Toxic Efficiency: How to Kill Your Organization by Making Efficiency Your God

Back in the 90s, I read an interesting book about fighting power by a retired US Colonel (Trevor N, Dupuy) much of which I disagreed with, where he established that the German Wehrmacht had by April 1945, quadrupled the fighting power of their infantry battalions in comparison with their capability in June 1940, this in spite of virtually halving the manpower on an infantry battalion down from 800 to approximately 400 men. What the author didn’t discuss was the futility of such developments, since the war was already lost and this kind of fighting power was irrelevant.

But the futility of focusing on transactional efficiency is often hidden in organisational cultures which prefer to work on solving problems that they can solve, that reinforce the collaboration of existing power and resourcing structures, instead of focusing on the problem whose resolution will lead to systematic change that will demolish current accumulated reserves of Relational Capital, whose new shape is unpredictable.

A few years later, I found myself facilitating the leadership of an automotive assembly plant on their strategic rationale for achieving the appropriate level of lean-ness as being the means of ensuring that they would be a natural site for the assembly of future models from their Japanese partners. I realized that there was something wrong with this as a viable strategy, but couldn’t put it into words.

Subsequently, I led an exercise in reverse-assembly of a 4WD vehicle in order to discover how to simplify the current assembly process. This was useful in that it led to the simplification of the assembly process by focusing on pre-assembly of modular components (so we could appear to reduce the man-hours involved in assembly), a significant reduction in the variety of fixing devices, and the final realisation that the 4WD vehicle needed to be redesigned and light-weighted (since it was really based on a heavy truck sub-frame and suspension system). We constructed a new prototype vehicle with significant benefits and showed it to our Japanese partner. The outcome was unexpected. I was asked to formally apologize to our Japanese CEO. As he drily put it: we do the innovation, you just assemble the product. At that point, I realized the danger of focusing on efficiency: it can mean that you lose the ability to invent new products, yourself.

In 2000, I was headhunted from Cranfield University to become Pfizer’s Chief Learning Officer, setting up a corporate university, organising governance, metrics and a system of barefoot practitioners. I realised that if I wanted to be successful in my own terms I had to connect closely with the strategy (developing a system of Strategic Learning Plans that answered the question of what do you need to be good at to deliver the strategy?, and what do you need to learn to provide the capability required?). I worked on improving the learning process for drug project teams whose lifecycle can take 8-10 years and involve considerable member rotation meaning that teams can unlearn as fast as they learnt. This lead to the invention of the Baton Passing technique with some significant improvements in time and cost-saving and reduction in attrition or failure.

Then in 2003 I suddenly woke up. I noticed that acquisitions were not delivering and it wasn’t down to the costs of integration. I realised that there was no point in optimising a strategy that would never deliver the shareholder returns required in the long run, at a time when innovation productivity in the pharmaceutical industry had been flat-lining since 1981. We needed a new strategy. So I began leading skunkworks projects to harvest lost Intellectual Property in Pfizer and build awareness of the fractured nature of the current investment strategy and its limitations. But it was too late. Naturally, leadership (like all pharmaceutical businesses) told itself to cut costs and began the dreary ritual of down-sizing and attempting to learn how to operate efficiently, but like the Wehrmacht, they missed the strategic point of inflection, in other words, that all strategies have a lifecycle, but that when you focus primarily upon efficiency without a balanced, ambidextrous approach that includes effectiveness, you are doomed.

Key Learning Point for Leaders: try to balance transactional efficiency strategies with systemic effectiveness strategies!

Rediscovering the Lost Art of Strategic Knowledge Management in Business Administration

All strategies are knowledge strategies - in the sense that your strategy is the product of a series of conscious or unconscious knowledge choices.

Sometimes it can be helpful to go back to basics. Strategic knowledge management is taught in business administration courses, like the ones profiled on this MBA degree site. However, when professionals enter the fast-paced environment of the real business world, they sometimes leave the fundamental tools and lessons of school behind them."

A few years ago, I was consulting at a senior level in a business where every year more money was being pumped into product development and yet the number of products getting to market was static. Reviewing the data within a variant on the porter Competitive Advantage matrix (price and product differentiation) was leading us into a 2nd-best trap of minor differentiation because low risk had become the name of the game. Similarly, productivity was being affected by dangerous, institutionalised assumptions that the minute survival ratio of successful products to prototypes and high attrition (failure) ratio required a necessarily large population of prototypes to work from to grow the business.

