Creelman Research Library

Articles on people and organizations

Alternatives to Psychopathic Organizations

The book and film, The Corporation by Joel Bakan asks, “If the corporation were a person, what kind of person would it be?”  This question is not mere fancy for the corporation is a person in law with the same rights as a living man or woman.  Bakan answers the question in no uncertain terms, the corporation is a psychopath, singularly self-interested, irresponsible, grandiose, manipulative and lacking in empathy.  Psychopathic behaviour arises not because managers are bad people but because the form itself corrupts.

 The Corporation has received wide acclaim with even The Economist not disputing the diagnosis.  What is interesting is what The Economist did say, which was, “The film has nothing to say about the immense damage that can also flow from state ownership…[as in] North Korea.”  The idea that there are only two forms of enterprise, state ownership and corporations, has been widely spread—so much so that even the venerable Economist failed to see beyond it—but, it is not true.

Corporations and Organizations

As great management thinkers like Henry Mintzberg and Peter Drucker have pointed out we live in the age of organizations.  Organizations do great things. They amplify human effort.  The elimination of smallpox, the invention of the Internet, the building of pyramids and the discovery of DNA were all achieved by organizations.  However, none of these accomplishments arose from the particular form of organization called a corporation.  The corporation is a particular legal device for enabling organization, and, if you believe The Corporation, not a particularly good one.

 Alternatives to Corporations

There are a number of important alternatives to corporations.  One of course is government, which is a simplification because there many different kinds of legal structures around the world that guide and constrain government. 

There are also the not-for-profit organizations such as Medicins San Frontieres, Oxfam, The Red Crescent, and Toastmasters.  Drucker estimates there are over a million of these organizations in the US alone.

There are partnerships such as traditionally exist in law firms, consultancies, accounting firms, and some medical practices.  Partnerships are usually the best form of organization where the most important asset is the talent of individuals.

Another important form of organization is the cooperative or mutual.  One of the most successful for-profit organizations in Spain is Mondragón, a cooperative that is outperforming its corporate competitors.

Private firms play a huge role in the economy and allow the owners to do what they think is right, not what Wall Street analysts think will boost short term earnings.  Google, which has recently gone public, has tried to avoid the pitfalls of the corporate form through an odd set of statements committing it to maintaining its current culture.   It’s a brave attempt, but is unlikely to succeed. 

Dan Pink, author of Free Agent Nation, discusses confederations, which are not legal structures at all.  Confederations are the informal networks of partners that free agents build to amplify their effectiveness.

In The Support Economy, Harvard professor Shoshanna Zuboff predicts that in the next decade we will see the emergence of a different form of organization better suited to delivering the individual services consumers want.   She believes new legal structures will be required to support the evolution of these new for-profit entities.

The differences between corporations and other types of organizations are not trivial. Consultants from Hewitt Associates have told me that when the firm went public (moved from the legal structure of partnership to that of a corporation) everything changed.  This is a comment I’ve heard time and again from people who have suffered the transition from one structure to that of a corporation.  As one manager said, “All the fun goes out of the business.” 

 Altering the Corporation Form

No one denies corporations are useful, but the legal rules that govern them are man-made inventions and can be improved.  In his wonderful book Organizing America Yale professor Charles Perrow points out that it was only in the 19th century that U.S. lawmakers, who were likely bribed by business interests, gave corporations the right to own other firms.  This set the stage for a century of mergers and acquisitions that would have horrified Adam Smith.

The impact of changing laws is always hard to assess, but there is reason to believe the current laws governing corporations do not best serve the economy.

What Should We Do?

As people running organizations we have to ask ourselves: “Which form of legal structure is in our best interest?”  Private ownership, partnerships and cooperatives all have advantages—and disadvantages too. 

As citizens we should ask government to encourage different forms of organization, in particular different types of for-profit firms.  An economy driven by a mix of different organizational types will be more efficient than one dominated by large corporations.  For example, the Canadian health care system, one of the best in the world, works through a complex mixture of government, not-for-profit and private organizations.  It is routinely misunderstood as being government run health care. Neither a fully public sector nor fully corporate system would work as well as does the complex mixture of forms.

The Missing Soul

What makes the corporation unique as a form of organization is that it usually has no purpose other than making money.  All other organizations—potentially, and commonly in practice—have other broader and more human purposes.  USC professor Ian Mitroff says indications are that organizations which have a spiritual focus, which I’ll take to mean a goal beyond profits, outperform those that don’t. 

