Friday, February 10, 2017

How to Build a Business That Lasts a Hundred Years?

Indeed, why should one even think of building a business that survives for a hundred years?

Look at the Exhibit below.
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Whereas human lifespans have increased over the last 50 years and today the average longevity in the developed world is close to 80 years, corporate longevity has been shrinking steadily. Over the same period, corporate lifespans have shrunk from over 60 years to less than 20 years, and are projected to shrink further in the next decade.

Another key marker to look at is the five-year mortality risk for corporations. From less than 10% fifty years back, today the five-year mortality risk is 33% in many sectors.
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Therefore, we can no longer cast aside the need to look at building blocks for corporations that will outlive the founders and be a legacy for future generations.

Of course, management gurus and thinkers have provided us with many frameworks, business models, and templates for sustainability.

So, what is new?

Martin Reeves of the Boston Consulting Group has an interesting model that is as refreshing as it is counter-intuitive.

The model is the human immune system. The immune system that has evolved over anthropological time periods has some distinct characteristics.
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Redundancy – the human system has multiple redundancies. If one layer fails, there is another to take over. As a simple example, nature has provided us with two lungs and two kidneys. From a clinical perspective, one each would be just fine. When you look at a highly complex system like the brain, you will find that an average person utilizes only a fraction of the cognitive capacity.

Most of you would have traveled in a Boeing 747 or an Airbus 340 – two aircraft having an impeccable safety record. Both have four engines. Technically, both can fly with two engines. Pilots undergoing training in a simulator are trained to fly the plane on one engine under certain conditions. The apparent redundancy reduces the probability of total failure to a very small figure.

In contrast, the Dreamliner or the 787 which has larger windows, two engines, and a lot less redundancy to enhance efficiency, has had to face numerous problems and to date has not been able to address them fully. In 2016, the Federal Aviation Administration ordered fixes on General Electric engines used on some Boeing 787 Dreamliners calling the measure “an urgent safety issue.” Yes, the plane can fly on one engine. The fact remains that the 787 is yet to find a place among the safest planes to fly.

Modularity – conventional wisdom treats the human body as a closed system. However, breakthroughs in stem cells and genetic engineering are bringing us ever closer to treat the human body as a modular system. Cornelis Vlasman and his team have shown through their prototype OSCAR that living organisms can be “built.” OSCAR is the size of a human hand and consists of clickable modules grown from human cells. A modular approach in stem-cell technology could see breakthroughs in the treatment of dementia and Alzheimer’s in the next few years. Cells taken from a living brain can be “grown” in a lab and re-planted to take on the role previously played by diseased cells.

Modularity in economic and organizational design ensures adaptability and evolution to meet changing demands. A modular architecture specifies the interfaces between functions or processes or components or even industry structures either as strategic intent or as an emergent outcome so that one can build a large range of component variations into the system without having to make changes in the functions or processes and without having to change the interfaces.

We can see modularity all around us – from computer components to automobile subsystems to the units that make up a modern kitchen. We insulate organizational process in a way that autonomously creates inter-dependencies. We create functional silos that inevitably lead to personal fiefdoms.

Organizations with modularity are increasingly abandoning hierarchies for “roles” and interchangeable functions. In fact, the rapid rise of Japan as an economic superpower had much do with the concept of job rotation. Even today, Japanese corporations exhibit modular characteristics more than their counterparts in the OECD countries.

Diversity – 98% of our DNA structures are the same. With the 2% that are different, each of the seven billion people on this planet is unique. As complex as the universe is, we have within each of us an equally diverse and complex set of subsystems. If we want to look for diversity in all its myriad forms, we need to look no further than the human system.

Thomson Reuters reported in September 2016 that based on an analysis of the practices of over 5,000 companies worldwide, diverse companies (not necessarily diversified companies) create more innovative products, happier customers, and better financial returns. The study found companies that consciously embraced the concept of a diverse workforce consistently outperforming their peers.

The report could not have come at a more appropriate moment for search giant Google and its parent company Alphabet. The world’s most valuable company which handles trillions of queries every year and accounts for 80% of all Internet searches could not make the cut when it came to diversity (Source: Fortune). 71% of the company’s employees are male, 57% of U.S. employees are white, and men hold the vast majority of technology and leadership position (Source: Fortune and Company Domain information). A mere 2.4% are black, 1.8% are mixed race, and less than 1% are “other.”

