Hacking HR to Build an Adaptability Advantage
Looking at some of the examples cited by Gary in his introductory post, they typically illustrate businesses that have suffered from 1. Prioritising Short Term Profits 2. Short Term Thinking and 3. An Addiction to Core Revenue Streams.
Let's examine each of these three factors in turn, how they feed off each other and how they create barriers to adaptability.
1. Prioritising Short Term Profits
Many of the highest profile companies are also public companies and public companies have always been held accountable by their shareholders every quarter. The rise of the 'shareholder value' movement, the demands of banks, investors and analysts, the increasing speed of information flows and the desire to continually improve economic performance have all played their part in creating an environment in which short term results are deemed more important that long term performance.
2. Short Term Thinking
Businesses are typically judged on financial performance and if short term financial performance is the order of the day, it follows that strategic and personal career decisions will also gravitate towards short term thinking. Thinking about ambitious managers, new MBA graduates or the CEO, prevailing wisdom suggests that results must be achieved within a 1 - 3 year horizon or less. CEO tenures are falling and the amount of time spent in a job is falling too. If you can't show you've made a difference in a new job after 18 months - 3 years, then the impact of your CV is going to drop off and you're only as good as your last job. By extension, very few people would want to accept a role in which meaningful outcomes might only be available in 5 - 10 years (unless it's academia were talking about!).
This short term thinking around people's careers is often a catalyst when it comes to the creation and emergence of office politics. People put their own short term career trajectory and decisions ahead of innovations or alternatives that on paper offer superior or different outcomes but because they don't quickly enhance the incumbents career are shelved and never see the light of day. These two examples from Microsoft and Nokia highlight this while this Gapingvoid cartoon adds some humour!
3. Addiction to Core Revenue Streams
The combination of short term financial performance and the need for people's own careers to hold up over a similarly short time frame means that investing in innovation and creating adaptable outcomes is going to be hard, unless some tangible results can be shown within 1 - 3 years. Put another way, selling innovation, entering new markets and radically shaking up a product or service portfolio is difficult when internally, everyone is focussed on a short term horizon and an already successful track record of performance. As a result, a huge majority of businesses are addicted to their core revenue streams and this is the combined result of short term thinking from people in the business and the prioritisation of short term profits.
Looked at another way, it is hard to find examples of companies who have changed their business model/product offering in a substantial fashion and continued to thrive. IBM under Gerstner and Apple under Jobs bought about meaningful changes to the business models and revenue streams of their respective companies. Amazon is also a good example of a business that has successfully shifted it's strategy and customer offerings over time. On the other hand, one of the criticisms levelled at Microsoft has been their inability to successfully diversify away from their core divisions of Windows and Office, despite having more than enough resources to do so.
With the three factors above in mind, let's take a closer look at some recent examples of barriers to adaptability.
Apple, BlackBerry and Nokia
When the iPhone was first released, Apple had never made a mobile phone, Nokia was the undisputed market leader and BlackBerry market share was very healthy. Yet, despite the successes of both companies and their then very healthy financial positions, Apple trumped them both within a few years. Looking into the reasons why, both Blackberry and Nokia were in denial about the iPhone. Staff couldn't believe what they were seeing and came up with lots of reasons to stick with their own versions of the status quo (more on Nokia and Blackberry).
Blackberry and Nokia suffered from a focus on short term profits, short term thinking and their own internal addiction to their then core revenue streams and business models.
Kodak and Digital Cameras
Kodak invented the digital camera and yet through a combination of failing to embrace it's own creation, an over focus on competition with Fujifilm and the fall in chemical photo film sales, the business is a shell of its former self. These factors and others are well documented in this Wall Street Journal piece - The Demise of Kodak. As above, Kodak too suffered from short term horizons and an addition to their core revenues and was recently declared bankrupt.
