STRUCTURAL INERTIA AND ORGANIZATIONAL CHANGE,
By Michael T. Hannan and John Freeman:
Review and Application
Michael Hannan and John Freeman, in their paper Structural Inertia and Organizational Change, present an argument regarding the ability of organizations, of various size and age among other aspects, to change course either at their core or their peripheries. Using the base biological principle of the Theory of Natural Selection as a guide, the framework for an organization to change, and even more so what hinders an organization from being able to change is theorized. The hindrance of change is referred to by the authors as “structural inertia”, the Newtonian concept that an object, or in this case an organization, will remain at rest (or in motion) unless acted upon it by an outside force. This paper was published in 1984, and perhaps because of its importance, many of the ideas presented have disseminated throughout popular research since, making the hypotheses proposed here familiar and anticipated. However, Hannan and Freeman elucidate upon a few points that are especially revealing when one regards organizational change including the ruminations of whether “social change, like biotic evolution, [can] be blind”, and the concept of “organizations arise[ing] to fill the gaps created by market failures” and what are the characteristics of such organizations, as well as the assertion that organizational size lessens the probability of death (Hannan & Freeman, 1984). These three specific concepts, though fresh and interesting, (and the focus of this review) do not fully encompass the depth of the theory presented here, which in summary is that organizations are subject to selective pressures, just as organisms are in the natural world, from their environment and from within, the influence of which varies dependent upon the size, age, reproducibility, and accountability of the organization.
At the start of their paper the authors present a section titled “Transformation and Replacement” beginning it with an excellent explanation of Natural Selection:
Innovations are not produced because they are useful: they are just
produced. If an innovation turns out to enhance life chances, it will be
retained and spread through the population with high probability. In this
sense, evolution is blind. (Hannan & Freeman, 1984)
Thusly they provide the basis for an extremely interesting debate about whether or not organizations, change upon the supposed conscious directives of their human occupants, or whether organizational change can occur as blindly as evolution does in the natural world. Key to understanding these concepts is comprehending that just because evolution proceeds blindly it does not do so without purpose. Evolution is purposeful in that it is constantly moving organisms toward a genetically “more fit” version of themselves. Like the constant evolutionary pressure on an organism to become more fit, individuals within an organization can apply a similar pressure to attempt to drive organizational change or strategy. However, in turn these pressures may manifest themselves in totally unexpected ways throughout a firm, therefore resulting in a random evolution toward more fit processes and structure in an organization. So, organizational change, like evolution in the biosphere, is blind when instituted with the objective of improving the organizations’ fitness. Conscious innovations however are subject to human motivations which may hinder their viability toward the organization as a whole. For example, new policies introduced may be self-serving to a certain individual within, and not contribute to the overall fitness of the organization; recent political endeavors by the US government illustrate a real world example of this. The lesson, for organizational leaders, is that strategy must always serve to improve the organizations’ fitness (make the firm a better competitor) and the successful structures, and processes, resulting from the implementation of such strategies should then be further selected and reinforced by top management to perpetuate and accentuate the effects of such successes. Until of course environmental conditions require leaders to again formulate and implement new strategy, following which the same process of “cream of the crop rising to the top” can occur, and failures can be adjusted or abandoned.
Just as the authors’ correct application of biological principles was evident in their presentation of evolutions blindness, so is the concept of organizations arising out of ashes of market failures, or their own firm’s failures, will regenerate more fit than before because it offers the opportunity for restructuring into a more competitive machine. This hypothesis is best demonstrated through metaphor. For example, one can visualize an industry as a forest ecosystem populated with different species of firms each operating within their own niche, competing for resources, and continually struggling for survival or dominating the competition and thriving. Now imagine that a fire rips through that community decimating resources, injuring species, restructuring the environment (not unlike the current global economic crises we are experiencing now). Every occupant of this ecosystem will now experience the scramble to reorganize in order to compete effectively in the new environment because structures and processes that once conferred competitive advantage may no longer apply, or may in fact be detrimental to a species’ fitness. One of these detrimental factors, according to Hannan and Freeman, may be size meaning that the larger an organization the lesser it’s ability to adapt to revolutionized market conditions, such as insurance giant AIG, or even GM, is experiencing today. This is especially true if the giant is resistant to radical restructuring, known in the business world as declaring bankruptcy. When a cataclysmic event changes an environment the first species to successfully repopulate the area have certain characteristics, one of which is crucial to prompt evolution enabling successful adaptation to the new environment. These species are known as R-Selected, the first-movers of Mother Nature with smaller body sizes, decreased investment in their numerous offspring, and the crucial aspect of which should be applied to a firm is that of short maturity time, which in turn would decrease the time of generational cycle giving more fit adaptations the ability to quickly proliferate throughout the gene pool. An organization can accomplish this feat by decreasing the cycle time for their strategic initiatives, (also committing as few resources as possible to each new initiative thereby decreasing the cost of innovation which in such a situation, if too high can prove deadly) that way effective processes and structures will show quickly and can then be selected and perpetuated effectively evolving the organization to the new environment as quickly as possible. The counter to R-selected species, are K-selected species which have a longer generation time, larger body sizes at maturity, later in life reproduction strategies, and increased investment in offspring. Organizations though, unlike organisms in nature, have the ability to switch from R to K-selected if consciously undertaken by management as a requirement to making the organization a better competitor for the long run. So following a cataclysm a firm should reflect R-selected characteristics, but as the environment becomes more stable the firm should move toward a more K-selected strategy to carry it through the long-run.
Sustainably successful productivity in an organization is usually a key goal of its leaders and with this longevity comes an increase in size which in turn leads to a high level of inertia in an organization, or a resistance to core changes. Though size is stated as a weakness of a firm Hannan and Freeman also see it as a strength, for they assert that this large size reduces the possibility of organizational death. Interestingly this theory parallels that of K-selected species because with a firms’ longevity also comes the increased investment in new generations (increased R & D spending, and available organizational slack), and the longer maturity time (or long-run strategic initiatives). So it is these abilities, congruent with size increases but distinctive, impart important resistance to negative environmental pressures, and allow a firm to remain highly competitive in the face of anything less than a cataclysmic event. The numerous generational cycles that a mature firm has undergone enables the Natural Selection process to mold it into perhaps the fiercest competitor within its industry. The firm becomes similar to the Great White Shark, the Alligator, and the Crocodile, who are extremely resistant to disease and other threats (human technologies are disregarded in this case) because they are ancient species who reached the pinnacle of their evolutionary processes millions of years ago, and who are able to weather ice ages and asteroid collisions that wiped out numerous other species. So the more generational cycles, or strategic implementations (not necessarily size), an organization experiences, as long as the costs of such are monitored to be adequate and not exorbitant, the better a competitor it will become making it more resistant to organizational death, and the increase in size is just a side effect. (Anonymous, 2000)
In conclusion, the application of Natural Selection theory to organizational processes and structure in the attempts to explain and enhance organizational strategy changes can be highly successful as the correlations between biological systems, from the level of organisms to the biosphere, can be used in direct comparison. It is important to remember though that everything in nature exists on a bell-shaped curve or on a sliding scale, and everything is continually dynamic the only absolute being that nothing is absolute; there is no such thing as static, and to sustain profitability and productivity one must always be selecting to keep evolution always moving forward toward increased fitness. Therefore organizational leadership must take a lesson from Mother Nature and act as that agent of random selection always assisting their firm in achieving a better state of fitness, through regularly examination and renewal of strategic initiatives and implementation and constant adjustment, to maintain productive organizational homeostasis and repeatedly reach organizational goals.
RESOURCES
Anonymous. (2000, June 15). Biosphere Field Notebook. Chiracahuas National Monument, New Mexico: N/A.
Hannan, M. T., & Freeman, J. (1984). Structural Inertia and Organizational Change. American Socioligical Review , 49, 149 - 164.