It is simply a mistake to think that corporations are equivalent with capitalism.  There are a number of legal structures in existence and an unlimited number that can be imagined that provide the basis for organizations.  Entrepreneurs should consider what form of organization will create the kind of legacy they really want.  Governments should be thoughtful in legislation.  Finally, investment banks should consider how to provide access to capital to firms others than corporations.

Upcoming Toronto Workshop on Evidence-based HR

HR analytics makes more sense when it sits in the broader framework of Evidence-based HR.

I felt it was time to set up some formal training on this so I’ve asked Carnegie Mellon’s Denise Rousseau to do a program in Toronto in September.

If you’re interested let me know (dcreelman@creelmanresearch.com)

Here the brochure:

Rousseau EBmgt Workshop 2014

Update on Org Design / Capelle Book

I feel organisation design is one of the most overlooked areas with HR.

Last year I interviewed an expert in this area: Ron Capelle.

The first chapter is now available for free here:

http://www.capelleassociates.com/optimizing-organization-design/#chapter-download

 

How Smart Does Your CEO Have To Be?

How smart does your CEO have to be?  I’ll give you the answer up front; they need to be smart enough to know they are not that smart.

Sydney Finkelstein, a professor at the Tuck School of Business, did a study of 51 cases of massive business mistakes in his book Why Smart Executives Fail.  Each story has its own flavour.  Rubbermaid focused on outstanding innovativeness while retailers were simply demanding lower costs.  Long Term Capital Management took enormous (and fatal) risks based on their faith in their own economic models.  When Roger Smith ran General Motors he was sure that robotics was the magic answer to Japanese competition.  In each case these proved to be poor strategic choices.  However, bad strategy was never sufficient in itself to cause disaster.  Disaster only happened when the management was so convinced they were right, so confident they had the answers, and so sure they were doing a great job that they ignored the ample evidence that they were on the wrong track.

The confidence of the CEO was usually supported by great team spirit.  The whole management team saw things the same way, or when they had doubts managers were too team-spirited to sow discord but voicing their concerns.

It’s not that the CEOs involved were not smart. They were among the smartest managers in the world.  In the case of Long Term Capital Management two of the principals were Nobel Prize winners.  The problem is that they were not smart enough.

How can it be that the smartest people in the world are still not smart enough?   It’s because the world is an exceedingly complex and subtle place.  What worked one place will not work someplace else.  What worked last year may not work this year.  Measures that once provided helpful guidance can prove dangerously misleading. It is dangerously arrogant when a CEO thinks they’ve got it all figured out.

Dr. Karl Weick of the University of Michigan studies high reliability organizations like nuclear power plants and aircraft carriers.  They have to be very reliable because the risk and consequence of an accident is so high.  What is interesting about high reliability organizations is that they operate in a mode of perpetual nervousness.  Any hint of something odd sends them pondering and investigating—it’s the polar opposite of the sense of “knowing it all” that Finkelstein found in corporate failures.  They achieve high reliability by constantly questioning themselves and being constantly alert for the slightest sign that something may be going wrong.

So what do CEOs need to do to avoid the massive disasters that have humbled otherwise good firms?  First they need to accept that no one person ever has all the answers.  They need to continually seek input from outside advisors.  These advisors should represent a diverse set of viewpoints.  A twenty-year old skateboarder may know things that the management team would never see. Dr. Saj-Nicole Joni, a consultant who studies advisory networks, has one particularly memorable piece of advice—staff these networks with the same seriousness you would staff positions in your firm.

A strong advisory network is one step.  It will help make CEOs smarter.  However, even a group of smart individuals is not so smart that they tower over the complexities of the world.  CEOs ought to live each day with a certain nervousness.  They must be suspicious of winning formulas, sure things, and track records of success.

Henry Mintzberg has commented that management programs should leave participants with a sense of humility.  The work of Finkelstein and Weick support his emphasis on that old-fashioned virtue.  Sadly, everyone loves the confident CEO who has it all figured out.  Financial analysts worship a track record of success and the media celebrates the “brilliant” leaders who have devised an infallible strategy.  We all want to believe that there is a winning formula which once found will deliver us from the uncertainties of business life.  The truly smart CEOs are the one who resist these forces, who say, “I smart. Smart enough to know I’m not smart enough.”

