Tuesday, 27 January 2009

Information overload – and how to deal with it (if you’re the one loading)

Most decisions in organisations require information. And we have to actively look for that information. We approach colleagues who have dealt with similar issues, are knowledgeable about the context, the customer or the technology, and try to incorporate their experiences and insights.

Nowadays, in our “knowledge economy”, many companies have realised the value of this internal expertise and set up databases, accessible through the firm’s intranet, that we can access and search. But now the problem is – more often than not – there is just so much of it…!

We’re swamped with information! How many databases can you access? How many documents can you read?! How many colleagues’ brains and wisdom can you electronically pick?!

And this is actually not only a problem for the people looking for information. In many organisations the providers of knowledge get rewarded when others use their stuff, in the form of increased respect in the company, heightened status, and sometimes even in terms of hard cash after their annual performance evaluations. How can you as a provider make yourself heard and seen in the plethora of the information quackmire?

Professors Morten Hansen and Martine Haas – at the time at the Harvard Business School – examined exactly this issue. They examined the electronic databases of one of the Big 4 accountancy firms and surveyed its 43 “practice groups” on their strategy of what documents to upload and when. And they came back with some pretty clear insights into what works and not.

You have to understand that these different practice groups face some simple but concrete choices: how selective are we going to be in terms of the documents we upload; are we going to upload pretty much everything we get our hands on or are we only going to put up a mere fraction of what we have? What is the maximum number of files we would like to put onto the system? Do we cover a fairly wide range of sub-topics or are we going to be much more concentrated in terms of the subjects we cover?

The trade-offs are pretty clear; if you upload very few documents, people can only access very few documents. But if you put up many of them, potential users may be turned off, lose the forest for the trees and turn their attention somewhere else in disgust (while swearing at you for the sheer overload and making rude hand gestures to their computer screen). But where does the balance lie?

Hansen & Haas found out that where the balance lies depends on what the topic is that you are publishing on. If the practice group was providing information on a topic that was covered by quite a few other groups (such as for instance “cost management”, “capital & asset management”, “financing & IPOs”), they were much better off being very selective in what they put on their site. Those who made few documents available quickly gained a reputation as the group which always delivered high quality stuff without swamping you with irrelevant, low-quality distractions. More people, as a result, accessed their pages.

In contrast, groups publishing on topics which were much less widely covered (such as “Peoplesoft”, “hospital service delivery” or “call centres”) were better off providing a much wider range of documentation, that readers could really sink their teeth in. They developed the reputation “for topic X you really need to go to practice group A” and flourished as a result.

Hence, the various suppliers of information within the company competed with each other for the attention of the employees looking for relevant knowledge. And, like in any market, they needed to adapt their strategy based on the specific product they were offering.

Monday, 19 January 2009

Human nature: Self-interested bastard or community-builder?

Whenever I ask executives how they should make an organisation more entrepreneurial, more customer-focused or simply more profitable they virtually always come back with: “incentivize people”.

Reward people for their ideas, their efforts and initiatives and they will deliver.

But always, when I ask them, if you would be on a fixed salary, would you still do your best to come up with new ideas, be entrepreneurial and deliver the best value you can for your customers? And then the answer is, invariably, “yes I would, because I don’t do it for the money”. Then people say they like being good at what they do, initiate new things, and deliver customers the best they possibly can.

But why do we always assume that other people are motivated – and motivated only – by money, and the way to get them to do stuff is by financially incentivizing them, but we? no we do things out of intrinsic motivation, because we want to do the best we can and contribute to the success of our firm. Is everybody really so different from us?

If you hadn’t noticed: that was a rhetorical question.

So why do we assume other people are only motivated by money? My guess is it goes back to why we organise our firms the way we do. How we, in our society, organise our companies is basically based on two sources: 1) The Roman army (i.e. a hierarchy with unity of command), 2) economics.

Economics has had a huge influence on how we govern our firms. For example, the use of stock options to incentivize and reward top managers comes straight out of “agency theory”, and the spread of this practice has been linked to the spread of “agency theorists” across business schools in the US after which, gradually, the phenomenon started to diffuse. And there are other examples.

Yet, economics – including agency theory – works from the assumption that people are rational and self-interested. The will work if they get rewarded for it. But if they don’t receive a direct reward or nobody can really observe their efforts, they will “shirk” and be lazy. Under this logic, indeed, you have to incentivize people; otherwise they won’t do a thing.

And I guess to some extent, we are indeed rational and self-interested, and hence motivated by money. However, there is another fundamental aspect to our human nature, one which through millions of years of evolution has made us the way we are: we like being part of a community and contribute to the well-being of that group.

Because we, humans, evolved as being part of a tribe. And people who were purely self-interested, shirking and lazy would be kicked out of the tribe, clubbed to death, if not consumed for dinner. So our gene base evolved into making us a bit self-interested but equally also community-lovers. Our deep human nature is that we all like doing things not only for our direct individual reward but also because it contributes to the community that we are part of. This community used to our tribe. Nowadays, it is often our organisation.