Wednesday, March 11, 2009
Wednesday, December 10, 2008
The Co-Captain Theory- The Path to Organizational Homeostasis
There has been much discussion and rumination on the how a perfect organization should be structured. We have observed numerous examples of successful and deficient corporations and how their organizational structures contribute to both pathways, but when one must declare how the ideal organization should be designed one must first define what exactly an ideal organization is, and the qualities that are required. First, all the flourishing organizations we examined displayed a strong sense of shared purpose that was pervasive from the CEO to the front-line employees, leading those within the organization to believe in why and what they do to the deepest levels of their minds and to the higher levels of their needs hierarchies. Secondly, the organization must operate on “the edge of chaos” without the burden of “external sanctions” basically meaning that they cannot handcuff themselves to quarterly earnings or short-run sales goals, that the organization and its leaders must be focused instead on the long-run sustainability of their company. By no means are these two aspects an exhaustive list of what an organization needs to be successful but in a sense if people know what they are fighting for, and believe that it is worth fighting for they will always fight until they win, and often what is worth fighting for is not popular by any means nor is it ever easy. Even if these two aspects are met an organization may still falter if not structured properly to allow for maximum adaptability and continual learning, and therefore may fail.
Granted that these underlying qualities are met (especially in an organizations’ leadership) how then does one arrange their personnel to best achieve their purpose? The solution is simple and elegant, inspired by the authors’ main experiences in observing our natural world and on the athletic field. Instead of Executive Vice Presidents, or Heads of Divisions, there should be Co-Captains leading teams in tandem, providing a sense of balance in leadership to their departments and also providing dual feedback to their CEO, all enabling the company to function like a productive ecosystem, and a gracefully structured human body, and an exciting championship baseball team (Please refer to the attached diagram). This theory is in contrast to the individual spirit of accomplishment and burden we love here in the United States, but as stated before our organization requires those who populate it to be committed to the shared purpose, individual pursuits and selfish scheming have no place in the ideal organization and a CEO willing to institute the co-captain theory must not fear letting those whose commitment is shallow and egocentric find their place somewhere else.
So once the “right people are on the bus” how does one pair individuals in order to best utilize the co-captain theory? Well, since balance is a key goal of the theory one must carefully choose individuals that have different and complementing strengths and weaknesses. For example a choosing one captain that has a more risky business philosophy and pairing that individual with another that has a more conservative business philosophy. Or one whose greatest strength is their ability to communicate effectively while the others’ strength lies in numerical analysis. Rarely are there singular individuals who strengths are so wide and diverse that they do not need input and assistance from outside sources. And even if they don’t, such individuals are usually intelligent enough to realize that listening to all ideas only make one stronger. These co-captain pairs must be chosen carefully, therefore the CEO must directly observe individuals that they would consider candidates for the posts, and they must gather evidence from the candidates’ subordinates. The CEO must use their foresight to envision how a possible partnership would function. It is not necessary for these partnerships to be all sunshine and roses either, the co-captains must be able to constructively criticize each other without behaving defensively or immaturely, and their behaviors should always function to serve the organizations’ purpose. In this aspect the CEO must have zero tolerance otherwise the co-captain theory will not function properly. Meaning that if a captain the CEO assigned is behaving out of purpose that person must lose their position of authority immediately, at least temporarily, and if through this removal that individual does not recognize and amend their behavior then it is revealed that being a co-captain of their division is not in their interest nor in the best interest of the organization. Choosing the proper individuals for each co-captain position is a crucial beginning step, following the gathering of information, and the next one is for each individual and each co-captain team to understand and occupy their niche to perfection.
In an ecosystem when one describes a niche it refers to the environmental factors that influence the growth, survival, and reproduction of a species, it is not just a physical location of a certain organism or that organisms’ function and behaviors within that system. The niche an organism occupies is a result of their own morphology, as well as their morphology being a result of the niche they occupy. In a business organization it is recognizing that the decisions one makes are a result of functions of their division, and that the functions of their division are a result of their decisions. The size and shape of the beaks of Darwin’s Finches on the Galapagos Island are a result of the niche they occupy and they continue to occupy that niche because of the shapes of their beaks. Once one understands the reciprocal nature of a niche, then each co-captain can begin to better occupy that role. So each partnership must be aware of, comprehend, and be able to empathize with each other. Then when able to function properly in their niche (as individuals and a co-captain team) they can provide their influence on the system as best suited to the niche they occupy. Therefore it is not just the CEO’s responsibility to build functional teams, the co-captain teams themselves must identify and adapt to their environmental factors to maximize the growth, survival, and reproduction of their division.
Each co-captain will have different responsibilities in their niche operating ideally on opposite sides of feedback loops. Referring to the purpose of each co-captain should be ideally suited to governing either a reinforcing (or positive) feedback loop or a balancing (or negative) feedback loop. Obviously one’s personality and philosophy will reveal a penchant for governing one or the other and that individual should be assigned to that task. Though it is crucial for again for both individuals to understand and respect the others’ assignment as their niche cannot be occupied properly without the dual functioning. Arranging one’s organization to crux upon feedback loops will enable expedient changes of the revolutionary kind, and will also enable the small micro changes needed to correct volatile changes, both bringing the organization along their path of shared purpose and toward homeostasis. It is crucial to remember in a system which functions properly with positive and negative feedback loops input from both is constant, small adjustments are constantly being made from both sides. The co-captains must also not only provide proper input into the system below them but feedback in the co-captain system must travel upward as well. For the CEO is the like the brain which to function properly needs constant feedback from the body in order for it to make proper decisions to help the body survive, grow, and reproduce. Therefore the CEO must seek feedback from BOTH captains to acquire information, and must examine information both positive and negative (not related to the reinforcing or balancing feedback loops). And the organization that utilizes these loops of control, and information will be able to achieve that sustainable productivity and profitability.
Perhaps the co-captain theory is best explained through metaphor. Imagine your organization as a car, and the CEO is the brain of the driver, and the co-captains are the driver’s hands, one for the right and one for the left. Established is the fact that if the road is straight, and the car easily manageable, you may not need more than one hand, or no hands if you’re good with your knees, to keep the car between the lines. But rarely in the business world is the road straight and the car easily manageable. Most organizations are like an eighteen-wheeler, and most industries resemble Mt. Rose Highway. If you picture yourself driving an eighteen-wheeler up Mt. Rose, wouldn’t you want both hands on the steering wheel? Wouldn’t you want to be able to really crank it when you needed to get around a fifteen mph turn? Or wouldn’t you like to make those small corrections when a gust of wind causes your trailer to shimmy on a straightaway? Making it safely over the summit simply requires two hands working together. And an organization functioning smoothly requires the intelligent design of two individuals sharing responsibility for each department. Though the co-captain theory betrays the spirit of
Individualistic accomplishment we are so married to in this nation, it is something to be considered by those who wish their organization to function in the consistently shifting and incredibly competitive global business markets of the future.
ADDITIONAL NOTES ON IMPLEMENTING THE CO-CAPTAIN THEORY
· Co-Captains need not only exist at the top of the organization, one should disseminate co-leadership as far as possible. So if need be there should be Regional Co-Captains, then Area Co-Captains, then Local Co-Captains and so on.
· Co-captains should never directly govern teams larger than say 10 individuals. Example being Regional Co-Captains should govern a team of 10 Area Co-Captains, and each team of Area Co-Captains should govern a team of 10 Local Co-Captains.
· The Law of Rotation – Changes in those that occupy Co-Captain positions are encouraged. They should occur probably every few years, or upon request of the Co-Captain, to allow for fresh ideas to emerge
· Co-Captains – should be encouraged to run experiments, gain evidence, for possible changes in their division or to test the effectiveness of their feedback loops at generating the desired results.
Granted that these underlying qualities are met (especially in an organizations’ leadership) how then does one arrange their personnel to best achieve their purpose? The solution is simple and elegant, inspired by the authors’ main experiences in observing our natural world and on the athletic field. Instead of Executive Vice Presidents, or Heads of Divisions, there should be Co-Captains leading teams in tandem, providing a sense of balance in leadership to their departments and also providing dual feedback to their CEO, all enabling the company to function like a productive ecosystem, and a gracefully structured human body, and an exciting championship baseball team (Please refer to the attached diagram). This theory is in contrast to the individual spirit of accomplishment and burden we love here in the United States, but as stated before our organization requires those who populate it to be committed to the shared purpose, individual pursuits and selfish scheming have no place in the ideal organization and a CEO willing to institute the co-captain theory must not fear letting those whose commitment is shallow and egocentric find their place somewhere else.