This low survival rate of successful prototypes was demonstrated to be another example of groups within the organisation exploiting and corrupting measurement systems over time (in other words if you want lots of prototypes that don’t work and will pay for them, we will provide them for you). However, the failing business model and associated strategy required a more indirect approach to open up and articulate the underlying and often tacit knowledge it was based upon which was clearly not working.


I noticed that although we had a lot of data about the situation, we never discussed the emergent strategy or tested the knowledge it was based upon. Although we talked about innovation, people seemed to think they were already doing it. Whenever I asked to see the organisation’s “innovation process”, they kept pointing at the New Product Development process (sometimes called the pipeline). The first problem was that we were committed to a default strategy that we never discussed and it was killing us; and the second problem was that people thought that the NPD or product pipeline WAS the innovation process, and thus it was impossible to question the business model or the potential for creating new value services around the old core products.

No-one was willing to directly question the business model that involved spending so much to deliver less. I decided to take another approach, and lead a disguised strategic conversation exercise through metaphor, based upon the 9-dot problem.

You know the one where you are asked to connect 9 dots in a box arrangement of 3 lines of 3 dots, using only 4 continuous straight lines. Usually what happens is that you try and try to solve this problem and it’s only when someone shows you the “arrowhead” pattern that extends the lines outside of the box that you realise that you sometimes have to step outside the box to understand the problem and see a solution. Working within the current emergent strategy was a bit like trying to solve the problem by staying within the box with similar emotional frustrations - in that it didn’t matter what you did with your resources, you still couldn’t solve the problem with current thinking. Having made the connection with the strategy, the next step was to invite people to connect the 9 dots using just 3 consecutive straight lines. After initial astonishment and disbelief, people would ask whether they could break the rules and in effect began to question their own constraining assumptions. We then transferred this thinking to our emergent strategy to ask ourselves: just what were the constraining assumptions? We then applied “reality checks”. Were these constraining assumptions still true, did they still constrain us? In every session, with a bit of preparation, the same 6 constraining assumptions that made up the organisation’s success formula would appear and we would demolish or modify them in the light of new knowledge and market changes. The outcome was a populated matrix or portfolio of new strategies that defined new freedoms to innovate in the language of the organisation. The scariest moment was presenting this to the head of new product development when he said: “you know, I only ever get to think like this on my own, late at night…”

There is a big difference between being efficient and effective. All strategies are knowledge strategies. Make sure that the knowledge you use to build your strategic choices is still current. Thinking outside of the box involves being a stranger to the familiarity of your own organisation. Knowledge is like fruit, the highest value is only realised when you connect the timing of the fruit ripening to the moment of the customer’s hunger. Don’t keep selling old fruit to people who aren’t hungry. Make sure your strategy is based on fresh knowledge, and that any old knowledge that remains within your emergent strategy is still edible and not past its sell-by date.

Implications:

1. How long has the current strategy got left?
2. How good is the knowledge you are paying attention to?
3. What is the knowledge you are deliberately ignoring, and why?

Innovation is a Political Act - Discuss

Innovation is about doing new things and learning to do old things in new ways to create new value. We need to understand why organisations become “sticky” under innovation pressure and the forms that this “stickiness” takes when innovators are trying to introduce new approaches to create new value through organisations.

• A culture is a by-product of a technology stabilization process, it is composed of the problem-solving experiences and processes involved in turning an invention into an innovation. All cultures are relatively “sticky” in the sense that they resist pressures to change.

• Strong cultures continually evolve new behaviours to block change, to maintain social stability and power structures based upon existing patterns and accumulated reserves of mutual Relational Capital.

• The greater the mutual Relational Capital in the network, the “stickier” the organisation. The stickier an organisation, the more pronounced its tendency to focus on the problems it can solve, rather than the problem it needs to solve (as a means of avoiding renegotiating existing stocks of Relational Capital).

