The executive’s guide to better listening

A quick post about an interesting article in the McKinsey Quarterly: The executive’s guide to better listening:

“Listening is the front end of decision making. It’s the surest, most efficient route to informing the judgments we need to make, yet many of us have heard, at one point or other in our careers, that we could be better listeners. Indeed, many executives take listening skills for granted and focus instead on learning how to articulate and present their own views more effectively.”

The article provides three very useful suggestions:

1. Show Respect: We need to trust our colleagues, give them a chance explain their perspective, and more importantly, give them some time to work their way to a solution instead of just providing one to them. May be encourage them to experiment a bit more.

Our conversation partners often have the know-how to develop good solutions, and part of being a good listener is simply helping them to draw out critical information and put it in a new light. To harness the power of those ideas, senior executives must fight the urge to “help” more junior colleagues by providing immediate solutions. Leaders should also respect a colleague’s potential to provide insights in areas far afield from his or her job description.

2. Keep Quiet: Something very hard to do for me, but the rule is to only speak for 20% of the time and keep quite for 80%.

Many executives struggle as listeners because they never think to relax their assumptions and open themselves to the possibilities that can be drawn from conversations with others. … But many executives will have to undergo a deeper mind-set shift—toward an embrace of ambiguity and a quest to uncover “what we both need to get from this interaction so that we can come out smarter.”
… Too many good executives, even exceptional ones who are highly respectful of their colleagues, inadvertently act as if they know it all, or at least what’s most important, and subsequently remain closed to anything that undermines their beliefs.

3.Question Assumptions: It is important to question assumptions (both our own and those of our colleagues to have a meaningful conversation:

So it takes real effort for executives to become better listeners by forcing themselves to lay bare their assumptions for scrutiny and to shake up their thinking with an eye to reevaluating what they know, don’t know, and—an important point—can’t know.

Here is a useful technique to question assumptions:

Duncan uses a technique I find helpful in certain situations: he will deliberately alter a single fact or assumption to see how that changes his team’s approach to a problem. This technique can help senior executives of all stripes step back and refresh their thinking. In a planning session, for example, you might ask, “We’re assuming a 10 percent attrition rate in our customer base. What if that rate was 20 percent? How would our strategy change?

Necessity is the mother of Innovation (Continued)

A quick post about the article Can Medical Innovation in Developing Countries Disrupt the U.S. Healthcare System?:

While American and European healthcare are characterized by high costs and government regulations, the industry in Asia is booming and producing cost-effective equipment to serve millions.

Western firms have become somewhat complacent in their operating models:

Many U.S. companies have become comfortable operating in a system in which top-of-the-line technologies are reimbursed at premium prices and patients are accustomed to [receiving] “the best,” regardless of price,” the firm notes in its report, ‘Smaller, Faster, Cheaper: The Future of Medical Technology.’

The markets in developing countries are becoming large enough to support innovation:

According to The Economist, medical technology sales in China should reach US$43 billion by 2019, and over US$10 billion in India. And according to a report on global healthcare innovation by PricewaterhouseCoopers (PwC), China has shown the strongest improvement in innovative capacity in the last five years, and its healthcare industry will nearly reach parity with Europe by the end of the decade.

Once they develop low cost innovative products, new players are likely to target western markets and compete for the business.

There is actually enormous amount of innovation at the bottom of the market,” Christensen says. The challenge that lies ahead is whether companies in developing countries can scale up their products to meet global demands.

Firms in developing nations have to be innovative out of necessity. As we have discussed in the past (here and here), necessity is the mother of innovation. Western R&D managers should be thinking about new challenges they can pose for their R&D teams so that they can also become innovative.

Some interesting examples of innovation in the paper…

More Effective Financial Incentives

Over the weekend I had a long discussion with a friend about Occupy Wall Street and what is wrong with our corporations. A few themes emerged that may actually be interesting for R&D management as well. It has been shown that executive remuneration has grown much faster than average worker. It is also felt that the pay is disproportionately large.