So once the “right people are on the bus” how does one pair individuals in order to best utilize the co-captain theory? Well, since balance is a key goal of the theory one must carefully choose individuals that have different and complementing strengths and weaknesses. For example a choosing one captain that has a more risky business philosophy and pairing that individual with another that has a more conservative business philosophy. Or one whose greatest strength is their ability to communicate effectively while the others’ strength lies in numerical analysis. Rarely are there singular individuals who strengths are so wide and diverse that they do not need input and assistance from outside sources. And even if they don’t, such individuals are usually intelligent enough to realize that listening to all ideas only make one stronger. These co-captain pairs must be chosen carefully, therefore the CEO must directly observe individuals that they would consider candidates for the posts, and they must gather evidence from the candidates’ subordinates. The CEO must use their foresight to envision how a possible partnership would function. It is not necessary for these partnerships to be all sunshine and roses either, the co-captains must be able to constructively criticize each other without behaving defensively or immaturely, and their behaviors should always function to serve the organizations’ purpose. In this aspect the CEO must have zero tolerance otherwise the co-captain theory will not function properly. Meaning that if a captain the CEO assigned is behaving out of purpose that person must lose their position of authority immediately, at least temporarily, and if through this removal that individual does not recognize and amend their behavior then it is revealed that being a co-captain of their division is not in their interest nor in the best interest of the organization. Choosing the proper individuals for each co-captain position is a crucial beginning step, following the gathering of information, and the next one is for each individual and each co-captain team to understand and occupy their niche to perfection.
In an ecosystem when one describes a niche it refers to the environmental factors that influence the growth, survival, and reproduction of a species, it is not just a physical location of a certain organism or that organisms’ function and behaviors within that system. The niche an organism occupies is a result of their own morphology, as well as their morphology being a result of the niche they occupy. In a business organization it is recognizing that the decisions one makes are a result of functions of their division, and that the functions of their division are a result of their decisions. The size and shape of the beaks of Darwin’s Finches on the Galapagos Island are a result of the niche they occupy and they continue to occupy that niche because of the shapes of their beaks. Once one understands the reciprocal nature of a niche, then each co-captain can begin to better occupy that role. So each partnership must be aware of, comprehend, and be able to empathize with each other. Then when able to function properly in their niche (as individuals and a co-captain team) they can provide their influence on the system as best suited to the niche they occupy. Therefore it is not just the CEO’s responsibility to build functional teams, the co-captain teams themselves must identify and adapt to their environmental factors to maximize the growth, survival, and reproduction of their division.
Each co-captain will have different responsibilities in their niche operating ideally on opposite sides of feedback loops. Referring to the purpose of each co-captain should be ideally suited to governing either a reinforcing (or positive) feedback loop or a balancing (or negative) feedback loop. Obviously one’s personality and philosophy will reveal a penchant for governing one or the other and that individual should be assigned to that task. Though it is crucial for again for both individuals to understand and respect the others’ assignment as their niche cannot be occupied properly without the dual functioning. Arranging one’s organization to crux upon feedback loops will enable expedient changes of the revolutionary kind, and will also enable the small micro changes needed to correct volatile changes, both bringing the organization along their path of shared purpose and toward homeostasis. It is crucial to remember in a system which functions properly with positive and negative feedback loops input from both is constant, small adjustments are constantly being made from both sides. The co-captains must also not only provide proper input into the system below them but feedback in the co-captain system must travel upward as well. For the CEO is the like the brain which to function properly needs constant feedback from the body in order for it to make proper decisions to help the body survive, grow, and reproduce. Therefore the CEO must seek feedback from BOTH captains to acquire information, and must examine information both positive and negative (not related to the reinforcing or balancing feedback loops). And the organization that utilizes these loops of control, and information will be able to achieve that sustainable productivity and profitability.
Perhaps the co-captain theory is best explained through metaphor. Imagine your organization as a car, and the CEO is the brain of the driver, and the co-captains are the driver’s hands, one for the right and one for the left. Established is the fact that if the road is straight, and the car easily manageable, you may not need more than one hand, or no hands if you’re good with your knees, to keep the car between the lines. But rarely in the business world is the road straight and the car easily manageable. Most organizations are like an eighteen-wheeler, and most industries resemble Mt. Rose Highway. If you picture yourself driving an eighteen-wheeler up Mt. Rose, wouldn’t you want both hands on the steering wheel? Wouldn’t you want to be able to really crank it when you needed to get around a fifteen mph turn? Or wouldn’t you like to make those small corrections when a gust of wind causes your trailer to shimmy on a straightaway? Making it safely over the summit simply requires two hands working together. And an organization functioning smoothly requires the intelligent design of two individuals sharing responsibility for each department. Though the co-captain theory betrays the spirit of
Individualistic accomplishment we are so married to in this nation, it is something to be considered by those who wish their organization to function in the consistently shifting and incredibly competitive global business markets of the future.
ADDITIONAL NOTES ON IMPLEMENTING THE CO-CAPTAIN THEORY
· Co-Captains need not only exist at the top of the organization, one should disseminate co-leadership as far as possible. So if need be there should be Regional Co-Captains, then Area Co-Captains, then Local Co-Captains and so on.
· Co-captains should never directly govern teams larger than say 10 individuals. Example being Regional Co-Captains should govern a team of 10 Area Co-Captains, and each team of Area Co-Captains should govern a team of 10 Local Co-Captains.
· The Law of Rotation – Changes in those that occupy Co-Captain positions are encouraged. They should occur probably every few years, or upon request of the Co-Captain, to allow for fresh ideas to emerge
· Co-Captains – should be encouraged to run experiments, gain evidence, for possible changes in their division or to test the effectiveness of their feedback loops at generating the desired results.
Thursday, December 4, 2008
Organizational Silence – Manifestation of Our Deepest Fears
Organizational silence, when an organization develops, or encourages, behaviors where employees, managers, and CEOs develop a case of tight lips in controversial situations results from deep insecurities that all human beings possess. Whether it be fear of looking unintelligent, or being rebuked by a colleague or boss, or losing grasp on one’s power, or fear of validating something one’s equals may consider lesser, all work in concert to produce an environment where people will not raise their voices when necessary. Morrison and Milliken state that organizational silence results from “top managers’ fear of receiving negative feedback from subordinates” and from managements’ view that “employees are self-interested and untrustworthy”. On the opposite hand employees fear retribution from their bosses, and past experiences also lead the employee to believe that their advice would be ignored by their superiors. Therefore silence is perpetuated and reinforced on both sides of the coin.
Organizational silence is not just prevalent in the business world but we grow up learning to keep silent as all of societies’ visible, and underlying, caste structures reinforce these same silence starting in grade school. Think of the bully picking on the nerd as you walked home from school. Or maybe you were the bully or the nerd. Anyway, fear of the bully causes you to walk right by pretending that you didn’t notice the hazing, and fear of the tattle-tale label causes you to stay silent when you get home and your mother asks you how your day was. Bullies, most would agree act from insecurity and fear, and maybe that bully down deep really wants someone to say something to them about their behavior because they crave attention or need help correcting a deeper problem. So really we are taught to “mind our own business” at a very young age, and this mindset pervades our work environment. Meaning that if we are doing well in our position we fear rocking the boat, cause unfortunately sometimes when a boat rocks we fall out. But is it really that bad to fall out of a boat? Not if you know how to swim.
Therefore begins the cure for organizational silence, which the authors state lies in managers not “shooting the messenger”, and employees having the courage to “rock the boat”. It helps one to feel comfortable rocking the boat if they have worked on their balance, are wearing a life-vest, and have of course fallen out of the boat on at least one previous occasion. The best way to show someone that falling out of the boat is no big deal, is to of course jump out yourself first. When I used to guide kayaking trips on Catalina Island we had groups of students from Los Angeles whose ideas of adventure were a new video game. So when we would go out kayaking in the ocean obviously for safety reasons we had to teach them how to self-rescue in case they happened to fall out, therefore at the start of every lesson, no matter how cold the water was one of the leaders would go overboard on purpose to show that it wasn’t a big deal, and that it was easy to get back in. So it is on managers to speak first, and maybe it would be most effective at breaking silence if they contradicted their own superiors in front of their subordinates. For example if a new policy directive came down that the manager thought certain aspect of were ineffective, he should first consult his own boss on those specific aspects, but then when relaying the new directive perhaps that manager should confide in his subordinates the aspects that he thinks aren’t effective and then in turn ask his team what they thought were ineffective. That way everyone’s opinion can be expressed and subordinates know that their manager was willing to risk their position to live on the edge of chaos and without external sanctions.