Netflix and BlockBuster
Netflix began life with a very different business model to Blockbuster. Netflix started to post DVD's to people's homes and offering them no late fees whilst Blockbuster required customers to visit their stores in person and would always charge a fee if a movie was returned late. Fast forward a decade and Netflix is $3.2bn company whilst BlockBusters went into bankruptcy.
As with the two examples above, the same lessons apply to Blockbuster. A forced focus on short term profits resulting in short term thinking and an addiction to their existing business model, despite the warning signs and 10 year time frame within which to change, the firm still couldn't shake it's existing habits.
These first three examples all have elements of disruptive and technological innovation attached to them, along with the fact that the firms that came out worst in the competition either went into bankruptcy, or are a long long way off their previous levels of performance.
Microsoft and Google
Microsoft and Google, as highlighted by Gary offers another interesting perspective on adaptability. Both firms are performing very well by broad financial measures. Q3 2013 for Microsoft saw revenues of $20.5bn whilst Google's revenue in it's latest quarter was $14bn, up by 31%. The point here is that while both company's performance is solid, critics have often seen Microsoft as failing to adapt to changes in the IT industry and failing to make the most of it's innovation and R&D budget. On the other hand, Google is typically well regarded when it comes to innovation and adaptability, either via it's product innovations, failed experiments or some of its forward thinking management practices.
Despite the ongoing financial success of Microsoft, their struggles to match their competitors in the internet search, online advertising, mobile phone and tablet spaces all point to the three barriers to adaptability curtailing some of their efforts at adaptability.
Other Examples
Further to the four examples above, feel free to read about additional examples below. There's a mixture of the contemporary and historic, along with tech and non-tech. As an aside, there tends to be more examples from the technology industry given how fast moving it is, but the impact of the internet is also reaching other, more traditional businesses too.
- British Airways and EasyJet/Low Cost Airlines
- Cable TV and Areo
- Sony replicating it's analogue successes in a digital world
- The Music Industry and iTunes
In Conclusion
Each one of the examples above could easily be explored and researched in much greater detail. That said, they all share elements of the three factors outlined at the start. When it comes to barriers to adaptability and the ability of companies to tackle current levels of contemporary change, addiction to core revenue streams, short term profits and short term thinking all combine to make change an ongoing challenge.
Whilst one could debate the meanings, distinctions between and significance of strategic and operational change, face value would suggest that addiction to core revenue streams and short term profits impacts strategic change greatest, whilst short term thinking and the political dynamics that follow typically impact operational change the greatest. That said, perhaps the distinction between strategic and operational isn't as straightforward as it seems?
Update - May 13th 2013
1. Two further examples from Microsoft and the IT industry as a whole both add to the themes above.
Addiction is something that holds us from something new or craving for particular substance, activity or thing. It is just like internet addiction that we have nowadays. Technology has brought a milestone of advantages to our lives. But,the disadvantages has gone far also and influence as in a wrong way. True enough that we also need to pose for a moment for this. A break will be helpful, I guess. Break your electronic addiction with some common-sense tactics. They are not hard, and need no special drugs or resort treatment. Read more at: Break Digital Addiction
Dear All just picked up on my Economist a free book excerpt (Ipad version) a new book on the coporate governance and capitalism by Lord Sainsbury. Formerly science minister and a respected business visionary, he critiques neo liberal capitalism and short termism. He highlights the debt fuelled private equity bid for his family business and addresses many other issue around private business and public investment. His book gives a UK context to some of the governance and ethics discussion on this thread so thought it might be of interest to some of you.
Great dialogue within this forum! - I am in total agreement with all that is said. I would add HR has for years had the best of intentions and good motivation, however, the teaching of HR is based on out-mode thinking, assumptions and beliefs, in order to meet company targets of short term gain.
Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein
If we take one small example from HR the performance appraisal Deming wrote;
“Evaluation of performance, merit rating, or annual review… The idea of a merit rating is alluring. The sound of the words captivates the imagination: pay for what you get; get what you pay for; motivate people to do their best, for their own good. The effect is exactly the opposite of what the words promise.”
