfactory decision. Of course, in reality, there are likely to be times when the decision making takes so long that you will have to open the door. When this is the case, however, do so on two conditions. First, make sure you hold accountable those who were involved in the escalation: “I will remember in my evaluation how many times you drove me to make decisions you were better placed to make.” Second, make it a learning experience. Ask them: “What will you do differently the next time, so I don’t have to arbitrate?”
SUMMARY OF SIMPLE RULE SIX
When you cannot create direct feedback loops embedded in people’s tasks, you need management’s intervention to close the loop. Managers must then use the familiar tool of performance evaluation, but in a very different way.
Managers must go beyond technical criteria (putting the blame where the root cause problem originated). In dealing with the business complexity of multiple and often conflicting performance requirements, the smart organization accepts that problems in execution happen for many reasons and that the only way to solve them is to reduce the payoff for all those people or units that fail to cooperate in solving a problem, even if the problem does not take place exactly in their area, and to increase the payoff for all when units cooperate in a beneficial way.
They must not blame failure, but blame failing to help or ask for help.
Instead of the elusive sophistication of balance scorecards and other counterproductive cumbersome systems and procedures, they can use simple questions to change the terms of the managerial conversation so that transparency and ambitious targets become resources rather than constraints for the individual. Managers then act as integrators by obtaining from others the cooperation that will leverage the rich information allowed by this transparency and help achieve superior results.
Conclusion
Underlying the management of today’s organizations is a set of beliefs and practices—the hard and soft approaches we have discussed at length in this book—that, given the new complexity of business, have become obsolete. There is no kinder way to say it. Adhering to these obsolete approaches in trying to better manage complexity results in organizational complicatedness, which damages productivity and erodes people’s satisfaction at work. It is a vicious circle. The primary goal of the simple rules is to create more value by better managing business complexity. This involves abandoning the hard and soft approaches. In doing so, you also remove complicatedness and its costs. Simplification is not a goal in itself, but a valuable by-product of the simple rules.
The simple rules are battle-proven ways to leverage state-of-the art thinking and practices from the social sciences to break the vicious circle of complicatedness, help companies grow, create enduring value, and achieve competitive advantage. Each of the preceding chapters has focused on one of the simple rules and explored its implications for managers. Now we want to look at the rules holistically to see how the insights from each can be brought together. In this section, we offer a step-by-step sequence you can follow to move away from the reliance on the hard and soft approaches and toward the use of the six simple rules. Use it when you consider engaging in organization redesign, restructuring, operating model redefinition, cultural transformation, productivity improvement, or cost reduction programs. In most cases you will solve the real issues—in a faster, simpler, and deeper way.
Step One: Use Pain Points to Discover Interdependencies and Cooperation Needs
Every organization has its own distinct pain points. These may pertain to performance:
The on-time percentage of our trains is too low.
The occupancy rate at our hotels is below target.
Our time to market is too long.
Our products aren’t innovative enough.
The pain points may also pertain to people’s well-being at work, which can be seen in the number of sick days, turnover rates, on-the-job accidents, and people’s unhappiness expressed in survey responses.
When you look at any kind of pain point and dig sufficiently into the workings of your organization, you will discover roles that are involved in the poor performance or the unhappiness, but whose interactions—if they were cooperating and benefiting from the cooperation of others—would meet the challenge of complexity while avoiding complicatedness.
Once you have identified these roles, you must focus on their interdependencies. You need to understand the extent to which a role has an impact on the ability of others to do their job. Starting from the pain of the receptionists at InterLodge, you will understand their dependency on back-office functions. Or, starting from the poor performance of the development engineers at MobiliTele, you will discover their dependency on the transceiver unit.
One way to come to such an understanding is to ask people in each role to describe what other roles would do differently if they were cooperating. This is the application of simple rule one: understanding what people actually do. You can bring out these glimpses of an ideal world of cooperation in workshops and one-on-one discussions, or through interviews. Whatever the method, the activity enables people to gain an understanding of what cooperation would look like from the perspective of others and from the perspective of performance. To do this, people must:
Describe what others would do if they were cooperating. They must talk in specifics, using action verbs, rather than in vague concepts such as “trust” or “responsiveness to others.” Cooperation is a behavior, and a behavior is an action rather than an attitude or mind-set. A buyer, for example, might say, “You, the category strategist, would frame contracts that give me freedom to negotiate with suppliers.” Or the station platform manager would say, “Ideally, you maintenance people would tell us when, and by how much, the train is delayed.”
Define the difference that cooperation would make. Organizations do not seek cooperation for its own sake, but rather for the results it brings. People must describe, with specifics, the difference that cooperating would make to their individual performance and to the organization’s overall results: “If you guys in procurement did what I have described, I would be able to reduce inventories by 15 percent.”
If this exercise goes as it should, you will have identified key interdependencies and cooperation needs, which are the link between the solution to complexity (and, hence, the elimination of poor performance and dissatisfaction at work) and the concrete changes that the organization will need to make. Once you have identified these roles and defined the differences cooperation would make, you can focus your analysis on the changes needed to simultaneously improve performance and increase satisfaction.
Step Two: Discover Obstacles to Cooperation
You cannot immediately make these changes, however. You must first uncover the reasons why cooperation is not happening in these roles. To do so, you need the data that you can gather by working out the answers to two key questions, discussed in chapter 1:
How do behaviors combine with each other to produce the current performance levels? Think about how behaviors adjust and influence each other, given the power relationships and adjustment costs. When you ask this question and consider the answers, be careful to avoid the trap of blaming a performance issue on the lack of an organizational element such as a structure, process, or system. Keep in mind that the absence of one thing cann
ot cause the presence of something else. This “root cause-by-absence” explanation opens the door to complicatedness.
What is the context of goals, resources, and constraints that makes the current behaviors “rational strategies” for people? When you answer this question, be careful not to explain behaviors—actions, decisions, and interactions—by invoking people’s mentality or mind-set. These are tautological explanations at best. They often put the guilt on the individual, or a group of individuals, while obscuring the real issues. Instead, understand what makes cooperation avoidable or counterproductive for people, in their current context of goals, resources, and constraints. A few possibilities that may make people avoid cooperation are:
An abundance of resources that remove interdependencies and fuel dysfunctional self-sufficiency.
Enough power to avoid cooperating.
Not enough power to take the risk of cooperating. Some roles are so powerless that they would bear all the adjustment cost and not gain enough back in return; they are better off isolating themselves.
All the stories we have presented in this book—InterLodge, MobiliTele, RapidTrain, GrandeMart, and so on—show that an improper understanding of individual behaviors and how they combine to produce performance led companies to miss the real problem and thus take complicated, counterproductive measures.