Through ignoring or removal of those external sanctions and not fearing actions without a net, we can learn to let go of our fears of speaking up. I’ll wager that those who read this and think that they would have said something if they saw the bully hazing the nerd in grade school, or possibly did say something in that context, have better communicative relationships with their bosses and subordinates today than those who did not comment. They have a long-time pattern of breaking organizational silence therefore must pass on how they learned to do so and teach others to overcome those fears as well. Organizations should seek out those individuals and learn from their communication skills regardless of their root. Also our society has moved in a positive direction concerning silence in situations, so hopefully as we continue to evolve into better people both in our personal lives and professional, lessons learned in grade school will be positive influences on our future behaviors.
Organizational silence is not just prevalent in the business world but we grow up learning to keep silent as all of societies’ visible, and underlying, caste structures reinforce these same silence starting in grade school. Think of the bully picking on the nerd as you walked home from school. Or maybe you were the bully or the nerd. Anyway, fear of the bully causes you to walk right by pretending that you didn’t notice the hazing, and fear of the tattle-tale label causes you to stay silent when you get home and your mother asks you how your day was. Bullies, most would agree act from insecurity and fear, and maybe that bully down deep really wants someone to say something to them about their behavior because they crave attention or need help correcting a deeper problem. So really we are taught to “mind our own business” at a very young age, and this mindset pervades our work environment. Meaning that if we are doing well in our position we fear rocking the boat, cause unfortunately sometimes when a boat rocks we fall out. But is it really that bad to fall out of a boat? Not if you know how to swim.
Therefore begins the cure for organizational silence, which the authors state lies in managers not “shooting the messenger”, and employees having the courage to “rock the boat”. It helps one to feel comfortable rocking the boat if they have worked on their balance, are wearing a life-vest, and have of course fallen out of the boat on at least one previous occasion. The best way to show someone that falling out of the boat is no big deal, is to of course jump out yourself first. When I used to guide kayaking trips on Catalina Island we had groups of students from Los Angeles whose ideas of adventure were a new video game. So when we would go out kayaking in the ocean obviously for safety reasons we had to teach them how to self-rescue in case they happened to fall out, therefore at the start of every lesson, no matter how cold the water was one of the leaders would go overboard on purpose to show that it wasn’t a big deal, and that it was easy to get back in. So it is on managers to speak first, and maybe it would be most effective at breaking silence if they contradicted their own superiors in front of their subordinates. For example if a new policy directive came down that the manager thought certain aspect of were ineffective, he should first consult his own boss on those specific aspects, but then when relaying the new directive perhaps that manager should confide in his subordinates the aspects that he thinks aren’t effective and then in turn ask his team what they thought were ineffective. That way everyone’s opinion can be expressed and subordinates know that their manager was willing to risk their position to live on the edge of chaos and without external sanctions.
Through ignoring or removal of those external sanctions and not fearing actions without a net, we can learn to let go of our fears of speaking up. I’ll wager that those who read this and think that they would have said something if they saw the bully hazing the nerd in grade school, or possibly did say something in that context, have better communicative relationships with their bosses and subordinates today than those who did not comment. They have a long-time pattern of breaking organizational silence therefore must pass on how they learned to do so and teach others to overcome those fears as well. Organizations should seek out those individuals and learn from their communication skills regardless of their root. Also our society has moved in a positive direction concerning silence in situations, so hopefully as we continue to evolve into better people both in our personal lives and professional, lessons learned in grade school will be positive influences on our future behaviors.
Advanced Change Theory – Adaptation then Evolution, NOT Just Acclimatization
Quinn, Speitzer, and Brown, have developed a very sound theory on how to beget change in one’s organization calling it the Advanced Change Theory (ACT). They advocate that through committing to a series of relatively predictable, at least if one is familiar with previous works, such as The Fifth Discipline by Peter Senge, but explained in the language of histories greatest servant leadership advocates Jesus, Martin Luther King, and Ghandi. Using quotations from these three individuals is admittedly powerful, as is the behavioral examples elucidated upon. Some expected principles of ACT are of course examining oneself first, clarifying ones values and aligning behavior along those values, the all-powerful development of a common purpose (though presented with a new twist here), and developing partner-follower relationships. Though these principles are quite valid, their thinking was not as fresh, to me, as two of the other principles: first freeing oneself from the system of external sanctions, and second taking action to the edge of chaos. These two were particularly intriguing and clearly extremely difficult to master, though if one can practice what is right and learn to work without the safety net (of course in concert with all the others… sigh) one will be able to attain adaptive change easily, evolving ones organization into the most fit of their population for the long run, instead of just acclimatizing for the short run.
Obviously I am making a reference to terms that most would consider minor differences in semantics, as many would deem acclimatization and adaptation and evolution to be interchangeable terms. It should be no accident that Quinn, Speitzer, and Brown use the specific term adaptive change (somewhat redundant though) in describing the type of change the ACT produces. What they are advocating is perfectly understandable in biological terms as an adaptation is a trait favored by natural selection making the individual with it more fit than the competition, therefore the trait is passed on to the next generation, an inherited trait. As opposed to an acquired trait, or a “tool” an organism uses to acclimatize to their environment and acquires throughout their lifetime but does not pass on. The simplest example of an acquired trait would be the blacksmith who spends a lifetime pounding his anvil with the heavy hammer in his right hand. He builds a very muscular arm on a fit but asymmetrical frame, this trait makes him more fit as it helps him with his trade, providing food for his family, enabling him to reproduce more offspring. His children however will never be born with a huge right arm. Here lies the difference in traditional change theories, and the ACT. The authors state that “three-quarters” of changes attempted in organizations fail, or do not last, because there is a failure to change the human system. Meaning that corporations acclimatize, they do not adapt. And adaptive changes lead to evolutionary changes where a trait is so beneficial to fitness that it eventually perpetuates throughout the entire gene pool. But first begins adaptation and the ACT presents two interesting ways one’s organization can begin to adapt.
Imagine the first frog/fish-like animal to develop lungs to breathe outside the ocean. His frog/fish friends probably laughed at him hanging out up on the rocks, but when the bigger fish came up from below and ate those with no lungs they certainly weren’t laughing anymore. If that frog/fish had yielded to peer pressure, followed the norm, and not “freed [him]self from the system of external sanctions” where would we all be now. That freeing was crucial to making that adaptive change for the common good of the species. Just as George Zimmer puts his shareholders last in the list of his organizations priorities, and ignores the quarterly return rollercoaster in his decision making, so did the frog/fish. This freeing from external sanctions and influences is a marked quality of successful individuals and organizations, especially those who are successful at bringing about change such as Martin Luther King or Gary Loveman. This principle is especially important with regards to multinational corporations that are committed (supposedly) to social responsibility, such as Coca-Cola or Google. Coca-Cola when operating in countries with less-stringent or nonexistent labor and environmental laws, they should do the right thing and operate in the same manner they do on US soil because it is doing what is right. And when Google went into China they continued to operate their US-based search engine so that when Chinese people logged on in China they could then see what their government was filtering. Though Google did have to submit to censoring by the Chinese Government they came to the conclusion that any flow of information was an improvement, especially when couple with their original site so that citizens could then judge their governments’ actions themselves. These are the bold decisions required of business leaders, or frog/fish, and like Jesus allow public opinion, and short-term focus, to have little influence on them.
Along the same line of “freeing oneself from the system of external sanctions” is the authors’ idea of “taking action to the edge of chaos”, working without a safety net. Think of the risks the frog/fish took jumping out onto the rocks, not knowing what could have come of it, “building the bridge even as it is walked on”. Again evolution can illustrate the authors’ point as radical evolutionary changes have always occurred on the edge of chaos, violent climactic events like ice ages, or meteor collisions with earth. If the chaos is not sufficient enough change will be traditional and fleeting, an acclimatization not an adaptation. Look at our nation’s founding fathers who would have been hung as traitors had we lost the Revolutionary War, they were true ACT practitioners working without a safety net to give birth to their shared vision. This shared vision riding hell-bent on the edge of chaos allows those involved to “stretch themselves to behave according to that vision, they can become a revolutionary force.”