“The fact is that the system that people work in and the interaction with people may account for 90 or 95 percent of performance.”
“Someone in the audience asked Dr. Deming: “if we eliminate performance appraisals, as you suggest, what do we do instead?” Dr. Deming’s reply: “Whatever Peter Scholtes says.”
We need to establish new thinking, identify and challenge our assumptions and automatic beliefs. I feel a new sociality/ work environment needs new skills, maybe we need to move a way for “discussion” to “dialogue” definition of dialogue the root words. Dialogue is derived from ‘logos’ are meaning ‘the word’ and ‘dia’ meaning ‘through’. It can occur between any number of people, compare it with the term discussion, which means to break things up. It emphasises winning (as seeking victory over another), whereas dialogue is a win-win situation. I feel within this group there is great dialogue, however sadly in business the focus is on discussion winning lose and in the long term we are all losing and a very few are win.
Do we fundamentally need to rethink:
a) How we manage the system and not the people as per Deming, Senge, Seddon and other systems thinkers?
b) How we communicated? Possibly move to the Art of Participatory Leadership which offers a way to unleash untapped energy for transformation within any system which enables dialogue rather than discussion?
I note I have not mentioned I my Dyslexic so please excuse my spelling and grammar my faux pas can be amusing or just confusing I recently text a friend describing a good but very long meeting I had, then said I was just sitting having a cup of tea “naked”. Of course I meant knackered!
Hi Fiona,
a) How we manage the system and not the people as per Deming, Senge, Seddon and other systems thinkers?
Yes, I agree - my sense is that we need a better 'system' with which to manage people and help people manage themselves i.e. one that reflects the hierarchical reality of many contemporary organisations but that is equally able to adapt and work within the chaotic/systemic/fast pace of change that is now a major feature of business life.
Peter Cheese hit the nail on the head when he wrote:
To truly embed innovation and agility, we have to be able to collaborate, work across boundaries within and between organizations, to bring together disparate experiences and perspectives, and to properly empower people to come up with ideas and make change happen. In other words, we have to build different corporate cultures and ways of working.... HR can play a major part in creating these kind of more systemically agile organizations.
So yes, I think we do need a fundamental re-think, at least if we want to adapt to meet the current changes that everyone is facing at the moment.
Dear All. really enjoying thsi wider governance and purpose discussion. John Kay one of the better mainstream crictial economomists wrote in his book called Obliquity about how change happens when you don't focus on obvious goals. An example One how Paul O'Neill focused on delivering zero deaths at ALCOA and delivered better productivity, profitablity and shareholder returns. He was roundly denounced and ridiculed at the time for not trying to lift EPS or EBIt margin etc. but he triumphed.. No that its a template change is also about context.
Agreed John - there are similar sentiments outlined in The Puritan Gift, both historic and contemporary.
I agree Fiona, its not "just" about the people. The triple and now quadruple bottom line "people, purpose, planet and profit" offers a balanced approach to gauging the success of organizations. And to me, Purpose sets the tone for everything else.
So as our corporations are led by senior leaders who are currently benefitting from the shareholder value /short-term no-risk approach, what will it take to stop feeding the current system?
Hi Peggy, agreed re: triple and quadruple bottom lines.
What will it take to stop feeding the current system?
My feeling is that a new 'coalition' of factors and different interest groups will need to be created to mark a significant shift away from shareholder value. If we examine what supports the status quo right now, it's a combination of
1, Self-interested values
2. Shareholders
3. The banks and their analysts that service shareholders
4. C-Level executives
5. Executive compensation firms
6. The business press
7. Game-theory/market economic orientated academics and researchers
8. The fact that the current 'system' was established way before the internet and a 'networked world'
9. The tax regime and politicans (at least from a Private Equity perspective)
Obviously, flaws and mistakes are appearing in this 'consensus' above e.g. the flawed Harvard study to support austerity and the notion that the UK might enter a lost decade. That said, establishing a new system with different values at it's heart is going to take some time, but it feels like the wheels are turning...