And if you, as a manager (i.e., headman) manage to tap into that deep fundamental need among your employees, you can build a powerful firm indeed. People love to do stuff that strengthens their firm, fulfils them with pride, and makes us feel stronger as a whole. We don’t need to be financially incentivized to do that; it’s our human nature.

Tuesday, 13 January 2009

Managers and leaders: Are they different?

All these articles about what are the characteristics of a good leader or CEO always make me feel a bit sceptical. Sometimes even nauseous. It always strikes me, when I look into the history of a company and analyse its strategic development that they seem to need top people with widely different characteristics at different points in time.

Take my favourite little English company; the model train maker Hornby. When they were in trouble about ten years ago, its board appointed a tough guy: Peter Newey. He slashed costs, rigorously cut in their portfolio and fired a bunch of people. He wasn’t the most popular guy on the block (he was wise enough not to live in the company’s home town Margate; he might have ended up with a knife in his back) but – be it in hindsight – people also respected him: it was what the company needed at the time, and it is doubtful they would have survived without him.

But then Hornby hired a people guy: Frank Martin. The first thing employees told me about him was: “he is extremely good at managing relationships” (something Newey wasn’t exactly renowned for; and that’s a euphemism). And he was; he built superb relationships with suppliers, customers, retailers and investors. And the company flourished.

Yet, could he have done the tough turnaround job? Doubtful. He simply has other qualities. He too was the right man for the job at the time – just like Newey was.

You see the same thing at companies over and over again. Take Apple; in its early days, the energetic and charismatic Steve Jobs was exactly what the spawning company needed. However, when down-to-earth CEO John Sculley took over (much to the chagrin of Jobs), the company had one of its most profitable runs ever; Sculley didn’t innovate, inspire bold new moves, or initiated great change; he focused on making money, and did that very well.

And that is what the company needed at that point in time. Later, when they needed to be pushed and driven into a new direction, Sculley could not give them one; it was Jobs’ time again, to inspire, initiate and make the company grow. And again he did that very well. The same happened at the famous Swiss watch-maker Swatch: Ernst Thomke created the organisation that led to the emergence of the innovative Swatch; subsequent CEO Nicolas Hayek took the invention and relentlessly managed the organisation into a long streak of dominance and profitability. There is not one type of leader that fits all; different companies, at different times, need different people.

In the classic Harvard Business Review article “Managers and leaders: Are they different?” author Abraham Zaleznik’s answer to this intriguing (and slightly provocative) question was an unambiguous “yes”: Leaders inspire, are emotional, if not neurotic, and they are born that way. Managers are very different; they are rational, balanced, unemotional and easy to get along with (be it perhaps slightly yawning). And it is not that one is superior over the other; different firms, at different stages of their development, need someone who inspires and does extraordinary things. But at other times, you need someone rational and objective, and perhaps slightly boring. Such a person may never be “a leader”, but is a damn good manager.

Sometimes we need to be inspired, take risks and dream up wacky things. Sometimes not. Banks come to mind. Sometimes, there is nothing wrong with a boring banker. Or a boring politician.

Friday, 9 January 2009

In a crisis, innovate

Recently, an executive – an ex-student – told me about his company. The company has a handful of competitors (it is a local business) highly similar to itself, and they’re all losing money in the current economic climate. Now one competitor – the worst-performing of the lot – has started to accept assignments for a fee below its cost price, just enough to cover its variable costs and at least earn back a tiny bit of its fixed costs. My ex-student asked me, “What can we do?”

The answer isn’t easy. But it is of course a rather typical situation to be in. It happens in most industries in trouble; some bloody competitor – often the lousiest one of all – starts to sell below cost price, out of pure desperation. Actually, my ex-student’s company responded in a way that is just as typical: they said, “But their product is inferior; we deliver quality, and customers will always want to pay for that” (and stuck to their comparatively high price). But customers didn’t. And they seldom do. Even if there is a minor quality difference – and it’s usually just minor; at least in the eyes of the customer – if the price difference is large enough, you’ll lose a lot of clients; more than you can afford.

So what can you do? What else can you do than lower your prices too, tighten your belt, hold your breath, and hope the crisis blows over before you bankrupt yourself? Because that’s what companies usually do.

I’d say the phenomenon is rather common, so the solution can’t be.

It reminded me of the English newspaper business some years ago. All quality newspapers were in trouble; stuff had started to move on-line big time, free newspapers such as the Metro had flooded the market and, on top of that, the general trend was that people simply read less. The four main players in London – The Guardian, The Times, The Daily Telegraph and The Independent – were all in decline but The Independent was the one widely expected to fall the first. The others had deep pockets due to rich owners and, due to a price war several years earlier, which had hit The Independent hardest, it was basically broke.