The company is reinventing itself in correcting this shortcoming. Proctor & Gamble, Cisco, Microsoft, and Johnson & Johnson all make it to the top 25. Time will tell whether Google and Alphabet can catch up. Many are skeptical because the initiative to improve diversity has not come from the leadership.

Prudence – the human system clearly outperforms any other system when it comes to resource optimization. The speed with which the central nervous system rushes impulses, messages, and resources (oxygen, blood, antibodies) to a part where they are needed the most is beyond imagination.

Organizations that consistently beat the odds show the same level of prudence. How has Southwest been able to ride the severe storms that have driven many large players out of business? You will see the single-minded pursuit of prudence (cost leadership), modularity (having only one type of aircraft), and embeddedness (service is deep rooted in the organization’s culture).
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There you are. If you wish your organization to be around for a hundred years or more, just think of the human system. Implement the principles of redundancy, diversity, modularity, adaptation, prudence, and embeddedness.

You can watch Martin Reeves’ TED talk here:

Thursday, January 26, 2017

An Unequal World

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Eight men own the same wealth as the 3.6 billion people who constitute the poorest half of people on this planet.

A year ago, using similar data, 9 billionaires owned the same wealth as the poorest half of the planet.

At the rate the super-rich is growing, the world may have its first trillionaire in 25 years.

What is a trillion anyway?

Well, assuming you spend a million dollars every day, you would have to be around for 2738 years to spend one trillion.

In 25 years, the incomes of the rich have risen 182 times as much as the incomes of the poorest.

If current trends continue, we would have to wait 170 years for women to earn the same as men.

Meanwhile, 1 in 10 people on this planet still lives on less than $2 a day.

A woman working 12 hours a day six days a week in a South Asian country earns less than $1 per hour. The CEO of the company that sells the finished product earns over $200 million a year.

Just allow these figures to sink in for a moment.

Business magazines are fond of publishing lists. They gloat over the youngest billionaires, and come out with meaningless data – 30 under 30 and so on.

The notion that the richest are self-made is one of the biggest myths of our time. Over half of today’s billionaires inherited their wealth. The other half have accumulated wealth through businesses and industries where corruption, nepotism, tax evasion, and inversion are rampant. As noted in a recent article (, "fake it till you make it" is the new mantra in Silicon Valley - supposed to be the epicenter of unicorns.
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As a contrast, consider MONDRAGON, a leading Spanish business group with over 74,000 employees, 12 billion Euros in revenue, 261 businesses, 15 technology centers, offices in 41 countries, sales in 150 countries and assets of over 25 billion Euros.

Employees completely own the group.

The ratio of the highest paid employee’s income to that of the lowest paid is a healthy 9 to 1.

The ratio of CEO salary to the median income in the U.S. is 431 to 1.

Of course, you can interpret the data with “alternative facts” and show the ratio to be an egalitarian 4 to 1.

Or face reality, as ugly as one can imagine.

Corporations can do practically anything and get away with it.

Please remember no one had to go to jail for the financial meltdown of 2007.

The law is supposed to be the same for everyone. Has anyone been punished for the financial meltdown of 2007? Or the emission scandal at Volkswagen? Or the spurious claims at Mitsubishi? Or the oil spill in the Gulf of Mexico (BP)? Or the blatant wrongdoings at Wells Fargo? Or the data breaches and alleged cover-ups at Yahoo?

On the contrary, Yahoo’s CEO is likely to walk away with over $140 million if the merger with Verizon is complete. The reason? Yahoo’s clawback provisions are too weak to be enforced. Wells Fargo allowed the top executive allegedly responsible for the mess to walk away with $125 million.

10,000 miles away, in India, the largest democracy in the world, despite the innumerable scandals that have rocked the country, no politician or top bureaucrat has been punished in 70 years of independence.

India’s millionaires – the top 1% - have 45% of the country’s wealth.

One person accounted for 11% of the income tax collected in the country last year.

India’s population is 1.3 billion.

Ideally, the percentage of wealth in the hands of millionaires should be less than 30%. If the rich have more than 40% of the wealth, there is no space for a significant middle class. Japan, ranked as the most “equal” country in the world has just 22% of the wealth controlled by millionaires. Doing quite well are New Zealand (26%) and Norway (27%).