A key problem with driving executive performance is the inability to tie pay to performance. Decisions made by executives have impact months (if not years) later. So, rewards based on current stock price do little to guide executive performance. Traditional approach has been to provide stock options that vest over a long period. However, stock options have shown to be ineffective in driving performance. This is mainly because the vesting of options does not have a direct relationship to the decisions made by the manager. Stock price in the future will depend on performance across multiple products. Furthermore, options will vest either with time, no matter what happens in the future.

So, here is a proposal: Why not tie rewards to performance based on actual performance of new products developed by a set of executives? R&D executives are responsible for deciding which products to develop and how. The primary and largest reward could be a fraction of the profits generated by these products when they actually reach the market (True Profit Sharing). Most organizations develop (and maintain) a business case for pursing any new product. Hence the executive reward can be built directly into that business case. Boards of directors can monitor performance using the same business case. This approach ties rewards to actual decisions executives make on new product development.

One concern of this approach might be that True Profit Sharing will generate bonuses over a long time frame. Executives are also responsible for managing R&D execution, operations and guiding sales. So, We need other bonuses that encourage performance for near and mid-term. To do that, we can tie a part of bonuses to operational effectiveness:

Health of R&D pipeline (various metrics can be used) generates annual rewards (bonuses)
Cost and schedule performance of each new product generates near-term rewards
Third party reviews and market reaction when the product is introduced contributes to mid-term rewards

We can construct similar approaches for marketing, sales, manufacturing etc. This model has the advantage that each decision has direct consequences to rewards. Just a thought…

Impact of Open Source on Open Innovation

McKinsey Quarterly talks about the impact of IP (particularly Open Source development) in a somewhat confusingly titled article (Managing the business risks of open innovation):

“… after all, who would give away patents to make more money from innovation? But as open-source innovation, “crowd sourcing,” and engaging with open communities become increasingly prevalent, could IP-free zones appear in the competitive landscape of other industries? “

Open Innovation is not the same thing as Open Source. As we have discussed in the past, Open Innovation implementation is quite challenging. A key risk involves sharing product development plans in details to identify and incorporate innovation into a delivered product. This is hard to do while maintaining IP ownership rights. One approach to overcome these constraints is to work in Open Source or Shared IP environment. The McKinsey article calls this Open Competition (do we really need another buzzword?). They have evaluated various industries for the potential of Open Source development by asking three questions:

1.Do specialized firms offer proprietary solutions within certain layers of my industry’s value chain?
2.Do integrated firms seek to cut development costs in my industry by drawing on open technologies to substitute for these proprietary solutions?
3.Are the underlying technologies complex—consisting of so many bits and pieces that a significant number could inadvertently infringe on proprietary IP held by specialized firms?

Their results are summarized in the following graphic:

The overall message is pretty intuitive. However, my key message for R&D managers remains that open innovation is hard to implement. In a few industries (such as software), it may be possible to ease implementation by using open source.

Can R&D management be strengthened through certification?

The International Journal of Technology, Policy and Management had an interesting article Evaluating R&D management systems: strengths and weaknesses of universities and government-funded research institutes:

This study was conducted to determine relative areas of improvement in R&D management systems for universities and research institutes in the Republic of Korea. The research was motivated partly by recent efforts of the Ministry of Science and Technology (MOST), Republic of Korea to strengthen the management system of R&D accounts in order to promote efficiency and best practices in handling R&D budgeting and account matters.

CMMI has a guide (and certification) for R&D management. I am not sure how widely this certification is adopted. I am also unsure of the value of this certification because of the breadth of processes and tools it covers. The guide covers the entire practice of requirements management (systems engineering) is in three pages. I understand CMMI’s value in a single discipline development environment such as software development. I am unsure of the value of certification for R&D management in physical systems with long development cycles and complex interdependencies.. Korean government clearly so value in the idea:

To this end, MOST introduced a binding certification system that is able to evaluate the ability and skill of government-funded national research institutes and universities under its jurisdiction to manage R&D accounts. The certification system is based on a set of criteria, broken down into 3 categories and 27 subcategories. This study analyses and compares the government-funded research institutes and major universities applying for the certification of R&D accounts, based on all the categories.