Relational Capital is the social “capital” you build through establishing positive impressions and trusting relationships with key colleagues, stakeholders and potential internal customers, through trading and being able to bank favours at crucial times in the lifecycle of the business and personal careers. It explains the tendency within major corporations and political parties to appoint that “safe pair of hands” who turns out to be a dangerous idiot (unable to recognise that the context has changed, old customers want new things and new customers have emerged) instead of appointing the innovator who wants to move the strategy in a new direction, to change the rules and create new value. That “safe pair of hands” is usually the manager who is owed the most in Relation Capital transactions, the value of which would disappear if the technology and direction of the business changed and made the existing transactions void.

This explains the tendency to optimise existing products, services and business models instead of moving into the territory of creating genuinely new value by focusing on becoming effective. If you hold a big account of Relational Capital, would you want to give it up? This also explains the 60-70% failure rate of systemic change programmes. When you change organisations, you make all current existing Relational Capital void.

We need to unpack the nature of this Relational Capital, explore and understand the forms it takes, and the conditions under which it be both open and closed, positive and negative. In other words: whether it can be positive and open (when you have an “open” approach to constructing Relational Capital that is inclusive) and whether a closed approach is always negative and defensive, a conscious option or merely a social reflex that we can influence by working with leaders and persuading them of the benefits of consciously managing their approach to Relational Capital.

I will develop these ideas and this topic at Henley KM Forum Conference on 17th February 2011 (1345-1515 in the TK Conference Room).

Green Door and Elephants

“Green Door" is a 1956 song whose lyrics describe a green door, behind which "a happy crowd" play piano, smoke and "laugh a lot", from which the singer is excluded.

We are probably aware of the social phenomenon in organisations and teams when people refuse to talk about the “Elephant-In-The-Room” or the big issue that needs to be resolved, avoidance of which helps to maintain an artificial social stability as people perform intellectual and linguistic feats of avoidance in order not to begin the dangerous process of facing current reality and questioning the legitimacy of power and existing Relational Capital whose leadership is leading down an obvious path to failure.

I want to propose a technique “ITR – In-The-Room” for innovators who are trying implement successful improvement strategies, based upon recent experiences of working with innovation practitioners to construct generic Practice Maps of what is actually required to be successful in their roles and what really works.

I recently used the Baton Passing technique to facilitate the construction of a Practice Map based on current experience from over 20 organisations and over 30 practitioners, which was revisited and drastically rewritten at a subsequent session. Whilst the structure of the knowledge was interesting and valuable, populating what turned out to be a 5-Step generic process model, each step breaking down into Lesson Themes, each supported by individual Lessons using a robust structured template, I noticed 2 phenomena which exposed emergent Elephants-In-The-Room for innovation practitioners.

1. Once the Practice Map existed, it became possible for practitioners to ask each other very specific questions: in other words, it became possible for them to identify the shape and size of the unknowns (or new Elephants) that they need to convert into personal knowledge for use in order to survive.

2. There was a giant but invisible issue that ran across and through the Practice Map: an issue that I call “ITR”.

It was only once we got to a level of “granularity” that came from being able to see a practical Practice Map, that a major conversational theme emerged (perhaps the biggest Elephant-In-The-Room for people trying to do their kind of job): their political marginality as mere instruments and not participants in delivering new value.

It became clear that their biggest problem was convincing the Board (or the body that inhabits “The Room” where the real decisions get made) that they were delivering enough value or savings to justify their continued existence. But this was difficult if you couldn’t access the meeting or “Room” where the real strategy (not just the metrics or broad goals) was discussed, because your political marginality made it difficult to acquire Relational Capital with the Board members to let you enter this “Room”.
This is similar to the experience of Quality Directors in R&D organisations, where they realise that unless they can get into the high-level strategy meetings, their lives will be dedicated to tidying up wasteful strategies that they could have influenced at birth and focused on delivering value.

At the moment, ITR has 3 key stages:
A. How to Find and Understand The Room (where is it, what’s in it: locating it, finding out who’s in it, what do they care about/ their agenda, and who could be persuaded to introduce you?)
B. How to Fit in The Room (constructing your activity to meet their agenda, using their language to demonstrate that you are a key player in delivering their goals and bonuses, getting yourself invited)
C. How to Enter The Room and Get Invited Back (identifying players who you can help, working with them 1:1 outside The Room; learning about the ongoing agenda and making contact with the agenda-holder to invite you back again).