 

 

About the Secrets series

The posts below are from my Secrets of Human Capital series which I’ve been running for about a decade. I’ve gone back to the series and if the posts still seem relevant I’ll post them again.

And if you are an HR leader; well I can help with a number of emerging issues around leadership development in knowledge-based firms, reporting human capital to boards & investors, and ways to make decision making better and less political.  I’m always happy to bounce around ideas.

Values not practices

One of the continuing themes in management is the search for best practices.  Decades ago Tom Peters popularizing the notion of best practices in The Search for Excellence.  Since then consultants, businesses, and academics have poured considerable energy into defining and implementing “best practices”.

This is all good, but what if there are no best practices?

Tom Peters has turned from best practice advocate to sceptic.  He now believes that the world is too turbulent for best practices to exist.  The world also appears a little too turbulent for Peters to write coherent books so summarizing his ideas is difficult.  It is fair to say he believes in energetically and innovatively tackling issues as they confront you, rather than looking for what worked once upon a time, someplace else.

A more mainstream view is simply that business situations vary so much that what is a best practice in one company will not be a best practice elsewhere.  The implication is companies need to find what works for them rather than look for generic best practices—much the same as Peters’ conclusion.

A more profound view is that best practices are not so important because practices of any kind are not so important.  Bob Gandossy, author of Leading the Way tells how a manager eagerly toured a really great company to look for lessons, but left unimpressed.  She looked at their practices and muttered, “We do all those things.” They do the same practices yes, but there was something subtle that differentiated this great company from average ones.

Gandossy, says the subtle difference is beliefs and values.   The CEOs in all companies communicate, but the CEOs in great companies honestly believe communication is extremely important.  CEOs in all companies will make an appearance at leadership development programs, but the CEOs of great companies spend much more time at—and put more energy into—the programs.  Managers who really believe in something may follow the same practices as others, but how they do things is remarkably different.

Stanford professor Jeffrey Pfeffer reaches a similar conclusion.  He has written several books (most notably The Human Equation) on best practices in managing people.  Yet, when he was asked, “If we do all these things, but don’t’ really believe it, will it still work?”  Pfeffer had to admit the answer was probably no.   The great companies really, truly value people.  The subtlety of their practice reflects these underlying values.

The question between what matters, values or practices, parallels the debate about what matters, execution or strategy.  Strategy, like practices, are the big ideas about what you intend to do.  Execution, like values, is reflected in the moment to moment working life of managers.  A manager who really cares about who is hired will always do a better job of hiring than a manager who doesn’t value it so much—almost irrespective of which manager follows ‘best practice’ selection processes.

So, if there are no best practices then how do we decide what to do?  Secondly, if values and beliefs really make for great companies how do we get our managers to adopt the right values?

The issue of how to choose the right practices has a straightforward answer.  It’s a great idea to go around and see what other companies are doing and base your practices on what you learn.  The essential point is that you are going out to learn a lot about selection methods or supply chain management or board governance so that you can build better methods.  This is entirely different from going out and looking for a best practice to copy.

The second issue is tougher because you can’ t do a lot to change underlying values. The implication is that you’d better look hard at the values and beliefs of those you promote to senior positions—rather than just experience and competencies—because it is these underlying factors that create greatness.

While the notion of best practices is unlikely to disappear the arguments against relying on them are compelling.  This is lesson is particularly important for countries who look to US management as a model.  Sure there are lots of things you can learn from the US.  However, simply copying their “best practices” is not the way to go.

Oddly, Good Isn’t Good Enough

While we’d all like to be “excellent” being scored as “good” doesn’t feel bad at all.  Oddly, there is a range of evidence suggesting that scoring “good” isn’t good enough—not by a long shot.

The most famous measure of employee engagement is Gallup’s Q12, twelve questions they have found correlate with performance.  The strangest question of the lot is, “Do you have a best friend at work?”  Most people balk at this question. Surely, it would be more reasonable to ask “Do you have a good friend at work?”  However, Gallup stuck with “a best friend” instead of a mere “good friend” because having a best friend is predictive of performance and less zealous questions are not.  It is not enough for your employees to have good friends, they must have a best friend.