Look at the issue from another perspective.

Today, the world’s population is 7.4 billion. 60% of the population is on one continent – Asia. In fact, two countries – China and India – account for 37% of the world’s population. The second largest continent by area – Africa – has a population of 1.2 billion or about 15%. The demographics are changing.

Projections vary. If we assume that the growth in population will follow a middle path, the world population by 2100 is estimated to be 10 billion. Of course, none of us may be around. Here is the frightening statistic. Almost half of the 2100 population will be on one continent – Africa. Give some thought to the implications.

You are probably tired. And rightly so.

Think for a moment. How long can this farce continue? When will the bubble burst? It has already burst in some countries. It is likely to burst in the next year or two in much more. The consequences will not be pleasant for anyone.

What, if any, is the solution?

For a start, we need governments that work for all, not just the 1%. We have documented evidence of the 1% influencing the outcome of elections in several countries. We also have evidence of the 1% getting tax breaks in other countries. In the guise of democracy, we end up having are governments of a few, by a few, and for a few.

It is high time that governments started cooperating with each other on critical issues. The race to be the least taxed nation or to be a tax haven or to have secrecy laws must stop. The race may apparently show some winners, but the ultimate loser will be humanity itself.

Governments should also seek to reward entities that work for society’s and employees’ well-being rather than the well-being of shareholders alone.

As I have pointed out earlier in my posts, the real keys to development are education and health. The countries that come out one top (Unfortunately, the U.S. does not) on happiness indicators year after year are also the ones that have near 100% literacy and robust healthcare for all.

Amidst all the gloom, a tiny sliver of light appeared in December 2016.

The 2016 Global Forum assembled in Rome. The leaders of some of the largest corporations committed to making a difference to the societies they serve.

His Holiness Pope Francis asked the leaders to remember the human faces they were impacting rather than just revenues and profits.

Asking leaders who are constantly challenged to produce results to focus on the human side of their transactions is indeed counter-intuitive.

Providing a level playing field, equal opportunities, and a genuine concern for those left behind in our quest for success and development is an imperative.

The alternative is a world that nobody wants to imagine.

Data sources:





Tuesday, January 17, 2017

The Paradox of Choice

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One of the key elements of democracies is competition. One of the key outcomes of competition is choice. Choice is supposed to afford the freedom that is at the heart of rational decision making. Or that is what Economics 101 would tell you.
Now consider this. The average grocery store offers some 300 varieties of salad dressings. Are you sure that the one you had today, or yesterday, or last week, was indeed the best? How do you know? Have you tried all the 300?
Or assume you want to build a stereo system that will provide you with endless hours of bliss. A well-stocked electronic components store can, in theory, allow you to build seven million varieties of stereo systems. How would you determine that the components that you choose would indeed provide the best possible sound?
Choice is a fascinating subject to explore. In his book, The Paradox of Choice, Barry Schwartz argued that more choices lead to more stress and thus are less helpful in making decisions. His work builds on the pioneering research of Columbia Business School Professor Sheena Iyengar, who has consistently questioned the notion that more choices make better decisions and suggests that on many occasions, fewer choices make better decisions. As you would expect, mainstream economists term this “hogwash.” People who welcome new ways of thinking based on well-established research principles acknowledge that choice has limits. The essence of the paradox of choice is that more options lead to fewer actions. Fewer options lead to more actions.
A profound but painful finding of Professor Iyengar’s research relates to choices that parents must make when faced with the challenge of when and if to remove a prematurely born baby from life support. Just imagine the trauma involved with the decision. Without life support, the baby will die in a matter of hours. With life support, the baby will survive but in a vegetative state. In some countries, such as France, the decision is made by the doctor. In the U.S., the decision must be made by the parents. Research suggests that the negative emotions, frustration, and a sense of guilt persist in American parents even a year after the event. In France, parents appear to come to terms with reality sooner and get on with life. Therefore, the inevitable question that arises is whether the availability of “choice” makes American parents better off or worse off in such a daunting situation.
Research also suggests that the very notion of choice is context-specific. On a lighter note, a Japanese waiter refuses to provide sugar with green tea because, in Japan, you do not drink green tea with sugar. When the matter escalates to the manager, the latter politely says that they do not have sugar. Change the order to coffee, magic happens. You get the coffee along with two packets of sugar!.
Similarly, for the citizens of the East European countries transitioning from socialism to a free-market economy, seven different beverages offered do not represent choice. For them, all the seven are “soda.” Offer them the beverages, along with a variety of fruit juices, and water, and then they perceive the offering as three choices – soda, fruit juice, and water. When experts cannot distinguish between beverages that are close substitutes in a blind test, why do companies keep offering more and more choices?
The plethora of choices available in health insurance can confound even the most rational person. How are ordinary people supposed to make decisions from a complex set of choices with so much fine print that one can make neither head nor tail out of any of them?