Lessons for Innovation Practitioners (3): C. Get Close to the Strategy, Help them to Know What they Really Want, and the Linguistic Torpedo

One of the problems of being a change specialist lies in the temptation of going out and harvesting the Low-Hanging-Fruit. This appears to be a good thing at the time, but when you have harvested the LHFs, and applied local and tactical solutions: you will inevitably get faced with the tough, systemic issues that no-one wants to address because they are about the decay of the core technology that everyone has learnt to stabilise, and its replacement. And those with the most Relationship Capital to maintain and lose in acquiring a new technology and riding it, must fight for efficiency and destroy the arrival of alternative strategies with the potential to deliver new effective value in the market and a new cohort of leaders who will establish their own more recent, and more highly-valued currency of Relationship Capital.

The difficulty of working with customers is that often they don’t and cannot know what they want until they see it, or they hear themselves saying it out loud. There’s a great story about Professor Martin Elliott and his hole-in-the-heart team at Great Ormond Street Hospital for Children (Greaves, W., “Ferrari Pit Stop Saves Alexander’s Life”. Daily Telegraph, 29 August 2006). It was only after years of attempting to apply lean techniques to their procedures, and benchmarking with the aerospace industry (which was seen as sufficiently high status), and after a “particularly bad day at the office” that Martin Elliott and his colleague Dr. Allen Goldman sat slumped in front of the television, accidentally watching a motor racing grand prix, that the two of them simultaneously became aware of the similarities between the handover disciplines from surgery to intensive care and what was going on in the pit of a formula one racing team.

In effect, lean thinking (in their current frame of mind or context) could only take them so far. They needed a systemic shift that moved them from focusing on efficiency to becoming effective: in other words, they needed to change the mental rules behind the way they expected to do business if they were going to innovate.

So how do you get the CEO to want something they don’t know they need, to want something new and different which would devalue all existing stocks of shared Relationship Capital? The trick involves three items: proximity, questioning and language. In other words, to get close to the strategy, ask the right personal question about ambition and legacy, and to infect the organisation with the language of the future.

Strategic proximity can begin by offering to facilitate tactical chunks of the strategy, or to lead warm-up sessions to widen the scope of thinking about the future – without asking to be involved in the deliberations of the core team. Once they feel comfortable with you, Relationship Capital will be established and you can get closer to facilitating the strategic discussion itself.
Once you have done this, you can begin “Asking the Right Question” which involves extending your facilitation approach into discussions in confidence with the CEO or senior leader to help them craft what they want to achieve in terms of their legacy to the organisation. Hopefully this isn’t a new building or a statue!

Part of the above process, the third leg of the stool is what I call the “Linguistic Torpedo”. Until people in the organisation have the language to describe the problem or to name the solution to the problem that everyone sees, they find it difficult to act. Linguistic Torpedo is where you specify a problem and its solution in non-bullshit characteristic language, naming them and introducing them to at least 5 key meetings with people you want to influence, and saying it at least 3 times in each meeting. You may have to muddy authorship in these meetings, suggesting that you have heard people in the organisation using these terms. This requires patience, but within 6-9 months you may hear your idea coming back to you (like the boom of torpedo hitting the target and coming back to the submarine hunter, magnified by power of water to carry sound). If you do it right, people will not remember you as the source and will honestly believe that they have invented the terms.

Final Warning

Obviously the key to being a great change specialist lies in being ambidextrous: developing the ability to feed today’s ravening numbers “beast” whilst also helping leaders and potential leaders to dream new dreams, able to facilitate thinking and change around both efficiency and effectiveness.

We need to develop both capabilities, but these require consciously managing your behaviour and interactions to grow Relationship Capital, the ability to renegotiate robustly as circumstances shift, and a willingness to serve when it comes to “seeding” and influencing the strategic conversation about the future of the organisation, and the new technologies, products, services and business models required in a world where the S-curve around knowledge lifecycles is becoming increasingly compressed and in need of replacements.