Now, The Independent could have done what most companies in such a situation do: moan about it, cut some more costs (or whatever is left of it) and attempt to prolong an inevitable death. But it didn’t. It took a plunge. It launched a small-sized version of its newspaper; the denounced “tabloid” format. All newspapers had been talking about it for a long time, but everyone had dismissed it as too risky (customers won’t like it), phoney or plain cheap. But The Independent launched it, and it worked (customers loved it). They survived.

Was it a coincidence that out of the four main players it was The Independent that launched the thing? Of course not. It was The Independent who basically had nothing to lose; it would have been the first one to go under had the industry continued as is. But it chose to not just prolong its demise: it took a plunge, and recovered.

The same happened to the famous Southwest Airlines. In its early days, when it was in deep trouble, it had to sell one of its four planes. Yet, it didn’t try to just save some more costs and continue with 75 percent of its operations, prolonging an inevitable decline; it took a plunge. It said “we’re going to run 100 percent of our operations but with just three planes!” and, in the process, invented the widely successful low-cost airline model, having scrapped all frills and complications, combined with the emergence of a must-succeed culture.

So, when you’re down: innovate. Don’t just wait for the inevitable to happen; prolonging your decline out of some false hope that you’ll weather the storm. Storms kill; get out of it while you can.

Sunday, 4 January 2009

Operation Market Garden

My father was a young boy during World War II. He grew up in a small village in the Netherlands just south of the river Maas, which, parallel to two arms of the river Rhine, flows from East to West, cutting the country in the half. In 1944, while the Allied Forces were moving north, approaching the Netherlands from Belgium after having landed in Normandy, the barn behind his home served as a make-shift German army hospital, while their commanders took up headquarters in the family’s living room. When the German soldiers left, the barn filled up with wounded allied soldiers instead, and the German commanders at his dinner table were replaced with their english speaking counterparts.

He never told me about what he saw in the barn. He did recall with fondness the sweets and cigarettes that the soldiers used to give him (he was 10 years old) – Germans and Americans alike.

Anyway, he used to tell me about the operations that the allied forces conducted to get across the big rivers, trying to advance into the North of the Netherlands. One of them was Operation Market Garden. Operation Market Garden was a huge operation – involving some 35,000 troops – in which soldiers, weaponry, vehicles and equipment were dropped near the bridges crossing the three rivers, to occupy and hold them while the Allied forces advanced through the south of the Netherlands, preventing the German troops from blowing them up.

Years later, I saw the (apparently very accurate) film “A Bridge too Far”, with the likes of Dirk Bogarde, James Caan, Michael Caine, Robert Redford, Sean Connery, Anthony Hopkins, and so on; clearly, a 1970s star cast.

I had become a professional student of organisations by then, having accepted a position as an assistant professor of strategy at the London Business School. It was then that I was struck by how similar the processes are that lead up to spectacular business failures to the processes that made Operation Market Garden a disaster.

Because Operation Market Garden was a huge failure. It became one of the biggest massacres of the whole war; for instance, more people died in Operation Market Garden than on D-day itself. The Allied Forces did not manage to hold the third bridge at Arnhem, and it took another 8 months before the north of the Netherlands was liberated; during the preceding winter, thousands of people, cut off from the agricultural lands of the south, perished in a famine known as “the hungerwinter”.

Yet, the commanders in charge of the operation had received many early warning signs that it was going to be a challenge; perhaps a bridge too far. The Dutch resistance had sent coded messages that that at least one German tank division was located unexpectedly close to the Allied Forces’ drop zone (their warnings were ignored); english spy plane pictures examining the drop zones had taken photographs of the tanks (the photographs were brushed aside), officers and a Polish general had expressed doubts about the preparations for the operation (their hesitations were dismissed), and soldiers questioned whether the radios, to be used for vital coordination and communication on the ground, would work (they didn’t).

So why did the general in charge of the operation (General Browning) ignore all these warning signs and proceed as is? Well, for the same reasons as why top executives go ahead with a big acquisition despite due diligence suggesting it’s a bad idea, and why companies go ahead with a planned product launch despite retailers and sales people warning the product isn’t ready yet: We call it “escalation of commitment”: There is a lot riding on the project, both in terms of what is at stake (the future of the company; the war) and in terms of the personal reputation of the individual in charge. Pulling the plug will make you look stupid and incompetent; succeeding will make you a hero. And you have made a very public commitment to seeing the project through, having championed it from the start. There is no way of stopping it now.

And when you plan an operation of this size – whether it is Operation Market Garden or a huge acquisition – you’re never going to be sure, and nothing is ever going to be perfect. When you pull the plug each time something is amiss, you’re never going to achieve anything; you need a high level of commitment and persistence in the presence of setback.

However, at some point, your commitment may escalate: Your persistence is no longer brave but foolish, as the warning signs are too ubiquitous. The trick is knowing when to pull the plug – but unfortunately it’s not like you can put that in a spreadsheet, hit enter and see the answer; it’s a judgement call.

And being too late to make this call – not realising it is has become too much – is, I am afraid, only human. It is difficult to bite the bullet and pull the plug. Yet the consequences of being human can be disastrous, and truly a bridge too far.