Here finally the authors again use biological terms that ease the understanding of their principles, and uniquely coin the word altruism in their description of vision for the common good principle. Interestingly altruism is a very common behavior shown in animal societies that operate extremely productive organizations, and Quinn, Speitzer, and Brown state that “sacrifice for a purpose when the role model is acting in an altruistic fashion” is essential to the ACT. None would argue that meerkat populations operate in a very common purpose oriented organization, as is their survival imperative, therefore one would not be surprised to see altruistic behavior such as a sentry cat acting as a decoy to draw predators away from a nursery den at great personal risk. Similarly if an employee can observe a CEO risking their own survival for a policy initiative, or a political leader risking re-election in his district to do the right thing for the population as a whole, that will inspire employees to do their job to the best of their ability in service of that vision and citizens to rise up to support what is right.
In conclusion it seems that business leaders have finally begun to learn from historical leaders and perhaps it is time to learn from scientific study, especially the biological sciences. Why should a corporation not function like an organism? Animals are regulated by feedback loops companies should be next. Why should businesses not organize like an ecosystem? A vertical, horizontal and circular inter and intra-dependence between, suppliers, vendors, customers, shareholders, employees, managers, departments and CEO’s. Moving forward as we begin to leave old ideals of paternalistic management styles, and business practices that have been proven short and near-sighted behind, perhaps Mother Nature should be the new business professor as she has truly endured long-term volatility all while sustaining substantial productivity, the basic goals of any business endeavor.
Obviously I am making a reference to terms that most would consider minor differences in semantics, as many would deem acclimatization and adaptation and evolution to be interchangeable terms. It should be no accident that Quinn, Speitzer, and Brown use the specific term adaptive change (somewhat redundant though) in describing the type of change the ACT produces. What they are advocating is perfectly understandable in biological terms as an adaptation is a trait favored by natural selection making the individual with it more fit than the competition, therefore the trait is passed on to the next generation, an inherited trait. As opposed to an acquired trait, or a “tool” an organism uses to acclimatize to their environment and acquires throughout their lifetime but does not pass on. The simplest example of an acquired trait would be the blacksmith who spends a lifetime pounding his anvil with the heavy hammer in his right hand. He builds a very muscular arm on a fit but asymmetrical frame, this trait makes him more fit as it helps him with his trade, providing food for his family, enabling him to reproduce more offspring. His children however will never be born with a huge right arm. Here lies the difference in traditional change theories, and the ACT. The authors state that “three-quarters” of changes attempted in organizations fail, or do not last, because there is a failure to change the human system. Meaning that corporations acclimatize, they do not adapt. And adaptive changes lead to evolutionary changes where a trait is so beneficial to fitness that it eventually perpetuates throughout the entire gene pool. But first begins adaptation and the ACT presents two interesting ways one’s organization can begin to adapt.
Imagine the first frog/fish-like animal to develop lungs to breathe outside the ocean. His frog/fish friends probably laughed at him hanging out up on the rocks, but when the bigger fish came up from below and ate those with no lungs they certainly weren’t laughing anymore. If that frog/fish had yielded to peer pressure, followed the norm, and not “freed [him]self from the system of external sanctions” where would we all be now. That freeing was crucial to making that adaptive change for the common good of the species. Just as George Zimmer puts his shareholders last in the list of his organizations priorities, and ignores the quarterly return rollercoaster in his decision making, so did the frog/fish. This freeing from external sanctions and influences is a marked quality of successful individuals and organizations, especially those who are successful at bringing about change such as Martin Luther King or Gary Loveman. This principle is especially important with regards to multinational corporations that are committed (supposedly) to social responsibility, such as Coca-Cola or Google. Coca-Cola when operating in countries with less-stringent or nonexistent labor and environmental laws, they should do the right thing and operate in the same manner they do on US soil because it is doing what is right. And when Google went into China they continued to operate their US-based search engine so that when Chinese people logged on in China they could then see what their government was filtering. Though Google did have to submit to censoring by the Chinese Government they came to the conclusion that any flow of information was an improvement, especially when couple with their original site so that citizens could then judge their governments’ actions themselves. These are the bold decisions required of business leaders, or frog/fish, and like Jesus allow public opinion, and short-term focus, to have little influence on them.
Along the same line of “freeing oneself from the system of external sanctions” is the authors’ idea of “taking action to the edge of chaos”, working without a safety net. Think of the risks the frog/fish took jumping out onto the rocks, not knowing what could have come of it, “building the bridge even as it is walked on”. Again evolution can illustrate the authors’ point as radical evolutionary changes have always occurred on the edge of chaos, violent climactic events like ice ages, or meteor collisions with earth. If the chaos is not sufficient enough change will be traditional and fleeting, an acclimatization not an adaptation. Look at our nation’s founding fathers who would have been hung as traitors had we lost the Revolutionary War, they were true ACT practitioners working without a safety net to give birth to their shared vision. This shared vision riding hell-bent on the edge of chaos allows those involved to “stretch themselves to behave according to that vision, they can become a revolutionary force.”
Here finally the authors again use biological terms that ease the understanding of their principles, and uniquely coin the word altruism in their description of vision for the common good principle. Interestingly altruism is a very common behavior shown in animal societies that operate extremely productive organizations, and Quinn, Speitzer, and Brown state that “sacrifice for a purpose when the role model is acting in an altruistic fashion” is essential to the ACT. None would argue that meerkat populations operate in a very common purpose oriented organization, as is their survival imperative, therefore one would not be surprised to see altruistic behavior such as a sentry cat acting as a decoy to draw predators away from a nursery den at great personal risk. Similarly if an employee can observe a CEO risking their own survival for a policy initiative, or a political leader risking re-election in his district to do the right thing for the population as a whole, that will inspire employees to do their job to the best of their ability in service of that vision and citizens to rise up to support what is right.
In conclusion it seems that business leaders have finally begun to learn from historical leaders and perhaps it is time to learn from scientific study, especially the biological sciences. Why should a corporation not function like an organism? Animals are regulated by feedback loops companies should be next. Why should businesses not organize like an ecosystem? A vertical, horizontal and circular inter and intra-dependence between, suppliers, vendors, customers, shareholders, employees, managers, departments and CEO’s. Moving forward as we begin to leave old ideals of paternalistic management styles, and business practices that have been proven short and near-sighted behind, perhaps Mother Nature should be the new business professor as she has truly endured long-term volatility all while sustaining substantial productivity, the basic goals of any business endeavor.
Friday, November 21, 2008
The Men's Warehouse - Tying it all together, and bringin' it home!
It has come to my attention that there are some threads common to the successful companies we’ve studied this semester. Now, there is a clear distinction between “good” case studies and “bad” case studies. For example, SAS Institute was obviously a good one, while Nordstrom was obviously a bad one. Of the case studies we’ve examined the good ones all seem to operate in a similar way, having congruous base philosophies on the way they manage their employees, their organization and their customer relationships. The Men’s Warehouse (MW) is a striking, and clear, illustration of these similar qualities, and practices, which I believe to be clutch to all the good case study companies’ thriving productivity, and include a focus on long-term value and sustainable growth, upper management participation in training the bottom rung employees, and most importantly valuing the unquantifiable and the intrinsic. These three focal points help each company go above and beyond expectations for customer service, as well as shareholder earnings, and employee satisfaction.
Akin to the SAS Institute, the Men’s Warehouse began as the brainchild of its chairman George Zimmer. At first a very modest operation, where Zimmer himself worked on the floor and served customers, it grew immensely in the 1990s because of the excellent customer service and the low prices offered. And since its inception Zimmer has always been focused on the long-term value. This is demonstrated by his statements regarding his company’s five stakeholder groups with employees being the most important with the customer, the vendor, the community, and finally the shareholder coming after. Obviously if one was only focused on that quarter, or the next, one would definitely not make a point of placing their shareholder last in their chain of focus. And in the case of The Men’s Warehouse their policies prove this standard to be valid and sincere. Versus Nordstrom who, despite a reputation for excellent customer service, espoused commitment for their employees but really instituted policies that were detrimental to employee satisfaction, possibly illegal, and whose true aim was maximizing quarterly earning numbers for investors. At SAS it was the private ownership that enabled the long-term focus, while at the Men’s Warehouse it is their hierarchy of stakeholder groups, combined with the charisma and sincerity of Zimmer and his top executives. If one is the lowliest employee at MW and hears the president talking about his appreciation and value for that individual in that position most likely because that is where they also started, that employee can believe those statements and carry it with them as they go about their daily activities. That sincerity provides a measure of inspiration to go above and beyond in one’s regularly for the customer because they know George Zimmer would do the same if he was in their position.