Lessons for Innovation Practitioners (2): The Deal is the Deal: Always Renegotiate

In Luc Besson’s excellent first “Transporter” movie, the hero (played by Jason Statham) has 3 rules. The first two apply to your situation: 1) The deal is the deal; 2) Never open the package.

However, for the Change Specialist or Innovation Practitioner, these “rules” need a slight modification:

1) Only the latest deal is the deal. Keep the deal fresh and documented.

2) Always open the package. Make sure you know what’s in the deal and what’s changed.

The optimal moment for making yourself effective and managing the power of other peoples’ accumulated Relationship Capital and their need to devalue any that you may develop, is the moment when you are appointed and when you have the opportunity to negotiate “the deal” around those elements that must be managed in order for you to deliver your best to the organisation.

Fundamentally, this involves objectifying the ambition of the organisation out of the context that drove your appointment, by defining the key “chunks” of your programme in terms of time, resources and political backing required in order to deliver. This needs to be documented in some form of Memorandum of Understanding with the CEO, and other functional heads. In reality, we all know that customers change their minds, stuff happens, reality shifts and ambitions shrink and expand. The key thing to remember is that when the Deal you have drawn up with the Organisation can no longer be operationalised: then you must renegotiate the Deal and all the detail involved.

Failure to renegotiate when circumstances change, on the assumption that everyone after all, was in the same meeting and has a shared understanding of the new circumstances that delayed your programme or reprioritised investment, is dangerous and naive. Someone, at board level will exploit that curious collective amnesia and groupthink of top teams and degrade your growing Relationship Capital by pointing out that you have failed, the whisper will grow to become fact. So being right in retrospect, is not a defence.

Giving It Away To Win: From Power Push to Viral Pull

One of the core contradictions at the heart of change management is the idea that for a new idea to be successful, leaders must sign up to the proposed change. The problem is, how can you be committed to a form of change that you have never experienced and which will devalue your carefully-acquired Relationship Capital?

It’s important to recognise the viral element of successful change management. Sometimes, as with products, it’s a good idea to be a fast-follower who can exploit the pioneer’s market creation. One of the most dangerous things that can happen to an organisation is when a CEO takes a long flight and gets time to think without distractions, or is invited to speak at a conference and gets infected with a new idea for changing or improving a business’s performance. What happens next probably explains the 70% failure rate of first-wave systemic change methodologies, and is a further demonstration of what happens when a change-agent tries to pretend that they can be effective without building Relationship Capital:

• Someone has a “vision” for an improved business, and hires a change Practitioner “who’s done it before”. This Practitioner thinks they have a mandate for change, but it’s merely an understanding that will flex when circumstances change.
• The Practitioner builds a “Machine” to deliver the change, which turns into a new function (aping current organisational behaviour, in order to survive among the competing functions) and becomes an overhead. 
• The Machine starts constructing metrics to look good and attacks the Low-Hanging-Fruit (LHF) to justify the investment; the Machine’s purpose mutates into feeding itself, looking for good stories of its work among the functions (which alienates the functions by suggesting that it was all down to the Machine); it becomes disconnected from the business.
• The Business gets pestered by Machine consultants who keep arriving to do stuff and distracting its people. The Business functions begin to question having to pay for feeding a Machine that’s increasingly seen as disconnected from the Business, and leaders start blocking any moves away from LHF into systemic change. 
• The Machine creates its own efficiency numbers to demonstrate activity and apparent benefits. Business functions gang up on the Machine, or a crisis occurs and the Machine is closed down, or quietly dies a death. Things go very quiet.
• Then (after an interval of time, with luck) an Internal Business Visionary rooted in the real world of the Business functions starts it up again BUT at a lower level within their own function. This internal visionary has learnt from the failure of the Machine that fed itself to death, that change has to be business-focussed and initiated and should not try to ape the clothing and behaviour of the Business functions.
  

The change lessons could turn out to be:

1. Let someone else fail and then follow them, or work with someone who really wants to do it. It’s not about doing it TO the business, but for the Business to do it TO and FOR ITSELF.
2. If you build a change Machine to compete with the Business functions, they will have to destroy you at some point.
3. The Practitioner who succeeds in the long term will give away their practice and focus on maintaining a Centre of Excellence and the development of thought-leadership, learning to act as a guide, and not as a Machine builder or driver.