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An unintended consequence of a proliferation of choice is visible in match-making sites. One particular site boasts of over a million profiles. It is quite hilarious. Every male seeks a beautiful, tall, slim, well-educated, preferably employed female from a “respectable” family. Every female has similar requirements with some words getting substituted – for example, the prospective young man better is employed in an MNC, and located in the western hemisphere. Nobody is really good enough, and one is always worried that one might be missing out on something. In fact, social media has a new term for this” “FOMO” – Fear of Missing Out.
Or consider democracy as a process. The Indian state of Uttar Pradesh has elections for the state legislature scheduled in February 2017. Please remember that if the state were to be an independent entity, it would be the 7th largest country in the world. Many constituencies have as many as 45 candidates in the fray. Does this choice lead to better decision-making on the part of voters? (More than half the electorate are illiterate; I do not link intelligence and literacy; However, one would be stretching the limits of logic by insisting that people having no knowledge of the candidates or their antecedents and vote based on a visual symbol will make the wisest choice).
When one looks at all the evidence for and against choice, one is still none the wiser for it. As one scholar writes, “offering lots of extra choices seems to make no important difference either way.” The argument of many economists is this: “If the too-much-choice effect were true, producers and marketers would be simplifying the decision process for consumers by limiting the number of choices. A visit to any store reveals a proliferation of choices, not a reduction. Therefore the effect can’t be true.”
We can find examples in the real world where reducing choice has led to increased sales in a variety of industries. The interesting point to note is that practically in every case, the reduction of choice was made as a cost cutting measure, not a vehicle for generating more sales.
Professor Iyengar’s work suggests that when employees have many alternatives to retirement plans, fewer employees participate. When only a few options are available, more employees take advantage. A similar phenomenon is visible in health care. By passing up on the opportunity, employees lose the matching employer’s contribution. How does one explain this paradox?
For economists, the concept of choice overload is logically impossible. For ordinary people, choice overload is a reality. You have over 200 TV channels. That is an abundance of choice. Are you sure you are watching the most relevant or the most interesting or the most inspiring program?

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Choice has its uses but only up to a point. Beyond that, more choice may lead to a decision paralysis. A real challenge for all of us is to find that middle ground – the so-called “sweet spot.” The middle ground is one in which we can make better and wiser decisions. Psychology has many phenomena where one can indeed have too much of a good thing. That is true of choice as well.
How to find that sweet spot? Your guess is as good as mine.

Friday, January 6, 2017

The End of a Flat World?

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Thomas Friedman wrote his best-selling book on a flat world in 2005. The caption below the title said "A Brief History of the Twenty-first Century." The book was a tour-de-force of the convergence of technology and communications, and the disappearance of physical borders. Given the instant fame and publicity that the book received, no one asked how one could write history looking forward.

Just over a decade later, as we enter another year, the theory has come full circle. Today, more than ever before, we can say with certainty that the world is not flat, not just in the physical sense, but even as a metaphor.

Of course, there were skeptics then as there are proponents today. Imagining that we live in a world where the factors of production have free mobility gives us a rare degree of comfort. Imagining otherwise can be worrying.

Assume for a moment that the proposal to slash corporate taxes in the USA to 15% becomes a reality. That would make the USA the least taxed nation in the world by a long shot. Who would want to invest in other countries or resort to inversion as a strategy? And what if other countries, as a natural defense mechanism, also slash taxes?