Hidden away within the commentary on each of these flourishing organizations is a management practice that reinforces and validates the rhetoric disseminating from the higher ranks. It is a practice common at Southwest Airlines, the SAS Institute, Harrah’s Entertainment, and of course The Men’s Warehouse. It is the direct involvement of upper management personnel in employee training in fact at the Men’s Warehouse “training was done almost exclusively by line managers and senior executives – there was relatively little specialized ‘training’ staff.” At The SAS Institute high-level executives welcomed new employees and ran new employee training sessions. Validity and sincerity in communications between upper levels of an organization and lower levels fosters an important team atmosphere and focuses all involved on the shared purpose of the organization, instead of an individual focus on my salary, my advancement, or my bonus/commission. Employees at large corporations, or even sizable regional companies, often have an ingrained skepticism or cynicism directed toward upper management personnel, almost a them versus us mentality most likely stemming from past histories of being “screwed” out of something like a bonus or benefits. Those on the Board, or the top management team, seem so removed from the daily struggle of the lowly employee, making it difficult to subscribe to initiatives that come down the chain of command both practically and intrinsically. But when that employee comes for their first day, or flies to their first Suits University, and their sales training is administered by their regions’ Vice President of Sales that employee is given the opportunity to stare that person in the face, learning from them directly, and therefore free to form their own opinion of that individual, instead of just trying to follow orders from a faceless title. It is a better utilization of power paradigms and is servant leadership in practice.
The employees at the companies we have studied this semester have all been in possession of something intangible, a quality that cannot be sufficiently described or measured, and that is never easily imitated, they all value the unquantifiable quality of human potential in their employees. At Southwest Airlines they are extremely careful to hire only those they know will fit into their culture but you ask someone what that is and they have difficulty answering they only know the type of personality required when they see it. At SAS Institute it is hiring employees with versatile skill sets, and independent streaks as micromanaging is a definite sin. SAS also provides employees with numerous benefits and perks, the effects of which on employee satisfaction cannot be quantified, and one only witnesses the effects in the continued blossoming of their stock value. This perspective of Men’s Warehouse management valuing highly the intangible and uncountable quality of human potential in their employees was fostered by the business philosophies subscribed to by George Zimmer. Zimmer is lucky enough to have an organization where he can apply his hippy liberal management style as the standard for the entire organization. He was probably ridiculed in business school for his flighty, uncountable, “soft” philosophies, but in the end he is able to laugh last and hardest because his approach proved exceptionally lucrative (especially considering the industry) and all should sit-up and pay attention, and if you want proof just look at the top line!
Akin to the SAS Institute, the Men’s Warehouse began as the brainchild of its chairman George Zimmer. At first a very modest operation, where Zimmer himself worked on the floor and served customers, it grew immensely in the 1990s because of the excellent customer service and the low prices offered. And since its inception Zimmer has always been focused on the long-term value. This is demonstrated by his statements regarding his company’s five stakeholder groups with employees being the most important with the customer, the vendor, the community, and finally the shareholder coming after. Obviously if one was only focused on that quarter, or the next, one would definitely not make a point of placing their shareholder last in their chain of focus. And in the case of The Men’s Warehouse their policies prove this standard to be valid and sincere. Versus Nordstrom who, despite a reputation for excellent customer service, espoused commitment for their employees but really instituted policies that were detrimental to employee satisfaction, possibly illegal, and whose true aim was maximizing quarterly earning numbers for investors. At SAS it was the private ownership that enabled the long-term focus, while at the Men’s Warehouse it is their hierarchy of stakeholder groups, combined with the charisma and sincerity of Zimmer and his top executives. If one is the lowliest employee at MW and hears the president talking about his appreciation and value for that individual in that position most likely because that is where they also started, that employee can believe those statements and carry it with them as they go about their daily activities. That sincerity provides a measure of inspiration to go above and beyond in one’s regularly for the customer because they know George Zimmer would do the same if he was in their position.
Hidden away within the commentary on each of these flourishing organizations is a management practice that reinforces and validates the rhetoric disseminating from the higher ranks. It is a practice common at Southwest Airlines, the SAS Institute, Harrah’s Entertainment, and of course The Men’s Warehouse. It is the direct involvement of upper management personnel in employee training in fact at the Men’s Warehouse “training was done almost exclusively by line managers and senior executives – there was relatively little specialized ‘training’ staff.” At The SAS Institute high-level executives welcomed new employees and ran new employee training sessions. Validity and sincerity in communications between upper levels of an organization and lower levels fosters an important team atmosphere and focuses all involved on the shared purpose of the organization, instead of an individual focus on my salary, my advancement, or my bonus/commission. Employees at large corporations, or even sizable regional companies, often have an ingrained skepticism or cynicism directed toward upper management personnel, almost a them versus us mentality most likely stemming from past histories of being “screwed” out of something like a bonus or benefits. Those on the Board, or the top management team, seem so removed from the daily struggle of the lowly employee, making it difficult to subscribe to initiatives that come down the chain of command both practically and intrinsically. But when that employee comes for their first day, or flies to their first Suits University, and their sales training is administered by their regions’ Vice President of Sales that employee is given the opportunity to stare that person in the face, learning from them directly, and therefore free to form their own opinion of that individual, instead of just trying to follow orders from a faceless title. It is a better utilization of power paradigms and is servant leadership in practice.
The employees at the companies we have studied this semester have all been in possession of something intangible, a quality that cannot be sufficiently described or measured, and that is never easily imitated, they all value the unquantifiable quality of human potential in their employees. At Southwest Airlines they are extremely careful to hire only those they know will fit into their culture but you ask someone what that is and they have difficulty answering they only know the type of personality required when they see it. At SAS Institute it is hiring employees with versatile skill sets, and independent streaks as micromanaging is a definite sin. SAS also provides employees with numerous benefits and perks, the effects of which on employee satisfaction cannot be quantified, and one only witnesses the effects in the continued blossoming of their stock value. This perspective of Men’s Warehouse management valuing highly the intangible and uncountable quality of human potential in their employees was fostered by the business philosophies subscribed to by George Zimmer. Zimmer is lucky enough to have an organization where he can apply his hippy liberal management style as the standard for the entire organization. He was probably ridiculed in business school for his flighty, uncountable, “soft” philosophies, but in the end he is able to laugh last and hardest because his approach proved exceptionally lucrative (especially considering the industry) and all should sit-up and pay attention, and if you want proof just look at the top line!
Thursday, November 6, 2008
Harrah's Entertainment - Use that technology baby!
Competitive advantage is often discussed in business courses but it is a relatively undefined concept that can vary widely between industries and organizations. In the gaming industry the competitive advantage was long considered to be the ability to attract “high-rollers”, or high-value customers, because they visibly spent a much higher percentage of money gambling than the average every-day gambler. Harrah’s CEO Gary Loveman stated that there was an “if you build it, they will come” attitude in large casino business practices, which couple with the concentration on high-rollers, led Harrah’s to an earnings plateau in the 1990’s. The company’s then CEO, Phil Satre, had a unique vision for his organization and through savvy use of available computer technology the company recognized Harrah’s target customer base and then revolutionized the way they serviced them on their casino floors. This diversion in customer service proved extremely lucrative. The company also established a system of tracking customer information that can be utilized for years to come in retaining customers, all whom have such positive experiences at Harrah’s casinos that through sheer word of mouth Harrah’s can grow its customer base. Though Harrah’s experience was certainly ground breaking within their industry, the lessons they learned can be easily applied to other industries, because there is a quantitative basis to their operations which anyone could duplicate.