Ricardo Semler at Semco in Brazil has created a sustainable organisation through breaking traditional business rules for 25 years. Through his radical approach to leadership, Semler is the leading advocate of the concepts known as participative management, corporate democracy and "the company as a village”.
He literally turned the current understanding of management on its head. He has taken the philosophies of Deming ("management is the problem") and Drucker ("dedicated employees are the key to success of any corporation") seriously and implemented them in a way that no one dreamed possible.
Deming offered fourteen key principles to managers for transforming business effectiveness. The points were first presented in his book Out of the Crisis. He also understood the theory of variation, (see his read bead experiment) that 95% of the output come from the system and not the people.
If we education people to be good people managers, we are focusing only on the 5%, rather than the 95%. Of course the workplace needs to be supportive, emphatic, respectful and a humane place to work. However, in terms of getting things done, in terms of being more effective, treating people well is only a small part of the answered. If the system is still set up for people to meet targets rather than work towards achieving a common purpose, people would still meaninglessly ticking boxes and shuffling bits of paper. If the system is still command-and-control, commanding then controlling with a smile will not make much difference to organisational effectiveness and success.
Semco’s 3,000 employees set their own work hours and pay levels. Subordinates hire and review their supervisors. Hammocks are scattered about the grounds for afternoon naps, and employees are encouraged to spend Monday morning at the beach if they spent Saturday afternoon at the office.
Fun quote:
"Semco has no official structure. It has no organizational chart. There's no business plan or company strategy, no two-year or five-year plan, no goal or mission statement, no long-term budget. The company often does not have a fixed CEO. There are no vice presidents or chief officers for information technology or operations. There are no standards or practices. There's no human resources department. There are no career plans, no job descriptions or employee contracts. No one approves reports or expense accounts. Supervision or monitoring of workers is rare indeed... Most important, success is not measured only in profit and growth." - Ricardo Semler
Hi Fiona,
Semco's interesting as it's very much the exception that proves the rule, along with Gore-Tex and maybe HCL, but there aren't too many firms like this - I wish I knew more.
There are some good ideas over at holacracy.org but I've typically found that the most innovative businesses from a cultural/sustainable perspective are startups. Hubspot, Zappos and Netflix all come to mind...
I guess the question is do startups have an advantage over existing business given that they start with a clean sheet of paper - I'd say yes. By extension, is it hard to 'retro-fit' these ideas into more established businesses, I'd also say yes given that finding good culture change/sustainable change case studies is hard.
Re: Demings 5/95% figures, I'm not sure I'd go along with that but perhaps I've misunderstood?
Hi again Christian - as above, I'd agree with your sentiments. I didn't know of the Porsche example though - very interesting and going as far as to be de-listed is a fantastic example of their commitment to longer term thinking.
Re: Paul Polman - yes, I think you're right on promoting his views and the possible interview - I wonder if this gets picked up by Gary et. al?
Bruce, thank you for the insightful snippets from Eric Schmidt. Replying to a comment whether a de-moralized organisation can lead to the downfall of a CEO, he answers: "It's fine if you have a de-moralized organisation as long as the stock price is up and you are making a lot of money" - I clearly disagree with this view.
In my own experience, taking decisions in order to please stakeholders who don't value the longevity and sustainable development of a company but want to make much money quickly often leads to a misallocation of capital and wrong compromises.
As an example, I am doubtful of Apple's decision to please shareholders by throwing their cash reserves at them, even going as far as taking up loans to do so. Although for tax reasons, this brings stakeholders with another set of more return- and predictability-oriented interests into the game at a time when innovation and risk taking should be encouraged. They are linking themselves more and more to the expectations game, something Steve Jobs rightfully avoided for most of his tenure.