Or consider for a moment the avowed path to a growth trajectory of 3.5 - 4.0%. Indeed, throughout the period of the 1950s to the turn of the century, this was the average growth rate of the OECD countries. The growth had two components - moderate tax rates that contributed between 1.5% and 2.0% to growth, and a growing work force that contributed in equal measure. Today, the first component is possible with a drastic reduction in tax rates. Sadly, the second component is missing. We have reached the limits of what can be achieved through people. The changing demographics and the fact that the numbers available for employment just don't add up means that it is not possible to increase growth by more than 0.3% through the work force. So how does one reach the magical figure of 3.5 or 4.0%? Who cares for such details?

Outsourcing and offshoring are on their way out. This was a flawed business model in the first place. It managed to create, by a strange mix of circumstances and chance, a few billionaires and many millionaires. It also very effectively amplified the inequities in social structures and the relentless pursuit of wealth as the only indicator of success. When 1% of the world's population owns over 50% of assets, do you still feel comfortable?

The slowdown in the tech sector is visible. The growth of unicorns has clearly plateaued off. Major companies have been "re-valued" down. New rounds of funding can be had only with stringent conditions and many companies are simply pulling their shutters down. Don't take my word for it. Read the letter that the CEO of a major software company wrote to all employees on New Year's Day.

One of the fundamental premises on which modern societies have been built is the notion that democracy represents the best opportunity for the full potential of a society to be reached. Yet, you will be surprised by the results of a massive survey conducted in 50 democracies. With the exception of Switzerland and the Scandinavian countries, the young people in the other democracies seem to suggest that powerful, authoritarian leaders are the answer to many of our problems. Not surprisingly, the older people still seem to consider democracy to be the best option.

The rise of nationalism and protectionism is there for everyone to see. However, the fault lines are not where you would expect them. In fact, contrary to popular perception, the region that appears well prepared is Europe. Quietly, almost unobserved, Europe has brought its debt level as a percentage of GDP from 170% to 120% in less than a decade. Therefore, if there is one region that one can bet upon, it is Europe!

Changing demographics, the slowdown in population growth and the consequent pressures on the work force, a significant reduction in migration, a noticeable fall in both foreign direct investment and foreign institutional investment all point to a gradual swing to mercantilism, protectionism, success as a zero-sum game, and the rise of leaders who are perceived to be decisive and powerful, and you have all the ingredients necessary for de-globalization.

Add to this formidable cocktail a sting in the tail. Economists rarely agree on anything. There is general consensus though that too much debt can be problematic for any country. As a rule of thumb, a dollar of debt is supposed to lead to a dollar increase in GDP. This has held for most countries. At its peak of sustained double-digit growth, it held even for China. As the inevitable consequences of a centrally controlled economy started taking its toll, in the first decade of this century, China raised two dollars of debt to achieve a one dollar growth in GDP. Today, China's debt for each dollar of GDP is over four dollars. With an economy that is less than half that of the US, China has more debt than the US. The question is not if, but only when this bubble is going to burst.

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The resultant tremors across the world will render the recession of 2007-08 look like a walk in the park.

Still think it is a flat world? Alternative constructs are most welcome.

Thursday, December 22, 2016

The Overview Effect

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The Overview Effect is a cognitive shift in awareness reported by some astronauts and cosmonauts during their spaceflight.

As Edgar Mitchell of Apollo 14 has said: "You develop an instant global consciousness, a people orientation, an intense dissatisfaction with the state of the world, and a compulsion to do something about it. From out there on the moon, international politics look so petty."

Viewed from the moon, or even from space, about 300 miles above the earth's surface, our planet takes on a new perspective. Largely blue, borderless, and hanging like a fragile sphere with the infinite space in the background, with a paper-thin atmosphere that nurtures life - just think about it, in an universe comprised of millions of galaxies, billions of stars, countless planets, an unknown number of black holes, this planet of ours is the only one known so far that has life on it.

As Stephen Hawking has said so profoundly: "The solar system is not even a speck in the universe."

Astronauts have said that looking from space, one suddenly forgets all the myriad differences, the squabbles, the jostling for power and pelf, and the mindless games that people play, and one feels the need, indeed an intense desire, to unify people and to protect and preserve this beautiful blue dot.

The Overview Effect is named after the Overview Institute founded by Frank White who says: "There are no borders or boundaries on our planet except those that we create in our minds or through our behaviors."

There is enough empirical evidence to suggest that as individuals, those who want to do good far outnumber those who want to harm others. Experts have projected that the population on earth would reach 10 billion by the year 2100. Nearly half of this would be in one continent - Africa, currently perhaps the most neglected of continents. Can you imagine our planet with almost half the people being in some way disconnected from the rest?