The overall conclusion is intuitive: Pure research institutes were better at management processes, while universities tended to capture information better.

This study shows that the research institutes boast comparatively better systems for self-audit, the precontrol of R&D accounts, the R&D management organisation, the perfection of R&D management manuals and the items of trial production cost and travel expenditures. On the other hand, the universities are better organised in such aspects as the computerisation of R&D management and the database maintenance of R&D accounts.

Taking organizational redesigns from plan to practice

A quick post about a McKinsey Quarterly article with lots of interesting benchmarking info (Taking organizational redesigns from plan to practice):

Organizations often redesign themselves to unlock latent value. They typically pay a great deal of attention to the form of the new design, but in our experience, much less to actually making the plan happen—even though only a successfully implemented redesign generates value.

There are many reasons why organizational redesigns are risky (or may fail to generate results). Here is a comprehensive list from the article:

This is explained by the results of the survey (not sure how anyone is able to estimate shareholder value generated by a reorg):

“Though a majority of respondents at publicly traded companies say their redesigns increased shareholder value, only a very small group of respondents—8 percent of those who have been through a redesign—say their efforts added value, were completed on time, and fully met their business objectives.

Here are some key takeaways: 1) Good reorgs take less than six months to implement; 2) they have clearly defined goals and objectives; 3) focus on how the new org would work (not just how it would look); 4) determine how the org cultures, processes, tools, roles and changed; and 5) leadership is fully engaged in change and not fighting it.

A key to success seems to be clear objectives on what the reorg is supposed accomplish (detailed goals about how the org will work, not just how it would look). Here is some data about the importance of defining detailed goals:

Respondents are much likelier to say their organizations set broad goals than detailed ones for their redesigns (Exhibit 1). Notably, this is true even of redesigns that could have had very specific numeric goals.

R&D: USA, Europe and Japan increasingly challenged by emerging countries

This UNESCO report titled Research and development: USA, Europe and Japan increasingly challenged by emerging countries from few months ago has some interesting data:

While the USA, Europe and Japan may still be leading the global research and development (R&D) effort, they are increasingly being challenged by emerging countries, especially China.

I wish the report had a concise definition of what they include in R&D. For example, according to the report, there are 1.1M researchers in China and the number in US is similar. Does that include all product development engineers? If so, the number sounds a bit low (1 in a 1,000 persons in China is an engineer?) . In any case, one of the key reasons for the rise of emerging economies is the Internet:

This transformation is being helped by the extremely rapid development of the Internet, which has become a powerful vector for disseminating knowledge. Throughout the world, the number of connections leaped noticeably from 2002 to 2007. But this advance is even more significant in emerging countries. In 2002, just over 10 out of 100 people, globally, used the Internet. There are over 23 users per 100 today. And this proportion rose from 1.2 to 8 in the same period in Africa, from 2.8 to 16 in the Arab States, and from 8.6 to 28 in Latin America.

In any case, here is a bit of benchmark data about R&D budgets:

Even if it is hard to quantify the effects of the 2008 financial crisis, the Report points out that the global recession could have an impact on R&D budgets, which are often vulnerable to cuts in times of crisis. American firms, which are among the most active in terms of R&D, slashed their budgets by 5 – 25% in 2009. As a result, the USA has been harder hit than Brazil, China and India, which has enabled these countries to catch up faster than they would have without the crisis. Finally the Report stresses the need to intensify scientific cooperation, particularly between countries in the South.

The full report is here.

Why effective R&D management is challenging

A recent article in Tech-On (Mitsubishi Unveils Ultra-high-speed Elevator for Skyscraper) highlights the challenges involved in managing R&D. First one being the number of technologies that need to come together:

To realize the world’s fastest speed of 1,080m per minute, Mitsubishi Electric used new technologies for higher safety, lifting height and comfort as well as for the motor for the winch.