Unfortunately I am not aware of many other sizeable examples such as Unilever. The only one coming to mind is Porsche in Germany. Before they were swallowed by VW they even accepted being thrown out of the stock index because they refused to publish quarterly figures and feed the expectations market.
I talked to Paul Polman of Unilever after the event and my feeling was that he would be happy to advocate his views publicly. Maybe he would be a good guest for Gary Hamel.
Hi Bruce,
another perspective on the pitfalls of short-term focus comes from the "expectations market" vs. "real market" discussion.
I recently had the opportunity to attend a small event with Paul Polman, the CEO of Unilever who shifted away from short-term results and consequently stopped discussing quarterly figures with analysts the first day into his job (His reasoning was: "they won't fire me on my first day, I guess" ;)). Hi intention was to stop serving the expectations market and create a better balance in serving different stakeholders.
To which degree are corporate decisions driven by "pleasing the expectations market", represented by short-term stock performance which in turn is driven by analysts and short-term investors? Who keeps focus sternly on their "real customer market" with a longer-term perspective?
I agree with the key messages of the book "Fixing the game" by Roger L. Martin in which he shows the detrimental effects of trying to please analysts, share-flippers and other transaction oriented investors vs. keeping focus on the real value generation for customers.
My feeling is that far too many executive decisions in publicly listed companies are driven by the "loud" expectations voiced by investors rather than the need for change occurring on the customer end.
Absolutely Christian - I didn't know of the Unilever example but I think it's compelling, not to mention tricky to pull of on a sustained basis. Do you have any other examples out of interest?
Here's a couple of quotes from Eric Schmidt (interviewed by Gary Hamel btw) where he states his views on this and they are broadly in line with the "expectations market". Quote 1 and Quote 2.
Google are lucky given their 'advertising dials' and very strong market position, so perhaps they can (and do) have the ability to innovate and have other priorities aside from their shareholders but I think they are very much the exception. Consider the trials and tribulations of Facebook since their IPO....
Hi John - thanks for your comment and I think you're spot on. As today's narrative goes, it's not about capitalism v. socialism, but about the type of capitalism that is being debated. In my mind, many of the fundamental building blocks of economic theory, certainly that which passes for 'mainstream thought', is ripe for critique, Adam Smith's Invisible Hand and John Nash's Game Theory come to mind.
That said, there's some very refreshing alternative perspectives offered by Daniel Kahneman in Thinking Fast and Slow but in terms of shifting the mainstream, I wonder if it's just a combination of 'death by a thousand cuts' and waiting for practitioner’s of existing paradigms to retire, ala Khun's Structure of Scientific Revolutions.
It'll be interesting to see if the Hackathon develops anything that creates sustained change. As I wrote elsewhere, I'm of the opinion that without a new strategic tool, business 'process' or any other way to add demonstrable value, not much is going to happen in terms of transforming HR, hackathon or otherwise!
I agree John; the issues run much deeper than the shareholder. Have you come across Just Banking? http://justbanking.org.uk/ they held a conference last year in Scotland. More recently last week the Transforming Finance conference was held in London http://transformingfinance.org.uk/
If I understand correctly is a bout ethical banking and how we can make finances work for the long-term benefit of society and the planet? I am going to a meeting tonight with a friend Chris, who was a Market Regulator at the Association of Futures Brokers and Dealers and then the International Petroleum Exchange. Chris was a whistle blower some years ago on fixing the Oil prices, this was all covered up! I am hoping to widen my limited under of how the financial markets work and what alternatives could be put in place.
Transformation starts at a thinking level, the HR Hackathon gives the opportunity to those in the profession to look wider and share ideas, learn and challenge assumptions. Universities are teaching obsolete knowledge on many courses including MBA and HR they tend to focus on liner thinking, is not now time to start supporting fuzzy thinking after all that show the brain work?
“We cannot solve our problems with the same thinking we used when we created them.”