In this season of joy, of hope, of kindness, of truth and righteousness, of compassion, of caring for the less privileged, let us pause for a moment and think how we can do good in any way we can.

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Friday, September 30, 2016

What Drives Team Success?

Ever wondered what distinguishes exceptional teams from others?

Psychological safety.

Coined by Harvard Professor Amy Edmondson, psychological safety has been found to be at the heart of great teams. She defines psychological safety as "a shared belief that the team is safe for interpersonal risk taking" and explains that psychologically safe environments exude "a sense of confidence that the team will not embarrass, reject, or punish someone for speaking up."

It is important to remember that psychological safety is not the same as trust.

"Trust is the expectation that other people's future actions will be favorable to one's interests. Psychological safety refers to a climate in which people are comfortable being (and expressing) themselves. Although both constructs involve a willingness to be vulnerable to others' actions, they are conceptually and theoretically distinct. In particular, psychological safety is centrally tied to learning behavior, while trust lowers transaction costs and reduces the need to monitor behavior."
  - Amy Edmondson: Psychological Safety, Trust, and Learning (2004)

Organizations have to focus on performance. The challenge is to keep learning even while performing at peak levels. A useful model to understand what really happens in organizations is a 2 x 2 matrix. On one axis, we have performance pressure (accountability for results). On the other axis, we have psychological safety.

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When psychological safety as well as accountability levels are low (apathy zone), employees are apathetic and constantly jockey for positions. Bureaucratic organizations where currying favor rather than sharing ideas is the norm typify this zone. When accountability is high but the necessary psychological safety is absent (anxiety zone), employees are stressed and anxious. They are wary to experiment, to offer new ideas, or to seek help. Burnout is a frequent outcome. Banks and consulting are typical examples. Environments in which psychological safety is high but without performance pressures (comfort zone) are breeding grounds for complacency. There is hardly any sense of urgency and doing the minimum is the norm. Family businesses and small firms can be found in this quadrant. The learning zone (where psychological safety and performance pressures go hand in hand) is the ideal quadrant to be in. High performance teams belong to this quadrant.
Why is this a big deal? The issue of psychological safety is central to organizational learning. Though the concept of the learning organization has been around for over two decades, one cannot find many organizations that can be said to have reached Level 5 of the learning organization model. As pointed out by Professors David Garvin, Amy Edmondson, and Francesca Gino in their HBR article “Is Yours a Learning Organization?” (HBR March 2008), the conceptual framework is too abstract to afford practical implementation.

To learn, employees cannot fear being belittled or marginalized when they disagree with peers or authority figures, ask naïve questions, own up to mistakes, or present a minority viewpoint. Instead, they must be comfortable expressing their thoughts about the work at hand."

Three building blocks are suggested for the learning organization – a supportive learning environment, concrete learning processes and practices, and leadership that reinforces learning. Critical to a learning environment are psychological safety, an appreciation of differences (opposing viewpoints are encouraged), openness to new ideas (however counter-intuitive they may sound), and a time for reflection.

In what is easily the most extensive experiment of its kind, Google’s Project Aristotle has come to very similar conclusions. Project Aristotle, started in 2012, with key findings made available late in 2015, is a landmark study of teamwork and team performance. Project Aristotle identified five critical factors for team success:
Psychological safety: How comfortable do you feel taking risks on the team without feeling insecure or embarrassed?
Dependability: Can you depend on your teammates and hold them accountable? Can you expect team members to consistently achieve excellence?
Structure and clarity: Are goals and roles clearly defined?
Meaning of work: Is everyone on the team working on something that is personally important to them?
Impact of work: Do you believe that the work you are doing matters?
The project identified that psychological safety was the most important. Without psychological safety, the other four don’t matter.
Think and answer honestly:

Have you ever refrained from sharing your ideas or thoughts at work because you were worried about how people might react?

If you answered no, you are in an incredibly wonderful workplace, or you are lying.
Even with substantive evidence from pioneering organizations, the reality is quite different. Most organizations simply do not provide the building blocks for learning. Particularly troublesome are onboarding practices that consciously or otherwise drill stereotypes or conformist views in the hope of achieving a level of standardization. Human beings are unique and need the space to be themselves rather than the caricatures of mundane job descriptions. Across 142 countries, the proportion of employees who feel engaged at work is just 13 percent. As Tony Schwartz of the Energy Project and Christine Porath of Georgetown University argue, “Work is a depleting, dispiriting experience, and in some ways, it is getting worse."