Specifically, the 40+ mph elevator needed new ceramic brakes, new low weight elevator rope, a roller guide with anti-phase vibration, and a new aerodynamics shape to reduce drag. R&D managers have to ensure all required subsystems mature simultaneously for the final product to be delivered. This is an R&D management challenge because most subsystems take years to develop and most organizations have many different products in the R&D pipeline at various stages of maturity. Maintaining visibility across such disparate projects is quite difficult. However, guiding development (through resource investment) so that the technologies mature when needed requires a rare combination of technical and financial knowledge. (See Prof. Teece’s research for some interesting perspectives)

A second major challenge is the number of engineering disciplines that need to be working together to realize the final product. The ceramic brakes alone needed material scientists, thermal engineers, structural engineers and manufacturing engineers. The aerodynamic shape required computational fluid dynamics in addition to overall design among other disciplines. Coordinating all of these skillsets and disciplines, extremely challenging in itself, becomes even more difficult when we consider multiple companies and organizations involved in development.

Another key challenge results from integration required to build a product from subsystems. Most physical systems have complex interactions and interdependencies. For example, the new rollers not only impact the rails/guides, but also brakes, ropes, control systems etc. Hence any changes to the brake design will cascade into changes in all other subsystems. R&D managers need to effectively coordinate and synchronize progress across these development projects.

How leaders kill meaning at work

I have been meaning to summarize the article How leaders kill meaning at work from McKinsey Quarterly:

“In our book and a recent Harvard Business Review article,3 we argue that managers at all levels routinely—and unwittingly—undermine the meaningfulness of work for their direct subordinates through everyday words and actions. These include dismissing the importance of subordinates’ work or ideas, destroying a sense of ownership by switching people off project teams before work is finalized, shifting goals so frequently that people despair that their work will ever see the light of day, and neglecting to keep subordinates up to date on changing priorities for customers.”

But specifically, the article points out the following traps:

1. Mediocrity Signals: Executives encourage mediocre behavior through their actions, while describing greatness in missions statements. For example, some executives talk at length about innovation, but innovation projects never receive investments. In one company the top executive asked to eliminate non-strategic R&D investments. The portfolio manager ranked all the projects and developed a list lowest ranked projects. The executive overruled the entire list without any justification (they were his pet projects).

2. Strategic “Attention Deficit Disorder”: Executives do not allow adequate time to mature strategic initiatives and see their results. I have seen this many times. Most new technology or product development takes time. Executives loose interest and change priorities. This is very demoralizing for R&D teams.

3. Complex bureaucracies lacking accountability: Many times executives set up complex organization structures to satisfy (mainly) executive politics. Other times, there are overlapping roles and responsibilities. In either case, there is lack of accountability for different functions. One part of the organization not working hard impacts morale everywhere.

4. Unactionable strategies and goals: Many times executives set up big goals but most teams do not know what to do to achieve those goals. In one company the executives wrote a strategic plan which said cut costs and improve innovation (literally). They then proceeded to tell everyone to achieve those goals. No one knew what to do!

It is essential for managers to avoid these traps. One key would be to keep employee perspective in mind and provide clarity on how everyone can contribute. Other is to assess if there is a disconnect between the executive team perspective and that of employees at large.

Sony’s Next President Announces Future Plans

A quick note about Sony’s new CEO from Sony’s Next President Announces Future Plans from Tech-On:

First, Hirai pointed out that the current electronics industry is suffering from commoditization and price drops and Sony is no exception. He said that, to survive this severe competition, he will have a strong heart and a sense of responsibility to lead the company and establish a “one-management” system that allows him to quickly make judgments on various issues.”

I guess one management system could be very important in a company as vast as Sony. Otherwise, here are the new CEO’s top priorities:

As important measures that Hirai will take as a CEO, he mentioned (1) reinforcement of Sony’s core business, (2) rebuilding of its TV business, (3) reformation of its business portfolio and (4) acceleration of innovation.

Focus on the core business means become number one in digital imaging and grow in mobile phones. In TV Sony wants to move away from the difficult LCD market (See the Economist for some background) to hopefully higher margin OLED and Crystal LED TV. The thought about OLED is interesting in that Sony just quit consumer OLED TV market (See Engadget). Acceleration of innovation seems to mean focus on medical markets!

We should see how this turns out.