Albert Einstein
Fiona. I will seek that out. Sadly the political economy of shareholder primacy dies hard. From a UK perspective Will Hutton's book The State We're in published in the early 90s, had a trenchant critique. Adair Turner the thoughtful intellectual who was UK Financial Regulator has also written extensively on this. This week I saw Robert Reich speak in London and his book Supercapitalism takes the short term shareholder fixation to task. My concern there is a widespread cognitive delusion that by focusing on one winner all will become winners. MBA and economics students continue to be schooled in Jensen and Meckling's elegant but simplistic principal agent theory for example which epitomsies this thinking.. The challenge for a more innovative and adaptable future is what we put in place. How can we think innovatively to adapt capitalism away from a short term mindset? No easy answers but lots of suggestions I am sure.Gary certainly has some ideas. Thnaks to you Bruce and everyone else who has enaged in thinking about this wicked problem.
Hi Bruce, good to see you again, I total agree with what you are saying. After reading The Shareholder Value Myth by Prof Lynn Stout. Her book challenges the ideology of shareholder value. “Debunking the Shareholder Value Myth,” traces the intellectual origins of shareholder-primacy thinking. It shows how the ideology of shareholder value maximization lacks any solid foundation in corporate law, corporate economics, or the empirical evidence.
A must-read for managers, directors and policymakers interested in getting us back in the business of creating real value for the long term.
Hi Fiona - thank you for your comment... yes, I'd agree... shareholder value seems to have skewed what used to be a much more balanced approach to managing the multiple stakeholders of an organisation. Analysts and investors now seem to call the shots almost exclusively which goes a long way to explaining a lot of what passes for 'strategy' these days.
Bruce you raise 3 killer enemies here as others have rightly liked and commented upon. I would also like to thank you for illuminating the case studies you have and would like to add a little something to the mix to underscore what you've said.
Nokia. I am reminded of the Doz and Kosonen work in the early 00s on Fast Strategy. Strategic Agility; Resource Fluidity and Collective Commitment. I think all 3 of these would help overcome (some anyway) of your killer 3 enemies but again, your points are well made. Clearly Nokia went from case study at one end to the wrong end in quick succession so it proves how critical keeping your "eye on the ball" is.
Let's hope we can get off this short-termist approach which leaves us lacking out in favour of a sustainable longer-term game giving us a plethora of success stories to mull over.
Great post - look forward to hearing some more from you.
Regards
Perry
Hi Perry, thank you for your comments - they are very much appreciated! I've not come across Doz and Kosonen, so I'll take a further look - have you seen any interesting case studies attached to their work?
Agreed - Nokia's change in fortunes was exceptionally quick by typical standards, but not so given some of the recent histories in the mobile handset space - Motorola and HTC also come to mind as firms whose results changed very quickly...
Likwise, I too hope we can get off the short term approach but the sway of the City and Wall St make this very hard. Private companies and to a lesser extent, the public and third sector organisations are different, but it's a tough one to shift - hence why I used the term 'addicition' - it's so hard to find firms that can 'kick the habit', so to speak and actually achieve a meaningful change to their business model and sources of revenue. Likewise, it's not for lack of cash, look at AOL, BlockBuster and Sony who have all struggled with this for the past 5 or 10 years or so.
Some great examples of failing organizations as a whole. And great examples of the importance of flexibility, of adaptability. Critical is to see that decisons where (ARE) made in function of aspects that shouldn't be main concern such as shareholders satisfaction. In fact shareholders should be worried that this is done, because this means that the focus is not on the market, not on the core business of the organization at all, namely sustainability and continuity... before short time profit that is. Great article Bruce,...
It's obvious that the short-term view puts too much influence in the hands of investors rather than in the BoD/C-levels of the company. Even if the company wanted to explore non-core business, the risk of failure would be seen as to high if it impacts the Q reporting. And the downside of the short-term view (i.e. the tree versus the forest), is that danger signs are not appreciated or understood until they are to late.
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