For employees to be satisfied and productive, four core needs have to be met: Physical (with opportunities to renew and recharge), Emotional (being valued and appreciated), Mental (opportunities to be creative, focused, and defining when and where to get work done), and Spiritual (doing more of what one enjoys the most and feeling connected to a higher purpose). A survey of over 12,000 employees at different levels, sectors, and industries suggests that most organizations fail on at least two of the four dimensions. When will organizations realize that the way people feel at work profoundly influences how they perform?

Daniel Cable of the London Business School, Francesca Gino of Harvard Business School, and Bradley Staats of the University of North Carolina have shown (Reinventing Employee Onboarding; MIT Sloan Management Review; Spring 2013) that traditional methods of onboarding have serious weaknesses. They question the assumption that organizational values are something to be taught to and adopted by newcomers.

“This creates a tension: When newcomers are ‘processed’ to accept an organization’s identity, they are expected to downplay their own identities, at least while they are at work. But subordinating one’s identity and unique perspectives may not be optimal in the long run for either the organization or the individual employee because suppressing one’s identity is upsetting and psychologically depleting.”

Traditional approaches to management and the default operating principle in organizations is that employees are expected to “wear a mask” so as to conform to the organization’s norms. 

A people-centered organization places its people ahead of even customers. Because, in the final analysis, people alone are true sources of differentiation and therefore of a competitive advantage – not technology, not other resources, and not capabilities. Consider a simple example: In a highly competitive industry with wafer-thin margins, Costco pays its average workers 65% more per hour than its main competitor, Sam’s Club. Further, it provides benefits even to part-time workers. Result: Costco’s employees generate twice the sales of Sam’s Club employees.
The most astonishing disconnect is that senior leaders across industries are unanimous in their assessment that when employees are valued, energized, focused, and purposeful, they are able to deliver superior performance consistently; yet, the same leaders have difficulty answering how much they have invested in meeting people’s physical, emotional, mental, and spiritual needs.

All is not lost yet. Simple steps to build psychological safety include framing work as learning problems as opposed to execution problems, an acknowledgment of fallibility by leaders (that in turn leads to a tolerance for honest failure), being accessible, encouraging team members to share their errors and failures, seeking and providing help, clarifications, feedback, and information, showing that reporting of errors or difficulty is not the same as poor performance (on the contrary, not reporting errors or difficulty might be viewed as poor performance), and devoting some time to share personal triumphs, tragedies, and challenges.

You can watch Amy Edmondson's fascinating Ted talk here:

Wednesday, September 21, 2016

The Teal Paradigm

Gallup's employee engagement survey for 2015 highlights the following:

A mere 32% of employees said they were "engaged" at work (engagement has remained flat since 2000).

A majority of employees (50.8%) were "not engaged."

Another 17.2% were "actively disengaged."

In reporting these figures the Gallup organization notes:

"Engaged employees are involved in, enthusiastic about, and committed to work. Employee engagement is strongly connected to business outcomes. Engaged employees support the innovation, growth, and revenue that their companies need. Yet, most U.S. workers continue to fall into the not engaged category. These employees are not hostile or disruptive. They show up and kill time, doing the minimum required with little extra effort to go out of their way for customers. They are less vigilant, more likely to miss work and change jobs when new opportunities arise."

Aon Hewitt defines engagement as the psychological state and behavioral outcomes that lead to better performance. The Aon Hewitt engagement model examines engagement outcomes as Say, Stay, and Strive.

Engaged employees:

Say - speak positively about the organization.

Stay - have an intense sense of belonging to the organization.

Strive - are motivated and exert effort toward success.

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Michael Porter, Jan Rivkin, Mihir Desai, and Manjari Raman of Harvard Business School, in their report on the State of U.S. Competitiveness 2016 (September 2016) provide a dismal state of the U.S. economy:

"U.S. competitiveness has been eroding since well before the Great Recession.
America's economic challenges are structural, not cyclical. It is imperative that Americans understand why U.S. performance is weaker than in recent generations and how solving our real problems will require us to make compromises. The fundamental manifestation of competitiveness is productivity. Only through productive citizens and a highly productive environment for business can a nation's firms pay high and rising wages while still being able to compete successfully in the national and global economy."