It is easy to see why business would want to focus on high-value clientele, as those customers spend more, utilize services more, usually have influential relationships that could increase one’s business, and because it is simply a sexy concept of closing a big dollar deal or ingratiating oneself to a high net worth individual. Many businesses do this such as banks, ski resorts, hotels, universities, and even governmental agencies; and most also have a measuring stick system to see who would fall into said category. Everyone wants a piece of the big players. Now truthfully in some businesses revenue streams are enhanced greatly by these individuals, or large percentages of revenues may come from this category, but in my opinion it is probably a much smaller percentage than realized. Harrah’s began their changes by thoroughly examining their numbers and realizing that 82% of their revenue came from 26% of their gamblers, and that it was everyday/weekly patrons who made up that 26%, not big spenders. This is something that most businesses would probably find true. There is a trend in the ski industry to become a destination resort (where one stays, eats, skis, shops etc. all in one location) because all the big-boy players are destinations. However many resorts just don’t have the terrain or traffic to achieve this and have seen better results catering to pass holders (every-day/weekend skiers) than attempting to bring in whales. Resorts have begun to offer their pass holders discounts on food, shopping, and in the bar (especially important to this season pass holder) as appreciation for being a loyal customer. And it has become more important to resort employees to recognize their frequent visitors which takes real skill when most people’s faces are covered with helmets and goggles. Businesses should do as Harrah’s did and really dive into their numbers to find exactly where their revenue is generated instead of adapting service methods and priorities just because it is what their competitors are doing, or is the industry standard. Though the concept is revisited weekly it seems, it is always good to remember that no sustainable competitive advantage is ever gained through something easily copied from someone else.
Currently those who learn to use the technology available, mine it properly, and utilize it properly within their organization will be at the top of their industry, regardless of what that is. As the gaming industry is largely computerized the technology involved offered Harrah’s a way to collect information on its customers gambling habits quite easily. This is something that can be duplicated in any industry simply by committing to growing their database properly throughout its activities, by for example collecting customer information each time a sale is made or repeated. However this is only the first step. For many years Harrah’s had this enormous database of customer information but were not utilizing it properly, a problem that many businesses have I’m sure. Under the leadership of Loveman they began to take unique interesting steps to slice and dice the data in such a way to gain the maximum benefit from it. They used information technology to establish automated systems that enabled them to further the advantage of collecting all that information. One of the most unique ways I found was their practice of sending a mailer, or tagging someone for a phone call, to someone who had spent at least $1000 and had not visited the casino in three months. Also they flagged those individuals who had lost money on their previous visit and targeted them for event invitations, so that individual would return under non-gambling circumstances and then perhaps (most likely) wet their whistle to begin pulling the one-armed bandit once again.
Importantly as well Harrah’s used their data and technology to drive customer service practices, and not just on the casino floor but everywhere within their casinos from the valet parking, to restaurants, to reception all employees were rewarded for providing good customer service. Not just as individuals either but as teams, therefore placing the onus on the managerial staff to instill a culture of excellent service within each of their departments, and then within their location as a whole. The practice of having pit bosses and casino floor supervisors paged when a customer activated their membership card in a machine, or at a table, is unbelievably ingenious. As a frequent gambler my total pet peeve is when I have to wait to get my free cocktails. As soon change my cash to chips at the blackjack table I would expect a cocktail waitress shortly, and if they do not appear soon I will get peeved. Now if I gambled at Harrah’s and gave my dealer my Rewards card which he would proceed to activate, there would a supervisor over there promptly and most likely calling over a cocktail waitress so Miss Burns can get her Corona with a lime. If that happened, I would be sure to return to Harrah’s more frequently than any other casino, period. Keeping all this in mind the next time that I have the inkling to play a little blackjack, I may just have to try my hand at Harrah’s and experience for myself just how wonderful their customer service is.
It is easy to see why business would want to focus on high-value clientele, as those customers spend more, utilize services more, usually have influential relationships that could increase one’s business, and because it is simply a sexy concept of closing a big dollar deal or ingratiating oneself to a high net worth individual. Many businesses do this such as banks, ski resorts, hotels, universities, and even governmental agencies; and most also have a measuring stick system to see who would fall into said category. Everyone wants a piece of the big players. Now truthfully in some businesses revenue streams are enhanced greatly by these individuals, or large percentages of revenues may come from this category, but in my opinion it is probably a much smaller percentage than realized. Harrah’s began their changes by thoroughly examining their numbers and realizing that 82% of their revenue came from 26% of their gamblers, and that it was everyday/weekly patrons who made up that 26%, not big spenders. This is something that most businesses would probably find true. There is a trend in the ski industry to become a destination resort (where one stays, eats, skis, shops etc. all in one location) because all the big-boy players are destinations. However many resorts just don’t have the terrain or traffic to achieve this and have seen better results catering to pass holders (every-day/weekend skiers) than attempting to bring in whales. Resorts have begun to offer their pass holders discounts on food, shopping, and in the bar (especially important to this season pass holder) as appreciation for being a loyal customer. And it has become more important to resort employees to recognize their frequent visitors which takes real skill when most people’s faces are covered with helmets and goggles. Businesses should do as Harrah’s did and really dive into their numbers to find exactly where their revenue is generated instead of adapting service methods and priorities just because it is what their competitors are doing, or is the industry standard. Though the concept is revisited weekly it seems, it is always good to remember that no sustainable competitive advantage is ever gained through something easily copied from someone else.
Currently those who learn to use the technology available, mine it properly, and utilize it properly within their organization will be at the top of their industry, regardless of what that is. As the gaming industry is largely computerized the technology involved offered Harrah’s a way to collect information on its customers gambling habits quite easily. This is something that can be duplicated in any industry simply by committing to growing their database properly throughout its activities, by for example collecting customer information each time a sale is made or repeated. However this is only the first step. For many years Harrah’s had this enormous database of customer information but were not utilizing it properly, a problem that many businesses have I’m sure. Under the leadership of Loveman they began to take unique interesting steps to slice and dice the data in such a way to gain the maximum benefit from it. They used information technology to establish automated systems that enabled them to further the advantage of collecting all that information. One of the most unique ways I found was their practice of sending a mailer, or tagging someone for a phone call, to someone who had spent at least $1000 and had not visited the casino in three months. Also they flagged those individuals who had lost money on their previous visit and targeted them for event invitations, so that individual would return under non-gambling circumstances and then perhaps (most likely) wet their whistle to begin pulling the one-armed bandit once again.
Importantly as well Harrah’s used their data and technology to drive customer service practices, and not just on the casino floor but everywhere within their casinos from the valet parking, to restaurants, to reception all employees were rewarded for providing good customer service. Not just as individuals either but as teams, therefore placing the onus on the managerial staff to instill a culture of excellent service within each of their departments, and then within their location as a whole. The practice of having pit bosses and casino floor supervisors paged when a customer activated their membership card in a machine, or at a table, is unbelievably ingenious. As a frequent gambler my total pet peeve is when I have to wait to get my free cocktails. As soon change my cash to chips at the blackjack table I would expect a cocktail waitress shortly, and if they do not appear soon I will get peeved. Now if I gambled at Harrah’s and gave my dealer my Rewards card which he would proceed to activate, there would a supervisor over there promptly and most likely calling over a cocktail waitress so Miss Burns can get her Corona with a lime. If that happened, I would be sure to return to Harrah’s more frequently than any other casino, period. Keeping all this in mind the next time that I have the inkling to play a little blackjack, I may just have to try my hand at Harrah’s and experience for myself just how wonderful their customer service is.
Thursday, October 30, 2008
Evidence-Based Management – Not Just for Medicine and Business!
Reading Mr. Pfeffer and Mr. Sutton’s argument in favor of evidence-based management, I was struck by the apparent lack of the use of evidence in the implementation of systems throughout the business world. According to the authors most business management seems to institute systems, for compensation, performance evaluation, product design etc., without experimentation to test its viability or without adjustment to be successful in a specific organization. Instead they state that most organizations utilize outdated information, copy successful organizations’ systems, and regularly “buy-into” whatever is the newest trend. The cause of these tendencies, and the true aspects that needs to be tweaked in the business world to transition to evidence-based management, results from the continuing paradigm of the “hero/paternal leader” and the focus on short-term bottom-line numbers. Both of these lead to the endless circular implementation of ineffective, or less-than- triumphant, systems, and until paradigms are broken companies will continue to do this because it is quicker, and cheaper, therefore providing enough of a short-term success so that everyone involved (i.e. the CEO, the consulting company, the executive team) gets paid.
It almost seems counter-intuitive that companies employ systems without evidence of their success, but looking at the attitudes still displayed in many organizations it is not surprising. If an organization has a leader that believes himself (or herself) to be that infallible “source”, the oracle, the father to his people, than that leader will always take the approach that “father knows best.” And that individual will be negative and skeptical toward any system that he did not invent himself, or locate himself, or implement himself. Because if one is all-knowing then one cannot learn anything from evidence anyway, therefore the systems implemented must be correct and it is the people within the system that are not effectively utilizing it. For one to experiment with ideas before implementing them, seems ultra-simple, but is difficult for the oracle-leader because if the leader’s idea fails in the experiment that leader’s fallibility is then on display for the organization which could potentially weaken that leader’s mandate. The paradigm of the oracle-leader must first be broken before any movement toward evidence based management can occur, and this can be done through continued education and training within an organization, and increasing the visibility in the media of truly successful organizations that utilize the partner-leader mentality.