You see similar results from other studies.  In Practice What You Preach David Maister describes his study of professional service firms.  In describing what kinds of questions predict high performance Maister writes, “These are not statements about achieving competence.  Notice the language: Management gets the best work out of everybody.  We tolerate nothing less than high client service.  People do whatever it takes. There is a powerful and meaningful gap between competence and excellence.”

Rob Lebow, a consultant, researched what corporate values lead to success.  He identified values such as “Treat others with uncompromising truth” and “Lavish trust on your associates” [emphasis added].  Again it’s not enough to be “trust”, you must “lavish trust.”

When you are assessing your culture, being good is not enough.  You need to achieve the excellence implied in the extravagant statements used by Gallup, Maister and Lebow.

The same principle applies when you are surveying customers. Enterprise Rent-a-Car, which has shot ahead of entrenched rivals like Avis and Hertz, on the basis of customer and employee loyalty (see Loyalty Rules! by Fred Reichheld) asks its customers to rate service on a scale of 1-5.  Enterprise discards all lower scores and just counts the “top box”—the “completely satisfied” customers.  In other words, a “satisfied customer” doesn’t count, Enterprise feels if customers are not completely satisfied then something is wrong.

Gallup’s research has shown that some customer service representatives increase customer engagement on every call.  I had experience with this when I worked for the Hay Group in Canada.  I was repeatedly told by customers how good our receptionist was.  She generated compliments on close to 100 percent of her calls.

Are High Goals Unrealistic?

There is something unrealistic in hoping to have a workforce where employees have a best friend,  where managers get the best out of everyone, people lavish trust, customers are completely satisfied and 100 percent of callers pass on a compliment.

We’ve been trained to make trade-offs, to find “optimal” levels.  Surely, you could drive yourself to bankruptcy doing whatever it takes to ensure all your customers (and employees) were completely satisfied.

However, the impeccable logic that optimal levels of service must exist demonstrates a weakness of logical arguments, rather than a failing in the message of Gallup, Maister and Lebow nor the methods of Enterprise Rent-a-Car.  People, in a good business environment, act reasonably.  An Enterprise employee is not going to go to a client’s house and wash their windows just to ensure they tick the “top box.”   However, people also operate best when there is clear direction.  Shooting to be the best, to get compliments on 100 percent of calls, or to act with uncompromising truth gives a people powerful direction.

Dr. Gary Latham, who has done groundbreaking work on goal setting says, “Reaching for a dream inspires hope. Progress toward high goals sustains that hope and gives people a tremendous sense of energy to forge ahead vigorously.”  Setting high goals, even goals you can’t quite hit, usually motivates people more effectively than aiming at something your accounting department has determined is optimal.

Taking Action

The implications are two-fold, one in how you interpret data and one in what you aim for.  In interpreting data getting scores that are “good”, while no doubt better than poor scores, are not worth very much.  When we number a scale 1-5 we tend to assume it is what statisticians call a ratio scale—that means getting two “3’s” is equivalent to a “1” and a “5”.  However, there is no reason to assume this is the case.  The distance from “satisfied” to “completely satisfied” may be greater than we normally assume.  We shouldn’t interpret a bunch of “satisfied” scores as being an acceptable outcome.

Given that, at least in these examples, only scores on the extravagant statement are predictive of high performance then clearly aiming for “good” isn’t good enough.  It’s also worth noting that again the math of what it takes to get extremely good scores may not be simple.  Doubling the number of customer service reps probably won’t double you scores.  Spending twice as much on employees probably won’t double their engagement.  Indeed, most of Gallup studies are between comparable units investing comparable amounts in customers or employees.  Achieving high scores isn’t a matter of doing more, it’s a matter of doing things right.

Perhaps a final analogy comes from the world of manufacturing.  Historically American manufacturers aimed for an acceptable number of defects.  The Japanese showed that aiming for zero defects was not a crazy goal.  Perhaps, we will see this same kind of focus come to human capital management.  Perhaps someday, every employee will have a best friend at work.

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About David Creelman

David deals with fresh issues in managing human capital.  Current areas of focus include:

* In knowledge-based firms, high potential managers often crash and burn when they hit certain levels of management. How do we ‘mind the gap’?

* Integrated reporting is having an impact; that means we need to report to human capital. Are we ready? Do we really know what we’re doing?

* Can we make better decisions in a systematic way without getting suckered by big data hype?  

Schedule a call to chat about these or related issues by emailing:  dcreelman@creelmanresearch.com