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"The systematic underinvestment in key elements of the commons, along with an inability to mount real solutions, has undermined both overall productivity and shared prosperity."

The writing on the wall is clear. U.S. competitiveness has steadily been declining for nearly two decades. Productivity is at an all-time low. Real investments in growth sectors have declined while entitlement investments have risen. Businesses are happy to invest in efficiency innovations that churn out more and more cash but are employment-negative. Both income and wealth inequalities are increasing. The existing management models are broken. It is time for a new paradigm.
(for an enlightening view of the consequences of zero interest rates, please read: Christensen, Clayton and Derek van Bever: The Capitalist's Dilemma, Harvard Business Review, June 2014)

Throughout recorded history, breakthroughs in civilization have occurred at different times. Many scholars, notably Jenny Wade and Ken Wilber, have tried to explain evolution as well-defined constructs. One of the vivid forms of understanding evolution is through colors - from infra-red to blue. Frederic Laloux has portrayed the stages in terms of organizational design and outcomes in his fascinating book, Reinventing Organizations, Nelson Parker, 2016.

"Could we invent a more powerful, more soulful, more meaningful way to work together, if only we change our belief system?" - Frederic Laloux

Evolution from Red to Teal:

The Red (impulsive) paradigm is 10,000 years old. A strong leader has absolute power over members of the group. Power structures can change when incumbents are challenged by stronger personalities. In today's context, the red organization is exemplified by street gangs, mafias, and brutally authoritarian regimes. The key breakthroughs are top-down authority and division of labor.

The Amber (conformist) paradigm is illustrated by a tall hierarchy with well-defined lines of authority and control. Job titles and job descriptions describe people. Command and control is the dominant leadership style. Those lower down in the hierarchy simply follow orders. Typical Amber organizations are many government entities, the Catholic Church, the military, and public schools. The key breakthroughs are a stable organization chart and repeatable processes.

The Orange (achievement) paradigm is defined by the pursuit of innovation and profits. Project groups, cross-functional teams, virtual collaboration, and staff functions become the norm. Orange is the dominant world-view today. The dominant metaphor is organizations as machines - with inputs and outputs, efficiency and effectiveness, information flows, performance measurement. Large organizations - from BMW to Exxon to Coca Cola - typify the Orange stage. Breakthroughs at this stage are through innovation, meritocracy, and accountability. The positive aspect of the Orange paradigm is that it has lifted hundreds of millions out of poverty. The flip side it is an absolutely materialistic model that cannot provide a sense of meaning to life.

The Green (pluralistic) paradigm tries to overcome the limitations of Orange by looking at organizations as families. Green leaders insist that people are not cogs in the organizational machine. People are supposed to look after each other, in the nature of a community. Every member's "happiness" is considered to be important for organizational success. The breakthroughs are in the form of stakeholder value, a values-driven culture, and empowerment. Examples of Green organizations include iconic companies such as Southwest Airlines, Ikea, and The Container Store. The problem with Green is the muddy disconnect between precept and practice, between espoused values and reality. Green has aspirations towards egalitarianism but falls short due to the inherent conflict between stakeholders, and the failure to get rid of hierarchies.

Since even Green has failed to achieve the notion of a welfare state or happy people who find meaning in life, it is time to think of a new model - Teal. Teal is an inward journey toward self-discovery, and simultaneously reaching the Maslowian level of Transcendence where the larger good defines our thoughts, words, and deeds. Teal requires a conscious abandoning of the ego, a sense of inner right as a compass, and a yearning for wholeness and meaning, a deep realization of our inter-connectedness. Teal organizations have no structure (and thus are similar to Holacracy) and are like cybernetic systems with complete feedback and open discussion opportunities (and thus are similar to Sociocracy). Examples of successful Teal implementations include Buurtzorg (Netherlands), RHD (US), Heiligenfeld (Germany), Morning Star (US), Favi (France), and Patagonia (US).

It is important to note that the different stages are not mutually exclusive. There can be an overlap. As an example, in a crisis situation, the Orange or even Amber paradigm might be a good option. Once the crisis is over, the system can return to its stable state.
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Are you ready for Teal?