Pfeffer and Sutton use an interesting example for a successful organization, in the US Women’s Soccer Team. It is true they have experienced unparallel success in a competitive market, (though they did leave out the fact that growing up in the US affords our women greater opportunities to learn the game versus other countries) however when one delves deeper into the organization it is clear that there is a true partnership between players and coaches, and that no idea is discounted if there is evidence that it may be successful. For example following the 1999 win in the World Cup the team’s success began to slow, and Brandi Chastain (a valuable defensive player), had well-publicized conflicts with a the team’s head coach, and her own ideas about how the team was being run, and the system the coach insisted upon (mainly with her on the bench, but it is still valid). She voiced her opinions to the coach, and the media, and the resulting conflicts ended with her off the team. The coach making the fundamental attribution error, and putting her own ego (married to her ideas she implemented through new system design) at the forefront, and blaming the people instead of truly examining the effectiveness of her new system. However, following Chastain’s removal the team’s success was hampered by the new system and the coach’s unwillingness to amend the system, and reinstate Chastain, resulted in the loss of her position and a reinvention of the US Women’s game-play style, leading to a gold medal in Athens.
The necessity in our business world today for delivering immediate short-term results has been shown repeatedly to lead to ineffective systems that need to be overhauled every few years to keep up with top industry producers, or to jump on the bandwagon of a new performance evaluation philosophy, or simply because it is easier and cheaper than taking the time to design and conduct experimentation to determine a system that can be effective and sustainable for an organization. Becoming sustainable may also be regarded as developing a system that functions successfully while quickly and constantly adapting to needed changes (the author’s frame this as always treating one’s organization as an unfinished prototype). Focus on the short versus long-term can be compared to buying shoes. If one needs a pair of black open-toed sling-back heels one can go to Payless and buy fake leather ones that roll off an assembly line in China, are poorly stitched with inferior materials that maybe will last one a year if worn regularly. Or, one can go to Macy’s and spend ten times what one spends at Payless, but one will get a product constructed of the finest Italian leather, and hand-crafted with excellent stitching and materials. Now this shoe, if treated properly will last the owner for a lifetime. Like an organization the expensive shoe must be cared for, small adjustments such as inserts, or leather treatments, or re-cobbling, may be needed but one has a shoe for life, versus having to repurchase the same shoe every year (because one always needs a black sling-back heel in their closet). By focusing on the long term one will eventually save money on their shoes, and will have a better product to boot! Now it goes without saying that rigorous shopping trips to find the right design, and taking the time to try out the shoe in the store and at home if possible, are necessary for this system to work. And as far as following the current trend (viewed as important in shoe-buying as business) if one focuses on a classic style one will always be suitably attired, and as trends are circuitous, every five to eight years one’s shoes will again be on the cutting edge. No doubt causing all your competitors to run out and buy the same style, most likely on the cheap, therefore ensuring one continues to have the best product in your closet and on your feet.
Until businesses begin to truly employ partner-leader relationships within the hierarchies of their organizations, and not just spout the rhetoric of such ideals, and begin to focus on long-term success and sustainability evidence-based management will always be second to the cheap quick fix and newest trend. In my opinion, this may be an underlying problem with our society as a whole, with everyone in search of a quick buck so they can keep up with the Jones’, but the fact that professional educators and business trend-setters, such as Jeffrey Pfeffer, are advocating a new approach is hopeful. It will take time but these philosophies will eventually, one day, trickle down through our society so and we will reinvent our paradigms, starting in elementary school, showing the world what a successful organization looks like.
It almost seems counter-intuitive that companies employ systems without evidence of their success, but looking at the attitudes still displayed in many organizations it is not surprising. If an organization has a leader that believes himself (or herself) to be that infallible “source”, the oracle, the father to his people, than that leader will always take the approach that “father knows best.” And that individual will be negative and skeptical toward any system that he did not invent himself, or locate himself, or implement himself. Because if one is all-knowing then one cannot learn anything from evidence anyway, therefore the systems implemented must be correct and it is the people within the system that are not effectively utilizing it. For one to experiment with ideas before implementing them, seems ultra-simple, but is difficult for the oracle-leader because if the leader’s idea fails in the experiment that leader’s fallibility is then on display for the organization which could potentially weaken that leader’s mandate. The paradigm of the oracle-leader must first be broken before any movement toward evidence based management can occur, and this can be done through continued education and training within an organization, and increasing the visibility in the media of truly successful organizations that utilize the partner-leader mentality.
Pfeffer and Sutton use an interesting example for a successful organization, in the US Women’s Soccer Team. It is true they have experienced unparallel success in a competitive market, (though they did leave out the fact that growing up in the US affords our women greater opportunities to learn the game versus other countries) however when one delves deeper into the organization it is clear that there is a true partnership between players and coaches, and that no idea is discounted if there is evidence that it may be successful. For example following the 1999 win in the World Cup the team’s success began to slow, and Brandi Chastain (a valuable defensive player), had well-publicized conflicts with a the team’s head coach, and her own ideas about how the team was being run, and the system the coach insisted upon (mainly with her on the bench, but it is still valid). She voiced her opinions to the coach, and the media, and the resulting conflicts ended with her off the team. The coach making the fundamental attribution error, and putting her own ego (married to her ideas she implemented through new system design) at the forefront, and blaming the people instead of truly examining the effectiveness of her new system. However, following Chastain’s removal the team’s success was hampered by the new system and the coach’s unwillingness to amend the system, and reinstate Chastain, resulted in the loss of her position and a reinvention of the US Women’s game-play style, leading to a gold medal in Athens.
The necessity in our business world today for delivering immediate short-term results has been shown repeatedly to lead to ineffective systems that need to be overhauled every few years to keep up with top industry producers, or to jump on the bandwagon of a new performance evaluation philosophy, or simply because it is easier and cheaper than taking the time to design and conduct experimentation to determine a system that can be effective and sustainable for an organization. Becoming sustainable may also be regarded as developing a system that functions successfully while quickly and constantly adapting to needed changes (the author’s frame this as always treating one’s organization as an unfinished prototype). Focus on the short versus long-term can be compared to buying shoes. If one needs a pair of black open-toed sling-back heels one can go to Payless and buy fake leather ones that roll off an assembly line in China, are poorly stitched with inferior materials that maybe will last one a year if worn regularly. Or, one can go to Macy’s and spend ten times what one spends at Payless, but one will get a product constructed of the finest Italian leather, and hand-crafted with excellent stitching and materials. Now this shoe, if treated properly will last the owner for a lifetime. Like an organization the expensive shoe must be cared for, small adjustments such as inserts, or leather treatments, or re-cobbling, may be needed but one has a shoe for life, versus having to repurchase the same shoe every year (because one always needs a black sling-back heel in their closet). By focusing on the long term one will eventually save money on their shoes, and will have a better product to boot! Now it goes without saying that rigorous shopping trips to find the right design, and taking the time to try out the shoe in the store and at home if possible, are necessary for this system to work. And as far as following the current trend (viewed as important in shoe-buying as business) if one focuses on a classic style one will always be suitably attired, and as trends are circuitous, every five to eight years one’s shoes will again be on the cutting edge. No doubt causing all your competitors to run out and buy the same style, most likely on the cheap, therefore ensuring one continues to have the best product in your closet and on your feet.
Until businesses begin to truly employ partner-leader relationships within the hierarchies of their organizations, and not just spout the rhetoric of such ideals, and begin to focus on long-term success and sustainability evidence-based management will always be second to the cheap quick fix and newest trend. In my opinion, this may be an underlying problem with our society as a whole, with everyone in search of a quick buck so they can keep up with the Jones’, but the fact that professional educators and business trend-setters, such as Jeffrey Pfeffer, are advocating a new approach is hopeful. It will take time but these philosophies will eventually, one day, trickle down through our society so and we will reinvent our paradigms, starting in elementary school, showing the world what a successful organization looks like.
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